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Chiranjilal Ramchandra Loyalka Vs. Jatashankar N. Joshi - Court Judgment

LegalCrystal Citation
SubjectContract;Limitation
CourtMumbai
Decided On
Case NumberO.C.J. Suit No. 786 of 1941
Judge
Reported inAIR1942Bom297; (1942)44BOMLR692
AppellantChiranjilal Ramchandra Loyalka
RespondentJatashankar N. Joshi
Excerpt:
.....cotton contracts act (bom. iv of 1932), sections 5, 6. ;where a member of the east india cotton association entered into a contract for the sale or purchase of cotton on behalf of his constituent, and the contract was carried out on his death by his heir and legal representative:--;held, that, under the bye-laws of the association as they existed before april 21, 1941, such heir was entitled to sue the constituent on the contract and was not bound to refer the disputes to arbitration:;re an arbitration between percival and others (1885) 2 t.l.r. 150, followed.;the second part of article 96 in so far as it makes the obtaining of an award a condition precedent to the commencement of legal proceedings is not valid as a bye-law. ;a total repudiation of liability under a contract by..........to submit the claim made by him to arbitration in accordance with the by-laws of the east india cotton association, and whether the obtaining of an award in his favour is a condition precedent to the institution of any suit in respect of the transactions. after the issues had been raised learned counsel asked me to try this as a preliminary issue, and i agreed to do so. the issue has been argued upon the assumption that all the allegations made in the plaint are correct, and a number of documents have been put in by consent.2. the facts necessary for the determination of this issue may be stated shortly as follows:--3. ramchandra bhagwandas loyalka, the deceased father of the plaintiff, was a member of the east india cotton association limited, and carried on business as a broker.....
Judgment:

Blackwell, J.

1. This case raises a curious point as to whether it is obligatory upon the plaintiff who seeks, as personal representative of his deceased father, to recover from the defendant a sum of money alleged to be due by the defendant in respect of contracts made by his deceased father, to submit the claim made by him to arbitration in accordance with the by-laws of the East India Cotton Association, and whether the obtaining of an award in his favour is a condition precedent to the institution of any suit in respect of the transactions. After the issues had been raised learned counsel asked me to try this as a preliminary issue, and I agreed to do so. The issue has been argued upon the assumption that all the allegations made in the plaint are correct, and a number of documents have been put in by consent.

2. The facts necessary for the determination of this issue may be stated shortly as follows:--

3. Ramchandra Bhagwandas Loyalka, the deceased father of the plaintiff, was a member of the East India Cotton Association Limited, and carried on business as a broker under the name and style of Bhagwandas Ramchandra. The defendant employed the said Bhagwandas Ramchandra as his broker to put through various transactions for purchase and sale of cotton for April-May 1940 and July-August 1940 delivery. Bhagwandas Ramchandra rendered to the defendant contract notes in the prescribed form. Exhibit No. 3 is a specimen. It provides that in the event of any dispute arising between the parties the matter is to be referred to arbitration as provided by the bylaws of the East India Cotton Association, Ltd.

4. Ramchandra Bhagwandas died on or about May 1, 1940. Thereafter the plaintiff being willing to take over the liability in respect of the outstanding contracts of his deceased father the transactions were not closed by the East India Cotton Association and the liability to perform the same rested on the plaintiff. Bye-law 15 of the by-laws of the East India Cotton Association provides among other things that, if before the maturity of a contract to which a member is a party one of the parties dies without leaving executors or others able and willing forthwith to take over his liabilities under the contract, the contract shall be closed, and that various provisions laid down in that by-law shall then operate. That by-law did not come into operation because the plaintiff was ready and willing to take over and perform the outstanding contracts.

5. At the time of the death of Ramchandra Bhagwandas the defendant had outstanding transactions for the purchase of one hundred and fifty bales for July-August 1940 delivery and in respect of these transactions the defendant became liable to pay and paid to the plaintiff the sum of Rs. 444 for the clearing of May 9, 1940.

