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Baldevdas C. Parikh Vs. Khimji Poonja and Co. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtMumbai
Decided On
Case NumberO.C.J. Appeal No. 42 of 1946 and Suit No. 13 of 1946
Judge
Reported in(1947)49BOMLR649
AppellantBaldevdas C. Parikh
RespondentKhimji Poonja and Co.
Excerpt:
.....bye-laws-east india cotton association bye-laws, by-law 82-contract note form prescribed by bye-laws-form of contract note employed differing substantially from official form-contracts void.;section 8 of the bombay cotton contracts act, 1982, says that any contract for the sale or purchase of cotton 'which is not in accordance with the bye-laws of any recognised cotton association' shall be void. bye-law 82 of the east india cotton association provides that 'contracts between members acting as commission agents on the one hand and their constituents on the other shall be made subject to the bye-laws' and that a 'contract note in the form given in the appendix shall be rendered in respect of every such contract.';the petitioner was not, but the respondents were, members of the bast..........the parties was itself void, then no valid or enforceable arbitral agreement can flow from that void contract. the very basis of the arbitrators' jurisdiction was the contract between the parties and if that contract itself is void, the arbitrators can have no jurisdiction to adjudicate upon the dispute.10. so far, with respect, i entirely agree with the learned judge, but the reason for his ultimate decision upon which he dismissed the petition is this. having referred to section 8 of the cotton contracts act he said:that is the section on which the petitioner has got to rely in order to assert that the contract between the parties was void. now it is only those contracts which are not in accordance with the by-laws of a recognised cotton association which have been rendered void by.....
Judgment:

Stone, C.J.

1. This is an appeal from the judgment of Mr. Justice Chagla dated July 2, 1946, dismissing the petition of the appellant in this Court, whereby he prayed that certain arbitration agreements contained in contract notes, including contract note No. 17996, should be declared to be invalid, void and unenforceable. Secondly, that the purported award made by the arbitrators referred to in paragraph 3 of the petition be set aside, thirdly, he prayed for an injunction against the respondents in this Court, from proceeding with an appeal from the arbitrators to the Board of the East India Cotton Association, and for certain other ancillary relief. The principal question that arises is whether certain contracts with regard to cotton are void, since, if they are void, the arbitration agreements contained within them must obviously fail. The respondents in this Court are members of the East India Cotton Association and the appellant is not. Between April 9 and August 10, 1945, the appellant employed the respondents in accordance with the bye-laws of the East India Cotton Association with regard to certain forward transactions in cotton and by August 10 the appellant's commitments were to take delivery of 900 bales for September delivery at the rate of Rs. 432 per candy and in those circumstances a dispute arose, the dispute having reference as to whether or not the appellant had given directions to the respondents to cover his commitments.

2. The form of contract note entered into by the respondents is set out at pp. 12 and 13 of the record and so far as material it is as follows:-

We have this day sold for you in Bombay subject to the following conditions and to the by-laws of the East India Cotton Association Ltd., in force from time to time and subject also to our usual charges and terms of business as Commission Agents five hundred full pressed bales of New M.G...cotton for delivery in Bombay for September 1 to September 25, 1945.

The type of cotton is described by reference to the locality from which it comes and then are details with regard to price, some restrictions on weight and measurement, and after certain other provisions not material comes this clause:

A margin of Rs...for Rs...per 50 bales to be paid to and maintaind by you with us until completion of this contract. Difference between the contract price and the market price arising against you owing to fluctuations of the market to be paid by you in cash to us in Bombay as and when they arise.

3. Added to that clause by a rubber stamp impression are these words:

In addition to the above, the deposit (not carrying interest) payable under by-law 51A, namely at a rate not less than Rs. 25 per bale shall, when demanded, be made by you to us in Bombay.

4. The contract also contains a clause that:-

Notwithstanding anything herein contained this contract is entered into as between principal and principal as provided by bye-law 81 A, but in the event of arbitration as in the next clause provided, we shall be bound to produce to the arbitrators or umpire or the Board, if required by them or any of them

certain books and contracts therein specified, and then comes the arbitration clause:-

In the event of any dispute arising between you and us out of this transaction the matter shall be referred to arbitration as provided by the bye-laws.

