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PETITIONER: SUNDERLAL & SON

       Vs.

RESPONDENT: BHARAT HANDICRAFTS (P.) LTD.

DATE OF JUDGMENT: 20/09/1967

BENCH: SHAH, J.C. BENCH: SHAH, J.C. SIKRI, S.M. SHELAT, J.M.

CITATION:  1968 AIR  406            1968 SCR  (1) 608  CITATOR INFO :  F          1972 SC 391  (2)

ACT: Forward Contracts (Regulation) Act (74 of 1952), ss.  15(4), and 20(2)-Validity of contract without consent or  authority of party who was not a member of recognised association. Code  of  Civil Procedure (Act 5 of 1908), O.  XLI,  r.  27- Additional  evidence tendered in  Appellate  Court-Condition for receiving.

HEADNOTE: Under  s.  15(1) of the Forward Contracts  (Regulation)  Act 1952,  forward  contracts  for  the  sale  or  purchase   of specified goods may be entered into only between members  of a  recognised  association or with a member or  through  any member  of such association otherwise, the contract will  be invalid.   By sub-s. (4), Parliament imposed  a  prohibition upon every member of a recognised association against  entry into  a contract on his own account. with a  non-member,  in respect  of the specified goods: the prohibition  is  lifted when in the memorandum, agreement of sale or purchase, or in the bought and sold notes it is expressly disclosed that the contract is by the member on his own account and that he has secured the consent or authority of the other person who  is a  party to the contract, and. if such consent or  authority be  not  in  writing,  the member  has  obtained  a  written confirmation  by  such person of such consent  or  authority within three days from the date of the contract. A   notification  was  issued  by  the  Central   Government declaring S. 15(1) to be applicable to forward contracts  in jute  goods,  and  the appellants, who were  members  of  an Association  recognised by the Act, entered into a  contract with  the  respondents-who  were not  members  of  any  such association-for buying jute bags on their own account.   The appellants  applied  to the High Court. under s. 33  of  the Arbitration  Act.  1940, for an order declaring  that  there existed  a  valid  arbitration agreement  contained  in  the relevant bought and sold notes.  No evidence was tendered in the  High Court to show that the appellants had secured  the written  consent  or authority of the  respondents,  to  the contract,  and it was not their case that they  had  secured

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any written confirmation of an oral consent or authority  by the  respondents.  within  three days of  the  date  of  the contract.   The High Court held that the requirements of  s. 15(4)  were  not complied with. and that  the  contract  was therefore invalid. In  appeal to this Court. the appellants contended (1)  that s.  15(4)  was complied with, because, the  respondents  did confirm   the  contract  in  the  slip  provided  for   such confirmation at the foot of the sold note, that the slip was detached from the sold note but was not tendered in evidence in  the High Court as its importance was not  realised,  and that this Court should receive the document in evidence: and (2) that even if there was a breach of the prohibition in s. 15  (4) the contract was enforceable, and the  breach  would merely expose the appellants to a criminal prosecution under s. 20(2). HELD:     (1)  The additional evidence could not be  allowed to be brought on record. [613H]                             609 The document was in the possession of the appellants and  no rational  explanation  Was furnished for  not  producing  it before the High Court.  Further, the document did not  prove itself  and  did  not establish  that  the  respondents  had consented  in  writing to the terms of the  contract.   This Court as the appellate court, did not require the additional evidence  to  enable it to pronounce judgment, nor  was  any substantial  cause  made out which would  justify  an  order allowing additional evidence to be led in this Court, within the  meaning of O. XLI, r. 27 of the Civil  Procedure  Code. [613C-D, G-H] (2)  The  prohibition imposed by s. 15(4) is not imposed  in the  interest  of revenue: the clause is  conceived  in  the larger  interest of the public to protect them  against  the malpractices   indulged   in  by   members   of   recognised associations in respect of transactions in which  their  duties as agents conflict with  their  persona interest.  parliament  has  made a  writing,  evidencing  or confirming  the consent or authority of a non-member,  as  a condition of the contract, if the member has entered into  a contract  on his own account.  So long as there is  no  such writing, as is contemplated by s. 15(4) or its proviso there is no enforceable contract. [615D-F] The penal clause in s. 20(2) cannot be utilised to  restrict the  prohibition contained in s. 15(4).  What  is  penalized under s. 20(2) Is entry into a forward contract by a  member on  his  own account without disclosing  to  the  non-member contracting  party that the contract is on the member’s  own account;  and  not,  for failing to secure  the  consent  or authority of the other party to the contract. [615G-H] Shri Bajrang Jute Mills Ltd. v. Lalchand Dugar, (1963-64) 68 C.W.N. 749, overruled.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 32 of 1965. Appeal by special leave from the judgment and order dated May  13, 1963 of the Calcutta High Court in Award  Case  No. 119 of 1963. Sachin Chowdhury, M. G. Poddar and D. N. Mukherjee, for  the appellant. Sardar Bahadur, for the respondent. The Judgment of the Court was delivered by Shah,  J  Messrs Sunder Lal &  Son-hereinafter  called  ’the appellants’s--are members of the East India Jute and Hessian

