Case: M/S. Dhanrajamal Gobindram Vs. M/S. Shamji Kalidas And Co

2. The facts of the case are as follows: On October 24, 1957 Messrs. Dhanrajamal Gobindram (referred to as buyers, hereafter) entered into an agreement with Messrs. Shamji Kalidas and Co. (referred to as sellers, hereafter), for purchase of 500 bales of African raw cotton. The contract was in the form of a letter written by the sellers and confirmed by the buyers. The material portions of the letter, which bears No. SK/Bom/13/2014 and was stamped as an agreement, are as followsconfirm having sold to you African raw cotton on the following terms and conditions subject to the usual Force Majeure Clause :Description: ARBP 52 F. A. Q. Crop/58.Quality: 500 (Five Hundred) bales.Price: at Rs. 1401 nett pea candy CIF Bombay.Payment: Against shipping documents in Bombay.Packing: 420 lbs. Approximately per bale.Shipment: February/ March 1958.Remarks. The terms and conditions on the reverse form part of the contract. This contract is subject to theof East India Cotton Association, Ltd., Bombay, other than the35 for arbitration on Quality in case of East African cotton.x x xTerms and Conditions1. The shipment is subject to any cause beyond sellers or sellers shippers control and is also subject to availability of freight.5. This contract is subject to the jurisdiction of the High Court of Bombay.6. It will be the duty of the buyers to obtain the import licence and to communicate the number thereof to the sellers immediately on the same being obtained but in any event, not later than 20th February, 1958, and in the event of their failure to do so for any reasons whatsoever including the reason that the Government of India may not allow the imports of the contracted goods, the sellers shall be entitled at their discretion either to carry over the goods, in which event the buyers shall pay to the seller all carryover charges in addition to the contracted price or to call upon the buyers to pay for the contracted goods and take immediate delivery thereof in British East Africa and upon the buyers failing to do so, to sell the contacted goods at Kampala or Mombasa at the rates prevalent there in convenient lots and as and when it may be practicable to do so at the risk and account of the buyers and to claim from them any deficit that arise between the contracted price and such resale price and also all expense incidental thereto.7. Even if the Government of India may announce the import policy of the contracted goods in such manner that only the consumers would be entitled to obtain the licences, it will be the duty of the buyers to see that necessary import licences for the contracted goods are obtained in the consumers name or in the joint names of themselves and those of the consumers the intention being that in all eventualities it is the duty of the buyers to obtain licences under any policy that may be followed by the Government of India for the import of the contracted goods and to communicate the number thereof to the sellers within the time as specified hereinabove and on the buyers failure to do so all the eventualities contemplated under Cl. 6 shalla letter dated November 30, 1957, the contract was later amended by the parties, asreference to the above mentioned contracts we hereby confirm that, if necessary, we shall carry over the contracted goods for two months, namely, March and April and you will pay as the carry over charges for the same. The interest payable under such carry over charges will be at the rate prevalent in Mombasa.The other terms and conditions remain unaltered...The contract was not performed. The sellers wrote as many as five letters between March 1, 1958, and May 26, 1958, and May 26, 1958, before they received a reply from the buyers dated June 3, 1958. By that time, the sellers had carried forward the contract, and also invoked their right ofafter giving notice, and claimed Rs. 34,103. 15 nP. For which a debit note had been issued. This note was returned by the buyers with a letter of June 3, 1958, stating that the contract was "void and/or illegal", that they were not obliged to perform it, that there was no right of any sale on their account and/or on their behalf, and that the alleged sale was not binding upon them. (Ex. "D" (Colly) NO. 6.)4. The sellers then invoked the arbitration clause of the agreement and Bye lawaws of the East India Cotton Association, Ltd., Bombay, and moved the Bombay High Court, on the Original Side, under S. 20 of the Indian Arbitration Act, requesting that the agreement be filed in Court and the dispute referred to arbitration. The buyers appeared, and resisted the petition on grounds which they set forth in affidavits filed from time to time. By their first affidavit dated July 31, 1958, the buyers contended that Cls. 6 and 7, quoted above, were unlawful, as the liability created under them amounted to a contravention "of the import policy of Government of India" and the foreign Exchange Regulation Act, 1947, and the Rules made thereunder. They contended that, in view of the invalidity of the contract as a whole, the arbitration clause in the agreement was not binding, and that the agreement could not be filed. In the second affidavit which was filed on February 4, 1959, they added the reason that the words "subject to the usual Force Majeure Clause" were vague and uncertain, and made the contract void ab initio, as there was no consensus ad idem between the parties. They contended that the contract being void, the arbitration clause was also void. By yet another affidavit filed on February 27, 1959, they averred that the letter dated November 30, 1957, was void, being in contravention of the Import Trade Control Act and the Foreign Exchange Regulation Act and the Rules made under the two Acts, inasmuch