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Hemraj Keshavji Vs. Shah Haridas Jethabhai - Court Judgment

LegalCrystal Citation
CourtSupreme Court of India
Decided On
Reported inAIR1964SC1526; [1964]2SCR686
ActsSaurashtra Groundnut and Groundnut Products (Forward Contracts Prohibition) Order, 1949; Prohibition Order
AppellantHemraj Keshavji
RespondentShah Haridas Jethabhai
Cases Referred and Hussain Kasam Dada v. Vijayanagaram CommercialAssociation
Excerpt: under rules that without consent of seller burden of contract cannot be assigned - under such rules contract observed to be non-transferable to third parties and could not be regarded as forward contract within meaning of order - held, respondent who claimed to have acted as commission agent entitled to claim reimbursement for any amount alleged to have been paid by him on behalf of appellant for losses suffered due to transaction. - order 1, rule 10 & order 6, rule 17: [s.b. sinha & dr. mukundakam sharma, jj] amendment of plaint to implead a third party held, apart from provisions of order 6, rule 17, provisions of order 1, rule 10 would also come into play. on addition of new party, question of invoking period of limitation also arises. therefore, application for amendment cannot..........even if they are contracts forfuture delivery viz. contracts for specific qualities or types for specificdelivery at specific price, delivery orders, railway receipts or bills oflanding, against which contracts are not transferable to third parties. why thedraftsman should in prescribing the condition of non-transferability of acontract against delivery orders, railway receipts or bills of lading, shouldhave referred to 'contracts' is difficult to appreciate. 6. the contracts in dispute were effected according to the rules andregulations of the veraval merchants association. a sample form of thecontracts between the parties may be set out : 'this sauda is to be treatedas subject to the rules and regulations of the association. no. 143 ready delivery veraval,dt. 21-11-49 sheth thaker.....

Shah, J.

1. The appellant instituted Suit No. 250 of 1950 in the Court of the CivilJudge (Senior Division), Junagadh for a decree for Rs. 72693/11/- alleging thatthe appellant had a personal account with the respondent in respect of drafts,cheques, hundis and cash, and at the foot of that account Rs. 58,000/- asprincipal amount and Rs. 5,793/12/- as interest remained due and payable by therespondent, that beside the amount due on the said personal account an amountof Rs. 8,899/15/3 was due to him in respect of a transaction of sale of 1300bags of groundnut sent by him between January 16 to January 28, 1950, and theprice of gunny bags and groundnut oil cakes delivered to the respondent. Theappellant further alleged that forward contracts were prohibited with effectfrom November 19, 1949 by the Saurashtra Groundnut and Groundnut Products(forward Contracts Prohibition) order, and that the said contracts beingillegal the appellant was not subject to any liability arising from adjustmentsof credits and debits or differences in rates relating to forward contracts andthe respondent was not entitled nor authorised to make credit and debit entriesin the appellant's account and that nothing was due by him in respect thereof.The respondent by his written statement contended that in the appellant'spersonal account an amount of Rs. 1,58,000/- stood initially credited but atthe foot of that account only a sum of Rs. 18,000/- was due and this sum wascredited in the current account of the appellant in the name of Hemraj KeshavjiOil Mills and Ginning Factory and therefore nothing was due in the personalaccount, that the transaction effected by the appellant through the commissionagency of the respondent in groundnut seed for December-January (Samvat 2006)Settlement did not contravene the order dated November 19, 1949, of the UnitedStates of Saurashtra and that the respondent has not committed any breach ofthe order, that all the transactions for the December-January Settlement werein ready goods of specific quality and that there was a condition relation togiving and taking of delivery on fixed dates and the same were all effected atthe direction of the appellant and that the appellant was legally responsiblefor all payments made in respect of those transactions by the respondents asthe appellant's pucca adatia. He then contended that in Samvat year 2006 theappellant had sold 9000 bags of groundnut through the agency of the respondentand had purchased 2300 bags through him, that the appellant thereafter gavedelivery of only 2000 bags of groundnut and did not deliver the balance and onthat account there resulted a loss of Rs. 9,221/7/9 which the appellant wasbound to reimburse. The respondent admitted that the appellant had sent 1300bags of groundnut but these bags were delivered towards the sale of 2000 bagsof December-January settlement and the price thereof and of the balance of 700bags was credited in the account of the appellant, and that the appellant wasnot entitled to a decree for any amount except the amount found due at the footof the account.

