Case: Waverly Jute Mills Co. Ltd Vs. Raymon &amp; Company (India) Pvt. Ltd

2. In Civil Appeals Nos. 389 and 390 of 1960 the facts are that on September 7, 1955, the appellants who are a company owning a Jute Mill at Calcutta entered into an agreement with the respondents who are also a Company doing business as dealers in jute, for the purchase of 2,250 bales of jute cuttings at Rs. 80 per bale of 400 Ibs. to be delivered 750 bales every month in October, November and December 1955. Clause 14 of the agreement provides that all disputes arising out of or concerning the contract should be referred to the arbitration of the Bengal Chamber of Commerce. The respondents delivered, pursuant, to the contract, in all 2000 bales and made default in the delivery of the balance. The appellants then applied to the Bengal Chamber of Commerce for arbitration in accordance with Cl. 14 of the agreement. The respondents appeared before the arbitrators and contested the claims on the merits. The arbitrators made an award in favour of the appellants for Rs. 10,525, and that was filed under S. 14(2) of the Indian Arbitration Act in the High Court of Calcutta on its original side and notice was issued to the respondents. Thereupon they filed an application presumably under S. 33 of the Arbitration Act for a declaration that the contract dated September 7, 1955 was illegal as it was in contravention of the notification of the Central Government dated October 29, 1953, and that the award based thereon was a nullity. The learned Judge on the original side before whom the application came up for hearing dismissed it and passed a decree in terms of the award. Against both the judgment and the order, the respondents preferred appeals to a Division Bench of the High Court, Appeals Nos. 140 and 141 of 1957. They were heard by Chakravartti C.J., and Lahiri, J., who held that the contract dated September 7, 1955 was illegal, as it fell within the prohibition contained in notification of the Central Government dated October 29,1953 and accordingly allowed the appeals and set aside the award. The appellants then applied for a certificate under Art.133(1)of the Constitution but the same was refused. Thereafter they applied to this Court for leave under Art.136 of the Constitution and that was granted. This is how these appeals come before us.3. In Civil Appeals Nos. 391 and 392 of 1960 the facts are similar. The appellants who are a company carrying on business in the manufacture of jute entered into a contract with the respondents on October 17, 1955, for the purchase of 500 bales of jute cuttings at Rs. 87-8-0 per bale of 400 lbs., to be delivered in equal installments of 250 bales in November and in December 1955. Clause 14 of the agreement provides that all differences arising out of or concerning the contract should be referred to the Bengal Chamber of Commerce for arbitration. The respondents made default in the delivery of the goods and thereupon the appellants moved the Chamber of Commerce for arbitration under Cl. 14 of the agreement. The respondents appeared before the arbitrators and contested the claim on the merits. The arbitrators made an award in favour of the appellants for Rs. 17,500, and that was filed in the High Court of Calcutta on its original side and notice under S.14(2) of the Arbitration Act was served on the respondents. Thereupon they filed an application in the High Court of Calcutta, presumably under S.33 of the Arbitration Act, for a declaration that the contract dated October 29,1953 and was therefore illegal and that the arbitration proceedings pursuant thereto and the award passed therein were all void. The learned single Judge on the original side before whom the application came up for hearing dismissed it and passed a decree in terms of the award. Against the above judgment and order the respondents preferred appeals to a Division Bench of the High Court, Appeals Nos. 142 and 143 of 1957. They were heard by Chakravartti, C. J. and Lahiri, J., who held that the contract dated October 17, 1955 was illegal, as it fell within the prohibition contained in the notification of the Central Government dated October 29, 1953, and accordingly allowed the appeals and set aside the awards. The appellants thereafter applied under Art. 133 (1) (c) for a certificate and that having been refused they obtained from this Court leave under Art. 136 of the Constitution and that is how these appeals come before us. The point how these appeals are the same and this Judgment will govern all of them.

Reasoning:
This statute was enacted by Parliament and received the assent of the President on December 26, 1952. Its validity is attacked on two grounds, that Parliament had no competence to enact it, and that the provisions of the Act are repugnant to Art. 14 and Art. 19 (1) (g) of the Constitution and therefore void. If this contention is well founded, then the notification dated October 29, 1953 which was issued by the Central Government in exercise of the powers conferred by S. 17 of the Act would be null and void.6. Dealing first with the question as to the competence of Parliament to enact the impugned law, it will be convenient to set out the entries in the Legislative Lists in Seventh Schedule of the Constitution bearing on this question.List I-Entry 48-Stock Exchanges and Futures Markets.List II- Entry 26 - Trade and commerce within the State subject to the provision of entry 33 of List III.Entry 27-Production, supply and distribution of goods subject to the provision of entry 33 of List III.List III - Entry 7-Contracts, including partnership, agency, contracts of carriage, and other special forms of contracts, but not including contracts, but not including contracts relating to agriculturalstatute makes a distinction between ready delivery contracts and forward contracts. When a contract provides for the delivery of goods and payment of price there for either immediately or within a period not exceeding eleven days it is a ready delivery contract.All other contracts are forward contracts. Forward contracts are again divided into two categories specific delivery contracts and non-transferable specific delivery contracts. Specific delivery contracts mean forward contracts which provide for actual delivery of specific goods at the price fixed during a specified future period. Non-transferable specific delivery contracts are specific delivery contracts the rights or liabilities under which are not transferable. Section 15 confers power on the Government to issue notifications declaring illegal forward contracts with reference to such goods or class of goods and in such areas as may be specified. Section 17 authorises the Government to prohibit by notification any forward contract for the sale or purchase of any goods or class of goods to which the provisions of S. 15 have not been made applicable. Section 18 exempts non-transferable specific delivery contracts from the operation of these sections. Thus the law is what it purports to be a law regulating Forwardwould be noticed that both the entries 26 and 27 in List II are subject to entry 33 in List III. Entry 33 as it now stands is: "Trade and commerce in, and the Production, supply and distribution of ..............(e) raw jute." The impugned Act in so far as it relates to raw jute- and that is what we are concerned with in these appeals - will clearly be intra vires if it fell under this entry. But it should be mentioned that cl. (e) in entry 33 was inserted by the Constitution (Third Amendment) Act, 1959 and as the impugned Act. was passed in 1952, its validity must be determined on the provisions of the Constitution as they stood prior to the Amendment Act in 1954 and entry 33 in List III therefore must be excluded from consideration.We are unable to agree with this contention. Market no doubt ordinarily means a place where business is being transacted. That was probably all that meant at a time when trade was not developed and when transactions took place at specified places. But with the development of commerce, bargains came to be concluded more often than not through correspondence and the connotation of the word Market underwent a corresponding expansion. In modern parlance the word market has come to mean business as well as the place where business is carried on. Labour Market for example, is not a place where labourers are recruited but the conditions of the business of labour. The word market being thus capable of signifying both business and the place where the business is carried on, the question in what sense it is used in a particular statute must be decided on a consideration of the context of that statute. Thus in AIR -1925 Mad 1095 and 1956-2 Mad LJ 563 the question arose with reference to provisions as to licensing by local authorities, and for that purpose market was interpreted as meaning a place. So we must examine what the word market means in entry 48 "futures Markets in List I. The word Futures is thus defined in Encyclopaedia Britannica " "contracts which consist of a promise to deliver specified qualities of some commodity at a specified future time. The obligation is for a single quantity in a given month..................... Futures are thus. a form of security analogous to a bond or promissory note". In this sense a market can have reference only to business and not to any location. In our opinion a legislation on Forward Contracts would be a