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Suwalal JaIn Vs. Clive Mills Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKolkata High Court
Decided On
Case NumberAppeal No. 1 of 1958
Judge
Reported inAIR1960Cal90
ActsForward Contract (Regulation) Act, 1952 - Sections 2 and 17; ;Contract Act, 1872 - Section 23; ;Arbitration Act, 1940 - Sections 2 and 13
AppellantSuwalal Jain
RespondentClive Mills Co. Ltd.
Appellant AdvocateA.C. Bhabra, Adv.
Respondent AdvocateSarup, Adv.
Cases ReferredBhudarmull Bazaz v. Uma Shankar Purushottumdas and Co.
Excerpt:
- .....agreed to sell and the respondent agreed to buy raw jute. the contract contains the usual arbitration clause which is as follows:'14. arbitration -- all matters, questions, disputes, differences and/or claims arising out of and/ or concerning and/or in connection with and/or in consequence of or relating to this contract including matters relating to insurance and demurrage whether or not the obligations of either or both parties under this contract be subsisting at the time of such dispute and whether or not this contract has been terminated or purported to be terminated or completed shall be referred to the arbitration of the bengal chamber of commerce and industry under the rules of its tribunal of arbitration for the time being in force and according to such rules the.....
Judgment:

Bachawat, J.

1. This appeal is from a judgment of P. B. Mukharji, J. dismissing an application to adjudge and declare the contract dated 17-8-1954 to be illegal and invalid and to decide an award of the Bengal Chamber of Commerce. By the contract dated 17-8-1954 the appellant agreed to sell and the respondent agreed to buy raw jute. The contract contains the usual arbitration clause which is as follows:

'14. Arbitration -- All matters, questions, disputes, differences and/or claims arising out of and/ or concerning and/or in connection with and/or in consequence of or relating to this contract including matters relating to insurance and demurrage whether or not the obligations of either or both parties under this contract be subsisting at the time of such dispute and whether or not this contract has been terminated or purported to be terminated or completed shall be referred to the arbitration of the Bengal Chamber of Commerce and Industry under the rules of its Tribunal of Arbitration for the time being in force and according to such rules the arbitration shall be conducted and any Award made by the said Tribunal under this clause shall be final, binding and conclusive on the parties'.

The buyer-appellant contends that the contract is prohibited by the Forward Contracts Regulation Act, 1952 and the Notifications issued thereunder. The contract provides for shipment or rail despatch within two months from the issue of the letter of authority to import the jute. Mr, Sethia concedes and in my opinion rightly that the contract is a forward contract as defined in Section 2(c) of the Forward Contracts Regulation Act, 1952. Prima facie, the making of such a contract is prohibited under Section 17 of the Forward Contracts Regulation Act 1952 and the Notifications issued thereunder, unless it is made out that the contract is a non-transferable specific delivery contract. The contract is! a specific delivery contract as it provides for the actual delivery of specific qualities of goods during a specified future period at a price fixed thereby and as the names of both the buyer and the seller are mentioned. The question still remains whether the specific delivery contract is a non-transferable specific delivery contract as defined in Section 2(f) of the Forward Contracts Regulation Act, 1952. It is now well settled that the word 'or' in Section 2(f) is used conjunctively, and not distributively, and that the contract can be said to be non-transferable only if the rights as also the liabilities under the contract as also under the documents of title relating thereto, are not transferable. This point was decided in Agarpara Co. Ltd., v. Sumatichand Kochar, A. F. O. No. 60 of 1956 (Cal), as also in Raymon and Co. (India) Private Ltd. v. Khardah Co. Ltd., A. F. O. O. No. 173 of 1957: : AIR1960Cal86 .

2. Though the liabilities under the contract are not transferable, prima facie the rights under the contract can be transferred. Thus, prima facie, the right of a buyer to obtain delivery of the goods under the contract of sale as also the right of the seller to obtain payment of the price of goods supplied under such a contract, can be transferred. It is said, however, that by reason of the special terms of the contract in this case, the rights of both the buyer and the seller under the contract are not transferable. The goods to be supplied under the contract were to be imported from Pakistan. At the relevant time no jute could be imported from Pakistan except under a licence obtained under the Imports and Exports Control Act, 1947. The contract, therefore, provides that the goods would be imported against the buyer's import quota. The import licence obtained by the uyer is a licence which, by its terms, is made non-transferable except under a letter of authority from the authority who issued the liences or from any Import Trade Controller. The condition of the licence is that the goods will be utilised only for consumption as raw materials or accessories in the licence-holder's factories and that no portion thereof will be sold to any party. The contract in question is obviously linked up with this licence. Having regard to the terms of the licence, it is practical impossibility for the buyer to transfer his rights under the contract, and it was so held in A F.O. O. No. 173 of 1957: : AIR1960Cal86 . The question still remains whether the rights of the seller under the contract can be transferred. I am satisfied that it can be so transferred. Mr. Sethia argues that having regard to Clause 3 of the contract which provides for reimbursement, it is not possible for the seller to transfer his right to obtain payment of the goods supplied under the contract. I am unable to accept this contention. The special endorsement on the contract shows that the letter of credit is to be opened by the sellers in favour of its nominee, the shippers. The special endorsement read with Clause 3(1) of the contract shows that the sellers should open the letter of credit in favour of the shippers, present the documents to the scheduled Bank in East Pakistan with whom the letter of credit is opened, obtain a certificate from that Bank that the goods had been shipped, present the certificate to the buyer within the time specified, and on presentation of the documents in Calcutta obtain payment in cash by way of reimbursement of the price of the goods. I see no reason why the seller's right to obtain payment on fulfilment of the conditions mentioned, cannot be transferred. We are concerned with possibilities, and not with what actually might or might not have happened. In order to come within the definition of Section 2(f), the contract by its own terms must be such that the rights and liabilities under the contract are not transferable. I am satisfied that at least the rights of the seller under the contract to obtain payment of the price of the goods can be transferred. In this view of the matter, it cannot be said that the contract is a non-transferable specific delivery contract. It must follow, therefore, that the contract which is a forward contract for the purchase and sale of raw jute is prohibited by Section 17 of the Forward Contracts Regulation Act, 1952 and the Notifications issued thereunder.

3. The object as also the consideration of the contract is forbidden fay law and as such by Section 23 of the Indian Contract Act the contract is void. The arbitration agreement is one of the several terms of this contract. The contract itself beingillegal, the arbitration clause which forms part of the contract is also illegal and void. It is true that the arbitration clause is very widely worded. But the taint of illegality attaches to every part of the contract, including the arbitration clause. It is impossible to say that the arbitration clause is a legal contract although the rest of the contract is illegal. The width of the arbitration clause does not save it from the illegality. The whole of the contract including the arbitration clause, must be pronounced to be illegal and as such void.

4. If the arbitration agreement is illegal, and therefore, legally non-existent, the fountain nead of the Arbitrator's jurisdiction disappears. It must follow, therefore, that any award which the Arbitrator may have made purporting to act under the legally non-existent arbitration clause is also invalid. I am, therefore, of the opinion that the award which the Arbitration purported to make under the supposed arbitration clause under this contract is also invalid and must be set aside.

5. Mr. Sethia argued that subsequent to the original contract the parties entered into a fresh arbitration agreement whereby they agreed that the dispute as to the legal validity of the original contract should be referred to arbitration and be decided by the Bengal Chamber of Commerce. There can be no doubt that the parties can enter into a separate arbitration agreement distinct from the original contract and may thereby agree to refer the question of the legal validity of the original contract to arbitration. Mr. Sethia contends that we should hold that the several statements filed by the parties before the Arbitrator amounted to a new arbitration agreement between them. I notice that this point is not taken by the respondent in the affidavit filed by the respondent before the original Court. The question whether, in fact. there was a new arbitration agreement is a question of fact. It involves the question whether the individuals who signed the several statements had authority on behalf of the several parties to enter into a new arbitration agreement. It will be a mockery of justice to allow Mr. Sethia to raise this new point in the absence of any pleading or any argument on this point before the trial Court. I am of the opinion that Mr. Sethia ought not to be allowed to raise this point.

6. Mr. Sethia stated that he could not argue that the respondent is estopped from challenging the award in case we hold that the contract is illegal and in case we further hold that there is no fresh arbitration agreement.

7. P. B. Mukharji, J. appears to have held that as the parties submitted to the jurisdiction of the Arbitrators and as the Arbitrators have made an award, the award is implicit proof that the Arbitrators found as a fact that the contract was a non-transferable specific delivery contract and outside the operation of the Act and, therefore, was not illegal and that the parties bound by such an award. He referred to and followed his previous decision in Bhudarmull Bazaz v. Uma Shankar Purushottumdas and Co., : AIR1953Cal618 . His Lordship was there dealing with a contract, the validity of which was challenged on the ground that it was prohibited by the West Bengal Jute Goods Act V of 1950. The Arbitrators had made an award which was subsequently challenged by one of the parties. The validity of the contract depended upon questions of fact, namely, whether the parties or any of them were habitual dealers or were in possession or control of godown and other means and equipment for the storage of jute goods. P. B. Mukharji, J., in that case held that the Arbitrator was competent to decide the disputed questions of fact on which the legal validity or invalidity of the contract rested. He observed :

'But where the question is not one whether there was at all a submission to arbitration, but whether certain facts exist, which make the contract or the submission void and unenforceable in law or Statute, the Arbitrator's jurisdiction is not thereby ipso facto ousted, if it is otherwise within the language and scope of the submission.'

With respect I cannot agree with these observations. In my opinion the arbitrator has no power to adjudicate upon the legal validity of the submission. He has no power to decide whether or not certain facts exist which render the arbitration agreement illegal and void and to hold that the arbitration agreement is lawful and valid upon a finding that such facts do not exist. Where the arbitration agreement itself is void, the Arbitrator can have no jurisdiction to decide any question in controversy between the parties, for the whole jurisdiction of the Arbitrator is derived from that agreement. Disputes as to the legal validity of the arbitration agreement as to the existence of facts which render it illegal and void must be determined by the Court and not by the Arbitrator just as disputes as to its factual existence can be determined only by the Court and not by the arbitrator. The arbitrator cannot by his own finding clothe himself with jurisdiction. Supposing that the arbitrator finds that the arbitration agreement is valid, such a finding cannot bind the parties, if later on it is found by the Court that the arbitration agreement is invalid. The very arbitration agreement under which the arbitrator assumed jurisdiction being legally non-existent, each and every finding made by the arbitrator under the supposed arbitration agreement must fall to the ground. The arbitration agreement being invalid its wide language and scope is of no assistance.

8. In this view of the matter, the appeal must succeed.

9. I, therefore, propose that the following order should be passed. The appeal is hereby allowed. The judgment and order of P. B. Mukharji, J. are set aside. There will be an order in terms of Prayers (a), (b) and (c) of the Notice of Motion dated the 12th of March, 1957 taken out by Messrs. S. M. Dutt and Co. Each party will pay and bear his or its own costs of the application before the original Court. The appellant will be entitled to the costs of the appeal.

Lahiri, J.

10. I agree.


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