as the consideration was one forbidden by law and was likely to defeat the provisions of law. They also stated that the words "If necessary" in that letter rendered the contract void ab initio for vagueness and uncertainty.5. The case was heard by K. T. Desai, J. (as he then was). On March 3, 1959, the learned Judge dismissed the petition as not maintainable on the ground that the dispute was about the legality or validity of the contract including the agreement about arbitration, and that such a dispute could only be considered under Ss. 32 and 33 of the Arbitration Act by the Court and not by the arbitrator in a reference under S. 20 of the Act. He declined to consider the question under the former sections, because the petition had not asked for that relief, observing that if by a proper petition the question were raised, it would be decided. Against the order of the learned Judge (O. S.), an appeal was filed by the sellers. This appeal was heard by Chainani, C. J. and S. T. Desai, J. on April 28, 1959. The learned Judges held that a claim was made by the sellers and was denied by the buyers; that there was thus a dispute arising out of or in relation to a contract as contemplated by; that in showing cause against the petition under S. 20, the buyers had averred that the contract was illegal and void; and that such a question could be decided by the Court before making the reference. The learned Judges pointed out that a petition under Ss. 32 and 33 of the Indian Arbitration Act questioning the existence or validity of an arbitration agreement was not to be expected from one making a claim under a contract, that the plea was always likely to be raised by one resisting the petition, and that when such a plea was raised, the Court must decide it, even though the proceedings be under S. 20 of the Act for making a reference. The case was, therefore, remanded with the following directionthe respondents have challenged the validity of this agreement, the Court will have to decide this question before passing further orders in the matter. Accordingly we set aside the order in the matter. Accordingly we set aside the order passed by Mr. Justice K. T. Desai, dismissing the petition filed by the petitioners, and remand the matter to the trial court for deciding the objections, raised by the respondent under(3) of S. 20 of the Act, to the arbitration agreement being filed in Court, and then disposing of the matter in accordance with law".When the case went back for retrial, the buyers filed their fourth affidavit on November 16, 1959. They stated in that affidavit thatA was a statutoryof the East India Cotton Association, Ltd., Bombay, a recognised Institution under the Forward Contracts Regulation Act, No. 74 of 1952, and that S. 46 of the Arbitration Act was applicable. They contended that inasmuch as theof the Association prescribed a different machinery in consistent with and repugnant to S. 20 of the Arbitration Act, the latter section was inapplicable, and that the petition was incompetent. By his order dated November 26 and 27, 1959, K. T. Desai, J. held that the petition did not disclose sufficient materials, and that the sellers were not entitled to have the agreement of reference filed, or to have an order of reference made. Though he held that theof the East India Cotton Association Ltd. were statutory, and that Ss. 46 and 47 of the Arbitration Act applied, he was of opinion that S. 20 could not be invoked because no action under(4) of S. 20 could be taken. The reason given by the learned Judge was that under thatthe Court had to appoint an arbitrator, if the parties failed to agree, and thatwas not applicable, because the machinery ofA left no power of action to the Court. He also felt that there was no averment in the petition that he parties had not agreed. On the rest of the points raised by the buyers in their affidavits, the learned Judge held against them. He held that, in view of Ss. 21(2) and 21(3) of the Foreign Exchange Regulation act, there was no infringement of that Act by the agreement entered into, though he expressed a doubt if the words "legal proceedings" in S. 21 (3) were wide enough to include an arbitration.He also held that Cl. 7 of the conditions under which the contract was to be performed was, at least in part and under certain circumstances, not a contravention of the Import and Export Control Act, 1947, or the Import Trade Control Order issued under Ss. 3 andof that Act, and thus not wholly void. He held lastly that the contract was not void for vagueness or uncertainty either on account of the reference to "the usual Force Majeure Clause", or because of the words "if necessary" in the letter of November 30, 1957.7. The sellers appealed against the dismissal of the petition, and the buyers cross objected against the adverse findings and the disallowance of costs. The appeal was heard by Tarkunde and Chitale, JJ., and by separate but concurring judgments, the appeal was allowed and thedismissed, and the buyers were ordered to pay costs throughout. The Divisional Bench agreed with K. T. Desai, J. on all the points decided by him against the buyers. They left open the question whether "legal proceedings" in S. 21(3) of the Foreign Exchange Regulation Act were wide enough to include an arbitration for the decision of the arbitrators to be appointed, and addressing themselves to the question raised about S. 20, held that the petition was maintainable. They were of opinion that the Court could order the arbitration agreement to be filed and also to refer the dispute to arbitrators to be chosen in accordance with, though they felt that if the latter action could not be taken, at least the first could be, because the procedural part could not destroy the power conferred to file the agreement.