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Exchange Ltd. an Association recognised under the provisions of  the  Forward  Contracts (Regulation)  Act,  1952.   The- appellants  applied  to  the High  Court  of  Judicature  at Calcutta  on  its original side under s. 33  of  the  Indian Arbitration  Act  10  of  1940 for  an  order,  inter  alia, declaring  that "there exists a valid arbitration  agreement contained  in  contract  No. 750 dated  September  16,  1960 between   the   petitioners"  and  the   respondents.    The appellants  claimed that they entered into a  contract  with the  respondents on September 16, 1960, for the purchase  of 6,00,000  bags of B Twill at the rate of Rs. 132.50  nP  per 100  bags, "on their own account" in  Transferable  Specific Delivery   Form   prescribed  under  the  byelaws   of   the Association. and on terms and conditions set out therein The respondents  denied the existence of the contract  and  also its  validity.   The High Court  dismissed  the  application holding that M/J(N)6SCI-13 610 the contract was invalid in that it did not comply with  the requirements  of s. 15 sub-s. (4) of the  Forward  Contracts (Regulation)  Act, 1952.  By special leave,  the  appellants have appealed to this Court. The  relevant recitals in the notes, which, it was  claimed, constituted  the contract between the parties may  first  be set out: "7A, Clive Row, Calcutta-1 Sunder Lal & Son. Contract No. 750 Messrs.  Bharat Handicrafts (Private) Ltd. Dear Sirs, We  have,  subject to the terms and  conditions  hereinafter referred  to, this day sold to Messers., Sunderlal & Son  by Your order, and on your account:                      Yours faithfully,                      Sunderlal & Sons.                          "Calcutta,                     16th September, 1960 Messrs.  Sunderlal & Son No. 750 Dear Sirs, We  have,  subject to the terms and  conditions  hereinafter referred   to  this  day  bought  from  Bharat   Handicrafts (Private) Ltd., by your order, and on your account:                      Yours faithfully,                       Sunderlal & Son. Validity  of the contract was challenged by the  respondents on,  two  grounds-(1) that the appellants were  not  at  the relevant  time members of the Association; and (2) that  the requirements of s. (4) of the Forward Contracts (Regulation) Act  were  not complies with and the contract  was  on  that account invalid.  The High Court decided both the grounds in favour of the respondents. The  appellants averred in their petition that they were  at all"  material  times members of the  Association.   Baburam Saraf principal officer of the.  Company-in his affidavit in reply merely states 611 that  he  did not admit that averment.   The  learned  Judge observed that he was "unable to hold that the appellants had proved  that the appellants were members of the  Association at  the  time  of the formation of  the  contract".   It  is unfortunate that the attention of the learned Judge was  not invited  to  the  admission  made  by  the  respondents   in

