04 May 1964
Supreme Court


Case number: Appeal (civil) 389-392 of 1960





RESPONDENT: RAYMON & CO. (INDIA) PRIVATE LTD.(And connected appeals)

DATE OF JUDGMENT: 04/05/1964


CITATION:  1963 AIR   90            1962 SCR  (3) 209  CITATOR INFO :  RF         1969 SC 504  (6)  R          1973 SC2479  (13)  R          1974 SC1579  (6)  D          1985 SC1156  (24,49,53)  R          1989 SC 839  (15)  F          1990 SC  85  (24)  RF         1990 SC 781  (13)

ACT: Forward   Contract--Legislative  validity   of   enactment-- Constitutional  validity--Notification  prohibiting  forward contracts  other  than  non-transferable  specific  delivery contract--Contract   for  sale  of   goods--Validity--Clause providing   for   arbitration--Parties   appearing    before arbitration--Effect--Forward  Contracts  (Regulation)   Act, 1952  (74 of 1952), ss.2(f), 17, 18--Constitution of  India, Art. 14, Sch. 7, List I, Entry 48, List II, Entries 26,  27, List III, Entry 7.

HEADNOTE: The  appellant  company  entered into a  contract  with  the respondents  on  September  7, 1955,  for  the  purchase  of certain  bales  of  jute cuttings to  be  delivered  by  the respondents  ill equal instalments every month  in  October, November,  and  December, 1955.  Under cl. 14  all  disputes arising out of or concerning the contract should be referred to  the arbitration of the Bengal Chamber of  Commerce.   As the  respondents failed to deliver the goods its agreed,  an application was made by the appellant for the arbitration as provided  in  cl. 14.  The respondents appeared  before  the arbitrators  and contested the claim, but an award was  made in favour of the appellant.  Thereupon the respondents filed an application in the High Court of Calcutta under s. 33  of the Arbitration Act challenging the validity of the award on the  ground that the contract dated September 7,  1955,  was illegal  as it was in contravention of the  notification  of the Central Government dated October 29, 1953, issued  under s.  17 of the Forward Contracts (Regulation) Act,  1952,  by which no person "shall enter into any forward contract other



than  a non-transferable specific delivery contract for  the sale  or  purchase  of  raw  jute  in  any  form.....".  The appellant   pleaded   (1)  that   the   Forward   Contracts, (Regulation) Act, 1952, was invalid and ultra vires  because (a)  Parliament had no competence to enact it, and  (b)  the provisions  of  the  Act were repugnant to  Art  14  of  the Constitution  of  India, and,  therefore,  the  notification dated  October 29, 1953, was null and void; (2) that on  the terms  of  the arbitration clause the question  whether  the contract dated 210 September  7, 1955, was illegal was one for the  arbitrators to  decide  and that it was not open to the  respondents  to raise  the  same  in  an application  under  s.  33  of  the Arbitration;  (3)  that  the respondents  submitted  to  the jurisdiction of the arbitrators and that amounted to a fresh agreement for arbitration and therefore, the award was valid and   binding   on  them;  and  (4)  that,  in   any   case, the contract dated September 7, 1955, was a non-transferable specific  delivery contract and, therefore, was not  hit  by the notification dated October 29, 1953. Held, that: (1) a legislation on Forward Contracts would  be a legislation on Futures Markets and, therefore, the Forward Contracts (Regulation) Act, 1952, fell within the  exclusive competence of Parliament under entry 28 List I of Sch. 7  of the Constitution of India, accordingly, the Act could not be challenged on the ground of legislative incompetence. Duni  Chand  Rateria  v. Dhuwalka Brothers  Ltd.,  [1955]  1 S.C.R. 1071, followed. (2)  the Act did not infringe Art. 14 of the Constitution. M/s.   Baghubar  Dyal  Jai Prakash v. The  Union  of  India. [1962] 3 S. C. R. 547, followed, (3)  if  a  contract was illegal and  void,  an  arbitration clause which was one of the terms thereof must perish  along with  it,  and  a  dispute relating to  the  validity  of  a contract  was,  in  such cases, for the court  and  not  the arbitrators to decide. Khardah  Company Ltd. v. Raymon & Co. (India) Private  Ltd., [1963] 3 S.C.R. 183, followed. (4)  the  respondents  were not precluded by what  they  did before  the arbitrators from agitating the question  of  the validity  of the contract in the present proceedings  before the High Court. Shiva Jute Baling Ltd. v. Hindley and Company Ltd.’ [1960] 1 S.C.R. 569 and East India Trading Co. v. Badat and Co., I. L R. [1959] Bom. 1004, considered. (5)  the  contract  dated  September 7,  1955,  was  a  non- transferable   specific  delivery  contract  as  defined  in s.2(f)  of  the  Act  and, therefore, was  not  hit  by  the notification dated October 29, 1953. Khardah  Company Ltd. v. Raymon & Co. (India) private  Ltd., [1963] 3 S.C.R. 183, followed. 211

