Skip to content


Hirji Bharmal Vs. Bombay Cotton Ltd. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtMumbai High Court
Decided On
Case NumberAppeal No. 11 of 1956
Judge
Reported inAIR1958Bom411; (1957)59BOMLR4; ILR1957Bom163
ActsBombay Forward Contracts Control Act, 1947 - Sections 1(3), 3, 6, 6(2), 6(3), 7, 8, 8(1), 10, 11 and 15; Forward Contracts (Regulation) Act, 1952 - Sections 11(3), 15(2) and 15(4); Code of Criminal Procedure (CrPC) , 1898; Sale of Goods Act, 1930 - Sections 42, 54(2) and 56; Defence of India Rules, 1922; Defence of India Act - Sections 5
AppellantHirji Bharmal
RespondentBombay Cotton Ltd.
Appellant AdvocateK.T. Desai and ;M.R. Mody, Advs.
Respondent AdvocateAdv. General and R.J. Joshi, Adv.
Excerpt:
bombay forward contracts control act (bom. lxiv of 1947), sections 8, 6, 7, 10 - east india cotton association ltd., by-law 80--bombay cotton contracts act (bom. xiv of 1922), section 5--bombay cotton contracts act (bom. iv of 1932), section 8--forward contracts (regulation) act (lxxiv of 1952), sections 11(3)(a), 12(2) & (4)--forward delivery contracts, within by-law of association, in requisite form but not bearing signature of buyer as required by by-law--whether such non-compliance with by-law renders contracts illegal and unenforceable.;contracts for the sale of cotton which were forward delivery contracts within the meaning of by-law 80 framed by the east india cotton association ltd. entered into by the plaintiffs who were not members of the association and the defendants who.....m.c. chagla, c.j.1. the suit out of which this appeal arises is based on three contracts by which the plaintiffs agreed to sell cotton to the defendants. the first contract is dated '18th december, 1951 and by this contract the plaintiffs sold 500 bales of bengal deshi cotton at rs. 640/- per candy f. o. r. bombay. the second and the third contracts are of even date 22nd december, 1951. by the first of these two contracts the plaintiffs sold 2145 bales also of bengal deshi cotton at rs. 627/- per candy f. o. r. bombay, and by the second they sold 1000 bales at rs. 627/- per candy f. o. r. bombay.2. the main dispute with regard to these two contracts between the plaintiffs and the defendants was that according to the defendants this cotton was to come from pcpsu region and the cotton was.....
Judgment:

M.C. Chagla, C.J.

1. The suit out of which this appeal arises is based on three contracts by which the plaintiffs agreed to sell cotton to the defendants. The first contract is dated '18th December, 1951 and by this contract the plaintiffs sold 500 bales of Bengal Deshi Cotton at Rs. 640/- per candy F. O. R. Bombay. The second and the third contracts are of even date 22nd December, 1951. By the first of these two contracts the plaintiffs sold 2145 bales also of Bengal Deshi Cotton at Rs. 627/- per candy F. O. R. Bombay, and by the second they sold 1000 bales at Rs. 627/- per candy F. O. R. Bombay.

2. The main dispute with regard to these two contracts between the plaintiffs and the defendants was that according to the defendants this cotton was to come from Pcpsu region and the cotton was to be accepted by the defendants on buyers' selection, i.e. their selection. As against this the plaintiffs' contention was that this cotton was to be of Dhuri Line and was to be of 'fair average quality'. The plaintiffs relied in the suit on contracts which according to them were in writing and in the written contracts on which they relied these two terms appear, viz., that the cotton was to be of Dhuri Line and was of fair average quality. The defendants contended that the contracts were oral, that they had never been reduced to writing, and they also contended that the contacts had not been signed by the parties. They therefore urged that the contracts were void and unenforceable. It appears that up to 28th January, 1952 samples with regard to 1015 bales in respect of the three contracts had been approxred by the defendants. On 29th January, 1952 the contract notes in respect of these three contracts were sent by the plaintiffs to the defendants and these contract notes, as already pointed out, contained the two terms which were in dispute between the parties. On 29th January, 1952 the defendants wrote to the plaintiffs pointing out :

'Regarding the quality your contracts state Bengal Deshi Dhuri Line, whereas our purchases are Bengal Deshi Pepsu Line.

Secondly, regarding the selection your contracts state Fair Average Quality, whereas our purchases are Buyers' Selection.

We are returning herewith the contracts in question and request you to send us at your earliest amended contracts.'

