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PETITIONER: UNION OF INDIA & ANR.

       Vs.

RESPONDENT: M/S.  RAJDHANI GRAINS & JAGGERY EXCHANGE LTD.AND OTHERS

DATE OF JUDGMENT19/03/1975

BENCH: MATHEW, KUTTYIL KURIEN BENCH: MATHEW, KUTTYIL KURIEN RAY, A.N. (CJ) KRISHNAIYER, V.R.

CITATION:  1975 AIR 1218            1975 SCC  (1) 676  CITATOR INFO :  F          1977 SC1562  (3)

ACT: Forward  Contracts (Regulation) Act (74 of 1952) as  amended by Amending Act 62 of 1960, ss. 4(f), 6, 14A, 14B, 15 to  18 and  7A of the Forward Contracts (Regulation)  Rules,  1954- Scope of.

HEADNOTE: The object of the Forward Contracts (Regulation) Act,  1952, is to provide for the regulation of certain matters relating to  forward contracts, the prohibition of options  in  goods and  for matters connected therewith.  Section 6 of the  Act provides that the Central Government may, if it is satisfied that it would be in the interest of trade and also in public interest   to   recognition   to   an   association,   grant recognition  in such form and with such condition as may  be specified and shall specify the goods with respect to  which forward contracts may be entered into between the members of such  association  or  through  or  with  any  such  member. Section  14A(1),  inserted  by  Amending  Act  62  of  1960, provides  that no association concerned with the  regulation and control of business relating to forward contracts shall, after  the  commencement  of the 1960  Act,  carry  on  such business   except  under,  and  in  accordance   with,   the conditions of a certificate of registration granted- by  the Commission,  and  s.  14B provides that  on  receipt  of  an application tinder s. 14A, the Commission may, after  making such  enquiry as it cons(lies necessary grant or refuse  the certificate.   Sections 15 to 18 of the Act.  authorise  the Central Government to impose restrictions as to  commodities with  respect to which business in forward contracts can  be carried  on.  Rule 7A of the Forward Contracts  (Regulation) Rules,  1954,  framed  under the  Act,  pro%Tides  that  the certificate of registration granted to an association  shall be in Form F, which states that the registration is  granted subject  to  the conditions (i) that the  association  shall comply  with  such directions as may from time  to  time  be given  by the Forward Markets Commission, and (ii) that  the association  shall  not  conduct  forward  trading  in   any commodity  other than those specified hereunder except  with the previous approval of the Forward Markets Commission.

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The  respondent  was granted a certificate  of  registration under  s.  14B with the second condition that it  shall  not commence  trading  in  non-transferable  specific   delivery contracts  in  any  commodity without  obtaining  the  prior approval of the Commission.  A direction to the same  effect was  also  given by the Commission to the  respondent  in  a letter. The  respondent filed a writ petition in the High Court  for quashing  the  condition and direction, and the  High  Court quashed them on the grounds : (1) While s. 6 gives power  to the Central Government to specify goods in respect of  which forward contracts may be entered into by the members of  the recognised  association, s. 14A is silent in regard to  this matter  implying that the Commission has no such power;  (2) the  conditions  which the Commission could  attach  to  the certificate  of registration are only those which relate  to the manner and method of carrying on the business of forward contracts,  and the second condition imposed in the  instant case  did not relate to the manner or method of carrying  on the  business-, and (3) no power to impose such a  condition could be implied as that would be repugnant to the power  of Government to control, regulate or prohibit forward trade in respect of any commodities, vested in the Central Government under ss. 15 to 18.                              2 Allowing the appeal to this Court, HELD:  Rule 7A is intra vires the rule-making power  and  it was open to the Commission to impose the second condition in the certificate of registration. The condition and direction are therefore valid. [8-D] (1)  (a) The areas covered by s. 6 and s. 14A are different. The fact that an association is recognised by the Government would  not  enable it to carry on the  business  in  forward contracts.  For that purpose, a certificate under s. 14A  is a sine qua non.  The fact that Central Government has  power to  attach conditions as regards commodities in  respect  of which the business of forward contracts can be carried on is not in any way incompatible with the power of the Commission to  impose conditions as respects the commodities  in  which the business can be conducted.  The conditions in the market dealing  with  forward contracts do not remain  static,  and unless  the  Commission  is invested with  power  to  impose further conditions the object of constituting the Commission would be frustrated.  The assumption by the High Court  that when  once conditions as to commodities have been laid  down by  the Government at the time of recognition, the power  of the   Commission   to  attach  further  conditions   as   to commodities  in which transactions in forward contracts  can be  carried  on  would  be repugnant to  the  power  of  the Government, fails to take note of changing conditions in the market. [6E-H] (b)Under  s. 4(f) of the Act, the Commission has to  perform such  other duties and exercise such other powers as may  be assigned to the Commission by or under the Act, or as may be prescribed.  In interpreting the expression ’by or under the Act  or as may be prescribed,’ that is. where the  court  is concerned with the question whether it is legally  competent for the Government to vest a particular power in a statutory body like the Commission, the proper rule of  interpretation would be that unless the nature of the power is Stitch as is incompatible with the purpose for which the body is created, or  unless the particular power is contra-indicated  by  any specific  provision of the enactment bringing the body  into existence, any ’power which would further the provisions  of the  Act could be legally conferred on it.  In  the  instant

