1. This is an appeal against the judgment of Mr. Justice B. J. Wadia decreeing the plaintiffs' claim against the defendant for Rs. 10,837-8-0. The plaintiffs are certified share, stock and exchange brokers in the Native Share and Stock Brokers' Association of Bombay. The defendant is a constituent of the plaintiffs and lives in Calcutta. The plaintiffs filed this suit to recover this amount of Rs. 10,837-8-0 from the defendant in respect of certain transactions in shares effected by the plaintiffs for and on behalf of the defendant on the Stock Exchange in Bombay. The defendant filed a written statement raising a large number of defences, and the learned Judge decided against the defendant on all those defences.
2. The first question raised before us by Mr. Munshi the learned counsel for the defendant, is that the plaint as originally filed disclosed no cause of action. On July 4, 1941, an order was obtained by the plaintiffs from the learned Judge granting them leave to amend the plaint. The plaint was amended accordingly by adding paragraph 8A to the plaint, which is in these terms :
All the aforesaid transactions were effected by the plaintiffs according to the rules and regulations of the Native Share and Stock Brokers' Association, Bombay.
3. Mr. Munshi contends that even the amended plaint does not disclose any cause of action. He further contends that the plaintiffs did not obtain leave under Clause 12 of the Letters Patent when they amended the plaint, and, therefore, the amendment of the plaint is not legal.
4. In paragraph 1 of the plaint the plaintiffs state that they are certified share, stock and exchange brokers in the Native Share and Stock Brokers' Association, Bombay. In paragraph 4 of the written statement that averment in the plaint is admitted. The necessary implication of that averment is that they act as brokers for constituents and effect transactions on behalf of their constituents in accordance with the rules and regulations of the Native Share and Stock Brokers' Association. The amendment of the plaint simply states in terms what is necessarily implied from the averment in paragraph 1 of the plaint, which is admitted by the defendant. The learned Judge's decision that the amendment of the plaint did not alter or complete the cause of action is, in my judgment, perfectly correct,
5. The averment in the plaint, whether implied from the statement contained in paragraph 1 of the plaint or by virtue of the amendment of the plaint, that the plaintiffs effected transactions on behalf of the defendant according to the rules and regulations of the Native Share and Stock Brokers' Association, is sufficient to show that the plaintiffs as agents effected transactions on behalf of the defendant and in respect of the losses or profits in respect of those transactions they were responsible, and the profits and losses were, received or paid by the plaintiffs when the transactions of the particular settlement went through the Clearing House of the Native Share, and Stock Brokers' Association, Bombay. In the case of share brokers in Bombay they submit their statements in respect of their transactions for a particular settlement to the Clearing House of the Native Share and Stock Brokers' Association. These transactions are with various brokers. The results of all these transactions arc ascertained by the Clearing House, and the brokers arc made to pay if there is a deficit on the whole statement for the settlement, and the payment is made by the share brokers. If there is a balance payable to the brokers in respect of all the transactions, that amount is allowed to them, and they receive the payment which is made by various brokers with whom they had the transactions. Thus in the case of share brokers it would be difficult for them to state in the case of a particular constituent that they paid the lessee incurred in respect of his transactions, because payment is not made in respect of the 'transactions of each constituent, but all the transactions of all the constituents with 'different brokers arc settled in account with all the brokers through the Clearing House, In my judgment the plaint discloses a good and complete cause of action.
6. This point was raised in Gulabchand Sakharam V. Bhaidas Maganlal & Co. (1937) O.C.J. Appeal No. 644 of 1936 decided by Mr. justice B. J. Wadia. There was an appeal against that judgment, which was heard by my Lord the Chief Justice and Mr. Justice Blackwell. The plaint in that suit was in substantially the same terms as the plaint which is now before us. There was no averment in that plaint that the plaintiffs, who were share brokers, incurred liability in respect of the transactions of the defendant and that they made payments in respect of the losses incurred in respect of the transactions of the defendant. The Court of Appeal upheld the judgment of Mr. Justice B. J. Wadia and decided that the plaint disclosed, a complete and valid cause of action. That decision of the. Court of Appeal Covers the point which is now raised by Mr. Munshi, the learned counsel for the defendant.
7. The second point raised by Mr. Munshi is that two of the contract notes dated January 4 and 5, 1940, did not disclose the name of a partner in the plaintiff-firm, namely, S.B. Billimoria. S. B. Billimoria is the son of the senior partner in the plaintiff-firm B.A. Billimoria, and he joined the firm on January 1, 1940. There is no dispute between the parties with regard to 1 (1937) O.C.J. Appeal No. 48 of 1936 (Suit No. 644 of 1936), decided by Beaumont C.J. and Blackwell J. on March 18, 1937 (Unrep.) that date. Mr. Munshi argues that the rules of the Native Share and Stock Brokers' Association require that on the contract notes submitted by the plaintiffs to the defendant the names of all the partners in the plaintiff-firm must be stated, and as the name of S. B. Billimoria is not stated, the contract note is void. It appears that prior to January 1, 1940, there were five partners in the plaintiff-firm, one of them being A. D. Shroff. That partner retired from the firm on December 31, 1939, and S. B. Billimoria joined the firm in his place. The argument of Mr. Munshi is that these two contract notes of January 4 and 5, 1940, are void by virtue of the provisions of Section 6 of the Bombay Securities Contracts Control Act (Bom. VIII of 1925) and Ruler. 46 and 167 of the rules of the Native Share and Stock Brokers' Association.