Court's reasoning:
It is contended that S. 21 uses the word "permission", while S. 5 speaks of an exemption, and that Ss. 21(2) and 21(3) do not cover the prohibition in S.Foreign Exchange Regulation Act, no doubt, uses diverse words like, "authorise", "exempt" and "permission" in different parts. The word "exempt" shows that a person is put beyond the application of law, while "permission" shows that he is granted leave to act in a particular way. But the word "permission" is a word of wide import. "Permission" in this section means only leave to do some act which but for the leave would be illegal. In this sense, exemption is just one way of giving leave. If one went only by the word and searched for those sections where the word "permission" is expressly used, Ss. 21(2) and (3) are likely to prove a dead letter. This could not have been intended, and the very elaborate provisions in thoseshow that those matters were contemplated which are the subject of prohibition is S. 5. In our opinion, the argument in without foundation.The contention, that on resale the price would have accrued to the buyers in the first instance, as the sellers would be acting as the agents of the buyers, is also incorrect. It has been rightly pointed out by K. T. Desai, J. that the right of resale given by Ss. 54(2) and (4) of the Indian Sale of Goods Act is exercised by the seller for himself and not as an agent of the buyer, when the latter is given a notice of sale. This is indeed clear from the fact that the buyer is not entitled to the profit on resale in that contingency, though liable for damages. The position is different when no notice is so sent. Then the profits go to the buyer. Perhaps, in that event it may be possible to say that the seller acted as an agent. But, in the case of resale with prior notice, there is no payment to the buyer and no contravention of the Foreign Exchange Regulation Act.15. The contention that the contract involved an actual or, at least, a contingent right to or acquisition of property abroad is not correct. Even if it were so, the contract is saved by s. 21, as already explained. In our opinion, the contract was not void for illegality.(1) prohibits contracts in contravention or evasion, directly or indirectly, of the Foreign Exchange Regulation Act and if there was nothing more then the argument would be understandable. But,(2) provides that the condition that a thing shall not be done without the permission of the Reserve Bank shall not render an agreement invalid, if it is a term of the agreement that the thing shall not be done unless permission is granted by the Central Government or the Reserve Bank and further that it shall be an implied term of every contract governed by the law of any part of India that anything agreed to be done by any term of that contract, which cannot be done except with the permission of the Reserve Bank, shall not be done, unless permission is granted.(3) allows legal proceedings to be brought to recover sum due as a debt, damages or otherwise but no steps shall be taken to enforce the judgment, etc., except to the extent permitted by the Reservesection is perfectly plain, though perhaps it might have been worded better for which a model existed inForeign Exchange Regulation Act, no doubt, uses diverse words like, "authorise", "exempt" and "permission" in different parts. The word "exempt" shows that a person is put beyond the application of law, while "permission" shows that he is granted leave to act in a particular way. But the word "permission" is a word of wide import. "Permission" in this section means only leave to do some act which but for the leave would be illegal. In this sense, exemption is just one way of giving leave. If one went only by the word and searched for those sections where the word "permission" is expressly used, Ss. 21(2) and (3) are likely to prove a dead letter. This could not have been intended, and the very elaborate provisions in thoseshow that those matters were contemplated which are the subject of prohibition is S. 5. In our opinion, the argument in without foundation.e contention, that on resale the price would have accrued to the buyers in the first instance, as the sellers would be acting as the agents of the buyers, is also incorrect. It has been rightly pointed out by K. T. Desai, J. that the right of resale given by Ss. 54(2) and (4) of the Indian Sale of Goods Act is exercised by the seller for himself and not as an agent of the buyer, when the latter is given a notice of sale. This is indeed clear from the fact that the buyer is not entitled to the profit on resale in that contingency, though liable for damages. The position is different when no notice is so sent. Then the profits go to the buyer. Perhaps, in that event it may be possible to say that the seller acted as an agent. But, in the case of resale with prior notice, there is no payment to the buyer and no contravention of the Foreign Exchange Regulation Act.15. The contention that