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PETITIONER: MODI & CO.

       Vs.

RESPONDENT: UNION OF INDIA

DATE OF JUDGMENT: 07/12/1967

BENCH: RAMASWAMI, V. BENCH: RAMASWAMI, V. SHAH, J.C. BHARGAVA, VISHISHTHA

CITATION:  1969 AIR    9            1968 SCR  (2) 565  CITATOR INFO :  RF         1979 SC 553  (12)

ACT: Forward  Contract (Regulation) Act 74 of 1952, ss. 2(f)  and 15(1)--Contract for sale of Twills providing for delivery on specified  date-If  a  ’non-transferable  specific  delivery contact within s. 2(f)-Principles for determining.

HEADNOTE: The appellant entered into a contract in September 1960 with the  respondent through the Director-General,  Supplies  and Disposals,  whereby  he agreed to sell 500 bales  Twills  on terms  and conditions contained in an exchange  of  letters. The  date  of delivery was fixed as November  30,  1960  and after the contract was entered into, the appellant deposited with the Reserve Bank of India an amount by way of  security deposit  in accordance with the terms of the  contract.   On November 30, the appellant informed the respondent that  the contract  was  void and illegal being in  violation  of  the provisions  of the Forward Contract (Regulation) Act  74  of 1952  and  that  the security deposit  should  therefore  be refunded.   The respondent however took I the position  that the contract was legal and binding and as the appellant  had failed to deliver the goods as stipulated, it would purchase the  goods  elsewhere  at the risk of  the  appellant.   The respondent thereafter incurred an extra expenditure of about Rs. 76,000 and after giving credit to the appellant for  the amount  of  security deposit claimed the balance  amount  of ’about  Rs.  56,000 from the appellant.  Upon  the  latter’s failure  to  pay,  the  respondent  took  recourse  to   the arbitration   clause  of  the  contract  and  appointed   an arbitrator to determine the dispute. Before  the arbitrator could give his award,  the  appellant filed  an application before the High Court under s.  33  of the  Arbitration  Act, praying for a  declaration  that  the arbitration   clause  was  illegal  and  void  and  for   an injunction  restraining the respondent from prosecuting  the arbitration  proceedings.   The  High  Court  dismissed  the application   holding   that  the  contract  was   a   "non- transferable specific delivery contract" and was not hit  by the provisions of the Act.

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On appeal to this Court, HELD  : (dismissing the appeal) The question as  to  whether the contract was a transferable or non-transferable specific delivery contact is, a question which ultimately depends  on a  reasonable  construction of the contract.   On  a  proper construction of the terms of the contract and having  regard to  the  surrounding  circumstances, there  was  an  implied agreement   between   the  parties  that  the   rights   and liabilities  under the contract were not to  be  transferred and the bill of lading relating to the contract was also not to be transferred.  It follows therefore, that the  contract in   question  was  a  non-transferable  specific   delivery contract  within the meaning of s’ 2(f) of the Act  and  was not hit by the notification issued on March 29, 1958  issued by the Central Government under s. 15 (1)  of the Act relating to jute/goods. [569 E; 571 C-E] Khardah  Company Ltd. v. Raymon & Co. (India)  Private  Ltd. [1963] 3  S.C.R. 183, referred to. 566

