Skip to content


Hemraj Shivlal Vs. Joharmal Ramkaran - Court Judgment

LegalCrystal Citation
SubjectContract
CourtMumbai
Decided On
Case NumberO.C.J. Appeal No. 15 of 1934 and Suit No. 943 of 1933
Judge
Reported inAIR1935Bom135; (1935)37BOMLR30; 155Ind.Cas.312
AppellantHemraj Shivlal
RespondentJoharmal Ramkaran
DispositionAppeal dismissed
Excerpt:
bombay cotton contracts act (bom. xiv of 1922) - bye-laws under the act--forward contracts in cotton--parties to contract not members of east india cotton association--such contracts not governed by the act or bye-laws made thereunder.;the bombay cotton contracts act, 1922, and the bye-laws made thereunder do not govern forward delivery contracts in cotton entered into in bombay between parties neither of whom is a member of the east india cotton association, ltd. such contracts are, therefore, valid even though they are entered into by word of mouth. - - the question there was whether the act took away w the power of a person to do business in cotton as he liked, and did the act johaemal prohibit cotton contracts between non-members ;and i held it did not. according to him one..........forward transactions in cotton inasmuch as they are not in accordance with the provisions of the bombay cotton act'. it is. common ground that the plaintiffs and the defendant were not, at all material times, members of the east india cotton association and that the plaintiffs acted as pakka adatias for the defendant in respect of these transactions. the contracts in question were verbal.2. the argument on behalf of the defendant is that even if the parties are not members of the east india cotton association, all contracts in cotton for forward delivery, if they are to be performed in bombay, must be entered into and carried out in accordance with the provisions of the bombay cotton contracts act, 1922. the simple question, as far as i can see,, which arises in this appeal, is,.....
Judgment:

Rangnekar, J.

1. This is an appeal from a judgment of Mr. Justice Mirza, by which the learned Judge passed a decree against the appellant in a suit brought by the respondents to recover the balance due at the foot of an account in respect of various transactions in cotton, linseed, wheat, etc., subsisting between them. Various defences were taken in the lower Court, but they are all now given up, and the only question which is raised on this appeal is, whether certain forward transactions in cotton are valid and binding on the defendant and whether he is liable in respect of those transactions to the plaintiffs. The learned Judge held that he was. The: issue in respect of these transactions is in these terms : 'Whether defendant is liable in respect of forward transactions in cotton inasmuch as they are not in accordance with the provisions of the Bombay Cotton Act'. It is. common ground that the plaintiffs and the defendant were not, at all material times, members of the East India Cotton Association and that the plaintiffs acted as pakka adatias for the defendant in respect of these transactions. The contracts in question were verbal.

2. The argument on behalf of the defendant is that even if the parties are not members of the East India Cotton Association, all contracts in cotton for forward delivery, if they are to be performed in Bombay, must be entered into and carried out in accordance with the provisions of the Bombay Cotton Contracts Act, 1922. The simple question, as far as I can see,, which arises in this appeal, is, whether the Bombay Cotton Contracts Act and the bye-laws made thereunder will govern a forward delivery contract, entered into between parties neither of whom is a member of the East India Cotton Association.

3. The same question arose before me when I was sitting on the original side-in Shantilal v. Kevalram1. It was then conceded that there was nothing in the language of the Act nor in that of any of the bye-laws which expressly prohibited a contract of this nature between persons neither of whom was a member of the East India Cotton Association. This is also conceded by Mr. Lalji for the appellant in this appeal.

4. It was argued in that suit that, having regard to the provisions In the Act including the preamble and the provisions of Section 2 of the Act and bye-laws 136, 139, 80, 81 and 82, contracts to deal in cotton between persons who are not members of the Association were void. In particular it was emphasised that bye-law 139 required that all contracts as defined under the O. C. J. Act must necessarily pass through the clearing house, which must lead to 1934 the conclusion that contracts between persons who are not members of the Association were void. The question there was whether the Act took away w the power of a person to do business in cotton as he liked, and did the Act JOHAEMAL prohibit cotton contracts between non-members ; and I held it did not. I -- also held that there was nothing in the bye-laws which prohibited any such Rangnekar J. contract. I there traced the history of the East India Cotton Association and considered the scheme of the Act and the various bye-laws and came to the conclusion that the bye-laws did not apply to any contract in cotton of forward delivery between parties who were not members of the East India Cotton Association, either expressly or impliedly, and that a contract in cotton to be carried out in Bombay between parties neither of whom was a member of the East India Cotton Association was not prohibited either expressly or impliedly. It is unnecessary to refer in detail to the reasons which I have set forth in my judgment in that suit. All I need state is that the view I then took was not challenged in appeal from the rest of the judgment, and I still adhere to that view.

5. Mr. Lalji tried to distinguish the nature of the question then raised from that raised by him in this appeal. I am unable to see any distinction, and the issue in that case:-which the Advocate General has just read over to us-leaves no doubt on the point and is identical with that which was raised before Mr. Justice Mirza in this case. Mr. Lalji says that any contract which is not in accordance with the bye-laws made under the Act by the East India Cotton Association is void. That, of course, as far as it goes, is correct. Then he says that the bye-laws deal with the formation and performance of the contract. He admits that there is no bye-law which prohibits the formation of a contract of this nature between non-members, but he says that as there are bye-laws relating to the performance of the contract and as all contracts in cotton are to be carried out in Bombay must be carried out in accordance with these bye-laws, it must follow that the Act and the bye-laws govern contracts between non-members.

6. It is difficult to follow this somewhat curious argument, but if I am right in holding that the Act and the bye-laws do not govern contracts between parties neither of whom is a member of the East India Cotton Association, then it is difficult to see how the bye-laws as to performance only in such a case would apply to such a contract.

7. One has only to look at one or two important bye-laws to ascertain whether the view I am taking is right or not. It is clear from the terms of bye-law No. 80 that it can only apply to the members of the Association. It is equally clear from the terms of bye-law No. 82 that it applies to contracts between a member and a non-member. But there is not a single bye-law which deals with or lays down the procedure both as regards the formation and performance of the contract between parties, both of whom are not members of the East India Cotton Association.

8. One other point is taken by Mr. Lalji that some of the transactions in the suit would be governed by the Bombay Cotton Contracts Act, IV of 1922. In the first place no issue was raised in the trial Court about this, and there is no clear evidence before us as to whether any transactions were .entered into after this Act came into force. But as Mr. Lalji finally conceded that even as to any such contracts the argument would be the same, the point need not be pursued further.

9. I think, therefore, the learned Judge came to the right conclusion, and this appeal must be dismissed with costs.

John Beaumont, Kt., C.J.

10. I agree that the appeal must be dismissed with costs. In my view the matter can be disposed of on a very simple ground. These contracts in suit are verbal contracts for the purchase or sale of cotton in Bombay, and the contention of Mr. Lalji for the appellant is that the contracts, although made between persons neither of whom are members of the East India Cotton Association, are void because it is not expressly provided that they are to be subject to the bye-laws of the Association. Now if the view of my learned brother is right-and I do not dissent from that view-that the bye-laws do not apply to contracts between non-members, the appeal necessarily fails. But if that view is wrong and the bye-laws do apply to the contracts in suit, then it seems to me that these bye-laws become part of the general law applicable to the contracts and these contracts have to be carried out with due regard to those bye-laws. But it is not necessary to express that provision in the contracts, as every contract must be carried out according to the law applicable to it, and the omission to mention in it that the same is subject to the bye-laws would not in any way invalidate it. Therefore it seems to me that whether or not the bye-laws apply to contracts between non-members, Mr. Lalji's attack upon the contracts based on the omission of a provision that they are to be carried out in accordance with the bye-laws fails. There is no provision in the Bombay Cotton Contracts Act making such a provision in the contract essential. I think on that ground the appeal fails.