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paragraph  6 of the plaint filed by them in the  City  Civil Court, Calcutta, for a declaration that there was in fact no contract  between  them and the appellants bearing  No.  750 dated  September  16,  1960, in which  the  respondents  had averred that they had discovered that the appellants "at all material times were the members of the said East India  Jute & Hessian Exchange Ltd".  In view of this evidence,  counsel for the respondents did not seek to support the decision  of the High Court on the first ground, and nothing more need be said in that behalf. In  dealing  with  the second ground,  it  is  necessary  to summarise  the relevant provisions of the Forward  Contracts (Regulation) Act, 1952.  The Act was enacted to provide  for the  regulation  of  certain  matters  relating  to  forward contracts,  the  prohibition of options III  goods  and  for matters  connected  therewith.   By  Ch.   II  the   Central Government is given authority to establish and constitute  a Forward  Markets  Commission  with  certain  functions   and powers.    By  Ch.  Ill  provision  is  made  for   granting recognition  to associations, withdrawal of recognition  and other   incidental  matters.   By  s.  11  sub-s.  (1)   any recognised association may, subject to the previous approval of the Central Government, make bye-laws for the  regulation and  control  of forward contracts.  By sub-s.  (2),  it  is provided  that such bye-laws may provide inter alia for  the terms, conditions and incidents of contracts, including  the prescription of margin requirements, if any, and  conditions relating  thereto,  and the forms of contracts  in  writing. Sub-sections (1), (2) and (4) of s. 15 in force it the  date of the contract were these:               "(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               forward  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.               (2)   Any  forward contract in  goods  entered               into in pursuance of sub-section (1) which  is               in  contravention  of  any  of  the   bye-laws               specified in this behalf under clause               (a)   of  sub-section (3) of section 11  shall               be void--               (i)   as respects the rights of any member  of               the  recognised  association who  has  entered               into  such  contract in contravention  of  any               such bye-law, and also               612               (ii)  as  respects  the rights  of  any  other               person  who has knowingly participated in  the               transaction entailing such contravention.               (3)               (4)   No  member of a  recognised  association               shall,  in respect of any goods  specified  in               the notification under sub-section (1),  enter               into  any  contract on his  account  with  any               person  other than a member of the  recognised               association, unless he has secured the consent               or  authority of such person and discloses  in               the  note, memorandum or agreement of sale  or

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             purchase that he has bought or sold the goods,               as the case may be, on his own account:               Provided that where the member has secured the               consent or authority of such person  otherwise               than  in  writing he shall  secure  a  written               confirmation by such person of such consent or               authority  within three days from the date  of               such contract:               Provided further               Section 20 prescribed, penalties for breach of               the  provisions  of  the  Act.   The  relevant               section at the date of the contract insofar as               it relates to the penalty for infringement  of               s. 15(4) read as follows:               (2)   any  person who enters into any  forward               contract  in contravention of  the  provisions               contained  in  subsection (4) ’of  section  15               shall on conviction be punishable with fine." It is common ground that the Central Government has issued a notification declaring s. 15(1) of the Act as applicable  to forward  contracts in jute and jute goods.   The  appellants entered  into the contract with the respondents-who are  not members of the association-for buying jute bags on their own account.   Sub-section  (4) of s. 15 imposes  a  prohibition against  the entry into a contract on his own account  by  a member  of  the  association with any person who  is  not  a member  of that association, unless the member  has  secured the consent of such other person and discloses in the  note, memorandum  or  agreement of $ale or purchase  that  he  has bought  or  sold the goods, as the case may be, on  his  own account.  The prohibition is removed only if two  conditions exist-(i)  that the note must disclose that the purchase  or sale  is  on  the account of the member  of  the  recognised association;  and  (ii) consent or authority  of  the  other person  has been secured independently of the disclosure  in the  note.   Where  the consent or authority  of  the  other person  is  secured but not in writing, the  member  has  to secure a written confirmation ’of such consent or  authority within three days from the date of such contract. 613      The "bought" and "sold" notes which are set out earlier are  in the form prescribed in the Appendix to the  Bye-laws of  the association.  At the foot of the prescribed form  of the note there is a slip in which normally the  confirmation of the other party to the contract would be obtained,.   The confirmation  slip was it appears detached from  the  "sold" note,  but it was not produced before the High Court by  the appellants.   Counsel  for  the  appellants  says  that  the respondents did give a slip confirming the contract in the " sold"  note,  but  it  was  unfortunately  not  tendered  in evidence  in  the High Court, and he applies  for  leave  to tender  in  evidence that confirmation slip in  this  Court. The  confirmation slip sought to be produced in  this  Court purports to bear the confirmation by a person who has signed it  as ’M.L. Bahati’.  This document was admittedly  in  the possession of the appellants and could have been produced by them  in  the High Court.  No rational explanation  is  fur- nished for not producing the document before the High Court. Again  the document does not prove itself: to make  out  the case  that the respondents had consented in writing  to  the terms  of the contract, evidence that the signature "M.   L. Bahati"  was subscribed by the person bearing that name  and that he was authorised to confirm the note on behalf of  the respondents  would  be  necessary.   The  "  sold"  note  is addressed  to the appellants: it purports to be made out  in