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case,  r.  7A  prescribes  the  conditions  under  which   a certificate   of  registration  can  be  issued   and   that authorises  the  incorporation of the  second  condition  in certificate. [7A-C] I. P. Gupta v. W. R. Natu, A.I.R. 1963 S.C. 274, followed. (2)  The  power of the Commission under ss. 14A and  14B  is plenary  as-, regards the nature of the conditions which  it can  attach for regulating and controlling the  business  of forward contracts of a particular Association.  A limitation  that  s. 14A only authorises  conditions  as  to manner  in  which the business in forward contracts  can  be carried  on, cannot be read into the section or  from  other provisions of the Act.  The specification of commodities  in respect  of which business can be carried on is a  condition concerned  with the regulation and control of  the  business relating to forward contracts. [7D-F] (3)(a) The restrictions or prohibitions in ss. 15 to 18  are general  and apply to all persons.  They are  not  concerned with restrictions or prohibitions as regards commodities  in respect  of  which  business in  forward  contracts  can  be carried on by a particular association or its members.   The Commission   alone   is  invested  with  power   to   impose conditions, or prohibitions with regard to such commodities. Therefore,  ss. 15 to 18 do not clash with the power of  the Commission,  and recognition of the power of the  Commission will not derogate from the general power of the  Government. Of course, the Commission, being a subordinate body,  should act in conformity with ss. 15 to Is [7G-B] (b)The commodities in which the association can carry on the business  of  forward contracts is an integral part  of  its business.  The very idea of setting up the Commission was to supervise and regulate such business, by imposing conditions subject  to  which alone the association can  carry  on  the business.    Conditions  are  nothing  but   qualifications, restrictions or limitations modifying,                              3 or even destroying, to a certain extent. the right to  carry on business.  Therefore, the specification of commodities in which  business can be carried on is  condition relating  to regulation and control of that business. [8B-C]

JUDGMENT: CIVIL,  APPELLATE JURISDICTION : Civil Appeal No. 603(N)  of 1973. From the Judgment and Order dated 4-8-1972 of the Delhi High Court in L.P.A. No. 7 of 1968. L.   N.  Sinha,  Solicitor General of India, P. P.  Rao  and Girish Chandra, for the appellants. Bishamber Lal, for respondent No. 1. The Judgment of the Court was delivered by MATHEW, J.-Respondent No. 1, a company registered under  the Companies  Act,  together  with respondents  No.  2  and  3, members  of  the company, filed a writ petition  before  the High Court of Delhi praying for quashing condition No.  (ii) specified  in  the certificate of  registration  granted  to respondent  No.  1  under S. 14B of  the  Forward  Contracts (Regulation)  Act,  1952 (hereinafter referred  to  as  ’the Act’)  to  the effect that the company  shall  not  commence trading  in nontransferrable specific delivery contracts  in any  commodity without obtaining the prior approval  of  the Forward  Markets Commission (hereinafter referred to as  the ’Commission’) in writing as also a direction contained in  a letter dated June 2, 1964 from the Commission to the company

