Skip to content


Jethalal C. Thakkar Vs. R.N. Kapur - Court Judgment

LegalCrystal Citation
SubjectContract
CourtMumbai High Court
Decided On
Case NumberAppeal No. 17 of 1955
Judge
Reported inAIR1956Bom74; (1955)57BOMLR1051; ILR1955Bom1083
ActsBombay Securities Contracts Control Act, 1925 - Sections 3(4) and 6; Indian Contract Act, 1872 - Sections 32
AppellantJethalal C. Thakkar
RespondentR.N. Kapur
Appellant AdvocateP.N. Bhagwati and ;K.S. Cooper, Advs.
Respondent AdvocateN.A. Mody and ;J.M. Thakore, Advs.
Excerpt:
.....act:--; that at the date when the contract was entered into there was no contract for purchase or sale of shares,;that contract only came into existence at the end of twelve months when the performance was either immediate or within a reasonable time, and ;that as the plaintiff was suing the defendant in respect of that obligation, his suit was not rendered bad by reason of the provisions of the bombay securities contracts control act, and the contract was valid and enforceable.; the inclination of every court must be in favour of validating rather than avoiding a contract, and when a law makes a contract void the court must strictly construe the provisions of that law. - - 1. this appeal raises a short and interesting question as to the construction and legality of a contract. as the..........the contract to purchase or sell shares, can it be said that this is a contract fr the purchase or sale of shares which comes within the mischief of the act? a very simple test that can be applied to this contract is this. can it be said that on 19-3-1948, there was a contract of purchase or sale of shares? if one were to put that question, the answer is obvious. there was no such contract.in fact it could not even be said on 19-3-1948, that there ever would be such a contract. whether there would be such a contract or not would depend entirely on what happened at the end of the year. if the defendant succeeded in getting the plaintiff's shares sold there would be no such contract. the learned judge, with respect, is right when he says that in order to determine whether a contract is.....
Judgment:

Chagla, C.J.

1. This appeal raises a short and interesting question as to the construction and legality of a contract. The respondent, who was the defendant in the suit, contended that the contract dated19-3-1948, on which the plaintiff filed the suit wasvoid by reason of the provisions of the Bombay Securities Contracts Control Act, Act 8 of 1925.The learned Judge accepted that contention anddismissed the suit.

2. The inclination of every Court must be in favour of validating rather than avoiding a contract, and when a law makes a contract void the Court must strictly construe the provisions of that law. The contract came to be entered into under the following circumstances. One Pillani wanted to convert the International Bank of India, Ltd., into a finance corporation and he wanted the sanction of the District Court for the purpose, and he wanted the co-operation of the plaintiff in this behalf and the defendant was asked to approach the plaintiff to give his assistance.

The plaintiff agreed to give his assistance, and as the plaintiff was the holder of 1000 ordinary shares of the International Bank of India, the agreement' in suit was arrived at and the operative part of the agreement dated 19-3-1948, is to the following effect: It is signed by the defendant and he gives an undertaking to the plaintiff to sell off for him, the plaintiff, 1000 ordinary shares of the bank at a price of Rs. 50 per share within 12 months from the date the bank is converted into a finance corporation, and if at the end of 12 months the defendant has not been able to sell off the shares for the plaintiff, he himself will take delivery of the 1000 shares and pay the plaintiff himself for the same the sum of Rs. 50,000 without interest. As the defendant failed to sell off the thousand shares within the time stipulated, the plaintiff filed the suit claiming damages on the strength of this contract.

3. The Bombay Securities Contracts Control Act, 1925, defines a ready delivery contract as a contract for the purchase or sale of securities for the performance of which no time is specified and which is to be performed immediately or within a reasonable time. The contention of the plaintiff was that this was a ready delivery contract.

The contention of the defendant on the other hand was that this was a contract which did not satisfy the definition of a ready delivery contract, and it is common ground that if the contract is not a ready delivery contract, it comes within the mischief of Section 6 of the Act and is void. Therefore, the question that we have to consider and determine is whether the contract in suit is a ready delivery contract bearing in mind the definition given in the Act.

The definition is very simple and very clear. If there is a contract for the purchase or sale of securities, then in that contract no time must be specified for its performance and the contract must be performed immediately or within a reasonable time. The test, therefore, we have to apply is first whether this is a contract for the purchase or sale of securities and whether it is to be performed within a specified time or whether no time is specified in the contract and the contract is to be performed immediately or within a reasonable time.

It will be noticed that the obligation undertaken by the defendant under the contract was to sell for the plaintiff his thousand shares at a price of Rs. 50 per share within 12 months from the date when the bank was converted into a finance corporation. He then promised in the case of the first event not taking place to take delivery of the thousand shares himself and pay the plaintiff the sum of Rs. 50,000. The plaintiff is not suing the defendant on the first part of thecontract. He is suing the defendant on the second part which has come into operation by reason of the fact that the defendant has failed to get the shares sold.

It is clear on a plain reading of this contract that no obligation attached with regard to the purchase of these shares on the part of the defendant until the contingency contemplated occurred after the lapse of 12 months. A clear distinction must be borne in mind between a case where there is a present obligation under a contract and the performance is postponed to a later date, and a case where there is no present obligation at all and the obligation arises by reason of some condition being complied with or some contingency occurring.

4. The contract before us falls into the second category. At the date when the contract was entered into there was no present obligation with regard to the purchase or sale of the shares. It was definitely not a case where a present obligation having been created the parties agreed to postpone the performance. The parties intended and made their intention clear by the language of the contract itself that there was no obligation upon the defendant to purchase these shares until the contingency contemplated took place.