It seems that Barot, who was a director of the plaintiffs' firm and who was attending to these transactions, left Bombay for Cairo in the first week of January and on 8th February, 1952 he returned, and the plaintiffs' case was that in the second week of February there was an interview between Barot and Hirji, a partner of the defendants' firm, and at this interview the controversy raised by the defendants with regard to these two terms was settled and Hirji accepted the terms as embodied in the contract notes. Thereafter 450 bales were delivered by the plaintiffs to the defendants and were paid for by the defendants. 815 bales out of the second and third contracts were also delivered and paid for. On 10th April, 1952 a railway receipt for 1110 bales was sent by the plaintiffs to the defendants, The plaintiffs' case was that the defendants were in financial difficulty and they requested the plaintiffs to keep these bales in their godown. The plaintiffs acceded to the request of the defendants and removed the bales from the railway yard and kept them in their godown. After that the goods were surveyed, but after the survey the defendants failed lo pay for these goods. Thereupon the goods were re-sold by the plaintiffs and the plaintiffs claimed in respect of these 1110 hales the difference between the price realised on the re-sale and the price of the goods. They also claimed in respect of these 1110 bales demmurage and what is technically known as carrying charges which includes muka-damage and rent for the godown. 1270 bales under these three contracts still remained. Out of these delivery was taken by the defendants of 45 bales of Patti East Punjab Cotton, and there is no dispute with regard to these bales in the suit. With regard to the balance of 1225 bales, transport permits, which had to be obtained by the defendants and sent to the plaintiffs so that the plaintiffs could rail these goods, were not sent. Of these 1225 bales samples were approved by the defendants with regard to 415 bales and with regard to 810 bales the samples were not approved and the plaintiffs claimed damages for breach of the contract with regard to these 1225 bales. The learned Judge held that the contracts were in writing, that although they were not signed that fact did not render the contracts illegal, & therefore they were enforceable. He held that the date of the breach was 25th April, 1952. With regard to re-sale he came to the conclusion that the re-sale was not binding on the de-fendants because they had been sold long after the notice for re-sale was given, and therefore he held that damages with regard to these 1110 hales should be assessed on the basis that the breach had taken place on 25th April, 1952. He also held that with rc-gard to 1225 bales the defendants had committed a breach by repudiating the contract with regard to these bales and directed the Commissioner to assess damages for the breach of the contract with regard to these 1225 bales on the basis of the breaeh being on 25th April, 1952. He also gave a direction to the Commissioner that reasonable charges should be assessed for Mukadamage and the rent of the godown with regard to 1110 bales. It is from this decree of the learned Judge that this appeal is preferred.

3. Before we turn to the question of law, which is really the substantial point in this appeal, we might briefly dispose of the question of fact, and the question of fact is whether the two contract notes annexed to the plaint embody the actual terms of the contract arrived at between the parties, and the second question is whether on the facts of the case it could be said that the contract was a written contract. The contract was actually entered into by a salesman of the plaintiffs and the defendants. The plaintiffs' salesman was one Chandrasen and the defendants' salesman was Umersi, and the learned Judge in his judgment has preferred the testimony of Chandrasen to that of Umersi. He has also accepted the evidence of Barot as to what transpired at the interview between him and Hirji, and if that evidence is to be accepted it is clear that Hirji withdrew the objections be had raised to these two terms of the contract and accepted the terms embodied in the contract notes sent by the plaintiffs. it is perfectly true that after this interview the contract notes were not sent back by the plaintiffs to the defendants and a point has been raised by Mr. Dcsai that as the contract notes were not sent back and were not accepted by the defendants, the contract could not be said to be a contract in writing. in our opinion, that is not the true position. if we are to accept the evidence of Barot -- and we see no reason to differ from the learned Judge in his appreciation of this witness' testimony, -- then the position is clear that the terms of the contract were reduced to writing, that the written contract was sent to the defendants, and the defendants raised a dispute with regard to some of its terms. When that dispute was settled between Barot and Hirji, then the defendants accepted the written contract, and the mere fact that the contract notes were not again submitted to the defendants and continued to remain with the plaintiffs cannot in any way alter the legal position. Barot has explained the reasons why these contract notes were not returned to the defendants for their signature after the interview. He says that it was left to some clerk to return the contracts and either due to the negligence or dishonesty of that clerk the contract notes were not returned to the defendants. On the question as to whether the defendants' version with regard to the actual terms of the contract or the plaintiffs' version should be accepted, to a large extent the question turns on appreciation of oral testimony and of considering the demeanour of witnesses, and as already pointed out, the learned Judge has preferred the evidence of Chandrasen to that of Umersi. With regard to the interview, unfortunately Hirji was dead at the date of the trial, but the evidence put forward is that of his son Damjibhai. The learned Judge was not at all impressed by the evidence of Damjibhai and he has accepted the evidence of Barot as to what transpired at the interview. If, therefore, the evidence as to interview of Barot is accepted, it is clear that the terms of the contract between the parties were those as embodied in the contract notes sent by the plaintiffs to the defendants and annexed to the plaint.

4. With regard to the two terms which were in dispute between the parties, it seems strange that there should have been any dispute at all with regard to the first term. As already pointed out, the defendants' case was that the cotton that was to be supplied was from Pepsu region and the plaintiff's case was that it was to be supplied from Dhuri Line. Now, let us try and elucidate this particular controversy between the parties. It seems cotton from Pepsu comes from three circles, Patinda Dhuri and Narvani. If Dhuri was itself in Pepsu region, it is difficult to understand why the plaintiffs should insist that their term, viz., that the cotton was to be of Dhuri Line, should he accepted rather than the term suggested by the defendants, viz., Pepsu region, because even if the term of the contract was that the cotton was to be from Pepsu region, if cotton was supplied from Dhuri Line, then inasmuch as Dhuri was in Pepsu it would be in compliance with the contract. The controversy, therefore, seems to be perfectly fatuous and futile. But Barot has given an explanation as to why this controversy arose. He says that he wanted to sell cotton from Dhuri Line because they had a large staff in Dhuri area, secondly, most of the crop of Bengal Deshi cotton was grown on the stations on Dhuri Line and thirdly, his experience of cotton on Dhuri Line was more extensive than cotton of other lines. It may also be as suggested by that witness, that Hirji might not have known that Dhuri was in Pepsu and therefore he was insisting on Pepsu cotton, whereas the defendants for reasons suggested by Barot wanted to make it clear that the cotton they were going to supply was of Dhuri Line, and Barot points out that at the interview when he explained to Hirji that Dhuri Line was in Pepsu region he said that he had no objection to that term, and he acids that even an experienced merchant would not know what places are, or are not, in the Pepsu region. Therefore, apart from the oral testimony of Barot, looking to the probabilities of the case it is clear that Hirji would have been a particularly unbusiness-like man if he had not accepted the term that the cotton should be from Dhuri Line and not from Pepsu region as suggested by the defendants.