1 Rangnekar, J.

I propose first to deal with the contention as to whether the contracts prior to August 6, 1928, are void under the Bombay Cotton Contracts Act, 1922, on the ground that neither the plaintiffs nor the defendants were members of the East India Cotton Association at all material times,

Shortly put, the argument of Mr. B.J. Desai, who appears on behalf of defendant No. 1, is that having regard to the provisions of the Act, including the preamble, and in particular to the provisions of Section 2 of the Act and the bye-laws 136,139, 80 and 81, a contract to deal in cotton between persons who are not members of the Association, is void. He says that the provisions in bye-law 139 require that all contracts as defined by the Act must necessarily pass through the clearing house, and this fact leads to the conclusion that contracts made between people who are not members of the Association are void. According to him one exception to bye-law 139 is in the case of contracts in ready goods and the other exception is in bye-law 81.

It is well-known that before the passing of the Bombay Cotton Contracts Act the trade in cotton in Bombay was to a great extent controlled by the East India Cotton Association, but that body had no statutory recognition, and its rules were binding only on its members. The Association had no control over non-members, who as members of the public could carry on and did carry on business in cotton under the general law. Therefore, the first question which arises is, does the Act now take away the power of a person to do business as he likes in cotton, and does the Act prohibit cotton contracts between non-members Now, in determining what falls within the scope of a statute, the law raises a presumption that in the absence of express language to the contrary the Legislature did not intend to abrogate the ordinary rules of law. The statutes which limit or extend the common law rights must be expressed in clear and unambiguous terms. It is conceded and it is clear that there is nothing in the language of the Act which expressly prohibits a contract between non-members, and it is further conceded and is clear that there is nothing in the bye-laws which has that effect. But Mr. B.J. Desai wants me to hold that such prohibition is implied or raised by implication from the provisions of the Act and the bye-laws made thereunder. The first answer, in my opinion, is that the statute is clear and therefore no such implication can be made. An authority for this proposition would be found in Philpott v. President and Governors of St. George's Hospital (1857) 6 H.L. 338 cited by Mr. Munshi. Apart from this, the question is, can such an implication be made and does it arise?

The East India Cotton Association was incorporated by the Bombay' Act XIV of 1922. The Act recites that it is expedient to provide for the regulation and control of transactions in cotton in Bombay. Section 2 defines a contract as 'a transaction in cotton to be carried out in whole or in part in Bombay'. Section 3 empowers the Board of Directors of the Association to make bye-laws for the regulation and control of transactions in cotton subject to the sanction of the Governor in Council. It will be seen that in connection with the point raised, clauses (a), (e), (g), (h) and (m) of Sub-section (7) of Section 3 are important. Under sub-clause (a) the bye-laws to be made are for the purpose of providing for the establishment of a clearing house for the periodical settlement of contracts or differences thereunder. Clause (e) gives power to the Board to fix and declare market rates and to make them binding for all purposes 'upon every one dealing in such cotton.' This, therefore, is a provision empowering the Board to make a bye-law in this respect which will bind non-members of the Association. The terms of clause (g) also show that the Board has power to regulate the making, performance and cancellation of contracts between various classes of persons some of whom may be non-members of the Association and some may not even be parties to the contracts. Clause (h) prohibits specified classes or types of dealing by a member of the Association. Therefore, under this clause the Board has the power of prohibiting certain kinds of business but this power can only be exercised against a member of the Association. Lastly, clause (m) gives power to the Board to regulate the course of business between parties to the contracts in any capacity whether they be members of the Association or not. This clearly gives the Board power to make a bye law binding on non-members of the Association. Then comes Section 5 which !n terms applies to persons who are not members of the Association. It presupposes that a contract made between non-members would be valid unless it contravenes any bye-laws made by the Board.

This brief summary will show that, as far as the Act goes, there is no prohibition as regards business in cotton or transactions in cotton being carried out in Bombay even if such business is done by persons who are not members of the Association. It further shows that where it was intended by the Legislature to empower the Association to affect or control the business between non-members, such an intention has been clearly expressed and special power conferred upon the Association for that purpose. It will also be seen that a power to prohibit some dealings is conferred upon the Association, but only as between members of the Association. Finally, it will be seen from Section 5, that a contract as defined by Section 3 is void only if it contravenes any of the bye-laws made under the Act. If it was the intention of the Legislature that nobody who is not a member of the Association should enter into dealings in cotton in Bombay, I am unable to understand why the Legislature should not have used apt language to carry out that intention, as it has done in some analogous statutes, e.g., in the Bombay Securities Contracts Control Act (Bom. VIII of 1925).