JUDGMENT: CIVIL  APPELLATE JURISDICTION   : Civil Appeal  Nos.  389 to 392 of 1960. Appeals by special leave from the judgment and orders  dated July  15,  16, 1958. of the Calcutta High Court  in  Appeals from  Original  Orders and Decrees Nos. 140 to 143  of  1957 respectively. B.   Das and Ghosh, for the appellant (in C. A. Nos. 389 and 390 of 1960).



B.   Sen,  Shankar Ghosh and B. N. Ghosh, for the  appellant (in C. A. Nos. 391 and 392 of 1960). C. B. Aggarwala and S. N. Mukherjee, for the respondents. C. K. Daphtary, Solicitor-General of India, Daulat Ram  Prem and  P.   D.  Menon,  for  the  Attorney-General  of  India, (Intervener). 1962.  May 4. The Judgment of the Court was delivered by VENKATARAMA  AIYAR,  J.-These are appeals by  special  leave against  judgments of High Court of Calcutta  setting  aside awards which directed the respondents to pay compensation to the  appellants for Breach of contracts, on the ground  that they were in contravention of a notification of the  Central Government dated October 29, 1.953, and were in  consequence illegal and void.  These appeals were heard along with Civil Appeals Nos. 98 & 99 of 1960 as there were common  questions of law to be decided in all. In  Civil Appeals Nos. 389 & 390 of 1960 the facts are  that on  September  7,  1955, the appellants who  are  a  company owning  a  Jute Mill at Calcutta entered into  an  agreement with  the respondents who are also a Company doing  business as  dealers in jute, for the purchase of 2,250 bales of  the jute 212 cuttings at Rs. 80 per bale of 400 lbs. to be delivered  750 bales  every month in October, November and December,  1955. Clause  14  of  the agreement  provides  that  all  disputes arising out of or concerning the contract should be referred to  the arbitration of the Bengal Chamber of Commerce.   The respondents delivered, pursuant to the contract, in all 2000 bales and made default in the delivery of the balance.   The appellants  then applied to the Bengal Chamber  of  Commerce for arbitration in accordance with cl. 14 of the  agreement. The   respondents  appeared  before  the   arbitrators   and contested the claims on the merits.  The arbitrators made an award  in favour of the appellants for Rs. 10,525, and  that was  filed under s. 14(2) of the Indian arbitration  Act  in the  High Court of Calcutta on its original side and  notice was  issued  to the respondents.  Thereupon  they  filed  an application  presumably under s. 33 of the  Arbitration  Act for a declaration that the contract dated September 7, 1955, was  illegal as it was in contravention of the  notification of  the Central Government dated October 29, 1953, and  that the award based thereon was a nullity.  The learned Judge on the  original side before whom the application came  up  for hearing  dismissed it, and passed a decree in terms  of  the award.   Against  both  the  judgment  and  the  order,  the respondents  preferred  appeals to a Division Bench  of  the High Court, appeals Nos. 148 & 141 of 1957.  They were heard by  Chakravartti, C. J., and Lahiri, J., who held  that  the contract  dated September 7, 1955, was illegal, as  it  fell within  the prohibition contained in a notification  of  the Central  Government dated October 29, 1953, and  accordingly allowed the appeals and set aside the award.  The appellants then  applied  for a certificate under Art.  133(3)  of  the Constitution  but  the same was  refused.   Thereafter  they applied to this Court for leave under  213 Art.  136 of the Constitution and that was granted. This  is how these appeals come before us. In  Civil  Appeals Nos. 391 and 392 of 1960  the  facts  are similar.   The  appellants  who are a  company  carrying  on business in the manufacture of jute entered into a  contract with  the respondents on October 17, 1955, for the  purchase of 500 bales of into cuttings at Rs. 87-8-0 per bale of  400 lbs.,  to be delivered in equal instalment of 250  bales  in