5. With regard to the fair average quality, that was undoubtedly a more substantial point of dispute between the parlies, and Barot has pointed out that very few contracts contain the term 'Buyers' Selection', which means according to him 'cotton which the buyer likes', and he has pointed out that most of the cotton grown in which the plaintiffs were interested was more or less of the same quality and therefore no possible prejudice could be caused to the sellers by the expression 'fair average quality.' The main criticism that Mr. Desai has offered against our accepting the evidence of Barot with regard to the interview is that in the evidence Barot stated that after the dispute with regard to these two terms was settled, Hirji asked him to send back the contracts, and Mr, Desai says that in para 7 of the plaint this important circumstance in the interview has not been either mentioned or referred to. and therefore what Mr. Dcsai suggests is that the oral evidence of Barot is a clear improvement on the case as regards the interview pleaded in the plaint. In our opinion, the important aspect of the interview according to the plaintiffs case was that Hirji had withdrawn the objections taken by the defendants to the two terms as referred to in the letter of 29-1-1952 and that particular aspect is clearly and fully set out in para 7 of the plaint. A plaint is not an affidavit and the law does not require that the evidence to be given by the plaintiffs should be set out in the plaint, and therefore if all the details of the interview as deposed to by Barot were not stated in para 7, that doss not detract from the truth of the plaintiffs' story or from the Court preferring the plaintiff's testimony with regard to the interview to that given by the defendants. Mr. Desai has also drawn our attention to the correspondence and he has pointed out that even in the correspondence it was nowhere stated by the plaintiffs that Hirji had stated at the interview that the contract should be sent back. Now, the very first letter with regard to the interview, which is dated 30-4-1952, written by the plaintiffs to the defendants, makes it amply clear as to what the case of the plaintiffs was with regard to this interview. In the penultimate Para of this letter the plaintiffs say:

'You have conveniently mentioned 'Buyers' Selection' in your letter under reply, which is wrong to your own knowledge. When you made the reference in your letter of 29-1-1952, we immediately contacted you and you agreed that it was wrong. After tins you tcok the samples and had them surveyed claiming full allowance. In this manner you have already approved about 2790 bales out of the total quantity of 3645 bales. Therefore, there is no question of 'Buyer' Selection' arising and you should not reopen a closed chapter.'

Mr. Desai has also drawn our attention to the statement of the plaintiffs before the arbitrators when the dispute between the parties was referred to arbitration, which arbitration ultimately proved abortive, and in that statement also the interview is referred to and the plaintiffs say that they explained to' the defendants that Dhuri Line is itself in Pepsu and regarding their objection for selection 'we told them that the basis of our sale was Fair Average quality of the season to he approved from our substantially large stock lots then lying in up-country.' They also said: 'Our contention as to 'Fair Average quality' having been agreed to by Hirji Bharmal, samples from our stocks were sent to them and they approved.....' Therefore, it would not be frue to say that the interview to which Barot deposed was an after-thought or was an invention readily resorted to by the plaintiffs, because Hirji was dead and could not contradict Barot. From the very beginning the plaintiffs have consistently taken up the attitude that the objections raised by the defendants in their letter of 29th, January were ultimately withdrawn and Hirji was persuaded to accept the contracts as submitted to I he plaintiffs and which contracts had been returned by Hirji to the plantiffs. Mr. Desai has relied on the circumstance that although according to the plaintiffs the term of the contract was fair average quality, samples wore actually sent by the plain-tiffs and approved by the defendants from time to time. It is clear that the object of sending these samples by the plaintiffs and the approval of these samples by the defendants was that when the goods arrived, under the By-laws of the East India Cotton Association a survey could be held and allowances could be given to the buyer if the goods tendered in any way differed from the samples approved by the defendants. Therefore, the sending of the samples by tho plaintiffs and the approval of the samples by the defendants does not in any way militate against the case of the plaintffs that the term of the contract with regard to the contract goods was fair average quality and not buyers selection.

6. We, therefore, accept the learned Judge's finding that the terms embodied in the contracts annexed to the plaint were the terms arrived at between the parties. We also accept the learned Judg's finding as to what transpired at the interview between Barot and Hirji, and in view of that we are of the opinion that the learned Judge was right when he took the view that the contracts in suit were written contracts and not oral contracts as alleged by the defendants.

7. That brings us to the validity of these contracts and the validity is challenged on the ground that these contracts are not in accordance with by-law 80. That by-law provides that delivery contracts between members acting as principals or between a member acting as a principal and a non-member shall be made in the form provided in that behalf and contained in the Appendix (Form A), and the contracts we are dealing with in the suit are forward delivery contracts within the meaning of by-law SO. The contracts which are annexed to the plaint are in the requisite form, but they do not bear the signature of the buyer. The contract has to be in two counterparts one part has to be signed by the seller and the other by the buyer, And the defect in the contracts relied upon by the defendants is that as buyers they never signed these contracts and therefore there was a non-compliance with by-law 80. We agree with the learned Judge that the signature of the buyer in the form of the contract is an important and essential characteristic of the form and although the form may comply with every other requisite, i it fails to comply with this important requisite, viz., that it does not bear the signature of the buyer, then the contract cannot be said to be in the form piovided in Appendix (Form A) to by-law 80.

8. The question then arises, what is the effect of a contract being entered into which is not in compliance with a by-law of the East India Cotton Association, and what is urged by the defendants, and what has been strongly pressed before us by Mr. Desai is that the result is to render the contract illegal and unenforceable, and therefore wen jf the defendants have committed a breach of the contract, the plaintiffs are not entitled ,to any relief on the basis of these contracts. Now, from time to time both the State Legislature and the Union Legislature or the Central Legislature, as. It was, has attempted to regulate and control forward business in various commodities. Apart from the position that obtained under the Defence of India Rules, in 1922 Act XIV was passed by the Bombay Legislature and Section 5 of that Act provided:

'Any contract (whether either party thereto is a member of the association or not) which is entered into after the date on which the by-laws of the Association are sanctioned by the Governor-in-Council and published in the Bombay Government Gazette arid which contravenes any such by-law shall be void.'

