Case: Gordhandas Purshottamdas Sonawala &amp; Another Vs. Eastern Cotton &amp; Company

1. This appeal with a certificate of fitness is directed against the judgment and decree passed by the High Court of Judicature at Bombay in appeal from its ordinary Original Civil Jurisdiction confirming, though on different grounds, the judgment and decree passed by a Single Judge of that High Court in Suit No. 468 of 1951 instituted by the appellants (Original Plaintiffs) to recover from the respondents (Original Defendants) a sum of Rs. 1,80,099-8-0 with interest and costs.2. Since the year 1932 the first appellant has been a member of the East India Cotton Association Ltd., (hereinafter referred to as "the Association") as the sole proprietor of the firm of Messrs. Narrondass Monordass (hereinafter referred to as "the member firm"). The first appellant along with other partners carried on business in partnership in Bombayinter aliaas Cotton Merchants and Commission Agents in the name and style of Messrs. Narrondass Monordass, the 2nd appellant (hereinafter referred to as "the partnership firm"). The respondents are a partnership firm and also a member of the Association.3. Between 23rd September, 1947, and 10th December, 1947, the Member Firm sold to the respondents 2,300 bales of Broach Vijay Fine 3/4" Navsari and/or Bardoli 7/8" Cotton for March /April 1948 Delivery. Out of these 2,300 bales, 1,100 bales were disposed of by means of "Havalas" and in respect of 500, out of the remaining 1,200 bales, there were cross-contracts. In the result when the time for "Delivery" arrived, sales in respect of 700 bales remained outstanding and the Member Firm was liable to give delivery of 700 bales to the respondents. As however, the Member Firm failed to give delivery of the said 700 bales to the respondents, under the relevant By-laws of the Association, the respondents "Invoiced Back" these 700 bales to the Member Firm on 3rd May, 1948 and as a result of this "Invoicing Back" a sum of Rs. 1,07,530-8-0 became due and payable by the Member Firm to the respondents and with regard to the transactions of all the 2,300 bales taken together an aggregate sum of Rs. 1,79,749-8-0 became due and payable by the Member Firm to the respondents. In respect of this sum of Rs. 1,79,749-8-0, the respondents sent to the Member Firm eight separate "Debit Notes" in respect of varying amounts and finally a consolidated debit note for Rs. 1,79,749-8-0.4. It appears that the contract notes in respect of these transactions had been signed by one Ramanlal Nagindas who had been employed as a salesman in the Ready Cotton Department of the partnership firm. The appellants contended that the said Ramanlal Nagindas had no authority to enter into the said transactions or to sign contract notes in respect thereof on behalf of the appellants and also that the said contracts were not in accordance with the Bye-laws of the Association and they therefore denied their liability in respect of the said transactions. The partnership firm, however, as the beneficiary under the said contracts decided to pay the amounts claimed by the respondents without prejudice to the rights and contentions of both the parties. On 7th May, 1948, the said sum of Rs. 1,79,749-8-0 was paid by the partnership firm and was received by the respondents in terms of the letter addressed by the respondents on the said datepayment is made by you and accepted by us without prejudice to the rights and contentions of both the parties in respectfurther sum of Rs. 350 being the amount of penalty for the alleged failure to tender the aforesaid 700 bales of the said contracts of Broach/Vijay March/April 1948 Delivery, was also paid by the partnership firm to the respondents on 6th June, 1948, without prejudice to their aforesaid contentions.5. The said Ramanlal Nagindas had entered into similar transactions with several other merchants and some of them claimed arbitration under By-law 38-A of the Association. Petitions were thereupon filed by the member firm in the High Court at Bombay being Petitions Nos. A/51, A/52, A/55 and A/56 of 1949 under S. 33 of the Indian Arbitration Actinter aliafor a declaration that there existed no valid and enforceable arbitration agreement between the parties. Mr. Justice Shah delivered judgment in the said Petitions on 20th August, 1950, holdinginter aliathat the said contracts were void as being not in accordance with the By-laws of the Association and allowed those petitions. The respondents to the petitions thereupon filed petitions under Art. 136 of the Constitution for Special Leave to Appeal to this Court against the said judgment of Mr. Justice Shah. These petitions were, however, dismissed by this Court on or about 6th April, 1951.6. The appellants thereafter by their attorneys letter dated 2nd May, 