legislation on Futuresthe two entries relate to the powers mutually exclusive of two different legislatures, the question is how these two are to be reconciled. Now it is a rule of construction as well established as that on which the appellants rely, that the entries in the Lists should be so construed as to give effect to all of them and that a construction which will result in any of them being rendered futile or otiose must be avoided. It follows from this that where there are two entries, one general in its character and the other specific, the former must be construed as excluding the latter. This is only an application of the general maxim that Generalia specialibus non derogant. It is obvious that if entry 26 is to be construed as comprehending Forward Contracts, then "Futures Markets" in entry 48 will be rendered useless. We are therefore of opinion that legislation on Forward Contracts must be held to fall within the exclusive competence of the Union under entry 48 in List I.We are unable to accept this contention. The validity of the West Bengal Jute Goods Futures Ordinance. 1949, had to be judged in accordance with the provisions of the Government of India Act, 1935, which was the Constitution Act then in force. In that Act there was no specific entry relating to Futures Markets. Such an entry was introduced for the first time in the present Constitution in 1950.The contest in Bhuwalka Brothers Ltd. case AIR 1952 SC 740 therefore was not between a general entry on trade and commerce and a specific entry on the futures markets, as in the present case, but between Trade and commerce in List II and Contracts in List III. In the absence of a specific entry like the one contained in entry 48 in List I, the decision in Bhuwalka Brothers Ltd. case AIR 1952 Cal 740   (SB) would be correct but it is no longer law in view of the change in the Constitution.14. In the present case the question was also raised whether the impugned legislation would fall under entry 7 of List III. While the respondents insisted that it fell under entry 48 in List I, they were also prepared, in case that contention failed, to fall back on entry 7 in List III as a second line of defence. Entry 7 is general in its terms and cannot prevail as against specific entry such as entry 48 in List 1 or 26 in List II. On this point, we are in agreement with the decision in Bhuwalka Brothers Ltd. case AIR 1952 Cal 740  (SB). In the result we must hold that the attack on the impugned Act on the ground of legislative incompetence mustfar as Art. 14 is concerned, the question is now concluded by the decision of this Court in Raghubar Dayal Jai Prakash v. Union of India, W. P. Nos. 22 to 26 and 42 of 1959 D/- 12-9-61 (AIR 1962 SC 263  )where it has been held that impugned Act does not infringe that Article and is valid. This point is therefore no longer open to debate and indeed the appellants addressed no arguments on it.16. Then as regards the attack based on Art. 19 (1) (g) the position is that though the appellants raised this contention in the pleadings they did not press it before the learned Judges in the Court below because there was a decision of the Bench of the Calcutta High Court which had decided the point against the appellants. The point, however, was taken on the grounds of appeal to this Court, and has been sought to be pressed beforeare of opinion that those observations cannot be read as negativing the presumption as to the constitutionality of a statute. But it is unnecessary to say more about it, as the appellants abandoned this point after some argument. This contention also must therefore be found against thequestion has been considered by us in Khardah Co. Ltd. v. Raymon and Co. (India) (P) Ltd. CA Nos. 98 and 99 of 1960 D/ 4-5-1962 : (AIR 1962 SC 1810  ) with which these appeals were heard and therein we have held that if a contract is illegal and void, an arbitration clause which is one of the terms thereof, must also perish along with it and that a dispute relating to the validity of a contract is in such cases for the Court and not for the arbitrators to decide. Following that decision we must overrule this contention.The point for decision is as to the true effect of what happened before the arbitrators on their jurisdiction to hear the dispute. The principles applicable in the determination of this question are well settled. A dispute as to the validity of a contract could be the subject-matter of an agreement of arbitration in the same manner as a dispute relating to a claim made under the contract. But such an agreement would be effective and operative only when it is separate from and independent of the contract which is impugned as illegal. Where, however, it is a term of the very contract whose validity is in question, it has, as held by us in Khardah Co. Ltd. case, C. A Nos. 98 and 99 of 1960 D/- 4-5-1962: (AIR 1962 SC 1810  ), no existence apart