The Association there referred to meant the East India Cotton Association and the provision of the law was the framing of the by-laws of the Association, sanctioning of those by-laws by the Governor-in-Council, and if the contract contravened any of such by-laws it was void. That Act was for the purpose of controlling and regulating forward transactions in cotton. Then came Act 4 of 1932 and Section 8 provided :

'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 by-laws of any recognised cotton association shall be void.'

This Act also was passed to provide for the better regulation and control of transactions in cotton in Bombay and the provision in Section 8 is almost identical with the provision in Section 5 of the earlier Act, except for a slight change in language which is not a change of substance. Then we come to Act 44 or 1947 with which we are concerned. Undoubtedly, this Act was much wider in its scope. It did not deal merely with cotton, but the Act was to apply to any commodity notified and it was intended generally for the control of forward contracts and also for prohibition of options and for certain other purposes. This Act was applied to cotton on 1st April, 1948. The East India Cotton Association was recognised for the purpose of this Act under Section 3, and Section 8 of this Act corresponds to Section 5 and Section 8 of the two earlier Acts, and what this section provides is :

'(1) Every forward contract for the sale or purchase of, or relating to, any goods specified in the notification under Sub-section (3) of Section 1 which is entered into, made or to be performed in any notified area shall be illegal if it is not entered into, made or to be performed

(a) in accordance with such by-laws, made under Section 6 or 7 relating to the entering into, making or performance of such contracts, as may be specified in the by-laws, or

(b) (i) between members of a recognised association,

(ii) through a member of a recognised association, or

(iii) with a member of a recognised association, provided that such member has previously secured the written- authority or consent, which shall be in writing if the by-laws so provide, of the persons entering into or making the contracts, and no claim of any description in respect of such contract shall be entertained in any Civil Court.' Then Sub-section (2) provides that

'Any person entering into or making such illegal contract shall, on conviction, be punishable with imprisonment for a term which may extend to six months or with fine or with both.' The contention urged before us by Mr. Desai is that the contracts in suit are not in accordance with the by-laws of the East India Cotton Association and therefore they are illegal.

9. Now, in order to put a proper construction on the language used by the Legislature in Section 8 it is cecessary to turn to an earlier section & that is Section 6 & that section deals with the power of a recognised association to make, add to, vary or rescind by-laws. Sub-section (2), which is without prejudice to the' generality of the power conferred upon the Association by Sub-section (1), sets out certain, particular matters with regard to which the by-laws may provide, and Sub-section (3) provides :

'The by-laws may provide that the contravene lion of any of the by-laws shall

(i) make a contract which is entered into,, made or is to be performed otherwise than in accordance with the by-law void or illegal;

(ii) render the member liable to expulsion, suspension, fine or other non-monetary penalty.'

Now, the by-laws of the East India Cotton Association have not made any contract which is entered into, made or to be performed otherwise than in accordance with any by-law void or illegal. It will bu noticed that the by-law may render a contract void or it may render it illegal, but no such by-law in fact has been passed by the East India Cotton Association. Section 7 confers upon the Provincial Government power to make by-laws for all or any of the matters specified in Section 6 and Government also has not passed any by-law renderiiitf any contract void or illegal. But what is urged by Mr. Desai is that although a by-law may not have been passed by the Association under Section 6 or by Government under Section 7, rendering the contracts in suit void or illegal by reason of their not complying with by-law 80, even so by reason of Section 8 (1) itself these contracts have been rendered illegal and unenforceable. Therefore we are called upon to construe Section 8 in the light of Ss. 8 and 7, and when we-turn to that section, again the first point which, strikes us is the difference in language between' Section 8 and Section 5 in the Act 14 of 1922 and Section 8 in Act 4 of 1932. Whereas in these two Acts the contracts were rendered void if they contravened any by-laws or were not in accordance with any by-law, Section 8 of the Act of 1947 renders only those contracts illegal which are not in accordance with not all by-laws but such by-laws as may be specified in the by-laws of the Association itself. Therefore, ii is clear that Section 8 does not render a contract illegal which contravenes or is not in accordance with any by-law framed by the association. It draws a distinction between the by-laws, the contravention of wliich would render a contract void or illegal, and the by-laws, the contravention of which will not render a contract void or illegal.

