Case: Megna Mills Co. Ltd Vs. Ashoka Marketing Ltd

1. These two appeals by special leave are from a judgment of the Calcutta High Court holding that the disputes between the parties could not be referred to arbitration.2. It is necessary to state the facts only in Civil Appeal No. 2012/66 The appellant was and still is a member of the East India Jute and Hessain Exchange Limited, hereinafter called the "Exchange", which is the only association recognised under the provisions of the Forward Contracts(Regulation) Act, 1952, hereinafter called the "Act. The respondent is not a member of the said association On December 21, 1962 transaction was entered into between the parties by means of a letter written by the respondent to the appellant. This letter was in the following terms:"We have today bought from you the followingCarpet Backing cloth bound on cardboard cores 152" wide.Weight9 oz. on 36".Warp EndsPer Inch 15.Weft EndsPer Inch 13.Oil contentsUpto 2%.Quantity5,000 Rolls, each roll having continuous length of 300 yards approximately.RateRs. 4,000/- per ton.Delivery500 Rolls monthly March 63 to Decemberother terms and conditions of the East India and Hessain Exchange standard contract will be applicable to this contract. Please sign your acceptance on the duplicate copy of this letter.The appellant from time to time delivered certain Rolls of Jute Carpet Backing cloth under the aforesaid contract, the price of which was paid by the respondent. As regards the balance number of Rolls deliverable under the contract the appellant purchased back and the respondent resold the balance quantities of goods by a contract dated December 9, 1963 which transaction was embodied in a letter of the appellant to the respondent dated December 9, 1963 and which was countersigned by the respondent. According to the appellant it was agreed or understood between the parties that deliver under the two contracts of December 21, l962 and December 9, 1963 would be set off against each other. As regards 1000 Rolls deliverable for the months of August and September 1963 under the contract dated December 21, 1962 the appellant is stated to have received from the respondent difference in the price of goods but in respect of the balance of 1500 Rolls the respondent did not pay the difference. The appellant demanded the difference payable by the respondent under the said contracts. Disputes and differences having arisen between the parties in the matter the appellant referred its claim to the arbitration of Bengal Chamber of Commerce and Industry. This was purported to have been done on the footing that the contracts provided that all terms and conditions thereof would be governed by the bye-laws of the exchange for trading in transferable specific delivery contracts. The standard contract forms and the rules and bye-laws of the Exchange, inter alia, provided for arbitration of the Bengal Chamber of Commerce and Industry. When the Chamber proceeded with the arbitration pursuant to the reference the respondent filed a petition before the Calcutta High Court on February 19 1966 under Section 33 of the Indian Arbitration Act, 1940. It was prayed that the extent and validity of the arbitration agreement contained in the contracts be determined and it be declared that there was no valid arbitration agreement between the parties in respect of the contracts dated Dec 21, 1962 and December 9, l963. The main point raised in the respondents petition was that the contracts were not in accordance with the provisions of the Act or the bye-laws of the Exchange and were not in the forms prescribed and were, therefore, void and illegal. This petition was heard by A. N. Sen, J., who allowed the petition and held that the contracts were illegal and there was no valid arbitration agreement between the parties

Court's reasoning:
7. In our opinion, the High Court was right in holding that the contracts in question were not in the prescribed form and thus they did not comply with the requirement of bye-law 1 (b) of Chapter v. There can be no manner of doubt that that bye-law is mandatory when read with bye-laws 15 and 17. It must be remembered that under bye-law 15 no member shall enter into any transferable specific delivery contract otherwise than on terms and conditions prescribed under the bye-laws and under bye-law 17 if there is a contravention, infer alia. of bye-raw 15 the contract shall be rendered illegal by virtue of the provisions contained is Section 15 (3-A) of the Act. Section 11 (3) (act) specifically empowers the Exchange to make bye-laws the contravention of any of which shall make a forward contract entered into otherwise than in accordance with such bye-laws illegal. If, therefore, the contracts in question did not comply with the requirement of bye-law I (b) of Chapter V they would be rendered illegal and void.8. It is true that in the letters evidencing the contracts it was mentioned "all other terms and conditions of the East India and Hessian Exchange standard contract will be applicable", which may be taken to import conditions 1 to 7 given in the penultimate column of the prescribed form. There would still be noncompliance with condition No. 2 reproduced before. Even if it was not necessary to use the same language the number of clear working days had to be specified which was not done in the contracts in dispute. Condition No. 2 cannot be regarded as inconsequential because it must be stipulated how many working days notice has to be given by the buyers to place goods along-side "export vessel in the Port of Calcutta". Literal compliance with the prescribed form may not be essential but if the contract does not contain all the terms and conditions set out in the form the contract will be void under the provisions set out before; (See the ratio of the decision in Radhakisson Gopikisson v. Balmukand Ramchandra 60 Ind App 63 – (AIR 1933 PC 55  ). )