1. This case raises a question of some importance which, counsel tell me, is not covered by authority. The question is, whether when a person in Bombay instructs another person in Bombay to effect a contract of sale or purchase of cotton in New York or Liverpool, that transaction is subject to and governed by the Bombay Cotton Contracts Act, XIV of 1922, and the by-laws made thereunder. Another question of importance which is raised in this case is, whether when a contract of the kind referred to in question No. 1 is made subject to the rules of the New York Cotton Exchange or the rules of the Liverpool Cotton Association Limited, the arbitration and award thereunder are a condition precedent to the institution of a suit in a Court of law for determination of the disputes between the parties.
2. There is no dispute as regards the main facts in the case. The plaintiffs are carrying on business in Bombay as merchants and commission agents and are members of the East Indian Cotton Association, Limited, and as admitted by Mr. Coltman, are registered agents of a member of the Liverpool Cotton Association. The defendants also carry on business as merchants and commission agents in Bombay, It is admitted that on February 2, 1931, the plaintiffs under instructions of the defendants purchased 500 bales of American cotton of July 1931 delivery at New York, and on February 5, 1931, purchased 500 bales of American cotton of July 1931 delivery at Liverpool. Then there were various transactions effected by the plaintiffs under instructions from the defendants for the sale and purchase of Broach cotton for April-May 1931 delivery. On May 22, 1931, the plaintiffs covered the outstanding sales of Broach cotton by purchasing a thousand bales at Rs. 176-2 per khandi. As to this transaction at one stage the parties were at issue. But the question now on the merits does not survive.As to the foreign transactions the defendants were informed of the due date, but failed to put the plaintiffs in funds in due time so as to take delivery of the cotton purchased, and accordingly the said transactions were closed; the one of New York July contract on June 24, and the Liverpool July contract on June 30,1931. And as the result of these transactions the plaintiffs claim a sum of Ra. 11,878 odd from the defendants.
3. The main defences to the suit are: (1) that the suit as regards the New York and Liverpool contracts is not maintainable, as under the rules and regulations of the New York Cotton Exchange and the Liverpool Cotton Association, to which the contracts were subject, the holding of arbitration and obtaining an award was a condition precedent; (2) that the said two contracts are void in law as contravening the provisions of the Bombay Cotton Contracts Act, 1922, and by-law No. 82 of the East India Cotton Association.
4. Mr. Vakeel says that the contracts Exhibit A and B are subject to the Bombay Cotton Contracts Act, and that therefore by-law 82 of the by-laws made by the East India Cotton Association would apply, and as the contracts are not in the form given in the appendix, the contracts are void. He further Bays that as regards the Liverpool contract, Exhibit B, the suit is not maintainable, as the holding of an arbitration and the obtaining of an award thereunder is a condition precedent under Rule 55 of the rules of the Liverpool Cotton Association Limited. Admittedly both the contracts, Exhibits A and B, were made subject to the by-laws and rules of the New York Cotton Exchange and of the Liverpool Cotton Association Limited respectively.
5. Mr. Coltman says that the Bombay Cotton Contracts Act does not apply, as (1) on the terms of the contracts the transactions between the parties were not transactions in cotton (see Section 2 and the preamble of the Act), (2) no part of the contracts was to be carried out in Bombay, and (3) the real relationship between the parties is that of principal and agent. As to the question of arbitration he says that Rule 55 of the rules of the Liverpool Cotton Association cannot apply to this case, as neither the plaintiffs nor the defendants are members of that Association. Finally he says that if the defendants' arguments are accepted it would lead to an anomalous position, as the contracts would be partly subject to the by-laws of the East India Cotton Association and partly by the by-laws and rules of the New York Cotton Exchange and the Liverpool Cotton Association, and this would lead to inconvenient results and business in American cotton would be at a stand still. The last argument has hardly any force for the simple reason that if as the result of my holding that the contracts in question are governed by the Bombay Cotton Contracts Act business in American cotton is hampered, I am not concerned with it. The main question is what really is the real nature of the transactions between the parties, and, secondly, if they are governed by the Bombay Cotton Contracts Act.