10. Now, in order to arrive at a true construction of Section 8 (1) we have to ask ourselves what are the by-laws, the contravention of which would render the contract illegal, because when the Legislature uses the language 'such by-laws', that expression must be followed by explaining what 'such' means, and that is explained by what follows, viz., 'as may be specified in the by-laws'. Therefore it is clear that 'as may be specified in the by-laws' qualifies 'such by-laws', and the by-laws, the contravention of which would render the contract illegal, are those by-laws which are specified in the by-laws themselves. This construction runs parallel with what the Legisiature has provided in Section 6 (3) because the Legislature having provided in that section that the by-laws may provide that the contravention of any of the by-laws may make a contract void or illegal, proceeds to enact Section 8 and piovides that if in exercise of the power conferred upon an association under Section 6 (3) a by-law has been framed which renders any contract illegal, then that contract would be illegal under Section 8 with the consequences that are set out in that section. It will be noticed, as already pointed out, that Section 6 (3) deals with both void and illegal contracts. Section 8 deals only with illegal contracts and it lays down the consequences of an illegal contract, and the first consequence is that no claim of any description in respect of such contract shall be entertained in any civil Court, and the other is a penal consequence set out in Sub-section (2), which as already pointed out renders a person who enters into or makes such an illegal contract liable to be convicted and to be punished with a term of imprisonment. The other distinction, again of considerable importance, between Section 8 of the Act of 1947 and Sections 5 and 8 of the two previous Acts will also become noticeable. In both the two earlier Acts the contracts were only rendered void, they were not rendered illegal, and a person entering into a void contract under the two earlier Acts did not render himself liable to any penal consequence. Therefore, in construing Section 8 we must bear in mind that we are construing a penal provision in an Act and we must construe it strictly in favour of the subject so as to bring within the mischief of Section 8 only those contracts which the clear and unambiguous Janguage of Section 8 can bring within it; and in our opinion on a plain grammatical construction of Section 8 it is clear that if there is no by-law framed by the East India Cotton Association which renders a contract illegal, that contract cannot be illegal by reason of the provisions of Section 8. Section 8 must be construed in the light of Section 6 (3) or Section 7, and if there is no by-law which could be pointed out which renders the contracts we arc considering illegal, then Section 8 proprio vigore would not render these contracts illegal,

11. Mr. Desai has suggested one or two constructions of Section 8 which he says we must accept in order to escape the rather startling conclusion that although contracts were rendered void under the old Acts, the contracts we are considering should be held to be enforceable under the present law. It would be wrong, in our opinion, to strain the language of Section 8 in order to render the contracts illegal which would be otherwise valid and to render the parties to the contract liable to punishment referred to in Sub-section (2) of Section 8. Such a method of construction would not be open to us even if we were dealing with a question of a void contract, much less so when we are considering the language of a statute which renders a contract illegal, and after having carefully examined the argument advanced before us by Mr. Desai we refuse to depart from the plain grammatical words used by the Legislature and twist and turn the language of the section in order to fit it into a preconceived notion that the Legislature intended to render these contracts illegal. What is suggested by Mr. Desai is that the expression 'as may be specified' refers to entering into, making or performing of such contracts and that what the Legislature wanted to make clear by using this expression was that the illegality will only attach provided the by-laws relate to entering into, making or performance of the contract. If that had been the intention of the Legislature, then that intention was already carried out when it enacted 'made under Section 6 or 7 relating to the entering into, making or performance of such contracts'. That intention could have been simply expressed by stating, 'in accordance with the by-laws made under Section 6 or 7 relating to the entering into, making or performance of such contracts'. The tautology suggested by Mr. Desai was entirely unnecessary, but if we were to accept Mr. Desai's construction, not only we would be holding the Legislature guilty of unnecessary tautology, but also we wilt have to wrench the expression 'as may be specified' from its proper syntax. There is a coma after 'in accordance with such by-laws,' and then comes the parenthetical clause 'made under Section 6 or 7 relating to the entering into, making or performance of such contracts', and then comes the expression 'as may be specified in the by-law'. What Mr. Desai wants to do is to take the expression 'as may be specified', which is outside the parenthetical clause, into the parenthetical clause and give the construction to it which he wants. If it is once accepted, as must he accepted, that 'as may be specified' qualifies 'such by-laws', then it is clear lhat it is not the contravention of every by-law which renders the contract illegal, but only such by-laws as are specified in Sub-section (1) of Section 8.

12. It is then urged by Mr. Dssai that it would not be proper for us to hold that the Legislature could delegate to an association under Section 6 (3) the power to declare a particular contract illegal. It is the function of the Legislature, which it cannot abdicate, to determine whether certain act or acts are illegal and should be rendered penal. Now, we are not here concerned to decide whether the power conferred upon the Association under Section 6 (3) is a proper delegation on the part of the Legislature to the Association. But we find it difficult to understand what difference there is between the Association declaring a particular contract illegal and the Legislature accepting that position under Section 8 and providing for the consequences of the illegality, and the Legislature under Section 8 declaring that a contract which is not in accordance with the by-law shall he illegal, because even so the framing of the by-laws would be left to the Association, and to that extent there would be as much delegation on Mr. Desai's reading of Section 8 as under the provisions of Section 6 (3).

13. Our attention is then drawn to Section 10 which provides for penalty for owning or keeping a place used for entering into forward contracts in. contravention of the Act and various acts in aid or abetment of the entering into a forward contract are rendered illegal and liable to punishment, and it is said by Mr. Desai that if Section 10 is any indication of the policy of the Legislature, then we would be defeating that policy if we were not to give effect to Section 8 and hold that these particular contracts are illegal. It is one thing for the Court to held the Legislature in achieving a particular social objective, it is very different to hold a contract, which is the result of consensus of the parties to it, not only void but illegal in order to give effect to the supposed objective that the Legislature had at heart. Whatever the construction of Section 10 may be, it cannot be requisitioned for the purpose of construing Section 8 so as to render what on its plain terms a legal into illegal.

14. it is said that the Bombay Forward Contracts Control Act of 1947 has often come before the Courts and Courts have declared the contracts illegal under Section 8 and it has never been suggested that Section 8 (1) had no application because the East India Cotton Association had not framed the necessary by-law. But very often what is assumed by the Bar and accepted by the Court turns out erroneous when the basis underlying the assumption is carefully examined, and it was for the first time before Mr. Justice Desai that the assumption underlying Section 8 was challenged and successfully challeng-ed. We, therefore, agree with the learned Judge that on a plain construction of Section 8 (1) (a) the contracts in suit are not illegal as they do not contravene any by-laws which are specified in the by-laws of the East India Cotton Association.

15. The next contention urged is that these contracts also contravene the provision of Section 8 (1) (b) (iii). That provision is that when a contract is with a member of a recognised association, the member must previously secure the written authority or consent, which shall be in writing if the by-laws so provide, of the person entering into or making the contract. In this case the plaintiffs are not members of tke East India Cotton Association, the defendants are, and what is urged is that the contract has been entered into without the written authority or consent of the plaintiffs. The learned Judge took the view that the written authority or consent was necessary only if the by-laws so provided, With respect, we are unable to accept that construe'ion put by the learned Judge upon this Sub-section. 'If the by-laws so -provide' only qualifies 'which shall be in writing'. In other words, the provision requires a written authority or consent, and that consent may be oral unless the by-laws provide that it should be in writing. In this case there is no provision for a written iconsent in the by-laws. Even so the oral consent of the other person other than the member of the association is still required, and what Mr. Desai says is that there is no such oral consent by the plaintiffs forthcoming in this cose. Now, it is difficult to understand how a consent can be previously secured in the case of a contract. A contract itself contemplates a consensus between parlies which are sui juris. Without the consent there could be no contract, and whatever the meaning of this expression may be, it is clear that when a contract is arrived at between a member and a non-member, which contract is not challenged on the ground of its being obtained by undue influence or fraud or any other factor which vitiates the contract, then it is clear thai if the consent of the plaintiffs was required to that contract, that consent is implicit in the very fact of the plainliifs and the defendants having .entered into this con-tract. Therefore, in our opinion, there is no contravention of the provision of Section 8 (1) (b) (iii).

16. Therefore, the objection raised by the defendants to these contracts on the ground that they are illegal by reason of Section 8 of the Bombay Forward Contracts Control Act, 1947, must fail.

17. It is rather interesting to note that the Central Act, Act 74 of 1952, accepts the position in law which according to us is the correct position arising under the Bombay Act--which we have been considering. Section 11 confers power upon a recognised association to make by-laws and Sub-section (3) (a) provides :

(3) The by-laws made under this section may

(a) specify the by-laws the contravention ofany of which shall make a contract entered intootherwise than in accodance with the by-lawsvoid under Sub-section (2) of Section 15.'

When we turn to Section 15 (2) it provides :

'Any forward contract in goods entered into in pursuance of Sub-section (1) which is in contravention of any of the by-laws specified in this behalf under Clause (a) of Sub-section (3) of Section 11 shall be void.' Therefore, by Section 11 referring to Section 15 and Section 15 referring back to Section 11, the position has been made perfectly clear beyond dispute in this Act. If a similar reference had been made in Section 6 and Section 8 then no difficulty of construction would have arisen, or rather to put it better, it would not have aflord-od Mr. Desai the opportunity of putting forward the contention that he has done. And Sub-section (4) of Section 15 is also significant in view of what we have pointed out with regard to Section 8 (1) (b) :

'No member of a recognised association shall, in respect of any goods specified in the notification under Sub-section (1), enter into any contract on his own account wilh any person other than a member of the recognized association, unless he has secured the consent or authority of such person and discloses in the note, memorandum or agreement of sale or purchase that he has bought or sold the goods, as the case may bs, on his own account.' So this Sub-section points out the reason for obtaining the necessary consent or authority of the person who is not a member of the Association, and in this Sub-section the expression 'previous consult', which we thought was inappropriate in dealing wilh contracts, has been omitted.

18. We now turn to the next contention urged by Mr. Desai and that is with regard to the relief given by the learned Judge to the plaintiffs with regard to 1110 bales. It will be remembered that these hales were received in Bombay and the railway receipt for these bales was sent by the plaintiffs to the defendants. The bales were kept by the plaintiffs in their godown, they were surveyed, but the price was not paid by the defendants. Thereupon on 22nd May, 1953 the plaintiffs sent a notice to the defendants to the effect that

'After the arbitrators have noted the evidence, we shall dispose of the bales, as we may think fit, unless you lift the bales and pay for the same at contract price, together with full carrying charges and interest at 9 per cent, within five days after the Arbitrators have inspected the bales as requested.'

The Arbitrators completed their work on 7th July, 1953 and notwithstanding this and notwithstanding their notice or 22nd May, 1953 the goods were not sold till some time later. As already pointed out, the learned Judge has held that this re-sale is not binding on the defendants, and the question is, if the- re-sale is not binding, what is the true legal position, it is quite clear that the re-sale effected by the plaintiffs does not constitute a rescission of the contract The re-sale is under, the contract itself, if affirms the contract and in a sense it is to enable the seller to recover the price. The provision in our Act with regard to re-sale is Section 54(2) of the Sale of Goods Act which provides :

'Where the goods are of a perishable nature, or where the unpaid seller who has exercised his right of lien or stoppage in transit gives notice to the buyer of his intention to re-sell, the unpaid seller may, if (he buyer does not within a reasonable time pay or tender this price, re-sell the goods within a reasonable time and recover from the original buyer damages for any loss occasioned by his breach of contract, hut the buyer shall not be entitled to any profit which may occur on the resale. If such notice is not given, the unpaid seller shall not be entitled to recover such damages and the buyer shall be entitled to the profit, if any, on the re-sale.'