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 395 of 1965. Appeal  by special leave from the judgment and  order  dated September 18, 1963 of the Calcutta High Court in Matter  No. 97 of 1963. A.K. Sen and D. N. Mukherjee, for the appellant. B.R. L. Iyengar and R. N. Sachthey, for the respondent. The Judgment of the Court was delivered by Ramaswami, J. This appeal is brought, by special leave, from the judgment of the Calcutta High Court dated September  18, 1963  dismissing an application under S. 33 of the  Arbitra- tion Act. By  its letter dated September 14, 1960, the appellant  made an  offer for sale to the respondent of 500 Bales  (1,50,000 bags)  ’B’ Twills on the terms and conditions  mentioned  in the  said letter.  The offer was accepted by  the  Director- General, Supplies & Disposals on behalf of the respondent by his letter No. CAL/ DL-1/5750-L/II/Modi/158 dated  September 16, 1960.  The appellant deposited with the Reserve Bank  of India  the sum of Rs. 20,182-50 P. towards security  deposit on September 22, 1960 as required by the acceptance  letter. The  date of delivery fixed under the contract was  November 30,  1960  and the respondent sent  the  appellant  despatch instructions  dated November 21, 1960, through the  Director of   Supplies  &  Disposals.   On  November  30,  1960   the appellant,  however,  intimated to the respondent  that  the contract  was  void  and  illegal  and  requested  that  the security  deposit  should  be refunded.   The  case  of  the appellant  was  that the contract was in  violation  of  the provisions  of the Forward Contract _(Regulation) Act,  1952 (Act  74  of 1952), hereinafter called the  ’Act’.   By  his letter dated December 1, 1960 the Director of Supplies wrote on behalf of the respondent that the contract was legal  and binding and as the appellant had failed to deliver the goods as  provided in the agreement the respondent would  purchase the  goods  at the risk of the  appellant.   The  respondent incurred extra expenditure amounting to about Rs. 76,410 and after  giving  credit  to the appellant for  the  amount  of Security Deposit, a sum of Rs. 56,000 still remained due  to be  paid  by  the  appellant  to  the  respondent.   As  the appellant failed to pay, the respondent took recourse to the arbitration cl. 21 of the contract and appointed an Arbitra-

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tor  to determine the dispute between the parties  regarding the agreement.  Before the Arbitrator could give his  award, the  appellant  filed an application before the  High  Court under S. 33 of the Arbitration Act praying for a declaration that the arbitration clause was illegal and void and for  an injunction restraining                             567 the respondent from prosecuting the arbitration proceedings. By its judgment dated November 19, 1963, the High Court held that the contract was a "non-transferable specific  delivery contract  and was not hit by the provisions of the  Act  and accordingly dismissed the application of the appellant. The  question presented for determination in this appeal  is whether  the contract in question is a transferable or  non- transferable  specific delivery contract within the  meaning of the Act. Section 2(i) of the Act defines a "ready delivery  contract" as  meaning "a contract which provides for the  delivery  of goods   and  the  payment  of  a  price   therefor,   either immediately or within such period not exceeding eleven  days after  the  date  of the  contract.........  ".  A  "forward contract"  is defined under s. 2(c) as meaning  "a  contract for the delivery of goods at a future date and which is  not a   ready  delivery  contract".   Section  2(m)  defines   a "specific delivery contract" as meaning "a forward contract" which provides for the actual delivery of specific qualities or  types  of goods during a specified future  period  at  a price  fixed  thereby or to be fixed in the  manner  thereby agreed  and  in which the names of both the  buyer  and  the seller  are  mentioned".   Section  2(f)  defines  a   "non- transferable  specific  delivery  contract"  as  meaning  "a specific delivery contract, the rights or liabilities  under which or under any delivery order, railway receipt, bill  of lading,  warehouse  receipt or any other document  of  title relating  thereto  are not transferable.  Finally,  s.  2(n) defines  a  "transferable  specific  delivery  contract"  as meaning  "a specific delivery contract which is not  a  non- transferable specific delivery contract". Chapter IV of the Act contains provisions conferring  autho- rity  on Central Government to prohibit certain  classes  of forward  contracts.   Section  15(1) of the  Act  states  as follows :                "15.  (1)  The  Central  Government  may   by               notification in the Official Gazette.  declare               this  section to apply to such goods or  class                             of goods and in such areas as may be specified               in the notification, and thereupon, subject to               the provisions contained in section 18,  every               for-ward contract for the sale or purchase  of               any goods specified in the notification  which               is entered into in the area specified  therein               otherwise than between members of a recognised               association or through or with any such member               shall be illegal."                Section 17 provides :                "17. (1) The Central Government may, by noti-               fication  in  the  Official  Gazette,  declare               that   no   person  shall,   save   with   the               permission’ of the Central Govern-                568                ment, enter into any forward contract for the               sale  or  purchase of any goods  or  class  of               goods  specified  in the notification  and  to               which  the provisions of section 15  have  not