1951, called upon the respondents to return the said sum of Rs. 1,80,099/8/- (being the aggregate of the said two sums of Rs. 1,79,749/8/- and Rs. 350) with interest thereon at the rate of 6 per cent. per annum. The respondents failed and neglected to pay to the appellants the said sum or any part thereof with the result that on 7th May, 1951, the appellants filed the suit against the respondents for repayment to them of the said sum with interest and costs.7. In the plaint as filed the appellants averred that the said contracts were void under the Bombay Cotton Contract Act, 1932, as being not in accordance with the By-laws of the Associationinter aliain the following respects : (1) The contract notes produced by the respondents omitted to state the difference of Rs. ..........above or below the settlement rate of hedge contracts for the purpose of periodical settlements as required by By-laws 139 and 141; and (2) no provision was made in any of the aforesaid contract notes with regard to the measurement of bales as required by the official form for delivery contracts prescribed in Bye-law 80.8. The respondents in their written statement contended that there was no By-law which required any person to agree upon any difference above or below the settlement rate of hedge contracts for the purpose of periodical settlements and to state the same. They further contended that the relative provisions contained in the official contract form had become obsolete as at all material times there were no Hedge Contracts bearing different numbers and in practice the said contracts were not put through periodical settlements. They also contended that at all material times there was no by-law which required any person to agree upon any specific measurements in respect of the bales agreed to be purchased inasmuch as the operation of By-law 101 in regard thereto had been suspended by the Board since November 30, 1942.9. After the suit reached hearing the appellants amended the plaint by averring that by reason of the said payments having been made by them and accepted by the respondents without prejudice to the rights and contentions of both the parties there was an implied agreement between them that in the event of the appellants establishing that they were not bound to pay the said sums to the respondents and that the respondents were not entitled to the payment thereof the respondents would repay or return the same to the appellants. This plea was traversed by the respondents in the supplemental written statement which they filed.10. The learned Trial Judge followed the judgment of Mr. Justice Shah and held that the omission of the clause regarding measurement in the contract notes did not alter the character or legal effect of the contracts. He similarly held that the omission of any reference in the contracts to the amount of difference above or below the settlement rate of hedge contracts in the last terms of the contract notes rendered the contracts void. He however was of the opinion that there was no implied agreement between the parties of the nature alleged by the appellants and that the payment made by the appellants to the respondents was voluntary and therefore dismissed the appellants suit with costs.11. The appellants preferred an appeal against the decision and the Appellant Court dismissed the appeal and confirmed the decree passed by the learned Trial Judge, though on different grounds. The Appellate Court agreed with the learned Trial Judge that the omission of the term regarding measurement in the contract notes did not affect the character or legal effect of the contracts. In regard to the omission to fill-up the difference above or below the settlement rate fixed for the hedge contracts in the last clauses of contract notes, however, the Appellant Court was of the opinion that there was no obligation, on the parties to agree to add or deduct the difference above or below the settlement rate as contended by the appellants. If the parties did agree then the contract form provided that the agreement should be set out therein. If, however, they did not agree then the first part of cl. (2) of By-law 141 would come into play and the settlement of the delivery contract would go through on the basis of the settlement rate of the hedge contract. The omission to fill-up the difference was thus of no consequence and did not invalidate the contracts. The Appellate Court also differed from the Trial Judge on the question of the implied agreement and held that if the appellants succeeded in establishing that the respondents were not entitled to receive the payments the respondents were bound to repay the sums paid by the appellants to them. In view, however, of the conclusion reached that the contracts were not void, the Appellate Court dismissed the appeal.