the contract involved an actual or, at least, a contingent right to or acquisition of property abroad is not correct. Even if it were so, the contract is saved by s. 21, as already explained. In our opinion, the contract was not void foranalysis on rulings on the subject into which it is not necessary in this case to go, shows that where reference is made to "force majeure", the intention is to save the performing party from the consequences of anything over which he has no control. This is the widest meaning that can be given to "force majeure", and even if this be the meaning, it is obvious that the condition about "force majeure" in the agreement was not vague. The use of the word "usual" makes all the difference, and the meaning of the condition may be made certain by evidence about a force majeure clause, which was in contemplation ofwill appear from the decision of the House of Lords that the clause was held to be vague, because no precise meaning could be attributed to it, there being a variety of hire purchase clauses. The use of the word "usual" here, enables evidence to be led to make certain which clause was, in fact, meant. The case of the House of Lords does not, therefore, apply. Both the cases to which we have referred were decided after parties had entered on evidence, which is not the case here.Applying these tests to the present case and in the light of the provisions of S. 29 of the Indian contract Act, it is clear that the clause impugned is capable of being made certain and definite by proof that between the parties or in the trade or in dealings with parties in British East Africa, there was invariably included a force majeure clause of a particular kind.21. In our opinion, the contract was not void for vagueness or uncertainty by reason of the reference in the terms stated, to the force majeure clause.Mr. Daphtary posed the question as to on whom was the burden of proving the usual force majeure clause. In our opinion, if the agreement is not void for uncertainty, that question would be a matter for the decision of the arbitrators. It is too early to say by what evidence and by whom the usual force majeure clause mustour opinion, this argument has no force whatever. Under Cl. 6, the sellers had an absolute discretion either to carry over the goods or to insist on delivery being taken. By this letter, they have said that, if necessary, that is to say, if the buyers find it difficult to supply the number of the import licence, the contract would be carried over to March and April. By this amendment, the sellers surrendered to a certain extent their absolute discretion. The clause means that the contract was not extended to March and April, but that the sellers would extend it to that period, if occasion demanded. Since both the parties agreed to this letter and the buyers confirmed it, it cannot be said that there was no consensus ad idem, or that the whole agreement is void forhave already quoted extracts from the agreement which include the clause by which theof the East India Cotton Association Ltd., Bombay, were applied to this contract, except35, which deals with arbitration on quality in case of East African cotton.1 (B) relates to East African cotton, and it says that1 to 46 inclusive (with certain exceptions) shall apply to contracts in respect of East African cotton. It was conceded before the High Court and also before us that theare statutory. The buyers were members of the Association but not the sellers; but theon arbitration, with which we are concerned, include arbitrations between a member and afollow certain provisions, which were stressed but which need not be quoted in extenso. Shortly stated, they are that the arbitrators must make their award in 15 days, unless time be extended by the Chairman. The umpire is to be appointed within 15 days or such extended period as may be fixed by the Chairman and the umpire is to make his award within 10 days, unless time be extended by the Chairman. In case of disagreement of failure of a party to appoint an arbitrator, the Chairman may appoint an arbitrator, and similarly the Chairman is to appoint the umpire and he may even appoint himself. Other powers are conferred on the Chairman, who is the Chairman of the Board of Directors of the East India Cotton Association46 makes the provisions of any other enactment or any rules made thereunder to prevail over the Arbitration Act, if inconsistent with the latter. In view of these several provisions, it is clear that the Arbitration Act applies to all arbitrations and Chap. III makes it applicable also to arbitrations, in which the arbitration agreement is asked to be filed in Court under S, 20, subject, however, to this that the provisions of any other enactment or rules made thereunder, if inconsistent with the Arbitration Act, are tois not correct. To begin with, questions as to the existence or validity of the agreement are saved from decisions by arbitrators or umpires, however appointed. Since such a plea