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             been made applicable, except to the extent and               in the manner, if any, as may be specified  in               the notification.                (2)All  forward contracts in  contravention               of  the provisions of sub-section (1)  entered               into  after  the date of  publication  of  the               notification thereunder shall be illegal.                (3)Where  a  notification has  been  issued               under  sub-section  (1),  the  provisions   of               section  16 shall, in the absence of  anything               to the contrary in the notification, apply  to               all forward contracts for the sale or purchase               of  any  goods specified in  the  notification               entered  into  on or before the  date  of  the               notification  and  remaining to  be  performed               after  the  said  date as they  apply  to  all               forward contracts for the sale or purchase  of               any goods specified in the notification  under               section 15." Section 18(1) states that these provisions will not apply to nontransferable specific delivery contracts for the sale  or purchase of any goods. According  to the scheme of the Act therefore  contracts  of sale  of  goods  are divided  into  two  categories,  ’ready delivery   contracts’  and  "forward  contracts".    Forward Contracts  are  classified into those which  are  "specified delivery  contracts" and those which are not.   Then  again, ’specific delivery contracts’ are divided into ’transferable specific  delivery contracts’ and ’nontransferable  specific delivery   contracts’.   Section  18(1)  exempts  from   the operation  of  the Act  non-transferable  specific  delivery contracts.  The net result of these statutory provisions  is that  all  forward  contracts except those  which  are  non- transferable  specific delivery contracts, can  be  declared illegal by a notification issued under the Act. Such  a notification was issued,in this case by the  Central Government  on  March  29, 1958 which is  to  the  following effect                "In exercise of the powers conferred by  sub-               section  (1)  of  section 15  of  the  Forward               Contracts (Regulation) Act, 1952 (74 of  1952)               the  Central Government hereby  declares  that               the  said  Section shall apply  to  Jute/goods               (Hessian  cloth made of jute or bags  made  of               such  Hessian cloth and sacking cloth made  of               jute  or bags made of such Sacking  cloth)  in               the City of Calcutta.                                    569                Explanation   :-"The  expression   ’City   of               Calcutta’ means                (1)  Calcutta  as defined in clause  (11)  of               Section 5 of the Calcutta Municipal Act, 1951,               (West  Bengal  Act No. 33 of  1951),  together               with part of the Hastings North or South  edge               of Clyde Row and Strand Road to the river bank               and the areas which were previously under  the               new defunct Tollygunge Municipality;                (2)  The Port of Calcutta; and                (3)  The  Districts  of 24  Parganas,  Nadia,               Howrah  and Hooghly". It  was argued on behalf of the appellant that the  contract in question was a forward contract within the meaning of the Act  and was prohibited by the Government  notification  and therefore  no right or liability accrued to the  parties  on the basis of the contract.  The contention of the  appellant

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was  that the contract was not a  non-transferable  specific delivery contract as defined in s. 2 (f ) of the Act and  as such  it  was illegal and void and  the  arbitration  clause contained therein was of no effect and could not be  availed of  by either of the parties.  We are unable to  accept  the argument  put forward on behalf of the appellant  as  valid. The  question as to whether the contract was a  transferable or non-transferable specific delivery contract is a question which ultimately depends on a reasonable construction of the contract.   On  behalf of the appellant it was  pointed  out that  there  was no specific clause in  the  contract  which prohibited  the  transfer of the rights and  liabilities  or which  prohibited transfer of the bill of lading.   But  the absence  of such a specific clause is nor conclusive  as  to the  intention  of  the parties.  It is  true  that  when  a contract  is  reduced to writing we must look only  to  that writing. for ascertaining the terms of the agreement between the parties but it does not follow from this that it is only what  is  set  out expressly and in so  many  words  in  the document that can constitute a term of the contract  between the parties.  If upon a reading of the document as a  whole, it  can  fairly  be deduced from ,,he  words  actually  used therein  that the parties had agreed on a  particular  term, there is nothing in law which prevents them from setting  up that  term.  The terms of the contract can be  expressed  or there can be a necessary implication of a term from what has been  expressed  in the contract.   The  question  therefore resolves  in the ultimate analysis upon the construction  of the  terms  of the contract between the  parties.   In  this connection it is well-established that in construing such  a contract   it  is  legitimate  to  take  into  account   the surrounding circumstances for- 570 ascertaining  the intention of the parties.  As was  pointed out  by this Court in Khardah Company Ltd. v. Raymon  &  Co. (India)  Private Ltd.,(1), the absence of a specific  clause prohibiting transfer is not conclusive one way or the  other on  the question whether there was an agreement between  the parties that the, contract was to be non-transferable.  What has  to be seen is whether it could be held on a  reasonable interpretation    of   the   contract,   -aided   by    such considerations  as  can legitimately be taken  into  account that the agreement between the parties was that it was  :not to  be  transferred.   In the present  case,  it  should  be noticed  that the contract cannot be sublet or  assigned  by the  seller  under condition 10 read with para 3(b)  of  the "Conditions  of  Contract contained in Form D.G.S. &  D.  68 governing   contracts   placed  by  the   Central   Purchase Organisation  ’of  the Government of India,  1959  edition". Para 3(b) states :                "(b)  Subletting of Contract.-The  Contractor               shall  not  subject, transfer  or  assign  the               contract  or  any  part  thereof  without  the               written  permission of the Purchaser.  In  the               event of the Contractor contravening this con-               dition  the  Purchaser shall  be  entitled  to               place   the   contract   elsewhere   on    the               Contractor’s  account and at his risk and  the               Contractor  shall  be liable for any  loss  or               damage  which  the Purchaser  may  sustain  in               consequence  or arising out of such  replacing               of the contract." So far as the buyer is concerned, the contract itself  shows that  the  jute bags were intended for  "packing  foodgrains which  were arriving in bulk" at an Indian port.   The  last