2. The trial Court decreed the claim by awarding Rs. 30,589/3/- andinterest. Against the decree of the Trial Court the respondent as well as theappellant appealed to the High Court of the Saurashtra. The appeals weretransferred for trail under the States Reorganization Act to the High Court ofJudicature of Bombay at Rajkot. The High Court allowed the appeal of therespondent and dismissed the appeal of the appellant. The appellant has withcertificate issued by the High Court, appealed to this Court against the decreepassed by the High Court.

3. The appeal raises a dispute about the liability of the appellant fortransactions in groundnut seed effected through the agency of the respondentafter November 19, 1949, for December 1949, and January 1950, settlement. Theappellant says that these were forward transactions in groundnut and wereprohibited under the Saurashtra Groundnut and Groundnut Products (ForwardContract Prohibition) Order, 1949, and that these transactions gave rise to noliability which the appellant is obliged to discharge. The respondent says thatthe transactions were ready delivery contracts which were not prohibited by lawand in respect of the losses suffered thereunder the appellant was bound to indemnifythe respondent and that the losses suffered in those transactions were dulydebited in the personal account of the appellant. There is no dispute before usabout the correctness of the entries in the personal account of the respondent.If the respondent's case is held proved that the transactions were readydelivery transactions, and not prohibited by the Saurashtra order the decreepassed by the High Court must be maintained.

4. The Saurashtra Groundnut and Groundnut Products (Forward Contract Prohibition)Order, 1949, was issued on November 19, 1949, and was extended to the whole ofthe United States of Saurashtra. By clause 2(a) 'contract' was defined asmeaning 'a contract made or to be performed in whole or in part in theUnited States of Saurashtra relating to the sale or purchase of groundnutwhole, groundnut seeds, or groundnut oil.' By clause 3 forward contractsin groundnut and groundnut products were prohibited. The clause provided'No person shall henceforth enter into any forward contract in groundnutwhole, or groundnut seeds, or groundnut oil except under and in accordance withthe permission granted by Government.' By clause 4 all outstanding forwardcontracts on the date of the publication of the order are to be closedimmediately and at such rates and in such manner as may be fixed by theAssociation concerned under their respective bye-laws or other regulations thatmay be applicable to such contracts. The Trial Court held that out of thetransactions which took place on or after November 19, 1949, only onetransaction which was for delivery on January 25, 1950, was not hit by theorder. The remaining transactions, according to the Trial Court must beregarded as wagering transactions i.e. transactions in which it was intended bythe parties that delivery of the goods contracted for could not be demandedwithout breach of the understanding. The Court did not consider whether thetransactions were invalid as being in violation of the prohibition contained inthe order. The High Court held that according to the rules of the Association,by which the contracts were governed, delivery of the goods contracted for wasinvariably to be given at the godown of the purchaser and therefore deliveryorders, railway receipts or bills of landing were not contemplated by theparties and the contracts being for specific quality or type of groundnut forspecific delivery and for specific price in respect of ready delivery goods thetransactions were not hit by the order.

5. By clause 3 of the order all forward contracts in groundnut and groundnutproducts except those in accordance with the permission granted by theGovernment were prohibited. It is not the case of the respondent thatpermission was obtained from the Government in respect of those transactions,but he contends that the transactions were not 'forward contracts'and therefore not within the prohibition of the order. The definition of theexpression 'forward contract' is somewhat obscure and the precise significanceof the expression 'against which contracts are not transferable to thirdparties' is difficult to guage. A forward contract is in the firstinstance defined as meaning 'a contract for delivery of groundnut whole,or groundnut seeds or groundnut oil at some future date.' The contracts indispute in the present case were indisputably contracts for delivery ofgroundnut at 'some future date.' But the definition expresslyexcludes certain contracts from its operation even if they are contracts forfuture delivery viz. contracts for specific qualities or types for specificdelivery at specific price, delivery orders, railway receipts or bills oflanding, against which contracts are not transferable to third parties. Why thedraftsman should in prescribing the condition of non-transferability of acontract against delivery orders, railway receipts or bills of lading, shouldhave referred to 'contracts' is difficult to appreciate.

6. The contracts in dispute were effected according to the rules andregulations of the Veraval Merchants Association. A sample form of thecontracts between the parties may be set out :

'This Sauda is to be treatedas subject to the rules and regulations of the Association.

No. 143 Ready Delivery Veraval,Dt. 21-11-49 Sheth Thaker Hemraj Keshavji at Malia.

Please accept Jay Gopal from ShahHaridas Jethabhai.

We have this day transacted theSauda as under, on your behalf and as per your order. Having made a note of itand having signed the slip below the counterpart, return it immediately.

P.S. It is left to our choicewhether on the deposit being exhausted to let the Sauda remain outstanding ornot.

1. Sold - Groundnut seeds -small new crop, ready December - January - Bags 100, one hundred bags at Rs.31-6-3 rupees thirty - one annas six and pies three - Standard filling 177(lbs.)

2. Sold - Groundnut seeds -small new crop, ready December - January Dated 25th Bags 500, five hundred bagsat Rs. 31-11-6 rupees thirty one annas eleven and pies six - Standard filling177 (lbs.)

3. Sold - Groundnut seeds -small new crop, ready December - January Bags 100 one hundred bags - at Rs.31-6-6 rupees thirty one, annas six and pies six - Standard filling 177 (lbs.)

Sd. Chhaganlalfor Shah

Haridas Jethabhai

1st Shukla Margashirsh,

St. 2006, Monday.'

At the foot of the contract is the acknowledgment as under :-

'Shah Haridas Jethabhai, atVeraval.

We have received your Sauda nondhChitti No. 143 and have noted accordingly.

2nd Shukla Margashirsh,

St. 2006, Dt. 21-11-49

Sd. KalidasBhagwanji for

Sheth Hemraj Keshavji.'

7. The contract is described as a ready delivery contract and is madesubject to the rules and regulations of the Association. The price of the goodsand the quality of the goods are specified and delivery at a specific price isalso stipulated. There is nothing in the contract indicating whether it wastransferable to third parties. But the appellant submits that where thecontract is silent as to whether it is transferable against delivery orders,railway receipts or bills of lading, it must be deemed capable of beingtransferred to third parties and so for the purpose of the order, be deemed tobe a forward contract. The argument in substance is that a contract fordelivery of groundnut at a future date even for specific quality and forspecific delivery at a specific price would not be excluded from the definitionof forward contract, unless it is expressly recited in the contract that it isnot transferable to third parties against delivery orders, railway receipts orbills of lading. This, it is urged, is so because it was the object of theorder to prohibit speculation in groundnut and groundnut products, and toachieve that purpose it sought to prohibit forward transactions which weretransferable to third parties. By insisting upon completion of the contractbetween the parties thereto, it is urged it was intended to prevent speculationin essential commodities. Reliance in this behalf was sought to be placed uponseveral decisions of the Bombay, Madras and Andhra Pradesh High Courts dealingwith the interpretation of clauses similar to the definition of forwardcontract in the Saurashtra order, in which it was held that exclusion from theprohibition against forward contracts can be regarded as effective only if thestipulation about non-transferability is expressly mentioned in the contract,and silence of the contract imported transferability even in respect ofcontracts for specific quality for specific delivery at specific price. Theearliest decision of this clause was a decision of a single Judge of the BombayHigh Court in Firm Hansraj v. Vasanji (1948) 4 D.L.R. Bom. 7. In that casethe contract was for spot delivery i.e. where no delivery order or railwayreceipt or bill of lading would ordinarily be issued. But the learned Judgeheld that such a contract in the absence of an express stipulation prohibitingtransfer would not fall within the Notification granting exclusion from theprohibition of forward contracts, because the condition regardingnon-transferability would not be fulfilled. It was observed by Mr. Justice M.V. Desai : 'The only classes of cases of forward contracts which wereexempted were those which contained in them the guarantee against speculationby reason of a provision that the Delivery Orders, Railway Receipts, or Billsof Lading (which were contemplated by the contracts and would be issued) shouldnot be transferable to third parties............', and he recorded hisconclusion as follows :