6. Thereafter a sum of Rs. 3,486 became due and payable by the defendant to the plaintiff on the clearing of May 25, 1940, in respect of his aforesaid transactions of one hundred and fifty bales. The defendant failed to pay that amount and the plaintiff in this suit claims that amount as payable to him as the heir and legal personal representative of Ramchandra Bhagwandas. The plaintiff in the suit sued for a further sum of Rs. 149 but that claim has been abandoned and I need not go into it further.

7. By a letter of July 23, 1940, the attorneys of the plaintiff called upon the defendant to pay the said sum of Rs. 3,486. The defendant failed to do so. By a letter dated July 27, 1940, the plaintiff called upon the defendant to appoint an arbitrator to deal with the matter. The defendant failed to do so. By a letter dated September 3, 1940, the plaintiff requested the Chairman of the Board to appoint an arbitrator as the Chairman is under the by-laws empowered to do. The Chairman of the Board thereupon appointed two arbitrators under by-law 38 B and they proceeded to hold the arbitration. The defendant did not appear and took no part in the arbitration. Subsequently by a letter from the plaintiff's solicitors to the arbitrators dated December 10, 1940, the plaintiff requested leave to withdraw the reference by reason of technical difficulties mentioned in the letter reserving his rights to apply for a proper reference as the heir and legal representative of the deceased Ramchandra Bhagwandas Loyalka. The arbitrators made an endorsement upon that letter to the effect that they agreed that the reference might be withdrawn.

8. The correspondence to which I have referred was put in as exhibit No. 5 (collectively).

9. The plaintiff then brought this suit, and among other defences the defendant in paragraph 11 of the written statement submitted that by reason of the provisions of the Bombay Cotton Contracts Act (Bom. IV of 1932) and the rules, regulations, articles of association and by-laws of the East India Cotton Association, Ltd., it is obligatory upon the plaintiff to submit the claim made by him to arbitration according to the said rules and regulations and that the obtaining of an award in his favour is a condition precedent to the institution of any suit in respect of the said transactions. The first issue raised which I have tried as a preliminary issue is in this form--

Whether the plaintiff is entitled to maintain this suit for the reasons mentioned in paragraph 11 of the written statement?

10. It is to be observed that by reason of his not having been ready and willing himself to submit the dispute to arbitration it was not open to the defendant to apply for a stay of the suit. He has, however, taken the defence to which I have alluded.

11. Section 4(7) of the Bombay Cotton Contracts Act (Bom. IV of 1932) is in these terms:--

It is hereby declared that the East India Cotton Association, Limited, is a recognised cotton association for the purposes and subject to the provisions of this Act and the articles and by-laws of the said Association shall, so far as they relate to matters for which by-laws may be made under the provisions of sections 5 and 6, be deemed to be by-laws of a recognised cotton association:

12. It is to be observed that not all the articles of the association are to be deemed to be by-laws, but only those made under the provisions of Sections 5 and 6, for present purposes it is only necessary to refer in this connection to Section 6 (1) and Sub-section (2) (j). Section 6(1) is as follows:--

The Board of Directors may, subject to the sanction of the Provincial Government, make and, from time to time add to, vary or rescind by-laws for the regulation and control of transactions in cotton.

13. Sub-section (2):--

In particular and without prejudice to the generality of the foregoing provision such by-laws may provide for--

* * * * * (j) the settlement of claims and disputes by arbitration and appeals against awards.

14. The only article of association to which it is necessary to refer is art. 96, which was put in with certain other articles as exhibit No. (1) (Collectively). It is in the following terms.--

Whenever any difference arises between Members or Associate Members or Special Associate Members or between one or more of them and another or others who are not Members or Associate Members or Special Associate Members touching or in connection with the cotton trade or any transaction therein it shall be referred to arbitration in such manner as shall be prescribed by the by-laws. And it is hereby expressly declared that the holding of such an arbitration and the obtaining of an Award there under shall be a condition precedent to the right of any Member or Associate Member or Special Associate Member or non-member to commence legal proceedings against any other Member or Associate Member or Special Associate Member or non-Member in respect of any such difference as aforesaid and any member or Associate Member or Special Associate Member or Non-Member shall have no right of action against any other Member or Associate Member or Special Associate Member or Non-Member except to enforce the Award in any such Arbitration.