8. Section 6 of Bombay Act VIII of 1925 provides that every contract for the purchase or sale of securities, other than a ready delivery contract, entered into after a date to be notified in this behalf by the Provincial Government, shall be void, unless the same is made subject to and in accordance with the rules duly sanctioned under Section 4. That is the material part of the section that we are concerned with. In my opinion, this section relates only to contracts for the purchase or sale of securities, and if such contracts are not in accordance with the rules framed under Section 4 of the Act for the regulation of the business of the Native Share and Stock Brokers' Association, those contracts would be void. The contract notes, which we are concerned with, are not contracts of purchase or sale. They are documents giving intimation to the defendant of the contracts of purchase or sale effected by the plaintiffs as the defendant's brokers and for and on account of the defendant. The contract notes are, therefore, not contracts of purchase or sale of securities under Bombay Act VIII of 1925.
9. Rule 167(a) of the rules of the Native Share and Stock Brokers Association provides that members shall render contract notes to non-members in respect of every bargain made for such non-member's account, stating the price at which the bargain has been made. Such contract notes shall contain a charge for brokerage at rates not less than the scale prescribed in Appendix G annexed to these rules, or as modified by the provisions of Ruler. 168 and 170(A). Such contract notes shall show brokerage separately and shall be in Form A prescribed in Appendix H annexed to these rules. The contract notes in respect of contracts entered into by brokers on behalf of constituents, the transactions having been effected by them with other brokers, have to be in Form A in Appendix H to the rules. Where the contracts are between the brokers and the constituents in respect of the sale of the brokers' own securities, then the contract note should be in Form B, prescribed in Appendix H of the rules. Those contract notes are provided for under Rule 167(c), of the rules. Rule 167(e) provides that no contract note not in one of the printed forms in Appendix H shall be deemed to be valid. The effect of Rule 167(e) is that if a contract note is rendered to a constituent by brokers in Form A, when the transactions are of the nature in respect of which the contract note should be in Form B, or vice versa, or where the contract note is rendered in any other form different from Form A or Form B, then the contract note would not be deemed to be valid. In this case the proper form for the contract note has been used, namely, Form A. All the particulars required to be stated in the contract note under Rule 167(a) are duly stated in the contract notes of January 4 and 5, 1940, except that the name of one of the partners in the plaintiff-firm is omitted in both these contract notes. Mr. Munshi relies upon Ruler 46(a) of the rules, which' provides that all members shall state on all correspondence relating to the transaction of business subject to the rules of the Association, and on all contract notes : (i) the name of the firm, if any; and (ii) the names of all partners therein. This Ruler 46(a) does not appear to have any bearing upon the validity of the contract notes which have to be rendered to the constituents under the provisions of Rule 167. It may be that the Native Share and Stock Brokers' Association may be entitled to or may have to take action against the share brokers who failed to comply with the provisions of Ruler 46(a). It cannot be that non-compliance with the provisions of Ruler 46(a) would render contract notes under Rule 167 invalid, because the brokers failed or negligently omitted to mention the names of the partners or some of them or, as in this case, one of them. The non-compliance with the provisions of Ruler 46(a) would not make a contract note invalid. Mr. Munshi relied upon the provisions of Rule 167 (g). That sub-rule provides that a contract note referred to in this rule or any other rule for the time being in force shall be deemed to mean and include a contract and shall have the same significance as a contract. This sub-rule says that a contract note should be deemed to mean a contract. That would be the (correct position, if the contract was between the constituent and the members as principals as provided for by Rule 167 (c). The contract note may perhaps be a document which might by the fact of the rendering of the contract be considered to include a contract which had been entered into by the brokers for and on behalf of the constituent; but I think that it is not right to say that by virtue of Sub-rule (g) every contract note becomes a contract for the sale or purchase of securities, and, therefore, the provisions of Section 6 of Bombay Act VIII of 1925 apply to it, and if there is any omission to comply with any of the rules of the Native Share and Stock Brokers' Association, the contract becomes void. In my judgment, the two contract notes of January 4 and 5, 1940, have been properly rendered by the plaintiffs to the defendant in compliance with the provisions of Rule 167 of the rules of the Native Share and Stock Brokers Association.
10. No other point has been argued before us by the learned counsel for the appellant.
John Beaumont, Kt., C.J.