5. In fact that form of contract note, except for the addition by the rubber stamp, is the form of contract-note current up to the year 1935, and the rubber stamp addition appears to have been added some time later. That is very material because on September 19, 1944, the Government of Bombay, by an emergency notification of the Finance Department, amended the official forms of clients contract notes contained in the bye-laws of the Association to which I will refer in a moment, and it is those amendments and additions which are omitted from the relevant contract notes altogether. The whole position is governed by the Bombay Cotton Contracts Act, 1932, and Section 8 of that Act provides:

Save as hereinafter provided in this Act, any contract (whether either party thereto is a member of a recognised cotton association or not) which is entered into after the date on which this Act comes into operation and which is not in accordance with the bye-laws of any recognised cotton association shall be void.

6. It is common ground that the only bye-laws with which we are concerned are the bye-laws of the East India Cotton Association, and bye-law 82 as it stood at the relevant date provided that 'contracts between members acting as commission agents on the one hand and their constituents on the other shall be made subject to the bye-laws and a contract note in the form given in the Appendix pp. 92, 93, 94, 95 shall be rendered in respect of every such contract.'

7. As I have already said, the form of contracts in fact entered into did not include the additions and variations which had been provided by Government's notification of September 1944 and so far as material they are to be found in Clause 17 of that notification under the head: 'Official Form of Clients Contract Note-p. 93 (1935 Edition).' In effect it provides for the additional deposit of not less than Rs. 25 per bale, being reduced to a rate of Rs. 12-8-0 per bale, and in addition there is to be inserted in all contract notes two new clauses which become pertinent owing to the fact that to enforce wartime controls Government had introduced a new bye-law 65A into the by-laws of this Association. These two new clauses are as follows:-

If this contract is a contract for sale, then if between us and other members of the East India Cotton Association we become, under the bye-laws, the first seller of the cotton so sold and if the last buyer exercises the right given by bye-law 65A, you will then be bound by the provisions of that bye-law as between you and us.

If this contract is a contract of purchase, and if between us and other members of the East India Cotton Association Ltd. we become the last buyers, unless we shall have received express instructions from you in writing to the contrary, before the commencement of the delivery period if the contract is entered into before the commencement of the delivery period, or with the order if the contract is entered into during the permitted days of trading in the delivery period, we shall be at liberty at our option and without any further reference to you, to exercise the right given to the last buyer under bye-law 65A, and if we so exercise the right you will be bound by the provisions of that bye-law as between you and us.

8. Mr. K.T. Desai on behalf of the appellant points out that the form of contract which his clients entered into is defective in two respects, the first being with regard to the minimum deposit of Rs. 25 whereas the law as it stood at the time when the contract-notes before us were entered into provided for a minimum of Rs. 12-8-0, and, secondly because the two clauses which I have just read from the notification of September 1944 are wholly omitted from the contract notes.

9. If those be points of substance, then the provisions of Section 8 of the Cotton Contracts Act of 1932 arise and the contracts would be void. In the Court below, as very often happens, the matter appears to have been argued and presented in a somewhat different way and the learned Judge in his judgment refers to what he describes 'as the most substantial point urged on behalf of the plaintiff', i.e. the appellant in this Court:

Is that the contract note No. 17990 which recorded the transaction which was the subject matter of the reference was not in accordance with the prescribed and official form of the East India Cotton Association. That being so, according to Mr. Amin, the contract was void; and if the contract was void, the reference itself was void and the award which was based on the submission should also be held to be void. There can be no doubt that if the contract between the parties was itself void, then no valid or enforceable arbitral agreement can flow from that void contract. The very basis of the arbitrators' jurisdiction was the contract between the parties and if that contract itself is void, the arbitrators can have no jurisdiction to adjudicate upon the dispute.

10. So far, with respect, I entirely agree with the learned Judge, but the reason for his ultimate decision upon which he dismissed the petition is this. Having referred to Section 8 of the Cotton Contracts Act he said:

That is the section on which the petitioner has got to rely in order to assert that the contract between the parties was void. Now it is only those contracts which are not in accordance with the by-laws of a recognised cotton association which have been rendered void by Section 8 of the Bombay Cotton Contracts Act. There is no mention whatever in this section to the written form which the contract might take. If the contract between the parties is not in accordance with the bye laws, then alone such a contract is void. Now it is not disputed here that the contract between the parties was made subject to the by laws and it is not suggested that in any respect it is not in accordance with any of the by-laws. The only grievance that Mr. Amin has is that the contract note which had to be rendered by the respondents to the petitioner was not in the form given in the appendix. Now the consequence of not rendering a contract note in the form given in the Appendix is not to render the contract void.