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paragraph  of the letter of acceptance dated  September  16, 1960 states that "the gunnies are very urgently required  at the  destination for packing imported foodgrains  which  are arriving in bulk" and "it was therefore of utmost importance that shipment of the total quantity ordered shall be made in the  vessels  nominated by the purchaser." There is  also  a specific  provision in the contract that the  "stores  shall be,  inspected  prior to shipment by  the  A.T.I.G.S.,  East India, Hastings, Calcutta, or his representative." There  is also  a  further  stipulation  that  after  the  goods   are inspected arrangements should be made to ship the stores  in accordance  with the instructions contained in the  contract and  that goods which are not accepted in inspection  should not  be shipped.  The name of the consignee is given in  the contract  as Asst.  Director (Storage), Ministry of  Food  & Agriculture,   Transit  Shed  No.  4,  Visakhapatnam   Port, Visakhapatnam  and  payment is to be made according  to  the procedure  specified  in  the  contract  and  the  cost  was debitable to the Pay & Accounts Officer, Ministry of Food  & Agriculture, Bombay or New Delhi as the case may be under (1)  [1963] 3 S.C.R. 183. 571 Head  of Account "87-Capital Outlay on the Schemes of  Govt. Trading-Schemes  for  purchases of  Foodgrains  A.I.  (3)(1) expenditure  in India Section IV Special Purchases both  for Civil  &  Defence requirements other  Purchases-Purchase  of gunnies  for  imported foodgrains".  In view  of  all  these circumstances we are of opinion that it was not contemplated by the parties that the rights under the contract should  be transferred either by the buyers or by the sellers.  It  was pointed  out  for the appellant that normally  the  Bill  of Lading  par-takes of the nature of a  negotiable  instrument and  by  endorsing it the holder of the bill of  Lading  can transfer  the  property in the goods to which  the  Bill  of Lading  relates and by parting with it-the holder parts  not only  with  the property in the goods but  also  with  their possession.   The proposition contended for by  Counsel  for the appellant is no doubt correct, but the question in  this case  is not the abstract question as to what the  purchaser could  or might have done but what was in fact  contemplated by the parties who were entering into the contract.  For the reasons already given, we hold that on a proper construction of  the  terms  of the contract and  having  regard  to  the surrounding  circumstances  there was an  implied  agreement between  the parties that the rights and  liabilities  under the  contract  were not to be transferred and  the  Bill  of Lading  relating  to  the  contract  was  also  not  to   be transferred.   It  follows therefore that  the  contract  in question  was a non-transferable specific delivery  contract within  the meaning of s. 2(f) of the Act and  the  contract was not hit by the notification dated March 29, 1958  issued by the Central Government under s. 15(1) of the Act. For  the reasons expressed we hold that the decision of  the Calcutta High Court dated September 18, 1963 is correct  and this appeal must be dismissed with costs. R.K.P.S.        Appeal dismissed. 572