November  and in December 1955.  Clause 14 of the  agreement provides  that all differences arising out of or  concerning the  contract  should be referred to the Bengal  Chamber  of Commerce for arbitration. The respondent made default in the delivery  of the, goods and thereupon the  appellants  moved the Chamber of Commerce for arbitration under cl. 14 of  the agreement.  The respondents appeared before the  arbitrators and contested the claim on the merits.  The arbitrators made an  award in favour of the appellants for Rs.  17,500,  and that was filed in the High Court of Calcutta on it  original side  and notice under s. 14(2) of the Arbitration  Act  was served   on  the  respondents.   Thereupon  they  filed   an application in the High Court of Calcutta, presumably  under s. 33 of the Arbitration Act for a declaration that the con- tract  dated October 17, 1955, was in contravention  of  the notification  of  the Central Government dated  October  29, 1953,  and  was therefore illegal and that  the  arbitration proceedings  pursuant thereto and the award  passed  therein were  all  void.  The learned single Judge on  the  original side  before whom the application came up for  hearing  dis- missed  it  and  passed  a decree in  terms  of  the  award. Against  the  above  judgment  and  order  the   respondents preferred  appeals  to a Division Bench of the  High  Court, Appeals Nos. 142 and 143 of They were heard by  Chakravarti, C.J., and Lahiri, J., 214 who  hold  that  the contract dated October  17,  1955,  was illegal, as it fell within the prohibition contained in  the notification  of  the Central Government dated  October  29, 1953, and accordingly allowed the appeals and set aside  the awards.    The  appellant  thereafter  applied  under   Art. 133(1)(c)  for  a certificate and that having  been  refused they  obtained from this Court leave under Art. 136  of  the Constitution  and that is how these appeals come before  us. The  points for decision in all these appeals are  the  same and this Judgment will govern all of them. The  following  contentions have been urged  in  support  of these appeals:               (1)  The Forward Contracts  (Regulation)  Act,                             1952, is ultra vires and the notification date d               October  29, 1953, is in consequence Bull  and               void.               (2)On the terms of the arbitration clause  the               question whether the contracts dated September               7, 1955, and October 17, 1955, are illegal  is               one for the     arbitrators to decide and that               it  was not open to respondents to  raise  the               same  in  applications  under  s.  33  of  the               Arbitration Act.               (3)   The   respondents   submitted   to   the               jurisdiction  of  the  arbitrators  and   that               amounts to fresh agreement for arbitration and               the award is accordingly valid and binding  on               them.               (4) The contracts dated September 7, 1955, and               October,   17,   1955   are   non-transferable               specific  delivery contracts and they are  not               hit  by  the notification  dated  October  29,               1953,  215 (1)The  first  question  relates to  the  vires  of  Forward Contracts   (Regulation)  Act,  1952  (Act  74   of   1952), hereinafter  referred  to  as the Act’.   This  statute  was enacted  by  Parliament  and  received  the  assent  of  the



President on December 26, 1952.  Its validity is attacked on two grounds; that Parliament had no competence to enact  it, and that the provisions of the Act are repugnant to Art.  14 and  Art. 19(1)(g) of the Constitution and  therefore  void. If  this contention is well founded, then  the  notification dated  October  29, 1953, which was issued  by  the  Central Government  in exercise of the powers conferred by s. 17  of the Act would be null and void. Dealing  first  with the question as to  the  competence  of Parliament to enact the impugned law, it will be  convenient to  set out the entries in the Legislative Lists in  Seventh Schedule of the Constitution bearing on this question.               List  I-Entry 48-Stock Exchanges  and  Futures               Markets.               List  II-Entry 26--Trade and  commerce  within               the  State subject to the provisions of  entry               33 of List III.               Entry  27-Production, supply and  distribution               of goods subject to the provisions of entry 33               of List III.               List    III-Entry    7-Contracts,    including               partnership,  agency, contracts  of  carriage,               and other special forms of contracts, but  not               including  contracts relating to  agricultural               land. Now  the contention of the appellants is that  the  subject- matter  of  the  impugned legislation is  either  Trade  and Commerce  or Production, supply and distribution  of  goods, within  entries 6 or 27 in List II of the Seventh  Schedule, and  that  it is within the exclusive domain  of  the  State Legislature. 216 The  contention of the respondents, and of the  Union  which has  intervened, is that the impugned Act is legislation  on ’Futures Markets’ falling under entry 48 in List I and  that it is Parliament which has the exclusive competence over it, and  in the alternative it is one on contracts, and that  is covered  by entry 7 in List III in the Seventh Schedule  and is intra vires.  To decide this question, it is necessary to ascertain the true nature and scope of the legislation,  its pith and substance.  The object of the Act as stated in  the preamble  is  "to  provide for  the  regulation  of  certain matters  relating to forward contracts, the  prohibition  of options  in goods and for the matters connected  therewith". The  statute  make,; a distinction between  "ready  delivery contracts" and "forward contracts." When a contract provides for  the  delivery of goods and payment  of  price  therefor either  immediately or within a period not exceeding  eleven days  it is a ready delivery contract.  All other  contracts are forward contracts.  Forward contracts are again  divided into two categories ’specific delivery contracts’ and  ’non- transferable   specific   delivery   contracts’,   ’Specific delivery contracts’ mean forward contracts which provide for actual delivery of specific goods at the price fixed  during specified future , period.  ’Non-transferable specific deli- very  contracts’ are specific delivery contracts the  rights or liabilities under which are not transferable.  Section 15 confers  power  on  the Government  to  issue  notifications declaring  illegal forward contracts with reference to  such goods  or  class  of  goods and in  such  areas  as  may  be specified.  Section 17 authorises the Government to prohibit by  notification  any  forward  contract  for  the  sale  or purchase  of  any  goods  or class of  goods  to  which  the provisions  of s.15 have not been made applicable.   Section 18 exempts non-transferable specific delivery contracts from