'In my opinion, if Delivery Orders werecontemplated under these contracts, they were illegal, as the Delivery Orderswere not made non-transferable. If Delivery Orders, Railway Receipts or Billsof Lading were not contemplated under the contracts, then the exemption (whichdeals with cases where Delivery Orders, Railway Receipts or Bills of Lading areissued) has no application.'

8. This decision was approved in Uma Satyanarayanamurty v. KothamasuSitaramayya & Co. (1950) 1 M.L.J. 557, where in considering whether adisputed contract was a 'forward contract' within the meaning of the VegetableOils and Oilcakes (Forward Contract Prohibition) Order, 1944, Rajamannar, C.J.,held that the intention underlying the notification being to grant exemptiononly to cases of forward contracts in respect of which there could be someguarantee that they would not be subject to speculation, exclusion from theprohibition imposed by the notification may be established only if one of theterms of the contract is that the delivery order or railway receipt or bill oflading relating thereto is not transferable. It is not enough that suchdocuments are not contemplated, because it cannot be said that they areprohibited. This view was followed in Bodhu Seetharamaswami v. Bhagavathi OilCompany I.L.R. (1951) Mad. 723, Hussain Kasam Dada v. VijayanagaramCommercial Association : AIR1954Mad528 and Vaddadi Venkataswami v.Hanura Noor Muhammad Beegum A.I.R. (1956) And 9. The phraseology of thenotifications and the definitions of forward contract were not in terms identical,in each of these cases; but these cases lay down that before a contract fordelivery of a commodity at a future date could be regarded as excluded from thedefinition of forward contract, even if the contract was for a specific priceor specific quality, it must be stipulated that the contracts were nottransferable to third parties by expressly prohibiting the transfer of deliveryorders, railway receipts or bills of lading.

9. We are unable to hold that a contract for delivery of goods at a future datewould fall within the exception in the definition of forward contract if otherconditions are fulfilled only if there is an express stipulation recorded inthe contract prohibiting the transfer of delivery orders, railway receipts orbills of lading against the contract thereof. The order issued by theSaurashtra Government excluded from the definition of forward contract allcontracts for specific qualities or types of groundnut whole or groundnut seedsor groundnut oil and for specific delivery at a specific price, deliveryorders, railway receipts or bills of lading against which contracts, were nottransferable to third parties. But the Legislature did not impose the conditionthat the contracts for delivery of goods at some future date must recite thatthe contracts were not to be transferable, and there is no indication of suchan implication. Nor is the object of the order sufficient to justify anoverriding reason for implying that condition. In a recent case Khardah CompanyLtd. v. Raymon & Company (India) Private Ltd. , thisCourt had to adjudicate upon the validity of a forward contract relating tojute. By clause (2) of s. 17 of the Forward Contracts Regulations Act 74 of1952 forward contracts in contravention of the provisions of sub-s. (1) of s.17 were declared illegal, but the Notification did not apply tonon-transferable specific delivery contracts for the sale or purchase of anygoods. In a dispute relating to non-delivery of jute, which was one of thecommodities to which the Act was made applicable, the Bengal Chamber ofCommerce made an award. In a petition to set aside the award it was urged thatin the absence of a specific clause prohibiting transfer in the contractitself, the plea that the contract is not transferable is not open to the partysupporting the contract and that evidence aliunde is not admissible toestablish the condition, and in support of that argument Seetharamaswami v.Bhagwathi Oil Co. : (1951)1MLJ147 , Hanumanthah v. U. Thimmaiah : AIR1954Mad87 , and Hussain Kasam Dada v. Vijayanagaram CommercialAssociation : AIR1954Mad528 were cited. Venkatarama Aiyar, J.observed in dealing with this contention :

'x x x that when a contract has been reduced towriting, we must look only to that writing for ascertaining the terms of theagreement between the parties, but it does not follow from this that it is onlywhat is set out expressly and in so many words in the document that canconstitute a term of the contract between the parties. If on a reading of thedocument as a whole, it can fairly be deduced from the words actually usedtherein that the parties had agreed on a particular term, there is nothing inlaw which prevents them from setting up that term. The terms of a contract canbe express or implied from what has been expressed. x x x x on the questionwhether there was an agreement between the parties that the contract was to benon-transferable, the absence of a specific clause forbidding transfer is notconclusive. What has to be seen is whether it could be held on a reasonableinterpretation of the contract, aided by such considerations as canlegitimately be taken into account that the agreement of the parties was thatit was not to be transferred. When once a conclusion is reached that such wasthe understanding of the parties, there is nothing in law which prevents effectfrom being given to it.'

10. In our view this principle applies to the interpretation of theSaurashtra Groundnut and Groundnut Products (Forward Contract Prohibition)Order, 1949. From the absence of a clause expressly prohibiting transfer of thecontract against delivery orders, railway receipts or bills of lading it cannotbe inferred that the contract is transferable. The question whether an impugnedcontract is transferable must depend upon the language of the contractinterpreted in the light of surrounding circumstances, and silence of thecontract cannot be regarded as an indication of transferability - much lesswould it justify an inference that it is transferable.

11. We must then consider having regard to the surrounding circumstances ifsuch a term can be implied. The contracts are made subject to the rules andregulations of the Veraval Merchants' Association. These rules are designated'Rules and Regulations of groundnuts ready delivery'. Rule 5 providesthat the buyer has to supply empty bags to the seller and he has to supply aBardan Chitti within 48 hours from the receipt of the letter of the seller tothe buyer asking for empty bags. In the event of failure to supply a BardanChitti within 48 hours a penalty of Rs. 2/- per 100 bags is to be paid to theseller for every 24 hours. Rule 6 deals with delivery. The seller has to givedelivery at the godown of the buyer and the seller is to unload the carts athis own cost. The buyer has, on presentation of the receipt of the commodity athis godown to pay 90% of the invoice price, and 10% may be retained againstdefects or shortage discovered in weighment (Rule 7). Weighment has to be madeat the godown of the buyer, at the earliest moment according to the convenienceof the seller and the buyer, after the commodity has reached the buyer'sgodown. A sample has to be preserved, if the seller so chooses, at the buyer'splace. At the convenience of both the buyer and the seller and at the earliestopportunity the sample should be analysed at the buyer's place but afterweighment of the commodity, cleaning of sample should not take more than 6 daysand if a person makes any delay he would be liable to pay a penalty of -/8/-eight annas for every 24 hours per every lot of 100 bags. Rule 9 deals withshortages and provides for reimbursement of loss to the buyer. Rule 10 dealswith payment of price. On taking delivery of the commodity, the person receivingthe commodity, having obtained a kutcha receipt, is to make 90% payment to theperson giving delivery immediately. If the person giving delivery of acommodity so desires, the person taking delivery has to furnish surety for thevalue of commodity and acceptable to the Association. After weighment andshortages are settled and on receiving the invoice, the buyer must pay in fullthe balance of 10% within 96 hours. The buyer paying after 96 hours must payinterest at the rate of -/12/- twelve annas per centum per mensem. Rule 11provides for 'survey of disputes' arising between the members at thetime of delivery of 'weighed commodity.' The application may be madeboth by the buyer and the seller. Rule 15 provides for steps to be taken if theseller or the buyer be 'unable to meet amount' found due at thesettlement regarding the commodity. The Managing Committee, after hearing theseller and buyer, may grant extension of time on receipt of an application tothe Association from such buyer or seller, or the Association may determine andfix a reasonable rate after considering the rates as well as circumstances inthe local as well as other centers of Saurashtra between seller and the buyerand that the transactions between the buyer and the seller have to be settledat the rate so fixed.