Court's reasoning:
22. This argument however ignores the fact that simultaneously with the suspension of the operation of the By-law 101, By-laws 96 and 119 which referred to forward and hedge contracts respectively were altered and provision was made therein to incorporate measures consequent upon the tender of bales bound with ropes in place of bales bound with hoops. The consequences of such tenders were worked out in the Bye-laws as thus amended and allowances in the price of bales bound with ropes as against the price of bales bound with hoops were also provided for . These allowances were in accordance with the resolution of the Board dated 20th November 1942, to be fixed before the commencement of the season and if such allowances were provided for there was nothing further to be done in regard to the difference in measurement, if any. If the situation which obtained after 20th November 1942, provided for a tender of bales bound with ropes instead of bales bound with hoops in fulfillment of the contracts entered into between the parties, that was well known to all the members of the Association and it was open to them while fixing the prices themselves to take count of the extra charges for insurance and freight, which would be payable by the purchaser in the event of bales bound with ropes being tendered instead of bales bound with hoops.It, therefore, follows that the omission to mention the measurements in the contract notes did not render the contracts not in accordance with the By-laws. There was no such By-law in operation at the time and even otherwise there was no need whatever to incorporate in the contract notes any term as to measurement. It could not therefore be said that there was any departure from an essential or a characteristic part of the contract form or that the legal effect of the contracts was changed so as to invalidate the same.It appears that the contention urged on behalf of the appellants would be more in consonance with business ideas because no business man would think of immediately forking out a large sum of money on the next ensuing settlement day. It would be tantamount to paying the price of the goods or a substantial part thereof long before the due date of delivery ever arrived. While recognising the necessity of arriving at an agreement in this manner we are, however, not impressed with the argument that in the event of no such agreement as to the difference having been reached it would even so be necessary to mention in the contract note that the difference agreed upon was nil. When the parties entered into the transactions all the terms and conditions of the contract would certainly be negotiated and agreed upon between them. It would be open to them, in view of the By-laws above refereed to, to agree upon the difference above or below the settlement rate of hedge contract for the purpose of facilitating the settlement through the clearing house.But if no such difference above or below the settlement rate of hedge contract were agreed upon between the parties, it would not necessarily follow that the word nil had got to be mentioned in the contract notes. The very fact that no difference above or below the settlement rate of hedge contract was agreed upon in the manner contemplated would be enough to spell out an agreement that no such difference was to be computed in arriving at the settlement rates in respect of these contracts. If that was the true position it would be superfluous to write the word "nil" as contended for by the appellants and the consequences, of such non-mention would be the same as if the difference agreed upon was nil.By-law 141(2) could then be worked out without any difficulty and the settlement rates in the case of delivery contracts would be fixed on the basis of the settlement price of the hedge contract taking into account the facts that there was either no difference which was agreed upon or a that the difference agreed upon was a specific one which was mentioned in the contract notes.We are therefore of the opinion that the omission to fill in those blanks in the contract notes did not spell any departure from an essential or a characteristic part of the contract form nor was the legal effect of the contracts in any manner changed thereby rendering the contracts void within the meaning of S. 8 of the Bombay Cotton Contracts Act, 1932.32. Both these grounds of attack against the validity of the contracts in question therefore fail and we are of the opinion that the contracts entered into between the appellants and the respondent were not void as alleged. The appellants were therefore not entitled to recover from the respondent the said sum of Rs. 1,80,099-8-0 or any part thereof as alleged or at all and we are of the opinion that the appellate Court was right in rejecting the appellants claim.33. We cannot part with this appeal without observing that the whole difficulty has been created by reason of the Association not having made the necessary alterations in the contract form in accordance with the situation as it obtained from time to time. When By-law 101 was suspended in operation the Association ought to have deleted the term as to measurement from the contract form. When the By-laws 139 and 141 were virtually abrogated by reason of the delivery contracts not being subjected to periodical settlements in the clearing house, the Association ought to have similarly deleted the last clause from the official contract form which required the difference of Rs....... above or below the settlement rates of hedge contract No.......to be filled in by the parties. Equally untenable was the retention of the expression "Hedge Contract No........." when the five different varieties of hedge contracts were abolished and one hedge contract named I.C.C. was substituted therefore. We fully endorse the observations made by the appellate Court in the course of its judgmenthave had occasion to point out in the past now badly the by-laws of the East India Cotton Association are drafted and how clumsily the forms also settled, and the present form is an illustration of what we have had occasion to say in themanner in which the official contract form which had been settled when the By-laws of the Association came first to be promulgated has been retained in its pristine glory in spite of the various changes made in the operation of the By-laws and the practice of the trade only enhances the difficulties of the parties sand enables the parties who are so minded to raise all sorts of disputes tenable or otherwise in order to avoid their liability in respect of the transactions effected by them in the Association. It may be hoped that the Association will take effective steps to bring the official contract form in conformity with the By-laws in operation from time to time and the practice of the trade prevailing in the Association.