the operation of these 217 sections.   Thus  the law is what it purports to be,  a  law regulating Forward Contracts. That  being  the scope of the enactment, the  point  debated before  us is whether it is a law on Trade and  Commerce  or Production, supply and’ distribution of goods within entries 26 or 27 in List II or on Futures Markets within entry 48 in List I. ,It would be noticed that both the entries 26 and 27 in List II are subject to entry 33 in List Ill.  Entry 33 as it   now  stands  is:  "Trade  and  commerce  in,  and   the Production, supply distribution of...... (e) raw jute".  The impugned Act in so far as it relates to raw jute-and that is what we are concerned with, in these appeals-will clearly be intra  vires if it fell under this entry.  But it should  be mentioned  that  el.  (e) in entry 33 was  inserted  by  the Constitution.   Third  Amendment)  Act, 1954  an  d  as  the impugned  Act  was  passed in 1952,  its  validity  must  be determined  on  the provisions of the Constitution  as  they stood  prior  to the Amendment Act in 1954 and entry  33  in List III therefore must be excluded from consideration. Now  turning  to the question whether the  impugned  Act  is legislation on Futures Markets or on Trade and commerce, the contention  of the appellants is that a law with respect  to Forward  Contracts,  is not a law with  respect  to  Futures Markets,  because  the  ordinary  and  accepted  meaning  of ’Market’  is that it is a place where business in  the  sale and  purchase  of goods is carried on, In  support  of  this contention we are referred to the Dictionary meaning of  the word  ’Market’  and the decisions of the Madras  High  Court reported  in  Public  Prosecutor  v.  Cheru  Kutti  (1)  and Commissioner, Coimbatore Municipality v. Chettimar Vinayagar Temple  Committee(2).   According  to  the  Concise   Oxford Dictionary the word ’market’ mean,; gathering of people  for purchase & sale of provisions. livestock, etc.-, open  space or covered building in (1) A.I.R. 1925 Mad. 1095. (2) [1956] 2 M.L.J. 563. 218 which  cattle  etc.  are  exposed  for  sale".   In   Public Prosecutor  v.  Cheru  Kutti (1) the  facts  were  that  the accused was charged under s. 170 of the Madras Local  Boards Act,  1920 for keeping open a new private market  without  a licence.   His  defence was that the place where  the  sales were held was not truly a market, and that was accepted.  In that  context, discussing the meaning of the  word  market’, the Court observed that it meant "a place set apart for  the meeting of the general public of buyers and sellers,  freely open to any such to assemble together, where any seller  may expose  his goods for sale and any buyer may purchase".   In Commissioner, Coimbatore Municipality v. Chettimar Vinayagar Temple  Committee  (1), the question arose  this  time  with reference to the provision in Madras District Municipalities Act,  1920, requiring a place used as an open market  under the  Act to be licensed.  The Court held that  the  ordinary meaning of market was place where the public could go during particular times for purpose of buying and selling and  that on  the  facts  the place in question  was  market.   It  is contended  on the strength of the above rulings that as  the impugned  Act  is not one with reference to  building  where business is being transacted it is not a law with  reference to markets. We  are  unable to agree with this  contention.   Market  no doubt  ordinarily  means  a place where  business  is  being transacted.   That was probably all that it meant at a  time