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not   to  commence  trading  in  nontransferrable   specific delivery  contracts in any commodity without  obtaining  the prior approval of the Commission in writing. A  learned Single Judge of the High Court allowed  the  writ petition  and quashed the condition in the  certificate  and the  direction in the letter.  The appellants  preferred  an appeal against the order before a Division Bench.  That  was dismissed.   This  appeal, by certificate,  is  against  the order of the Division Bench.  To appreciate the  controversy in  this  case  it is necessary to have an idea  as  to  the object  of  the  Act gatherings from the  preamble  and  its provisions.  The preamble to the Act states that the  object of  the Act is to provide for regulation of certain  matters relating to forward contracts,-the prohibition of options in goods  and  for matters connected  therewith.   The  Central Government  is  given  power under the  Act  to  extend  its provisions  by notification to various classes of goods  and to  different  areas  as and when  necessary.   The  general scheme  of  the  Act is that  forward  contracts  should  be allowed to be entered into only in accordance with the rules and  bye-laws  of  recognized  associations.   Section  2(a) defines  an ’association’ as meaning a body of  individuals, whether incorporated or not, constituted for the purpose  of regulating  and  controlling  the business of  the  sale  or purchase of any goods.  A 4 registered association’ is defined in s. 2(jj) as meaning an association  to  which for the time being a  certificate  of registration  has  been granted by the Commission  under  s. 14B.  Section 2(c) of the Act defines ’forward contract’ and sections 2(f), 2(i), 2(m) and 2(n) respectively define "non- transferable  specific delivery contract",  "ready  delivery contract",  "specific delivery contract", and  "transferable specific  delivery  contract".   It  is  clear  from   these definitions  that specific delivery  contract,  transferable specific  delivery  contract and  non-transferable  specific delivery  contract  are  all  different  forms  of   forward contract.  Chapter 11 of the Act concerns the  establishment and  constitution  of the Commission and s. 4  occurring  in that  chapter  enumerates the functions of  the  Commission. Chapter   III  provides  for  recognition  of   associations concerned  with regulation and control of forward  contracts and  deals  with  the  rights,  duties  and  obligations  of recognized  associations as also the powers of  the  Central Government  in relation to them.  Chapter IIIA was  inserted in  the  Act  by Act 62 of 1960 as  Parliament  found  after watching  the  working  of the Act for six  years  that  the provisions of the Act as it stood were not adequate to  cove with   the   evil  of  excessive   speculation   and   other malpractice  prevalent in forward markets.  Section  14A  in that  chapter provides for the certificate  of  registration being  obtained  by  all  associations  concerned  with  the regulation and control of business relating to forward cont- racts  and  the power of the Commission to grant  or  refuse such certificate of registration.  Chapter IV which contains sections 15 to 19 of the Act deals with regulation,  control and prohibition of forward contracts in any goods, class  of goods  by  the  Central Government and  also  makes  special provisions in respect of non-transferable specific  delivery contracts  and transferable specific delivery contracts  and for  prohibition of option in goods.  Chapter V of  the  Act deals with penalties and procedure. The  controversy  in  this case centers  round  the  correct construction  to be put on s. 14A of the Act.  The  material portion of the section reads :

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             "  14A (1) No association concerned  with  the               regulation and control of business relating to               forward    contracts    shall,    after    the               commencement of the Forward Contracts (Regula-               tion)   Amendment   Act,   1960   (hereinafter               referred  to  as such commencement)  carry  on               such business except under, and in  accordance               with,  the  conditions  of  a  certificate  of               registration  granted  under this Act  by  the               Commission." Section 14B says that on receipt of an application under  s. 14A,  the  Commission may, after making such enquiry  as  it considers necessary, by order in writing grant or refuse  to grant the certificate. Section  15  says  that  the  Central  Government  may,   by notification  in the official gazette, declare that  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 s. 18, every  forward contract for the sale or purchase of any goods specified in                              5 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 16 provides that where a notification  has been  issued  under  s. 15,  then  notwithstanding  anything contained in any other law for the time being in force or in any  custom, usage or practice of the trade or the terms  of any  contract or the bye-laws of any  association  concerned relating  to  any contract-(a) every contract  for  sale  or purchase of any goods specified in the notification shall be deemed  to  be  closed  out at  such  rate  as  the  Central Government  may fix in this behalf and (b)  all  differences arising out of any contract so deemed to be closed out shall be payable on the basis of the rate fixed under clause  (a). Section  17  provides  that the Central  Government  may  by notification in the official gazette declare that no  person shall,  save with the permission of the Central  Government, enter into any forward contract for sale or purchase of  any goods or class of goods specified in the notification and to which the provisions of s. 15 have not been made applicable, except  to the extent and in the manner, if any, as  may  be specified  in the notification and all forward contracts  in contravention of the above provision entered into after  the publication  of the notification shall be illegal.   Section 18  provides that provisions in Chapter III and  Chapter  IV shall apply to non-transferable specific delivery  contracts for the sale or purchase of any goods. Section  26 centers power upon Government to make rules  for carrying  out the object of the Act.  The material rule  for our purpose is rule 7A of the Forward Contracts (Regulation) Rules,  1954, framed by the Government.  It states that  the certificate of registration granted to an association  under sub-clause  (b) of clause (3) of s. 14A of the Act shall  be in form E and the certificate of registration granted to  an association under s. 14B of the Act shall be in form F;  and in   each  case,  the  certificate  shall  incorporate   the conditions,  if  any, subject to which it is  granted.   The material portion of Form F states :               "The registration hereby granted is subject to               the  conditions (i) that the said  association               shall comply with such directions as may  from               time  to time be given by the Forward  Markets               Commission and (ii) that the said  association               shall  not  conduct  forward  trading  in  any