11. I agree., So far as the first point is concerned namely the contention that the plaint does not disclose any cause of action, it is no doubt true that this is a claim for indemnity, and the plaintiffs must aver that they have suffered the loss for which they claim to be indemnified. But the plaint, as originally framed, contained an allegation that the plaintiffs were carrying on business as certified share, stock and exchange brokers in the Native Share and Stock Brokers' Association, Bombay, and had entered into certain contracts on behalf of the defendant for which contract notes had been sent to him, and those contract notes state that they are subject to the rules and regulations of the Native Share and Stock Brokers' Association. The most that the plaintiffs could aver is that they have duly discharged their obligations arising under the contracts which they had entered into on behalf of the defendant. As my learned brother has pointed out, a broker would not pay in cash for the actual shares which he purchased from another broker; the rights of the brokers, inter se, would be settled through the Clearing House, and, therefore, it would not be possible to aver that the plaintiffs had paid in cash the exact amount of purchase money for the securities which they had purchased. They could only aver that they had duly discharged their obligations in respect of the contracts through the Stock Exchange, and it seems to me that that averment, although it might have been prudent to make it in so many words, is to be inferred from the allegation that these transactions were carried out on the Stock Exchange, because anybody reading the rules of the Stock Exchange would realize that the plaintiffs were bound to carry out the transactions, or else they would be declared defaulters. The amendment contained in paragraph 8A, to my mind, was not strictly necessary, because I think it sufficiently appeared from the plaint as originally drawn that the transactions were effected according to the rules and regulations of the Native Share and Stock Brokers' Association. I agree, therefore, that the plaint as originally drawn discloses a good cause of action, and leave in respect of that plaint was obtained under Clause 12 of the Letters Patent.
12. With regard to the second point, Ruler 46 (a) of the rules of the Native Share and Stock Brokers' Association provides inter alia that all members shall state on all contract notes the names of all partners in the firm, and it is a fact that in respect of the first two contract notes of January 4 and 5, 1940, the name of the junior partner, Mr. S. B. Billimoria, was not stated. I am not prepared to accept Mr. Taraporewala's argument that stating the names of four partners out of five is a substantial compliance with the rules. It might be very material for a constituent to know who the partners were in a firm of brokers with which he was dealing, although in this particular case it is very unlikely that the addition of the son of the senior partner to the firm would materially affect the credit of the firm in the first week of that junior partner's membership. However, in my opinion, Ruler 46(a) was not complied with, and the question is what is the effect of that. Mr. Munshi, in the first instance, argued that the effect of omitting the name of a partner is to make the transactions between the plaintiffs and the defendant void under Section 6 of the Bombay Securities Contracts Control Act of 1925. That section provides that every contract for the purchase or sale of securities, other than a ready delivery contract, shall be void, unless the same is made subject to and in accordance with the rules duly sanctioned under Section 4. But, in my opinion, whatever the contract notes of January 4 and 5, 1940, may amount to, they certainly do not amount to contracts for the purchase or sale of securities. All that those notes do is to record that contracts have been entered into by the brokers with some third party, and, in my opinion, Section 6 of the Act has no bearing on contract notes in the form with which we have to deal in this case.
13. Then Mr. Munshi's second point is that this omission to state the partner's name in the contract notes renders the notes void under Rule 167. That rule provides in Sub-rule (e) that members shall render contract notes to non-members, and that such contract notes shall be in a form prescribed in Appendix H. Sub-rule (e) provides that no contract note not in one of the printed forms in Appendix H shall be deemed to be valid. Now, the contract notes with which we have to deal are in Form A contained in Appendix H. It seems to me impossible to say that the contract notes are not in the correct form. The trouble is that they do not give the whole information which they are required to give, but I do not think that for that reason they can be said to be not in the form specified in the appendix. Then Mr. Munshi relied on Sub-rule (g) of Rule 167, which says that a contract note referred to in the rule or any other rule for the time being in force shall be deemed to mean and include a contract and shall have the same significance as a contract. I find that sub-rule rather difficult to construe. It does not say who are the parties to this contract, or what is its subject-matter. It merely says that a contract note shall be deemed to mean a contract, and shall have the same significance as a contract, as if there could be only one sort of contract. But where one is dealing with a contract note in Form A of Appendix H, that is to say, a contract note recording a purchase or sale by a broker on behalf of his constituent, it seems to me that the only possible contract which can be spelt out of such a note is a contract by the broker who has signed the note to carry out the transactions stated to have been entered into, that is to say, to carry out the terms of the sale or purchase entered into on behalf of the constituent. But that contract is again not a contract for the purchase or sale of securities within Section 6 of the Bombay Securities Contracts Control Act, nor has such a contract been broken. In my judgment, therefore, although the terms of Rule 46(a) have not been strictly complied with, omission to comply with the rule has not in any way affected the contract of indemnity on which the plaintiffs rely.
14. I agree, therefore, that the appeal must be dismissed with costs, and cross-objections dismissed with costs.
15. The appeal is dismissed with costs.
16. Cross-objections dismissed with costs.