when  trade  was not developed and  when  transactions  took place at specified places.  But with the development of com- merce,  bargains  came to be concluded more often  than  not through  correspondence  and  the connotation  of  the  word ’market’  underwent  a corresponding expansion.   In  modern parlance the word ’market’ has come to mean business as well as  the place where business is carried on.   Labour  Market for  example, is not a place where labourers  are  recruited but the conditions of the business of (1)  [1956] 2 M.L.J. 563.  219 labour.  The word ,market’ being thus capable of  signifying both  business and the place where the business  is  carried on,  the question in what sense it is used in  a  particular statute must be decided on a consideration of the context of that statute.  Thus in Public Prosecutor v. Cheru Kutti  (1) and   Commissioner,  Coimbator  Municipality  v.   Chettimar Vinayagar  Temple  Committee (2), the  question  arose  with reference   to   provisions  as  to   licensing   by   local authorities, and for that purpose market was interpreted  as meaning  a place.  So we must examine what the  word  market means  ’in  entry 48 ,Futures Markets" in List I.  The  word ’Futures’  is  thus  defined  in  Encyclopaedia   Britannioa "contracts  which consist of a promise to deliver  specified qualities of some commodity at a specified future time.  The obligation  is for a single quantity in a given  month...... Futures are thus a form of security, analogous to a bond  or promissory note".  In this sense a market can have reference only to business and not to any location.  In our opinion  a legislation  on Forward Contracts would be a legislation  on Futures Markets. It  is next argued for the appellants that even if a law  on Forward  Contracts  can  be said to be a  law  on.   Futures Markets,  it  must be held to be legislation  falling  under entry  26  in List IT, and not entry 48 in list  1,  because Forward  Contracts form a major sector of modern trade,  and constitute its very core, and to exclude them from the ambit of  entry 26 in List II, would be to rob it of much  of  its contents.    Reliance   was  placed  in  support   of   this contention, on the rule of construction that the entries  in the Lists should be construed liberally and on the  decision in  Bhuwalka Brothers Ltd. v. Dunichand Rateria (3),  which, on  this  point  was affirmed by this Court  in  Duni  Chand Rateria  v. Bhuwalka Brothers Ltd. (4).  The rule  of  cons- truction is undoubtedly well established that the (1) A.I.R. 1925 Mad. 1095.  (2) [1956] 2 M.L.J. 563. (3) A.I.R. 1952 cal. 740.   (4) [1955] 1 S.C.R. 1071. 220 entries in the Lists should be construed broadly and not  in a  narrow or pedantic sense.  But there is no need  for  the appellants to call this rule in aid of their contention,  as trade  and  commerce would, in their ordinary  and  accepted sense.  include forward contracts, That was the  view  which was  adopted  in Bhuwalka Brothers Ltd.  case(1)  and  which commended itself to this Court in Duni Chand Rateria’s  case (2).   Therefore, if the question were simply whether a  law on  Forward Contracts would be a law with respect  to  Trade and commerce, there should be no difficulty in answering  it in  the  affirmative,  But the point which we  have  got  to decide is as to the scope of the entry ’Trade and  commerce’ read  in juxtaposition with entry 48 of List I. As  the  two entries  relate  to  the powers mutually  exclusive  of  two different legislatures, the question is how these two are to be  reconciled.   Now it is a rule of construction  as  well established  as that on which the appellants rely, that  the