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             commodity other than those specified hereunder               except  with  the  previous  approval  of  the               Forward Markets Commission." Conditions   No.  (i)  and  (ii)  of  the   Certificate   of Registration  granted  to respondent No. 1 are the  same  as those specified in Form F. The High Court was of the view that the conditions which the Commission  could attach to the certificate of  registration were  those  which relate to the manner and  the  method  of carrying on the business of forward contract, that condition No.(ii)  in the certificate did not relate to the manner  or method  of  carrying on the business and that  no  power  to impose  such a condition could be implied as that  would  be repugnant to the power of government to control, regulate or prohibit forward trade in respect of any commodities  vested in the Central Government under section 15 to 18 of the Act. 6 Section 6 provides that the Central Government may, if it is satisfied that it would be in the interest of trade and also in public interest to, grant recognition to an  association, grant  recognition to the association in such form and  with such  condition as may be specified or prescribed and  shall specify  in such recognition the goods or classes  of  goods with respect to which forward contracts may be entered  into between  the members of such association or through or  with any such member. According  to  the High Court, while section 6  which  gives power to the Central Government to accord recognition to  an association provides for specifying the goods in respect  of which forward contract may be entered into by the members of the  recognized association, s. 14A is silent in  regard  to this  matter  implying thereby that the  Commission  has  no power under this section to specify the goods in respect  of which forward trading can be carried on. Recognition  of  an association under s. 6 carries  with  it certain   duties   and  confers  certain   rights   on   the association.    Section  8  states  that  every   recognized association  shall  furnish to the Central  Government  such periodical  returns as may be prescribed.  Section  9A  pro- vides  that  a recognised association may  make  rules  with respect  to  matters specified therein.  The  fact  that  an association  is recognized by the Central  Government  would not enable it to carry on the business in forward  contract. For carrying on business in forward contract, a  certificate of  registration  under s. 14A is a sine qua  non  The  area covered  by section 6 and 14A is different.  The  fact  that Central Government has power to attach conditions as regards the commodities in respect of which the business of  forward contract  can be carried on is not in any  way  incompatible with  the  power of the Commission to impose  conditions  as respects  the  commodities  in which  the  business  can  be conducted.   The  conditions  in  the  market  dealing  with forward  contract do not remain static.  They  change.   And unless  the  Commission  is invested with  power  to  impose further conditions with respect to the commodities in  which the  business  of forward contract can be  carried  on,  the object  of constituting the Commission would be  frustrated. The  assumption by the High Court that when once  conditions as  to  commodities  in respect of  which  business  can  be carried  on have been laid down at the time recognition  was granted by Government, the power of the Commission to attach further   conditions   as  to  the  commodities   in   which transactions in, forward contract cart be carried on,  would be  repugnant to the power of the Government, fails to  take note of the changing conditions in the market.  When s.  14A