A perusal of the bye-laws would show that broadly speaking they fall in three divisions, viz., bye-laws for the making of contracts, bye-laws for settling the disputes between the parties to the contracts, and, lastly, bye-laws for the payment of differences or adjustments of liabilities between the parties to the contracts. The point to note is that there is no bye-law which in terms says that two persons who are not members of the Association cannot do business in cotton. The bye-laws which relate to the making of contracts, to which it is unnecessary to refer in detail, show that in certain cases contracts may be made between members and non-members. As regards such contracts, however, neither the Act nor the bye-laws have provided any machinery for the payment of differences or adjustments of the liabilities except by means of the provision as to arbitration in certain cases. The rules as to making of the contracts as well as the settlement of disputes in cases of contracts between members and non-members are the same as in the case of contracts between members of the Association. But a distinct provision is made for payment of differences and adjustment of liabilities in the case of contracts between members of the Association ; and shortly put, the provision is that all such contracts must pass through the clearing house. There is no corresponding provision in the case of contracts between a non-member and a member or between two non-members.

I now come to bye-laws 80 and 81, and 136 and 139, which have been relied upon by Mr. Desai as impliedly prohibiting contracts between persons who are not members of the Association. It is clear on the authorities to which my attention has been drawn that bye-law 80 only applies to the case where parties to the contract are members of the Association. As to bye-law 81 there is a judgment of Mr. Justice Kemp, which lays down that this bye-law applies to contracts between members one of whom is an agent and the other his constituent and in the case of contracts one party to which at least is a member, and does not apply to contracts between parties neither of whom is a member. The actual decision in the case to which I have referred was that no contract in writing in the form given in the appendix to the bye-laws was necessary in the case of parties who are not members of the Association. Bye-law 136 applies in terms to members of the Association. Bye-law 139 runs as follows :-

'All delivery contracts and Hedge Contracts shall be subject to periodical settlements through the Clearing House and in every case the parties to the contracts must be members of the Association...'

It is conceded that this bye-law in terms applies only in the case of members ; but the argument is that the bye-law makes it clear that all delivery contracts and hedge contracts must pass through the Clearing House, and necessarily raises an implication that a contract which cannot pass through the Clearing House must be void. Now, in the first place, the contracts referred to in bye-law 139 are the same as those referred to in bye-law 80, and as that bye-law refers to contracts between members only, it must follow that the delivery contracts and hedge contracts to which bye-law 139 applies must be contracts between members only.

The term 'Clearing House' referred to in bye-law 139 is defined in bye-law 1 (at page 2) to mean 'the premises where and the system by which the claims and liabilities of members to each other in respect of cotton business and their liabilities to the Association are received, adjusted and paid.' It seems therefore that the 'contracts' in the bye-law 139 as also those in bye-law 136 must be 'contracts' between members only. Therefore, it seems to me that the bye-laws relied upon are applicable only in the case of contracts between members only, and it is only in the case of members that payments of differences can be made or liabilities adjusted through the Clearing House. The only exception is in bye-law 81 in that in cases of contracts between a non-member and a member, the contracts are to be in writing, and such contracts are subject to the bye-laws with the exception of bye-laws 130 to 166. In these cases therefore the rights and liabilities have to be adjusted under the general law. It is for this reason that the forms of contracts given in the appendix to the bye-laws are differently worded. In the forms of contract between members, there is no provision printed therein for either payment of margin money or for a compulsory arbitration, as you find in the case of the form between a member and a non-member. In the case of a contract between persons who are non-members, and in the case of a contract between two persons one of whom is a member and the other a non-member, what is generally done is to insist upon the payment of margin money, and in default of such payment, the contracts are closed. In my opinion, therefore, there is nothing in the Act, or the bye-laws made under it, prohibiting contracts between non-members, and therefore the contracts in question, although they were between persons who were not members of the Association, are not void.


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