11. Accordingly the learned Judge held that the contract was not void. With great respect to him I do not understand this line of reasoning. Section 8 prescribes that any contract which is not in accordance with the bye-laws shall be void. Bye-law 82 provides that contracts between members acting as commission agents and their constituents shall be made subject to the bye-laws, and the contract note in the form given in the Appendix shall be rendered in respect of every such contract. It is the note when so rendered that is the written contract between the parties; it is the only document which can be looked at, since it would not lie in the mouth of either of the contracting parties to say that there were other or different terms of the contractual relationship between them than what they have reduced to writing by the contract note.

12. The Bombay Cotton Contracts Act came before the Privy Council in the year 1933 in the case of Radhakisson v. Balmukund (1932) 35 Bom. L.R. 303 ; but this case must be approached with a word of caution because the Act which the Judicial Committee then construed was the 1922 Act, and certain substantial amendments to it have been since made including amendments to the wording of Section 8 by the 1933 Act. Lord Thankerton delivering the judgment of the Board, said (p. 307):

Their Lordships are of opinion that the form prescribed is, in its terms, applicable to contracts between a commission agent and his constituent and that the parties in the present case were bound to comply with the bye-law and its form. They are unable, however, to agree with the view that the form is a stereotyped one and that literal compliance with it is essential; in their opinion, the contract must contain all the terms and conditions set out in the form in order to comply with it. For instance, in the prescribed form the main terms and conditions are contained in the memorandum of contract...sent by the agent to his constituent, in which the former reports the fulfilling of the order by a purchase or a sale, as the case may be, in Bombay.

13. The old wording of the section which took the place of the present Section 8 was,

Any contract which is entered into after the date on which bye-laws under this Act are sanctioned by the Governor in Council and published in the Bombay Government Gazette, and which contravenes any such bye-law shall be void.

14. There is, however, a decision of the English Court of Appeal upon the words which appear in the amended Section 8, viz, 'in accordance with.' That is the case of Ex parte Stanford: In re Barber (1886) 17 Q.B.D. 259 and it arose under the English Bills of Sale Act, 1882, which provided for a bill of sale being taken in accordance with the form set out in the schedule. Lord Justice Bowen delivering the judgment for Lord Esher, Lord Justice Cotton, Lord Justice Lindley, and Lord Justice Lopes and himself said (p. 270):-

A sounder interpretation of the words 'in accordance with the form' appears to be that which is more in harmony with the recognised maxim of construction, 'Superflua non nocent,' A bill of sale is surely in accordance with the prescribed form if it is substantially in accordance with it, if it does not depart from the prescribed form in any material respect. But a divergence only becomes substantial or material when it is calculated to give the bill of sale a legal consequence or effect, either greater or smaller, than that which would attach to it if drawn in the form which has been sanctioned, or if it departs from the form in a manner calculated to mislead those whom it is the object of the statute to protect.

And a little later (p. 271):-

Whatever form the bill of sale takes, the form adopted by it in order to be valid must produce, not merely the like effect, but the same effect-that is to say, the legal effect, the whole legal effect, and nothing but the legal effect which it would produce if cast in the exact mould of the schedule.

15. In the appeal before us, is the contract note substantially in accordance with the bye-laws, that is to say, has the contract note the same legal effect as the form set out in the Appendix In my judgment the answer is clearly in the negative. We are dealing with the form prescribed by law at the date of these contracts, which is August 1945, and by that date the two substantial amendments urged by Mr. K.T. Desai had been made. In my opinion each of these amendments had a substantial effect and altered the position of the contracting parties from what it formerly was under the old form. That indeed was the object of the amendments made by the notification of September 1944. What happened appears to be that by some oversight or accident the old form of contract note was used. But that cannot affect the position, which is that the contract is of different legal effect to the current form prescribed, and as such it is void under Section 8 of the governing Act.

16. The result is that the appeal must be allowed. The appellant is entitled to the relief claimed in his petition. The appellant is also entitled to his costs of this appeal and in the Court below.

Coyajee, J.

17. This appeal has arisen from the dismissal of the plaintiff's suit which was filed for the purpose of declaration that a certain arbitration agreement contained in certain contract notes including a certain contract note No. 17996 be declared invalid, void and unenforceable, that the arbitrators' award be set aside, and further for an order that the arbitrators may be restrained by an injunction of this Court from proceeding with the arbitration. The action arises on account of certain transactions in cotton which took place between the appellant and the respondents. The said contracts were entered into under the rules and bye-laws of the East India Cotton Association. The respondents are members of the said association, but the petitioner-appellant is not. As a result of certain transactions disputes arose, but we are not concerned with the merits of the said disputes. The matter thereafter was referred to certain arbitrators who made a certain award after refusing a certain adjournment applied for, and thereafter the petitioner-appellant filed an appeal against the said award which we understand is pending.