entries  in  the  Lists should be so construed  as  to  give effect  to  all of them and that a construction  which  will result  in any of them being rendered futile or otiose  must ,be avoided.  It follows from this that where there are  two entries,  one  general  in  its  character  and  the   other specific,  the  former must be construed  as  excluding  the latter.   This is only an application of the  general  maxim that Generalia specialibus non derogant.  It is obvious that if  entry  26 is to be construed  as  comprehending  Forward Contracts,  then  "Futures  Markets" in  entry  48  will  be rendered useless.  We are therefore of opinion that legisla- tion  on Forward Contracts must be held to fall  within  the exclusive competence of the Union under entry 48 in List I. It  now  remains  to deal with the decisions  on  which  the appellants  rely  in support of their  contention  that  the legislation is really one on Trade (1) A.I.R. 1952 Cal. 740. (2) [1955] 1 S.C.R. 1071  221 and commerce falling within entry 26.  In Bhuwalka  Brothers Ltd.  case  (1)  the question was  with  reference’  to  the validity  of the West Bengal Jute Goods  Futures  Ordinance, 1949.   That Ordinance had been promulgated by the  Governor without  obtaining the consent of the  Governor-General  and the contention was that the legislation fell within entry  7 ’Contracts’ in List III and as the consent of the  Governor- General  had not been obtained it was invalid.   As  against this it was contended that the legislation was with  respect to  Trade  and commerce which fell within List II  and  that therefore  the  consent  of  the  Governor-General  was  not necessary.   ID  accepting the latter contention  the  Court observed : "In pith and substance the legislation was one on trade  and commerce and not on contracts and that  therefore it  was  within the powers of the  provincial  legislature". There  was  an appeal taken against this  decision  to  this Court  and there the correctness of this view was  accepted. Vide  Duni  Chand  Rateria’s case(2).   Now  the  contention before  us is that on this authority it should be held  that the legislation was one on Trade and commerce falling within entry 26. We  are unable to accept this contention.  The  validity  of the  West Bengal Jute Goods Futures Ordinance, 1949, has  to be   judged  in  accordance  with  the  provisions  of   the Government  of India Act, 1935, which was  the  Constitution Act then in force.  In that Act there was no specific  entry relating  to  ’Futures  Markets’.  Such  an  entry  was  in. troduced  for the first time in the present Constitution  in 1952.   The  contest  in  Bhuwalka  Brothers  Ltd.   case(1) therefore  was  not  between a general entry  on  trade  and commerce and a specific entry on the futures markets, as  in the present case, but between Trade and commerce in List  II and Contracts in List (1) A.I.R.1952 Cal. 740.  (2) [1955] 1 S.C.R. 1071. 222 Ill.   In  the  absence of a specific  entry  like  the  one contained  in entry 48 in List I, the decision  in  Bhuwalka Brothers Ltd. case (1) would be correct but it is no  longer law in view of the change in the Constitution. In the present case the question was also raised whether the impugned  legislation would fall under entry 7 of List  Ill. While  the respondents insisted that it fell under entry  48 in List I, they were also prepared, in case that  contention failed, to fall back on entry 7 in List III as a second line of  defence.   Entry 7 is general in its  terms  and  cannot prevail as against specific entry such as entry 48 in List I



or  26 in List II.  On this point, we are in agreement  with the  decision  in Bhuwalka Brothers Ltd.  case(1).   In  the result  we must hold that the attack on the impugned Act  on the ground of legislative incompetence must fail. The second ground of attack on the vires of the Act is  that it  is  repugnant  to Art. 14 and to Art.  19(1)(g)  of  the Constitution and is, therefore, void.  So far as Art. 14  is concerned, the question is now concluded by the decision  of this Court in M/s.  Raghubar Dayal Jai Prakash v. The  Union of  India (2) where it has been held that the  impugned  Act does not infringe that Article and is valid.  This point  is therefore no longer open to debate and indeed the appellants addressed no arguments on it. Then  as  regards  the attack based  on  Art.  19(1)(g)  the position   is  that  though  the  appellants   raised   this contention in the pleadings they did not press it before the learned  Judges  in  the Court below  because  there  was  a decision  of the Bench of the Calcutta High Court which  had decided  the  point  against  the  appellants.   The  point, however was taken in the grounds of appeal to this Court, (1) A.I.R. 1952 Cal. 740. (2) [1962] 3 S.C.R. 547. 223 and   has  been  sought  to  be  pressed  before  us.    The respondents  complain  and rightly that a  point  like  this should  not  be  allowed  to be taken at  this  stage  as  a decision  thereon will turn on investigation of facts  which has not been made.  It is also contended that there being  a strong  presumption in favour of the constitutionality of  a legislation the appellants must fail as they have not placed any  materials before the Court to rebut  that  presumption. The  answer of the appellants to this contention is that  as the  Act is on the face of it violative of  the  fundamental rights  under  Art. 19(1)(g), it was for the other  side  to place materials for showing that it was protected by Art. 19 (6) as one which is reasonable and made in the interests  of the general public, and not for them to show negatively that it  was not and reliance was placed on the  observations  of this Court in Saghir Ahmed v. The State of Uttar Pradesh and Others (1). We are of opinion that those observations cannot be   read   as  negativing  the  presumption   as   to   the constitutionality  of a statute.  But it is  unnecessary  to say  more about it, as the appellants abandoned  this  point after some argument.  This contention also must therefore be found against the appellants. (2)  It  is  next  contended for  the  appellants  that  the question  as  to the validity of the contracts  between  the parties  was one for the arbitrators to decide and  that  in consequence  it was not open to the respondents to raise  it in an independent application under a. 33 of the Arbitration Act.   This  question has been considered by us  in  Khardah Company  Ltd. v. Raymon & Company (India) (P) Ltd. (2)  with which these appeals were heard and therein we have held that it  a  contract is illegal and void, an  arbitration  clause which is one of the terms thereof, must also perish along (1) [1955] 1 S.C.R. 707, 726. (2) (1963) 3 S.C.R. 183. 224 with  it  and that a dispute relating to the validity  of  a contract  is  in such case, for the Court and  not  for  the arbitrators  to  decide.  Following that  decision  we  must overrule this contention. (3) The appellants next contend that even if the arbitration clause in the original agreement between the parties  should be  held to be inoperative by reason of the validity of  the