What has been urged by Mr. Desai is that as the re-sale has been successfully challenged, all that the plaintiffs are entitled to is the price that they have realised on the re-sale. They are not entitled to any additional amount, nor are they entitled lo any damages as on a breach of contract. Now, that submission, in law, of Mr. Desai, in our opinion, is not justified, because Sub-section (2) of Section 54 makes it clear that it is only if no notice is given and the re-sale takes place that the unpaid seller would not be entitled to recover damages. In this case notice has been given and therefore the unpaid seller had the right to re-sell the goods. Ail that the Court has held is that the re-sale having take.i place after an unreasonable time of the giving of the notice, the re-sale is not binding. Therefore, what the Court has to determine is when the resale should have taken place and to award damages to the seller on the basis of that re-sale. Whal Mr. Desai has attempted to do is that he has equated the position in law under Section 54(2) where a notice is not liven, to a position where notice is given but the re-sale is not proper. In our opinion, we cannot equate these two position). They are entirely different and they are different for a very good reason and on principle, because the law does not permit an unpaid seller to exercise his right of resale without a notice. If the seller does it, he does it at his own peril. If he sells the goods he must content himself with what the goods fetch and not ask for anything more. But as soon as the seller gives the notice, his right to re-sell arises, and if for any reason the re-sale is not proper, then as we have just pointed out it does not mean that the seller is deprived of the damages contemplated by Section 64(2), but the damages are to be ascertained not at the difference between what the re-sale realises and the price of the goods but the difference between what the Court holds should have been realised by a seller on a proper re-sale and the purchase price.

19. Now, if we approach this case from that point of view then the position is this. The notice of sale having been given, as pointed out, on 22nd May, 1953, and pursuant to that notice the right to re-sale having arisen live days after 7th July, 1953, viz., 12th July, the goods should have been sold within a reasonable time of that date, and in our epinion as the commodity we are dealing with is cotton, which is extremely marketable and about the selling of which there cannot be the slightest difficulty, the plaintiffs should have re-sold these bales on 15th July, 1953, and the damages that the plaintiffs are entitled to is the difference between the market price of these bales on 15th July, 1953 and the contract price. What the learned Judge has done is that he has asked the Commissioner to assess damages on the basis of the breach having taken place on 25th April, 1952; in other words, he has looked upon the claim of the plaintiffs with regard to this sale as a claim for damages for breach of contract by the defendants not accepting and paying for these goods. Now, as we shall presently point out, the record does not justify such a finding, nor does it justify such a relief being given to the plaintiffs, if the defendants have accepted these goods. If the property in these goods has passed to the defendants, then the only relief that the plaintiffs can get is the shortfall on a proper resale taking place. In other words, what the Court must ascertain is what the plaintiffs would have realised if they had sold the goods on 15th July, 1953, and if there is any shortfall between that amount and the purchase price, then undoubtedly; the plaintiffs, are entitled to that amount as damages. But it is difficult to understand how 25th April, 1952 is the relevant date for the purpose of assessment of these damages. It can only be relevant if the Advocate General's contention is right that two alternatives are open to the plaintiffs-either to sue for the price or in the alternative to sue for damages under Section 56 for non-acceptance and failure to pay the price of the goods.

20. Now, the record shows that issues 10, 11,. 12 and 19, 20, 21, 22 and 23 were the relevant' issues with regard to this re-sale. Issue 10 is : 'Whether the property in respect of 1110 bales passed to defendants as alleged in paragraph 22 of the plaint?' Issue 11 is : 'Whether the defendants wrongfully rejected the said 1110 bales as alleged in paragraph 22 of the plaint?' Issue 12' is : 'Whether the defendants were under an obligation to accept and pay for the said 1110 bales as alleged in paragraph 22 of the plaint?' These-three issues were raised by the defendants and' they were given up at the hearing. Issue 19 is : 'Whether the alleged re-sales have been effected within reasonable time from the date of such notice?' This issue was found against the plaintiffs by the learned Judge : Issue 20 is : 'Whether the alleged re-sales are binding on the defendants?' This point also was held against the plaintiffs and in favour of the defendants by the learned Judge. Issue 21 is : 'Whether the defendants arc liable to pay any sum by way of damages on. the footing of such re-sales?' Issue 22 is : 'Whether the plaintiffs are entitled to recover from the defendants a sum of Us. 1,66,243-14-0 or any-other amount as and by way of damages as claimed in para 23 of the plaint?' And Issue 23 ** : 'Whether the defendants committed a breach of the contracts Nos. 9 and 10 as alleged in para 25 of the plaint?' When we turn to the findings of the learned Judge, Issues 19, 20 and 21 are given up by the plaintiffs and that is why the findings were against them. Then on Issue 22 the learned Judge says : 'Defendants are liable to pay damages to the plaintiffs in respect of the 1110 bales as indicated in my judgment'. The finding on Issue 23 is ;: 'In the affirmative. The Defendants are liable to pay to the plaintiffs damages on the basis mentioned in my judgment in respect of the bales mentioned in para 25 of the plaint.' What the Advocate General says is that Issue 23 refers to para 25 and para 25 expressly makes a submission that the defendants have wrongfully failed and neglected to accept and pay for the said 1110 bales, and therefore according to him the learned Judge having given a finding on this issue in their favour, they are entitled to damages as contemplated by Section 56 of the Sale of Goods Act. With great respect to the learned Judge, although undoubtedly it is true that his finding on Issue 23 seems to support the case of the plaintiff's, when we look at his own judgment and the case of the plaintiffs it is clear that this finding is not justified. We may also say this in fairness to the learned Judge that this aspect of the case, as has now been presented to us by Mr. Desai, was never presented to him. This contention has been raised for the first time in this Court and it seems to have been assumed by counsel in the Court below that if the re-sale was not binding, damages must be assessed on the basis of Section 56 and the date of the breach having been as-oerlained the damages must be ascertained as of that date. The Advocate General says that even if we look at the facts and the pleadings and the case of the plaintiffs, there was no acceptance by the defendants of these goods, and he has drawn our attention to Section 42 of the Sale of Goods Act. That section provides :

'The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, or when the goods have been delivered to him he does any act in relation to them which is inconsistent with the ownership of the seller, or when, after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them.'