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the name of the respondents, and is signed by the appellants as  "Member  Licensed  Broker of the Association"  "  It  is claimed  that the appellants subscribed their  signature  to the sold" note under the authority of the respondents.   The authority  of the appellants from the respondents  to  enter into the transaction does not appear from the terms of., the "sold"  note.  But it is urged on behalf of  the  appellants that the bye-laws framed by the association prescribe  that this form of the note shall be adopted even in  transactions in  which  a broker is entering into a contract on  his  own account,  and if the contract is not in the form  prescribed under the bye-laws the contract would be void.  We need  not dilate  upon  that question, for we’ are only  concerned  to point  out that there is no evidence on the record that  the appellants  had secured the written consent or authority  of the respondents to the contract.  Where the Appellate  Court requires  any  document to be produced or  witnesses  to  be examined  to  enable it to pronounce judgment,  or  for  any other  substantial cause, the Court may allow such  document to  be  produced or witnesses to be examined.   We  do  not, require  additional evidence to be produced in this case  to enable  us to pronounce judgment, nor do we think  that  any substantial  cause is made out which would justify an  order allowing  additional evidence to be led at this stage.   The document relied upon was admittedly in the possession of the appellants,  but they did not rely upon it before  the  High Court.   It was said at the Bar that the importance  of  the document  was not realized by those in charge of  the  case. We  do not think that the plea would bring the  case  within the  expression "other substantial cause" in 0. 41 r. 27  of the Code of Civil Procedure.  We therefore decline to  allow this additional evidence to be brought on the record 614 There  is accordingly no writing evidencing the  consent  or authority  A to the appellants entering into a  contract  on their  own account with the respondents in respect  of  jute goods,  and it is ’not the case of the appellants that  they had   secured  written  confirmation  of  such  consent   or authority by the respondents within three days from the date of the contract. Counsel  for the appellants, however, contends  that  sub-s. (4)  of s. 15 does not invalidate a contract merely  because there is no writing evidencing or confirming the consent  or authority of the non-member, even if the member has  entered into a contract in respect of goods purchased or sold on his own  account.  Counsel says that the prohibition imposed  by the  Parliament against the entry into such a contract  does not  make  it void: only by entering into the  contract  the appellants  are  rendered guilty of an offence under  s.  20 sub-s.  (2)  of  the Act.  In support  of  that  contention, counsel  says, that since in ss. 15(1), 15(2), 17(2) and  19 the  Parliament  has  expressly  enacted  that  in   certain eventualities  forward contracts shall be illegal  or  void, but in s. 15(4) no such consequence is indicated, a contract even in breach of the prohibition is enforceable, though  it may  expose  the  appellants  to  a  criminal   prosecution. Reliance is placed in support of that plea upon Shri Bajrang Jute Mills Ltd. v. Lalchand Dugar(1), in which the  Calcutta High  Court  observed  in dealing with  the  validity  of  a contract   entered  into  by  a  member  of   a   recognised association on his own account with a non-member in  respect of specified goods:               "...........  We think that the first  proviso               to  section  15(4) is directory in  the  sense               that the securing of the written  confirmation