12. The transactions for purchase and sale are to be carried through betweentwo members of the Association and under the rules and regulations of theAssociation. Delivery has to be given at the warehouse of the purchaser anddetailed rules about sampling, surveying, payment of price etc., are made.Prima facie, these rules apply to the persons named as the seller and the buyerin the transactions of sale and purchase. But Mr. Ayyanger appearing on behalfof the appellant contended that the expression 'buyer' would include apurchaser from the buyer because under the general law of contracts the benefitof a contract to purchase goods can be assigned and therefore the rights of thebuyer would be enforceable by the transferee of the buyer. But the scheme ofthe rules indicates that the entire transaction has to be carried throughbetween the parties to the transaction and not between the seller and atransferee of the rights of the buyer. In carrying out the transactions underthe rules, diverse obligations are imposed upon the buyers, and it is settledlaw that without the consent of the seller, the burden of a contract cannot beassigned. The rules provide, as we have already pointed out, that the emptybags are to be supplied by the buyer. Such an obligation cannot be transferredby the buyer. Again diverse rules provide liability for payment of penalty. Ifa buyer cannot transfer the obligations under a contract which is made subjectto the rules and regulations of the Association, all the obligations prescribedby the rules being made part of the contract, a very curious result would ensuein that whereas an assignee of the buyer would be entitled to demand deliveryat his own godown at the rate fixed, for his default the buyer would remainliable for the diverse obligations including liability to pay penalty fordefault of his assignee under the rules. Again the seller by Rule 6 has todeliver the goods at the warehouse of the buyer, and if the benefit of thecontract is transferable, it would imply an obligation to deliver at thewarehouse of the buyer's assignee, wherever the warehouse of the assignee maybe. The warehouse of the assignee of the buyer may be in Veraval or at anyother place, but the seller having entered into a contract at a rate whichwould include normal expenses for delivery at the buyer's godown may berequired to undertake an intolerable burden of meeting all the charges fortransporting the goods to the warehouse of the buyer's assignee wherever suchgodown may be situate. Such an obligation could never have been undercontemplation of the rule-making body.

13. Mr. Ayyanger contended that the assignee of the buyer contemplated bythe rules would of necessity have to be a member of the Association andtherefore resident in Veraval. But the rules to which our attention has beeninvited do not, if the buyer is to include the assignee of the benefit of thecontract, seem to impose any such restriction. If the general law relating toassignment of benefit under a contract is to be superimposed upon the rules,notwithstanding the scheme which prima facie contemplates performance betweenthe parties, there is no reason why any such reservation should be made. It wasalternatively urged by Mr. Ayyangar that the rules of the Association use twoexpressions - 'buyer' and 'persons' - and wherever the expression 'person' isused it would include an assignee of the buyer. This argument, in our judgment,is without force. The rules have not been drawn up with any precision, andthere is nothing to indicate that by using the expression 'person' a largercategory was intended. For instance in rule 5, the obligation to supply emptybags is imposed upon the 'buyer' and the penalty for failing to carry out thatobligation is imposed upon the 'person.' Similarly in rule 10 when delivery istaken by the 'buyer' the 'person' receiving the commodity has to make paymentof 90% of the price to the person giving delivery. There are a large number ofother rules which deal with the rights of the 'buyers' and the obligationssimultaneously imposed upon persons which in the context may mean only thebuyers. The use of the expression 'person' does not, in our judgment, indicatethat he was to be any one other than the buyer or his representative.

14. On a careful review of the rules we are of the view that under the rulesand regulations of the Veraval Merchants' Association pursuant to which thecontracts are made, the contracts were not transferable. The contracts wereundoubtedly for delivery of groundnut at a future date, but they were contractsfor specific quality for specific price, and for specific delivery under therules of the Association under which they were made. The contracts were, forreasons already mentioned, also not transferable to third parties, and couldnot be regarded as forward contracts within the meaning of the order. It isunnecessary therefore to consider whether the respondent who claimed to haveacted as Pucca Adatia and therefore as Commission Agent was entitled to claimreimbursement for any amount alleged to have been paid by him on behalf of theappellant for losses suffered in the transactions in dispute.

15. We are therefore of the view that the High Court was right in modifyingthe decree passed by the Trial Court and in dismissing the appellant's suit.The appeal is dismissed with costs.

16. Appeal dismissed.

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