* * * * *

15. See exhibit (1) (collectively).

16. The relevant by-laws or parts thereof, are as follows:--

1. In these by-laws unless there be something in the subject matter or context inconsistent therewith--

* * * * * Member means a person, firm or company duly elected to membership of the Association whether entitled or not entitled to use the Clearing House.

17. I have referred to by-law 15 and need not refer to it again.

18. The first part of by-law 38 is in the following terms:--

A. All unpaid claims whether admitted or not and all disputes (other than those relating to quality) arising out of, or in relation to (a) contracts (whether forward or 'ready' and whether between members or between a member and a non-member) made subject to these By-laws or (b) the rights and/or responsibilities of commission agents, mukadums and brokers not parties to such contracts shall be referred to the arbitration of two disinterested persons one to be chosen by each party. The arbitrators shall have power to appoint an umpire and shall do so if and when they differ as to their award.

The arbitrators shall make their award within 15 days of their appointment unless the Chairman shall when appointing arbitrators (in the manner prescribed below) or upon the subsequent application of the arbitrators, whether appointed by the parties or by the Chairman, grant an extension of this period.

19. This bye-law then provides further machinery for the arbitration which it is not necessary to set out in detail. There is nothing in this bye-law to suggest that the personal representative of either party is entitled to invoke or is bound to submit to arbitration.

20. Bye-law 44 was not in force at the time material for the determination of the question before me. It came into operation on April 21, 1941, and is designed to meet the situation which has arisen in the present case. It provides, among other things, that the death of any party shall not discharge the right of any other party or the legal representative of the deceased to refer to arbitration under the bye-laws any dispute or claim. The relevant bye-laws were put in as exhibit No, (2) (collectively).

21. The first part of Article 96 provides in substance that when any difference arises between members of various classes inter se or between one or more of them and another person or other persons who are not members or special associate members touching or in connection with the cotton trade or any transaction therein it shall be referred to arbitration in such manner as shall be prescribed by the by-laws. The first question arising for determination on this part of the article is whether the heir and legal representative of a deceased member can be said to be a member within this part of the article, or, putting it in another way, whether the member having died his heir and legal representative is either entitled or bound to go to arbitration in connection with a transaction which had been entered into by the member during his lifetime.

22. It was pointed out by Mr. D.B. Desai for the defendant that the death of a member of a company does not, as in the case of a partnership, dissolve his connection with the company and that until steps are taken to transfer his interest, the dead shareholder, that is to say, his estate remains a member. In this connection he cited Baird's Case (1870) 5 Ch. App. 725 and James v. Buena Ventura Nitrate Grounds Syndicate, Limited [1896] 1 Ch. 456. Mr. D.B. Desai argued that as the estate of the deceased remained a member the arbitration clause was still applicable and his heir and legal representative seeking to enforce a claim for the benefit of the estate was bound by the arbitration clause.

23. Mr. Bhagwati on the other hand for the plaintiff pointed out, as is the fact, that a deceased member only remains a member by virtue of his estate for certain purposes, and he submitted that a legal representative would have no right to vote at meetings, or to give proxies, or to refer a matter to arbitration pursuant to an arbitration clause which would have been binding upon the deceased during his lifetime. He laid stress upon bye-law No. 1 which defines a member and pointed out that there was nothing in the by-law to suggest that the legal representative of a deceased person was to be treated as a member. He referred to Re An Arbitration between Percival and others (1885) 2 T.L.R. 150. By the terms of the agreement in that case if any dispute arose between the parties it was to be referred to arbitration and each party was to appoint an arbitrator if called on by the other to do so. Disputes arose and one of the parties died before the arbitrators were appointed. The Court held that his executors were not bound by the agreement to appoint an arbitrator. Mr. Justice Mathew said that the agreement was that each party should concur in the appointment of the arbitrator and that this required an exercise of personal judgment by the parties and that as one of them had died this had become impossible and there had consequently been no breach of the agreement to refer. In this connection Mr. Bhagwati referred me to Section 1(1) of the English Arbitration Act of 1934 which altered the law in England as laid down in the case above referred to, and which provides that an arbitration agreement shall not be discharged by the death of any party thereto, either as respects the deceased or any other party, but shall in such an event be enforceable by or against the personal representative of the deceased. He also drew my attention to Section 6(7) of the Indian Arbitration Act (X of 1940), which came into operation on July 1, 1940, that section being in terms similar to the section of the English Act to which I have already drawn attention. That section altered the law in India in the same manner in which it had been altered in England.