6. In order to understand precisely the nature of the questions which arise for determination, it is necessary to consider in some detail the terms of the contracts between the parties. Exhibit E is the counter-foil of the contract (Exhibit A) signed by the plaintiffs in respect of the New York contract. It runs as follows:-
According to your instructions our New York Agents have bought on your account the following cotton subject to the rules and regulations of the New York Cotton Exchange and subject to the terms and conditions of the annexed confirmation note.
Then follow the details as to the goods purchased, the date of delivery, the price, the nature of cotton, rate of commission, and the following remarks in the remark column:-
Basis middling American cotton, Further stipulations as per official contract of the New York Cotton Exchange.
7. Exhibit A is the confirmatory note signed by the defendants and sent to the plaintiffs. It is addressed to the plaintiffs and runs as follows :-
We confirm the purchase made through your Now York Agents this day on our instructions and on our account of the following cotton subject to the rules and regulations of the New York Cotton Exchange and subject to the terms and conditions and at the commission mentioned below.
Then the same details as in Ex, E are set out, and there are certain additional terms printed below these details. Of these term No. 2 implies a liability on the defendants to put the plaintiffs in sufficient funds for the purpose of taking delivery, in default of which the plaintiffs or their agents were authorised either to take delivery at their option and sell the cotton or close the contract, on account and at the risk of the defendants. Term No. 3 refers tj the payment of margin money. Term No. 4 binds the defendants to accept the accounts signed by the plaintiffs as correct The rest of the terms are not material. The Liverpool contract dated February 5, 1931, is in the same form and on the same terms.
8. It will be seen that there are two transactions involved in this : (1) defendants employed the plaintiffs to transmit an order to New York to effect the purchase of cotton in that market through their agents there; and (2) transactions in cotton effected in New York by that agent under plaintiffs' instructions given on behalf of the defendants. The terms of Exs. B and F relating to the Liverpool contract are exactly the same. Therefore the real nature of the relationship is that the defendants employed the plaintiffs as their agent to carry out certain transactions in New York and Liverpool. The plaintiffs carried them out, and are seeking to recover the moneys due to them for having carried out the same. In other words the plaintiffs' contract is one of employment and their claim is one for indemnity and expenses. The defendants cannot have any rights against the plaintiffs in respect of the contract made in Liverpool such as parties may have against each other if the contract for sale or purchase of cotton were made in Bombay. They cannot call on the plaintiffs to tender delivery of cotton in Bombay. The rules as to clearing house under the by-laws of the East Indian Cotton Association cannot obviously apply to this contract. Delivery dates would vary as those relating to the New York contract would be fixed under the rules and regulations of the New York Exchange, the dates relating to the Liverpool contract would be under the Liverpool rules and the dates of the Bombay contracts would be under the by-laws of the East India Cotton Association, payment would be in accordance with these respective rules and by laws, periodical settlement &c.; would be different. The only right which, as far as I can see, the defendants have against the plaintiffs would be a right to call for accounts or claim damages for misconduct or perhaps negligence. I think, therefore, on this ground alone the Bombay Cotton Contracts Act cannot apply to these contracts, For the same reason the transactions in cotton were not to be carried out and could not be carried out in Bombay. Section 2 of the Act defines contract as meaning ' a transaction in cotton to be carried out in whole or in part in Bombay.' What is meant is that the transaction in cotton is to be carried out in Bombay. That, as I understand it, means not that the transaction is entered into or made in Bombay, but it is to be carried out in Bombay. In the first place the transaction in cotton which the plaintiffs were to put through could only be made in New York or Liverpool and that too by a member of the local exchange or association. Delivery would be there and payment would be there and subject to the rules of the local association or exchange. Mr. Vakeel Bays that payment to the plaintiffs or margin had to be made or paid in Bombay. True, but in what capacity Clearly as the defendants' agent for having put through the transaction in cotton in New York and Liverpool. At the most one may Bay that the contract between the plaintiffs and the defendants was one relating to cotton, but I am unable to hold that it was a transaction in cotton to be carried out in Bombay. The remarks in the remark columns in Exhibits E and F to the effect that further stipulations are as per official contract of the New York Cotton Exchange and of the Liverpool Cotton Association respectively support the conclusion to which I have come,
9. Finally, I do not think that the Bombay Cotton Contracts Act was intended to apply to American cotton. Under the by-laws of the East India Cotton Association there are two kinds of contracts : forward and hedge contracts. By-law No. 53 applies to hedge contracts and describes the contitions of a valid tender under such contracts. One of the conditions is that each bale shall bear press marks in continuity with the provisions of the Cotton Ginning and Pressing Factories Act, 1925, or the law in force for the making of the bales in any Indian State. Then the by-law refers to and incorporates schedule B. Turning to the schedule it will be seen that all such contracts refer to apd can only be made in what I may call Indian cotton.
10. Then as regards trading in hedge contracts there are five kinds of hedge contracts given in schedule A and they refer only to Indian cotton. Then by-law 66 deals with forward contracts or delivery contracts as they are there called. Here also one of the conditions is identically the same as that of hedge contracts and mentioned above. This again shows that the dealings were intended to be made and refer to Indian cotton. It is clear from this that the Act does not refer to American cotton at all but only to cotton grown in this country, and there can be no transaction in Bombay in American cotton under the by-laws of the East India Cotton Association, In my opinion, therefore, the Act does not apply to the contracts in suit and by-law No. 82 consequently has no application.
11. The other question is whether the holding of an arbitration and obtaining of an award thereunder is a condition precedent to the plaintiffs' right to file the suit, It is conceded by Mr. Vakeel that the claim in respect of New York contract is not open to this objection. But he insists that the Liverpool contract is subject to Rule 55 of the rules of the Liverpool Cotton Association. That rule specifically makes the arbitration and an award under it a condition precedent to the institution of the suit, and if it applies in the present case, Mr. Vakeel's argument must be accepted,
12. In the first place that rule would only apply to a dispute between the parties to the contract made on behalf of the defendants in Liverpool, It is difficult to see how the parties to this suit can enforce Rule 55, as there is nothing to show that any dispute arising out of the contract made in Liverpool had arisen between the parties thereto, Then, neither the plaintiffs nor the defendant are the members of the Liverpool Association. In answer to Mr. Vakeel Mr. Coltman admitted that the plaintiffs are the registered agents of a member of the Liverpool Association. But that does not alter the position. The plaintiffs cannot by themselves enter into a contract for the purchase or sale of cotton for future delivery in Liverpool. Then the contract contemplated by Rule 55 must be made in the manner and between the persons mentioned in Rule 45 of the rules of the Liverpool Association, One of the conditions is that it must be made on one of the forma of contract set out in appendix A to the rules of the Liverpool Cotton Association and the appropriate contract form must be used by the member and sent to the other contracting party. That is not the case here. There is no contract here between the plaintiffs and a member of the Liverpool Association nor is there any contract between the plaintiffs and the defendants of the kind contemplated by Rule 45, Exhibits A and B are not the contracts to which Rule 45 or Rule 55 can apply, Then under the latter rule the suit or action contemplated can only be a suit or action in England and not in India, I think, therefore, there is no substance in the argument.
13. In the result, therefore, there will be a decree for the plaintiffs for Rs. 11,878-14-0, with interest on Rs. 11,854-14-0 at six per cent from July 11, 1931, till judgment; costs and interest on judgment at six per cent, till payment, costs to include costs of the chamber summons for directions.