from the impugned contract and must perish withdecision directly bearing on this distinction is the one in East India Trading Co. New York v. Badat and Co. ILR (1959) Bom. 1004  : (AIR 1959 Bom. 414  ). There the facts were that there was a general agreement between the parties as to the terms on which they should do business and it was provided therein that all disputes arising out of the contract should be settled by arbitration. Subsequent thereto the parties entered into several contracts and then a dispute arose with reference to one of them. One of the parties denied the contracts and the question was whether an award passed by the arbitrators with reference to that dispute was without jurisdiction. In holding that the arbitrators had jurisdiction to decide the matter by virtue of the agreement antecedent to the disputed one, the Court observed: "Now, the principle of the matter is this that when a party denies the arbitration agreement, the very basis on which the arbitrator can act is challenged and therefore the Court have taken the view that in such a case the arbitrator has no jurisdiction to decide whether he himself has jurisdiction to adjudicate upon thethe arbitration agreement is part and parcel of the contract itself, by denying the factum of the contract the party is denying the submission clause and denying the jurisdiction of the arbitrators. But in this case the position is different. We have an independent agreement by which the parties agreed to refer the disputes to arbitration. Pursuant to this agreement, contracts were entered into and when the plaintiffs made a claim against the defendants, the defendants denied their liability. Therefore, what was denied was not the jurisdiction of the arbitrators, not the submission clause, but business done pursuant to the submission clause and to which the submission clause applied." That in our judgment is a correct statement of the true legalhave gone through the statements filed by the respondents before the arbitrators, and we do not find anything therein out of which a new agreement to refer the dispute to arbitration could be spelt. The respondents merely contested the claim on the merits, and then added:". The sellers submit that this reference is improper, unwarranted, frivolous and vexatious and should be dismissed with costs". It is impossible to read this statement as meaning an agreement to refer to arbitration.23. The decisions in National Fire and General Insurance Co. Ltd.s case, AIR1956 Cal 11 and Pratabmull Rameswars case, 64 Cal WN 616: (AIR 1960 Cal 702  ), relied on for the appellants are not really in point. In both these cases there was a valid submission on which the arbitrators proceeded to act. Before them the parties filed statements and therein they put forward a claim which was not actually covered by the reference, and invited them to give their decision thereon. The party against whom the award had gone contended that the arbitrators had acted without jurisdiction in deciding that claim. In overruling this contention the Court held that it was open to the parties to enlarge the scope of a reference by inclusion of a fresh dispute, that they must be held to have done that when they filed their statements, putting forward claims not covered by the original agreement, that these statements satisfied the requirements of S.2(a) of the Arbitration Act, and that it was competent to the arbitrators to decide the dispute. The point to be noticed is that in both these cases there was no want of initial jurisdiction, but a feeding of existing jurisdiction by an enlargement of the scope of the reference. That this does not involve any question of jurisdiction in the arbitrators will be clear from the scheme of the Act. If an award deals with a matter not covered by the agreement it could either be modified under S. 15 (a) or remitted under S. 16 (1) (a). And where such matter is dealt with on the invitation of the parties contained in the statements, there can be no difficulty in holding that the arbitrators acted within jurisdiction. In the present case the arbitrators had no jurisdiction when they entered on their duties, nor is it established that there was any subsequent agreement which could be held to be a submission of the question as to the validity of the contracts. We are accordingly of the opinion that the respondents are not precluded by what they did before the arbitrators from agitating the question of the validity of the contracts in the presentfacts are similar to those considered by this Court in Khardah Co. Ltd. case C. A. Nos. 98 and 99 of 1960 D/- 4-5-1962 : (AIR 1962 SC 1810  ), with which these appeals were heard, and for the reasons given by us in our judgment in those appeals delivered to-day, we accept the contention of the appellants, and hold that the contracts in question are not hit by the notification dated October 29, 1953.