can only be raised in bar of an application by person seeking a reference to arbitration, at least that portion of the Act still applies, and that power can only be exercised by the Court. Other provisions of Chap. II, like Ss. 15 and 16, still remain applicable. We need not give a list of all the provisions which may be saved, because that will involve an examination side by side, of the sections of the Act and the provisions of theSo long as something is saved, it cannot be said that the Court after receiving the agreement and ordering that it be filed, becomes completely functus officio.26. But the crux of the argument is that the provisions of(4) of S. 20 read with(1) , ibid., cannot apply, and the Court, after filing the agreement, will have to do nothing more with it, and this shows that S. 20 is not applicable. This argument overlooks the fact that this is a statutory arbitration governed by its own rules, and that the powers and duties of the Court in(4) of S. 20 are of two distinct kinds. The first is the judicial function to consider whether the arbitration agreement should be filed in Court or not. That may involve dealing with objections to the existence and validity of the agreement itself. Once that is done, and the Court has decided that the agreement must be filed, the first part of its powers and duties is over. It is significant that an appeal under S. 39 lies only against the decision on this part of(4). Then follows a ministerial act of reference to arbitrator or arbitrators appointed by the parties. That also was perfectly possible in this case, if the parties appointed the arbitrator or arbitrators. If the parties do not agree, the Court may be required to make a decision as to who should be selected as an arbitrator, and that may be a function either judicial, or procedural, or even ministerial; but it is unnecessary to decide which it is. In the present case the parties by their agreement have placed the power of selecting an arbitrator or arbitrators (in which we include also the umpire) in the hands of the Chairman of the Board of Directors of the East India Cotton Association, Ltd., and the Court can certainly perform the ministerial act of sending the agreement to him to be dealt with by him. Once the agreement filed in Court is sent to the Chairman, thelay down the procedure for the Chairman and the appointed arbitrator or arbitrators to follow, and that procedure, if inconsistent with the Arbitration Act prevails. In our opinion, there is no impediment to action being taken under S. 20(4) of the Arbitration Act.27. We may dispose of here a supplementary argument that the dispute till now is about the legal existence of the agreement including the arbitration clause, and that this is not a dispute arising out of, or in relation to a cotton transaction. Reference was made to certain observations in Heyman v. Darwins Ltd., 1942 AC 356. In our opinion, the words of the"arising out of or in relation to contracts" are sufficiently wide to comprehend matters, which can legitimately arise under S. 20. The argument is that, when a party questions the very existence of a contract, no dispute can be said to arise out of it. We think that this is not correct, and even if it were, the further words "in relation to" are sufficiently wide to comprehend even such a case. In our opinion, this argument must also fail.Whether the proper law is the lex loci contractus or lex loci solutionis is a matter of presumption; but there are accepted rules for determining which of them is applicable. Where the parties have expressed themselves, the intention so expressed overrides any presumption. Where there is no expressed intention, then the rule to apply is to infer the intention from the terms and nature of the contract and from the general circumstances of the case. In the present case, two such circumstances are decisive. The first is that the parties have agreed that in case of dispute the Bombay High Court would have jurisdiction, and an old legal proverb says, " Qui eligit judicem eligit jus." If Courts of a particular country are chosen, it is expected, unless there be either expressed intention or evidence, that they would apply their won law to the case. See N. V. Kwik Hoo Tong Handel v. James Finlay and Co., 1927 AC 604. The second circumstance is that the arbitration clause indicated an arbitration in India. Of such arbitration clauses in agreements, it has been said on more than one occasion that they lead to an inference that the parties have adopted the law of the country in which arbitration is to be made. See Hamlyn and Co. v. Tallisker Distillery, 1894 AC 202   and Spurrier v. La Cloche, 1902 AC 446. This inference, it was said in the last case, can be drawn even in a case where the arbitration clause is void according to the law of the country, where the contract is made and to be performed. In our opinion, in this case, the circumstances clearly establish that the proper law to be applied is the Indian law.