Before we apply this section to the facts of the Case, let us see what the facts are. We must now assume that the facts are what the plaintiffs alleged were the facts because on this aspect of the case the defendants having given up the issues raised by them they have accepted the facts alleged by the plaintiffs, and when we turn to the plaint it is clear that the plaintiffs' case was that the goods having arrived in Bombay the defendants were called upon to take delivery, that the defendants were not in a position to take delivery because of the financial straits in which they were, they asked the plaintiffs to keep these goods in their goclown on their behalf, i.e., on behalf of the defendants, and after these goods were so kept by the defendants, the plaintiffs accepted this request of the defendants, removed these goods from the railway yard and kept them in their godown. After that the defendants weighed over these goods, they were marked by them, they drew samples, and a survey was held as regards the quality of these goods under the by-laws of the Association. On these facts can it be. said that the defendants had not accepted these goods? The Advocate General says that all these facts merely go to show that the property had passed, but they do not show that the goods had been accepted. It is difficult to understand what stronger evidence there can be of the exercise by the defendants of an action in relation to these goods which is inconsistent with the ownership of the seller than the request of the defendants that the plaintiffs should store these goods in their godown on behalf of the defendants and the plaintiffs accepting that posilion. Unless the defendants looked upon themselves as the owners of these goods and wanted to exercise in relation to these goods acts of ownership, they could not possibly have asked the plaintiffs to keep these goods on their behalf in their godown, and what is more, the plaintiffs accepted the position that the defendants were the owners and agreed to keep these goods till the defendants could pay for them. We have asked the Advocate General to tell us what further acts should have been done by the defendants in order that the Court could say that the defendants had accepted these goods. What was left in order to complete and conclude the state of acceptance which is required by the law? The brief recital of the facts which we have just set out clearly shows that the goods had been accepted by the defendants. What is more, throughout the correspondence the plaintiffs contended that the goods were stored by them on behalf of the defendants. The defendants rejected that contention and said that the goods had never been accepted by them. It was this controversy that was brought to Court and the controversy was settled in favour of the plaintiffs because the defendants gave up their contention. When we turn to the Judgment of the learned Judge himself, the learned Judge says :

'It is the plaintiffs' case that the defendants after raising some difficulties did in fact take delivery of these 1110 bales of cotton but requested the plaintiffs to keep them in their own godown, on behalf of the defendants stating that they were making necessary arrangements for finance. There is no dispute now that the defendants did in fact tako delivery of these 1110 bales and requested the plaintiffs to keep the same in their own godown pending payment of the price of the same, and it is therefore not necessary to state the plaintiffs' case in respect of these 1110 bales-in any detail. Therefore, in our opinion, it is clear that the defendants accepted the goods and if they accepted them, then the plaintiffs cannot sue them for damages under Section 56 but they can only sue them for the price under Section 55. They, however, having re-sold the goods, all that they are entitled to is the balance of the price on the basis of a proper re-sale. If the proper basis of a re-sale is that they should have re-sold these goods on 15th July; 1953, then what they would be entitled to is the difference between what the re-sale realised on that date and the price which they were entitled to recover of these goods from the defendants.

21. With regard to carrying charges, there is no specific direction in the judgment. All that the learned Judge says is that the plaintiffs will be entitled to reasonable charges. But we think perhaps it will be advisable that a specific direction was given, and the direction we give is that the carrying charges with regard to 1110 bales would he upto 13th July, 1953 which in our opinion is the proper date for considering the damages to which the plaintiffs are entitled.

22. The final question urged is with regard to the date of the breach with regard to the 1225 bales. As already pointed out, the learned Judge has decided that the date of the breach should be 25th April, 1952. Turning to the correspondence on this point, on 5th May, 1952 the plaintiffs wrote to the defendants with regard to these bales :

'If you fail to provide us the necessary Transport Permit as demanded by us, we shall construe this as a definite breach of contract on your part and shall hold you responsible for all tie consequences.'

On 4th June, 1952 they informed the defendants :

'Your failure to provide us the necessary Transport Permits as demanded by us under the terms of the contract is a breach of contract on your part and we shall hold you responsible for all consequences arising therefrom.'

Therefore, upto 4th June, 1952 the plaintiffs kept the contract open and did not consider that a breach had been committed by the defendants it was only on 4th June, 1952 that they looked upon the failure on the part of the defendants to furnish transport permits 'as a breach. This letter was received by the defendants on 5th June and they have acknowledged receipt of that letter. Therefore, in our opinion, the proper date of breach is not 25th April 1952 but 5th June. 1952.

23. We will, therefore, modify the decree passed by the learned Judge as follows : There will be a decree in favour of the plaintiffs against the defendants for Rs. 15,926-11-6 with interest thereon from the date of the suit at 4 per cent. There is no dispute with regard to this amount. The suit referred to the Commissioner for Taking Accounts for assessment of damages in respect of 1110, 415 and 810 bales. The damages in regard to 1110 bales to be ascertained on the basis that the re-sale should have taken place, on 15th July, 1953, and the damages with regard to 415 and 810 bales should be assessed on the basis that the date of breach is 5th June, 1952. The direction of the teamed Judge with regard to the costs of the suit and also 'the direction with regard to further costs and further directions will stand.

24. With regard to the costs of the appeal,the appellants have substantially failed in the appeal because the main' points urged before us werethe illegality of the contract and the question whether the terms embodied in the written contractswere the terms agreed upon between the parties.But the appellants have succeeded in getting thodecree of the trial Court varied to their advantage.Therefore, under the circumstances, the fairest orderfor costs would be that the appellants must pay tothe respondents three-fourths of the costs of theappeal.

25. Orders accordingly.


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