The question, therefore, is whether when there is no present obligation at the date of the contract to purchase or sell shares, can it be said that this is a contract fr the purchase or sale of shares which comes within the mischief of the Act? A very simple test that can be applied to this contract is this. Can it be said that on 19-3-1948, there was a contract of purchase or sale of shares? If one were to put that question, the answer is obvious. There was no such contract.

In fact it could not even be said on 19-3-1948, that there ever would be such a contract. Whether there would be such a contract or not would depend entirely on what happened at the end of the year. If the defendant succeeded in getting the plaintiff's shares sold there would be no such contract. The learned Judge, with respect, is right when he says that in order to determine whether a contract is void or not we must look at the date when the contract was entered into, and that is exactly the test we are applying. II at the date when the contract was entered into there was no contract of sale or purchase of shares, it is impossible to suggest that at that date the contract was void because it came within the mischief of the Act.

The obligation contingently undertaken by the defendant to purchase the shares only ripened into a perfect obligation at the end of the year when the contingency took place. Therefore, it is only at the end of the year that there was a contract of purchase or sale, and when we look at the terms of that contract at the end of the year it is clear that the contract was to be performed immediately or within a reasonable time.

The contract would definitely have come within the mischief of the Act if the parties had provided that after the contingency occurred the performance was to be postponed for a particular time. But that the parties have not provided. Therefore, the intention of the parties was that there was to be a contract for the purchase or sale of shares on the occurring of a contingency, and as soon as the obligation ripened and a contract subsisted between, the parties, that contract was to be performed immediately or within a reasonable time.

5. Contingent contracts are an Interesting species of contracts over which learned authorshave devoted lot of time and thought, and there is a very striking passage in Salmond and Williams on Contracts, 2nd Edn., p. 53:

'What, then, does the expression conditional obligation really mean? The true answer would seem to be that a conditional obligation is not in truth a real obligation at all; it is merely the chance or possibility or potentiality of an obligation. The only real obligations are those which are absolute. But the chance or possibility or potentiality of an obligation is itself called an obligation by way of anticipation or prolepsis, and is distinguished from a genuine or absolute obligation by the qualifying epithet 'conditional'.

A conditional obligation, in other words, is a quasi-obligation consisting in the chance or possibility that a real obligation may already exist or may come into existence in the future. The fulfilment of the condition is the transformation of this potentiality into actuality. Conversely, the failure of the condition is the failure of this chance to become a fact'.

Therefore, the-obligation undertaken by the parties was only in the realm of potentiality. There was no certainty that the potentiality would become an actuality. It depended upon the lapse of one year and the defendant not being in a position to sell the shares of the plaintiff. It was only when that happened that the potentiality contemplated by the parties became an actuality-Therefore, it would not be true to say at all that at the date when this contract was entered into there was any complete obligation undertaken by the defendant to purchase the shares, and the contract of purchase or sale contemplated by the Bombay Act is a contract where there is a complete obligation to purchase or sell shares.

Mr. Mody has in the first place contended that the contract consists of two promises and both promises were given at the date when the contract was entered into, and if the second promise offends against the Bombay Act, then we must hold the contract to be void. There is a clear fallacy in this argument. At the date of the contract there were no two promises. There was one promise to sell the shares of the plaintiff. The other promise was contingent upon the first cot being carried out.

The defendant might never have been called upon to' perform the second promise' if the first promise was fulfilled, and, therefore, it would be erroneous to suggest either that there were two promises given by the defendant at the date of the contract or two obligations undertaken by him. The alternative argument advanced by Mr. Mody is that there are two alternative promises and again, therefore, one must judge of the validity of the contract at the date when it was entered into.

Again, there is a fallacy in this argument. It is not true to suggest that there are two alternative promises in the contract. Two alternative promises would mean that the promises would have the right and the option to decide which of the two alternative promises he should discharge. But the promisor had no such option. He had to discharge the first promise. Only if he failed to do that that he had to discharge the 2nd promise. Therefore, again, that is not a proper test to apply to this contract.

6. Mr. Mody then contended that in this contract the ' time of performance is mentioned. There is a specific time and the time is a year after the contract was entered into, and, therefore, according to him the contract does not satisfy the definition of a ready delivery contract given in the Bombay Act. When the definition speaks of a time specified for the purpose, it clearly means that the contract must lay down the time when it is obligatory upon the promises to perform the contract.

But when we start with this position that there is no obligation to perform at all at the date of the contract, it is impossible to contend that at that date there was a specified time prescribed in the contract for its performance. The question of the time for performance only arose after the lapse of one year when the obligation, as we have pointed out, ripened or was perfected and When one asks oneself the question 'what was the time for performance at that date?' the only answer to that question can be that the time for performance was immediate performance or within a reasonable time.

7. In our opinion, therefore, with respect to the learned Judge, he was in error when he looked upon this agreement as constituting a contract for purchase or sale of shares. In our opinion, at the date when it was entered into there was no such contract and that contract only came into existence at the end of 12 months when the performance was either immediate or within a reasonable time. As the plaintiff is suing the defendant in respect of that obligation his suit is hot rendered bad by reason of the provisions of the Bombay Act and the contract in our opinion is valid and enforceable.

8. The result is that the appeal succeeds and the decree passed by the learned Judge will be set aside. The suit will be remanded back for trial on the other issues. The respondent must pay the costs of the appeal.

9. Liberty to the' appellant's attorneys to withdraw the sum of Rs. 500 deposited in Court.

10. Appeal allowed.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //