Criminal Appeal No 250 of 1964
Appeal from the judgment and order dated March 14 1963 of the Gujarat High Court in Criminal Revision Application No 124 of 1961
R Ganapathy Iyer and SP Nayar for the appellant
MV Goswami and CC Patel for the respondent
The Judgment of the Court was delivered by Hidayatullah J
In this appeal by certificate under article 134 1  c of the Constitution the State of Gujarat appeals against 178 the judgment March 14 1963 of the High Court of the State acquitting the respondents of diverse offences under the Forward Contracts Regulation Act 1952
Originally 31 persons were charged before the Judicial Magistrate Ahmedabad who acquitted 14 and convicted the rest
The present respondents who are 11 in number accused 1 to 9 11 and 12 were convicted under section 201c of the Act and fined Rs 51 15 days  S1
in default
They were also convicted under section 21b of the Act but no separate sentence was imposed
Nine of them accused 1 to 9 were further convicted under section 21c of the Act and fined Rs 25 one week s S1
in default
The remaining accused were convicted under section 21 b
All appealed to the Court of Sessions Judge
The conviction of accused 1 to 9 11 and 12 was maintained but conviction under section 201b was substituted for that under section 201c
The other accused  were convicted of all the charges
The High Court was then moved in revision
All the accused were acquitted of all the charges
The State Government now appeals
All respondents are members of the Ghee and Tel Brokers Association Ltd Ahmedabad
Nine of them are Directors and two of these are President and Secretary of the Association
The accused who are not before us were brokers and servants of the Association or of the brokers
The prosecution case is this The Association has an office where the members and brokers used to enter into contracts for the sale and purchase of groundnut oil
These contracts were largely speculative
A large number of contracts used to be entered into but were not performed by actual delivery and payment of price
They were adjusted on a due date after the expiry of a fixed period
This period was generally from the 5th of one calendar month to the 25th of the following month and the latter was the due date
On each Saturday during the period the Association exhibited the prevailing rate and according to that rate cross transactions entered earlier were adjusted and the persons in loss deposited money representing their particular losses with the Association
On the due date all outstandingtransactions were finally adjusted by cancelling sales against purchases and delivery used to be ordered in respect of the balance which had to be completed by the end of the month of the due date
During the stated period extensive trading through sales and purchases took place without any delivery
Each member could enter into as many transactions of either kind as he liked provided that each transaction was in multiple of 50 Bengali Maunds
Between March 5 and April 25 1957 the total transactions put through totalled 433600 Bengali Maunds but the actual delivery on the due date was about 5500 Bengali Maunds only that is to say just over 114 per cent
The share of the several operators in these deliveries was insignificant and the deals were really forward 180 any such member becomes illegal and the contract itself becomes void except in the case of a person who has no knowledge that the transaction is prohibited
We are not concerned with sections 16 and 17 and may omit them from consideration
Then comes section 18 sub section 1 whereof provides 18
Special provisions respecting certain kinds of forward contracts 1 Nothing contained in Chapter III or Chapter IV shall apply to non transferable specific delivery contracts for the sale or purchase of any goods Provided that no person shall organise or assist in organising or be a member of any association in any area to which the provisions of section 15 have been made applicable other than a recognised association which provides facilities
for the performance of any non transferable specific delivery contracts by any party thereto without having to make or to receive actual delivery to or from the other party to the contract or to or from any other party named in the contract
 This sub section read with sections 20 and 21 is at the foundation of the charge and as section 19 is irrelevant here we may proceed to read them at once
We are concerned only with cls
b and c of sub section
1 of section 20 and b and c of section 21 and will therefore
omit the other clauses 20
Penalty for contravention of certain provisions of Chapter IV 1 Any person who a b organises or assists in organising or is a member of any association in contravention of the provisions contained in the proviso to sub section 1 of section 18 or c enters into any forward contract or any option in goods in contravention of any of the provisions contained in sub section 1 of section 15 section 17 or section 19 shall on conviction be punishable with imprisonment for a term which may extend to one year or with fine or with both
179 transactions in which there was no intention to take or give delivery
The prosecution therefore submitted that these were forward contracts prohibited under the Act and as the Association was not recognised the offences charged were committed
The High Court having acquitted all the accused the State  contends now that the acquittal recorded by
the High Court is wrong and proceeds on a misapprehension of the provisions of the Act and of the facts on which the charges rested
To consider the submissions of the parties the relevant provisions of the Act which has been passed among other things to regulate forward contracts will have to be seen
Before we do so we may first glance at some definitions leaving out those attributes of the terms defined in which we are not interested
Forward contract under the Act means a contract which is not a ready delivery contract but a contract for future delivery section 2c 
A ready delivery contract is one in which there is delivery and payment of price either immediately or within a period which is not to exceed 11 days even by consent of parties or otherwise section 21 
The expressions transferable specific delivery contract and non transferable specific delivery contract are defined  with reference to the latter expression which means a specific delivery contract the rights or liabilities under which are not transferable section 2 f and specific delivery contract  means a forward delivery contract which provides for actual delivery of specific qualities or types of goods either immediately or during a period not exceeding 11 days at a price fixed thereby or to be fixed in the manner thereby agreed and in which the names of both the buyers and sellers are mentioned section 2m 
The effect of these definitions is clearly to distinguish firstly forward contracts from ready delivery contracts by limiting the time in which ready delivery contracts must be completed by delivery and payment of price secondly to distinguish between transferable and non transferable specific delivery contracts and finally to distinguish forward contracts in which there is either no provision for actual delivery or the parties are not named from a specific delivery contract
The Act then proceeds to lay down in Chapter III the conditions of recognition of Associations
Since this Association was admittedly not recognised it is unnecessary to review the provisions of that Chapter
Chapter IV then makes certain provisions regarding forward contracts and option in goods
Chapter V then provides for penalties
The relevant provisions of these two Chapters need to be carefully considered
Section 151 declares illegal forward contracts in notified goods and on the notification so issuing every forward contract in notified goods otherwise than between members of a recognised association or through or with 181 21
Penalty for owning or keeping place used for entering into forward contracts in goods
Any person who b without the permission of the Central Government organises or assists in organising or becomes a member of any association other than a recognised association for the purpose of assisting in entering into or making or performing whether wholly or in part any forward contracts in contravention of any of the provisions of this Act or c manages controls or assists in keeping any place other than that of a recognised association which is used for the purpose of entering into or making or performing whether wholly or in part any forward contracts in contravention of any of the provisions of this Act or at which such forward contracts are recorded or adjusted or rights or liabilities arising out of such forward  contracts are adjusted regulated or enforced in any manner whatsoever or shall on contravention be punishable with imprisonment which may extend to two years with fine or with both
 The respondents were charged under sections 20 1 b
 20 1 c and 21a b c and f
As the State does not press its case under section 21 a and f they have been left out
Before we analyse the penalty sections it is necessary to see whether the case fails within section 18 1 of the Act
It is established in the case that the Association was unregistered
It is also clear that the contracts although they appeared to be non transferable specific delivery contracts were not intended to be completed by delivery immediately or within a period of 11 days from the date of the contract
In fact week after week contracts were cancelled by cross transactions and there was no delivery
Instead of payment of price losses resulting from the cross transactions were deposited by the operators in loss with the Association
Further on the due date also there was no delivery but adjustment of all contracts of sales against all contracts of purchase between the same parties and delivery was of the outstanding balance
Even this delivery was often avoided by entering into fresh contract at the 182 rate prevailing on the due date as part of the transactions in the next period
There is evidence also to establish this
In other words the transactions on paper did seem to comply with the regulations but in point of fact they did not and the Association arranged for settlement of the entire transactions barring an insignificant portion if at all without delivery
Turning now to the provisions of sub section
1 of the 18th section it is clear that the provisions of Chapters III and IV would not have applied to the respondents if their transactions were true non transferable specific delivery contracts
They would have been so if the nature of the transaction not on paper but in actuality was such as the Act contemplates
This is why the proviso to section 18 has been added to prohibit certain things
The proviso enacts that no person shall organise or assist in organising or be a member of an association except a recognised association which provides facilities for the performance of any specific delivery contract without having to make or to receive actual delivery
The Legislature contemplates that the first sub section of section 18 might be complied with in the documents evidencing the contract but in actuality the contract might be differently performed and has therefore provided for the identical situation which arises in this case
Now the difference between the Magistrate and the Sessions Judge arose on the application of the first sub section of section 18 with its proviso
The Magistrate felt that the transactions were not non transferable specific delivery contracts and the matter fell within the proviso
Having found this it is not a little surprising that he did not apply section 201b which was clearly attracted
His reasoning on this point is difficult to appreciate
He seems to think that as the first sub section of the eighteenth section dealt with non transferable specific delivery contracts it had no application here
Therefore the charge of being members of an association in contravention of the proviso thereto did not survive and hence no offence under section 201b was disclosed
In this the Magistrate was clearly in error
Section 18 1  speaks of true non transferable specific delivery contracts but the proviso at the same time makes it illegal for an unrecognised association to so arrange matters that non transferable specific delivery contracts will be worked out without actual delivery
The Magistrate should have seen that the conduct of the members of this unrecognised association was precisely this and was therefore prohibited by the proviso and directly punishable under section 201 b
An offence under that clause of section 201 and also under el
c of that section read with section 15 was made out
There was no question of considering the matter first under the main part of the first subsection and then to put the proviso out of the way because the first sub section did not apply
The Magistrate however con 183 victed the members under section 21 b for organising an unrecognised association for the purpose of assisting in or entering into or making or performing whether wholly or in part any forward contracts in contravention of the provisions of the Act and further under section 21 c for managing controlling or assisting in keeping a place other than that of a recognised association where forward contracts in contravention of the Act or at which forward contracts are recorded or adjusted or rights or liabilities arising out of such forward contracts are adjusted regulated or enforced in any manner whatsoever
When the respondents
appealed to the Sessions Judge the conviction under section 21 b and c was confirmed and the other conviction was altered from section 201c to section 201b
The Sessions Judge rightly pointed out that the so called non transferable specific delivery contracts were so arranged that they could be resolved after the period of eleven days and without actual delivery
The Sessions Judge was of the opinion that the respondents had acted in breach of the proviso to section 18 1  and were clearly guilty of the offence
In a precise and clear judgment the Additional Sessions Judge explained the pertinent sections and rightly held the proviso to section 181 and section 201b applicable
The High Court then in revision held that it was not open to the Sessions Judge to alter the conviction from section 201c to section 20 1 b as the acquittal under the latter section by the Magistrate was not appealed against and in an appeal from a conviction there could be no change of finding to convert art acquittal into conviction
The High Court also held that no offence under section 21 b or c was made out
In a fairly long judgment the High Court pointed out that the decision of this Court in The State of Andhra Pradesh vs Thadi Narayana1 prohibited the alteration of the finding
The High Court then went further to hold that there could not be a conviction under section 20 1  c as the Sessions Judge had acquitted the appellants and there was again no appeal against that acquittal
The High Court also set aside the conviction under section 21 b and c
The High Court reached its conclusion on the basis of the finding of the Sessions Judge that the contracts entered into were non transferable specific delivery contracts and the appellants were therefore not guilty of the offence under section 201c of the Act
The High Court then proceeded to reason that as no part of the Act prohibited performance of non transferable specific delivery contracts otherwise than by making or receiving actual delivery the acts of the appellants were not offences under the Act
The learned Judge while dealing with section 18  1  proviso observed 1 184 The performance of a non transferable specific delivery contract by a mode other than giving and taking of actual delivery would be contrary to law only if there is some provision of law which prohibits it
But unfortunately for the prosecution the Legislature has not chosen to enact any such provision
The only nearest approximation I could find was the proviso to sub section1 of section 18 but that proviso does not prescribe that a non transferable specific delivery contract shall be performed by making and receiving actual delivery and that the parties to such a contract shall not perform it otherwise than by making and receiving actual delivery
All that it enacts is that no person shall organise or assist in organising or be a member of any association in any area to which the provisions of section 15 have been made applicable other than a recognised association which provides facilities for the performance of any non transferable specific delivery contract by any party thereto without having to make or receive actual delivery to or from the other party to the contract or to or from any other party named in the contract
What this proviso seeks to achieve is to secure that no Association other than a recognized Association shall provide facilities for performance of a non transferable specific delivery contract by the parties thereto without having to make or receive actual delivery
But it is a long step in the argument to conclude from the proviso that performance of a non transferable specific delivery contract otherwise than by making and receiving actual delivery is prohibited
The language of the proviso cannot bear any such extended artificial construction   The learned Judge was clearly in error and misunderstood the connection between the first sub section and its proviso
Distinction is made in the proviso between recognised and unrecognised associations
Persons can organise and assist in organising or be member of an association which is recognised even if the association provides for performance of non transferable specific delivery contracts without actual delivery
The prohibition is against persons arranging for avoidance of delivery through an unrecognised association and read with the penalty sections it is clear that such
acts are rendered illegal
If the acts are illegal then non transferable specific delivery contracts by members of unrecognised associations become illegal also
They are forward contracts and being entered into otherwise than between members of a recognised association or through or with any such member are rendered illegal by section 15 185 Thus there is no doubt whatever in the case that offences under section 21b and c were committed
It is enough to read these clauses to see that they fit the acts of nine respondents accused 1 9 and their position vis a vis the unrecognised association of which they were directors makes them liable to penalty under section 21  b and c but the remaining two respondents accused 11 and 12 being only members are liable to penalty under section 21 b only
As regards the other offences under section 201b and c we are clear that these offences were also committed
But as the Sessions Judge acquitted them under cl
c and there was no appeal to the High Court we say nothing about it
As regards the offence under section 201b the Magistrate did not clearly record a finding of acquittal
However his reasoning seems to be in favour of holding that the clause did not cover the case as the contracts were not non transferable specific delivery contracts
His finding was the reverse of the finding of the Sessions Judge
The question thus remains whether the Sessions Judge could alter the finding in an appeal from a conviction and the High Court too if it so chose when it was a question of choosing between two clauses of a penalty section depending on whether the true nature of the contracts was as held by the Magistrate
The ruling of this Court cited earlier was invoked to suggest that such a course was not possible for the Sessions Judge or the High Court
We do not pause to consider whether the ruling prohibits such a course and if it does whether it does not seek to go beyond the words and intendment of section 4231b of the Code of Criminal Procedure
This is hardly a case in which to consider such an important point
We therefore express no opinion upon it
It is sufficient to express our dissent from the High Court on the interpretation of the Act and hold the respondents guilty of infractions where the ruling does not stand in the way
We accordingly set aside the acquittal of the respondent under cls
b and c of section 21 and restore their conviction under those clauses as confirmed by the Sessions Judge
We sentence all the respondents to a fine of Rs 25 or one week s simple imprisonment in default under section 21b
No separate sentence under section 21 c is imposed on the respondents who were original accused Nos
The appeal shall be allowed to the extent indicated
in this paragraph
YP Appeal allowed in part


Summary:
The members of a Ghee and Tel Brokers Association used to enter into contracts for the sale and purchase of groundnut oil
Week after week contracts were cancelled by cross transactions and there was no delivery
Instead of payment of price losses resulting from the cross transactions were deposited by the operators in loss with the Association
On the due date also there was no delivery but adjustment of all contracts of sales against all contracts of purchase between the same parties and delivery was of the outstanding balance
Even this delivery was often avoided by entering into fresh contract at the rate prevailing on the due date as part of the transactions in the next period
The Sessions Judge convicted the respondents the Association s President Secretary and Directors
holding that these were forward contracts prohibited under the Forward Contracts Regulation Act and the Association was not recognised
The High Court set aside the convictions
In appeal this Court HELD Section 181 of the Act speaks of true non transferable specific delivery contracts but the proviso at the same time makes it illegal for an unrecognised association to so arrange matters that non transferable specific delivery contracts will be worked out without actual delivery
Such conduct is prohibited by the proviso and directly punishable under section 201b
An offence under that clause of section 201 and also under el
c3 of that section read with section 15 was made out
There was no question of considering the matter first under the main part of the first sub section and then to put the proviso out of the way because the first sub section did not apply
The Legislature contemplates that the first sub section of section 18 might be complied with in the documents evidencing the contract but in actuality the contract might be differently performed and has
therefore provided for the identical situation which arose in this case
182F H D