contract  itself  being in question,  when  the  respondents subsequently  appeared  before  the  arbitrators  and  filed statements in support of their defence, that must be held to amount to a new agreement by them for arbitration, on  which the  arbitrators  would  be  entitled to  act  and  that  in consequence the award could not be attacked on the ground of want  of jurisdiction.  This the respondents dispute.   They contend   that   mere  participation  in   the   arbitration proceedings  cannot  be  held  to be  a  new  agreement  for arbitration,  and that the jurisdiction of  the  arbitrators must  be  decided  solely with reference to cl.  14  of  the agreement.  The point for decision is as to the true  effect of   what   happened  before  the   arbitrators   on   their jurisdiction to hear the dispute.  The principles applicable in  the determination of this question are well settled.   A dispute  as  to  the validity of a  contract  could  be  the subjectmatter  of  an agreement of arbitration in  the  same manner  as  a  dispute relating to a claim  made  under  the coatract.   But  such an agreement would  be  effective  and operative  only when it is separate from and independent  of the contract which is impugned as illegal.  Where,  however, it  is  a  term of the very contract whose  validity  is  in question,  it  has, as hold by us in Khardah Co.  Ltd.  case (1), no existence apart from the impugned contract and  must perish with it. (1) (1963) 3 S.C.R.183 225 We shall now refer to the decisions cited before us, bearing on   this   distinction  between  the  two   categories   of agreements.   In  Shiva  Jute Baling  Ltd.  v.  Hindley  and Company  Ltd., (1) the difference between these two  classes of  agreements was noticed, though in a  somewhat  different context.  A decision directly bearing on this distinction is the one in East India Trading Company v. Badat and Co.  (2). There  the  facts were that there was a  .general  agreement between the parties as to the terms on which they should  do business  and  it  was provided therein  that  all  disputes arising   out   of  the  contract  should  be   settled   by orbitration.   Subsequent thereto the parties  entered  into several contracts and then a dispute arose with reference to one  of them.  One of the parties denied the  contracts  and the question was whether an award passed by the  arbitrators with reference to that dispute was without jurisdiction.  In holding that the arbitrators had jurisdiction to decide  the matter by virtue of the agreement antecedent to the disputed one, the Court observed : "Now, the principle of the  matter is this that when a party denies the arbitration  agreement, the  very  basis  on  which  the  arbitrator  can  acts   is challenged and therefore the Courts have taken the view that in such a case the arbitrator has no jurisdiction to  decide whether  he himself has jurisdiction to adjudicate upon  the dispute........................ If the arbitration agreement is  part and parcel of the contract itself, by  denying  the factum  of the contract the party is denying the  submission clause and denying the jurisdiction of the arbitrators.  But in  this  case  the  position  is  different.   We  have  an independent  agreement by which the parties agreed to  refer the  disputes to arbitration.  Pursuant to  this  agreement, contracts  were entered into and when the plaintiffs made  a claim  against the defendants, the defendants  denied  their liability. (1) [1960] 1 S.C.R. 569. (2) [1959] I.L.R. Bom. 1004 1018,1019. 226 Therefore,  what was denied was not the jurisdiction of  the