24. I am of opinion that Ramchandra Bhagwandas having died the arbitration clause ceased to be applicable. There was in my opinion no longer in existence a member within the meaning of the first part of Article 96 or the definition of member in bye-law No. 1 who could either call on the opposite party or be called upon by the opposite party to refer any matter in dispute to arbitration. Although no doubt the estate of the deceased member remained liable for the purpose of the performance and the discharge of the obligations of the contract, a liability which would also arise by reason of Section 37 of the Indian Contract Act, I do not think that it can be said that there was any member in existence who could refer any matter to arbitration within the contemplation of the first part of Article 96. This opinion really disposes of this first issue. As, however, other matters have been argued and this case may go further, I will refer briefly to the argument and my opinion thereon.

25. Mr. Bhagwati contended that the second part of Article 96, which provides that the obtaining of an award shall be a condition precedent to the commencement of legal proceedings, cannot properly be relied upon as a by-law of the association. He submitted that although by Section 6, Sub-section (2) (j), the board of directors of the association may make by-laws for the settlement of claims and disputes by arbitration and appeals against awards, they are not authorised to make a by-law to provide that the obtaining of an award should be a condition precedent to commence legal proceedings. He submitted that the second part of Article 96 to the extent to which it made such a provision could not be relied upon as a by-law, in that by Section 4, Sub-section (7), only those articles and by-laws which related to matters for which by-laws might be made under the provisions of Sections 5 and 6 are to be deemed to be by-laws. The provision that the obtaining of an award should be a condition precedent to the right to commence legal proceedings is a provision of a very serious character, ousting as it does the right of the person to resort to a Court of law. In my opinion Mr. Bhagwati's argument is right and the second part of Article 96 to the extent to which it makes the obtaining of an award a condition precedent cannot be treated as a by-law. The article is clearly severable, and I think that only those parts of it which relate to matters for which by-laws may be made under the provisions of Sections 5 and 6 can be deemed to be a by-law within Section 4, Sub-section (7), of the Bombay Cotton Contracts Act.

26. A third point was taken on behalf of the plaintiff by Mr., M. V. Desai, who appeared with Mr. Bhagwati, to which I will briefly refer. In reply to the plaintiff's solicitors' letter of July 23, 1940, above mentioned the defendant's attorneys wrote a letter dated July 26, 1940, which is annexed to the plaint and has been put in in these proceedings as exhibit (A), the effect of which, in Mr. M. V. Desai's submission, is a repudiation by the defendant of his obligations under the contract. In that letter the following passage appears:--

Your client is very well aware that the transactions referred to in your letter under reply are really the transactions of Mr. Hansraj Cooverji and by common consent they happen to be in our client's name. Your client is further aware that as arranged between him and the said Hansraj Cooverji it was distinctly agreed that our client should not be held liable in respect of the said transactions and Mr. Hansraj Cooverji alone should be liable for the same.

27. The letter went on to state that if any proceedings were taken they would be defended upon the footing that the defendant was not liable under the contract. Mr. M. V. Desai relied upon Jureidini v. National British and Irish Millers Insurance Company, Limited [1915] A.C. 499, where it was held by the House of Lords that the repudiation of the claim on a ground going to the root of the contract precluded the company in that case from pleading the arbitration clause as a bar to an action to enforce the claim. I think that Mr. Desai's contention is sound. In my opinion the true effect of the letter in question is a total repudiation of any liability under the contract. If that be the true construction of the letter, as I think it is, it certainly is not open to the defendant to say that although he is not bound by the contract the other party is bound by the arbitration clause in it. I think that he has lost all right to insist upon compliance with the arbitration clause upon the ground that he has himself repudiated all liability under the contract.

28. I answer issue No. 1 by saying that the plaintiff is entitled to maintain this suit.


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