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             of  the contract is no more than  a  condition               subsequent as to which the responsible members               may  be blamable or punishable if be does  not               secure  it, but his failure to do so does  not               invalidate the contract.               We  think  that  on  a  true  construction  of               section  15(4)  the failure of the  member  to               obtain  the written confirmation of  the  oral               consent or authority to enter into the forward               contract  on his own account does  not  render               the contract either illegal or void." In  our  judgment that view cannot be accepted  as  correct. The Legislature has by the Act imposed diverse  restrictions upon   the  liberty  of  contract  in  respect  of   forward transactions  in  commodities specified  in  a  notification under  s.  15(1).  By the first sub-section of S. 15  it  is provided that contracts in respect of the specified goods or classes  of goods in certain areas not between  persons  who are  members of a recognized association or through or  with any  such member shall be illegal.  The effect of  the  sub- section is that a forward contract for the sale or  purchase of specified goods may be entered into (1)  68 Cal.  W.N. 749. 615 only  between members of a recognized association or with  a member  or  through  any  member  of  such  an  association: otherwise  the  contract  will be  invalid.   The  Act  then proceeds  to enact in sub-s. (2) that a forward contract  in goods entered into in pursuance of sub-s. (1) shall still be void if it is made in contravention of the bye-laws in  that behalf under cl. (a) of sub-s. (3) of s. 11.  By sub-s.  (4) the  Parliament  has then imposed a prohibition  upon  every member    of  a recognized association against entry into  a contract on his own account with a non-member in respect  of specified  goods:  the  prohibition is lifted  when  in  the memorandum,  agreement of sale or purchase or in the  bought and  sold notes it is expressly disclosed that the  contract is by the member on his own account and that he has  secured the consent or authority of the other person who is a  party to the contract, and if such consent or authority be not  in writing,  the member has obtained a written confirmation  by such  person of such consent or authority within three  days from the date of the contract.  It is therefore contemplated that for an enforceable ’contract to arise there shall be  a writing evidencing or confirming the consent or authority of such  person.   The prohibition imposed by cl.  (4)  is  not imposed in the interest of revenue; the clause is apparently conceived  in the larger interest of the public  to  protect them against the malpractices indulged in by members of  re- cognized  associations in respect of transactions  in  which their   duties  as  agents  conflict  with  their   personal interest.   The  Parliament  has  clearly  made  a   writing evidencing or confirming the consent or authority of a  non- member  as  a condition of the contract, if the  member  has entered  into  a contract on his own account.   So  long  as there  is no writing as is contemplated by s. 15(4)  or  the proviso thereto, there is no enforceable contract: it is the consent  or  authority in writing or  confirmation  of  such consent   or  authority  which  brings  into  existence   an enforceable  contract.  Any other view. would  attribute  to the  Parliament an intention to impose a  prohibition  which would be rendered for all practical purposes futile. Under  s. 20 sub-s. (2) of the Act a penalty is  imposed  on any   person   who  enters  into  a  forward   contract   in contravention  of the provisions contained in sub-s. (4)  of

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s.  5.  The  penal  clause  is  not  clearly  expressed.   A reasonable  reading  of  that clause is that  a  person  who enters into a contract without disclosing that he  contracts on  his  own  account is liable to be  punished.   It  could obviously not have been intended by the Parliament to punish a  person for failing to secure the consent or authority  of the other party to the contract-an act which depends  solely upon  the  volition  of that  other  person.   The  apparent obscurity in the penal provision cannot however be  utilized to restrict the prohibition contained in s. 15(4).  What  is penalised under s. 20(2) is entry into a forward contract by a  member on his own account without disclosing to the  non- member  contracting  party  that  the  contract  is  on  the member’s own account.  We therefore bold that 616 the  High Court was right in holding that the  contract  did not comply with the requirements of sub-s. (4) of s. 15  and was on that account invalid. The appeal therefore fails and is dismissed with costs. V.P.S.              Appeal dismissed. 617