18. The question is a narrow one, namely, whether the contract which is a contract in writing, is in accordance with the rules and bye-laws made by the Association under powers conferred on them by the Bombay Cotton Contracts Act, 1932. It appears that the contract entered into is in a certain form, and the complaint made by the petitioner is that it is not in accordance with the form prescribed by the Association under the bye-laws. For this purpose one may first refer to the fact that the word 'contract' within the meaning of this Act is defined under Section 3(e) of the Bombay Cotton Contracts Act, 1932. Thereafter Section 6(2)(g) says that the terms, conditions and incidents of contract and the forms of such contracts as are in writing, may be regulated and controlled by the board of directors subject to the sanction of the Provincial Government. This is important as will appear from a certain reference when the enactment amending a certain form which was already prescribed and was in existence before the contract in suit was entered into is referred to. Section 8 lays down that any contract entered into after the date on which the Act comes into operation, i.e. 1932, and which is not in accordance with the bye-laws of any recognised cotton association shall be void. These sections are to be read with bye-law 82 which is the relevant bye-law for the purpose of this appeal. The form in accordance with bye-law 82 is set out in the Paper Book at p. 15. It is maintained on behalf of the appellant that the form in which the contract was attempted to be entered into is not in accordance with the form as set out at p. 15 as certain penultimate clauses have been omitted. This question of fact has not been disputed by the respondents. Under these circumstances, if that is the position, the question arises whether this is a mandatory provision under the Act, and if so, whether the non-compliance with that form vitiates the contract and makes it a void contract. If it is a void contract, then, in my opinion, in the eye of the law, there is no contract at all, and if there is no contract, there can be no reference to arbitration or an award made on disputes arising thereon. The learned Counsel Mr. Coltman appearing before us argued that there can be an oral reference, and cited a certain authority, namely, a decision of the division bench of this High Court. This particular point is altogether irrelevant for the present purpose, because it is true that there can be an oral submission, but the oral submission can only be based on an existing contract, and if there is no existing contract and the contract being void, and if the appellant's contention succeeds, there is no dispute which can arise on which it can be referred to arbitration in an oral submission, because it is in those circumstances an award which is patently bad on the face of it.

19. The question therefore is whether the bye-law has been complied with by employing the form that is indicated. Bye law 82 of the Association is clear that it says that contracts between members acting as commission agents on the one hand and their constituents on the other hand shall be made subject to the bye-laws and a contract note in the form given in the appendix shall be rendered in respect of every such contract. The contract in suit is defective inasmuch as the two particular clauses at the end of the contract set out at p. 15 were not incorporated in the contract attempted between the parties. As regards the clauses that are omitted, and there is no dispute about it, a certain contention was put forward by Mr. Coltman under two heads, the first contention is that the inclusion of this clause does not create any new right as the respondents were entitled to indemnity from the constituent in any event and that the law of agency is unaffected by the inclusion of these clauses. The second point made was that these clauses show that a margin of not less than X rupees shall be charged, I am afraid there is fallacy in this argument advanced, for if for instance in the event of Government regulating any dealings on the stock exchange it lays down by an Act that the form shall consist of a clause that a margin of X rupees shall be charged by stock brokers it will be contrary to public policy to allow that such a statutory provision can be waived by a party benefiting thereunder. It has been held by this High Court that a statutory right given which is based on the grounds of public policy cannot be contracted out of by a party benefiting under that particular bye-law or form. The position is that Government issued a notification which is dated September 19, 1944, that was to come into operation forthwith and it says that on the form existing under which the contracts were to be entered into as set out at p. 93, at the end of the note the two clauses which have been omitted from the contract were to be inserted. In these circumstances, the question is whether non-compliance with this provision vitiates the contract or not. Speaking for myself, I certainly feel that this is a provision expressly made under an enactment prescribing that the form shall be in accordance with the forms to be prescribed under a particular bye-law, and therefore it adds certain clauses to constituents' contracts as far as these cotton transactions are concerned. Non-compliance with that, in my opinion, is a failure which is fatal to the contract itself, namely the contract is a void contract. In fact it has always been said that a void contract is a contradiction in terms. If there is non-existence of any contract between the parties, no disputes can arise on such a transaction which can possibly be referred to any arbitration, and the arbitration held in these circumstances is in my opinion a nullity.

20. In these circumstances, I entirely agree with the judgment delivered by my Lord the Chief Justice, and in my opinion this appeal should be allowed.


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