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says that no association shall carry on business in  forward contracts   except  in  accordance  with,   the   conditions specified  in the Certificate, there can be no doubt  as  to the  nature  of  conditions which might be  attached,  to  a certificate of registration.  Under clause (f) of s. 4,  the Commission  has "to perform such other duties  and  exercise such other powers as may be assigned to the Commission by or under  this Act, or as may be prescribed." Dealing with  the expression "by or under this Act or may be prescribed" in S. 4(f),  this Court has said in I. P. Gupta v. W.  R.  Natu(1) that there was (1)  A.I.R, 1963 S.C. 274.                              7 no  limitation  upon the nature of the power that  might  be conferred except that which might flow from its having to be one  in  relation to the regulation of  forward  trading  in goods  which the Act is designed to effectuate.   The  Court observed that where the Court is concerned with the question whether  it is legally competent to vest a particular  power in a statutory body, the proper rule of interpretation would be  that  unless  the  nature of the power  is  such  as  is incompatible with the purpose for which the body is created, or  unless the particular power is contra-indicated  by  any specific  provision of the enactment bringing the body  into existence,  any power which would further the provisions  of the  Act  could  be legally conferred on  it.   And,  as  we already said, rule 7A prescribes the conditions under  which a  certificate  of  registration can’  be  issued  and  that authorises  the incorporation of condition No. (ii)  in  the certificate of registration. We  think that the reasoning of the High Court that  s.  14A authorises  only  the  imposition of conditions  as  to  the manner  in  which the business in forward contracts  can  be carried  on and that the section has nothing to do with  the commodities  with respect to which forward contracts can  be carried   on  is  fallacious.   We  cannot  read  any   such limitation  in  the language of s. 14A nor can we  find  any indication  in  the  other  provisions of  the  Act  to  the contrary.   In other words, the power of the  Commission  is plenary as regards the nature of the conditions which it can attach  for  regulating  and  controlling  the  business  of forward  contracts of a particular Association.  We  see  no reason  to  think that specification of the  commodities  in respect  of  which  business  can be carried  on  is  not  a condition  concerned with the regulation and control of  the business relating to forward contracts. Sections  15  ’Lo 18 authorities the Central  Government  to impose  restrictions as to the commodities with  respect  to which  business  in  forward contracts can  be  carried  on. These restrictions or prohibitions arc general in  character and  apply  to all persons without  any  exceptions.   These sections arc not concerned with restrictions or prohibitions as regards the commodities in respect of which business  ill forward   contract  can  be  carried  on  by  a   particular association  or  ;Its  members.   The  Commission  alone  is invested  with the power to impose condition or  prohibition with  regard to the commodities in respect of which  forward contracts  can be entered into by a particular  association. These  provisions  can  never clash with the  power  of  the Commission  to impose conditions as respect the  commodities in which the business of forward contract can be carried on. Recognition  of.  the  power of  the  Commission  to  impose condition  as respect the commodities in which the  business of  forward contract can be carried on will not derogate  in any  manner from the general power of government to  specify

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the commodities in relation to which the business of forward contract can be carried on generally.  The Commission, being a  subordinate body, is expected to act in  conformity  with the provisions of sections 15 to 18.  Co-existence of  these powers  in the manner indicated is warranted by the rule  of harmonious construction. 10 SC/75-2 8 It  is not a relevant consideration that the  imposition  of condition as to the commodities in respect of which business of forward contract can be carried on would have the  effect of  curtailing the area of business of an  association,  for the very idea of setting up the Commission was to  supervise and  regulate the business of forward contract  by  imposing conditions subject to which alone the association can  carry on  business.   Conditions are  nothing  but  qualification, restriction or limitation modifying or even destroying to  a certain  extent  the right to carry on  the  business.   The commodities  in  which  the association  can  carry  on  the business  of  forward contract is an integral  part  of  its business activity.  They are the subject matter or media for carrying on the business and specification of commodities in which  business  can be carried on is a  condition  sounding only  in  the  realm  of  regulation  and  control  of  that business. We  therefore  bold  that Rule 7A is intra  vires  the  rule making  power  and  that it was open to  the  Commission  to impose   condition   No.   (ii)  in   the   certificate   of registration.   It must follow that the  condition  impugned was valid and that the direction issued by the Commission to the respondent was justified. We  are glad to find that the view which we  have  expressed has  been taken by the High Court of Allahabad in  Union  of India  & Another v. Bullion and Agricultural  Exchange  Ltd. (1), after, considering the relvant decisions including  the one under this appeal. We  set  aside  the order of the High Court  and  allow  the appeal without any order as to costs. There  was  no appearance for the  respondents.   The  Court acknowledges   its  indebtedness  to  Shri  Bishamber   Lal, Advocate,  for  the  assistance rendered by  him  as  amicus curiae. Appeal allowed. V.P.S. (1) I.L.R. [1972] 2 Allahabad 562. 9