arbitrators,  not the submission clause, but  business  done pursuant   to  the  submission  clause  and  to  which   the submission  clause  applied".   That in our  judgment  is  a correct statement of the true legal position. The point then for decision is whether there is in this case an agreement for reference to arbitration apart from el.  14 of  the  contract.  It is not contended for  the  appellants that there was any express agreement between the parties for referring the disputes under the contract dated September 7, 1955,  to  arbitrators.   All  that  is  said  is  that  the respondent  filed statements before the arbitrators  setting out their defence on the merits, and that must be  construed as  an  independent  agreement  for  arbitration.  and   the decisions in National Fire and General Insurance Co. Ltd. v. Union  of India (1) and Pratabmull Rameswar v. K. C.  Sethia Ltd.  (2)  are  cited  as authorities  in  support  of  this contention. Now  an agreement for arbitration is the very foundation  on which the jurisdiction of the arbitrators to act rests,  and where that is not in existence, at the time when they  enter on  their duties, the proceedings must be held to be  wholly without  jurisdiction.  And this defect is not cured by  the appearance of the parties in those proceedings, even if that is without protest, because it is well settled that  consent cannot  confer  jurisdiction.  But in such a case  there  is nothing  to prevent the parties from entering into  a  fresh agreement  to refer the dispute to arbitration while  it  is pending  adjudication before the arbitrators, ,and  in  that event the proceedings thereafter before them might be upheld as  referrable to that agreement, and the award will not  be open  to attack as without jurisdiction.  But it  will  make all the (1) A.I.R. 156 Cal. I, (2) (1959) 64 C.W.N. 616. 227 difference  in the result whether the parties  have  entered into  an arbitration agreement as defined in W. a,  2(a)  of the  Arbitration  Act  or have merely  taken  steps  in  the conduct of proceedings assumed or believed to be valid.   In the  former  case the award will be valid;  in  the  latter, ;nullity. Now  what are the facts in the present case 1  We have  gone through  the statements filed by the respondents before  the arbitrators,  and  we do not find any thing therein  out  of which  a new agreement to refer the dispute  to  arbitration could be spelt.  The respondents merely contested the  claim on  the  merits, and then added : "The sellers  submit  that this  reference  is  improper,  unwarranted,  frivolous  and vaxatious  and  should  be  dismissed  with  cost."  It   is impossible to read this statement as meaning an agreement to refer to arbitration. The  decisions  in National Fire and General  Insurauce  Co. Ltd’s. case (1) and Pratabmull Rameswar’s case (2) relied on for the appellants are not really in point,.  In both  these cases there was a valid submission on which the  arbitrators proceeded to act.  Before them the parties filed  statements and therein they put forward a claim which was not  actually covered  by  the reference, and invited them to  give  their decision thereon.  The party against whom the award had gone contended   that   the   arbitrators   had   acted   without jurisdiction  in  deciding that claim.  In  overruling  this contention the Court held that it was open to the  parties to enlarge the scope of a reference by inclusion of a  fresh dispute. that they must be held to have done that when  they filed their statements putting forward claims not covered by



the original agreement, that these statements satisfied  the requirements of s. 2(a) of the Arbitration Act, and that  it was (1) A I.R. 1956 Col. II. (2) [1959] 64 C.W.N. 616. 228 competent  to  the arbitrators to decide the  dispute.   The point to be noticed is that in both these cases there was no want  of  initial jurisdiction, but a  feeding  of  existing jurisdiction by an enlargement of the scope of the reference That  this does not involve any question of jurisdiction  of the  arbitrators will be clear from the scheme of  the  Act. If an award deals with a matter not covered by the agreement it could either be modified under s. 15(a) or remitted under s.  16(1)(a)..  And where such matter is dealt with  on  the invitation of the parties contained in the statements, there can be no difficulty in holding that the arbitrators  actual within  jurisdiction.  In the present case  the  arbitrators had  no jurisdiction when they entered on their duties,  nor is  it established that there was any  subsequent  agreement which could be held to be a submission of the question as to the  validity of the contracts.  We are accordingly  of  the opinion that the respondents are not precluded by what  they did  before the arbitrators from agitating the  question  of the validity of the contracts in the present proceedings. (4)  The  last  contention of the  appellants  is  that  the contracts dated September 7, 1955, and October 17, 1955, are non-transferable specific delivery contracts, as defined  in s. 2(f) of the Act and under s. 18 they are exempt from  the operation  of s. 17, and that they are therefore not hit  by the  notification  dated October 29, 1953.   The  facts  are similar to those considered by this Court in Khardah Company Ltd. case(1)with which these appeals were heard, and for the reasons  given  by  us  in our  Judgment  in  those  appeals delivered   to-day,   we  accept  the  contention   of   the appellants, and hold that the contracts in question are  not hit by the notification dated October 29, 1953. (1) (1963) 3 S.C.R. 183.  229 In   the  result  the  appeals  are  allowed,   with   costs throughout,  one  set in Civil Appeals Nos. 389 and  390  of 1960  and one in Appeals Nos.. 391 and 392 of 1960, and  one hearing fee.                       Appeal allowed.