Case: Khardah Company Ltd Vs. Raymon &amp; Company (India) Private Ltd

The facts are that the appellants own a Jute Mill at Calcutta and carry on the business of manufacture and sale of jute. On September 7, 1955 they entered into a contract with the respondent who are doing business as dealers in jute, for the purchase of 750 bales of jute cuttings (raw) of Pakistan at Rs. 80 per bale of 400 lbs, to be delivered in October, November and December at the rate of 250 bales every month. 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 failed to deliver the goods as agreed whereupon the appellants 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 claim on the merits. The arbitrators made an award in favour of the appellants for Rs. 41,250 with interest, and that was filed under S. 14(2) of the Indian Arbitration Act in the High Court of Calcutta in its original side and notice was. issued to the respondents. Thereupon, the respondents filed an application in the High Court, presumably under S. 33 of the Arbitration Act, wherein they prayed 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 29-10-1953 and that in consequence proceedings taken thereunder before the Chamber of Commerce and the award in which they resulted were all void. 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 order, the respondents preferred appeals to a Division Bench of the High Court, Appeals Nos. 154 and 173 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 of the notification aforesaid and accordingly allowed the appeal and set aside the award. The appellants then applied for a certificate under Art. 133(1) of the Constitution and the same was granted. This is how the appeals come before us.

Court's reasoning:
4. It cannot be disputed that the expression "arising out of" or concerning or "in connection with" or "in consequence of" or "relating to this contract" occurring in Cl. 14 are of sufficient amplitude to take in a dispute as to the validity of the agreement dated September 7, 1955.Vide Ruby General Insurance Co; Ltd, v. Pearey Lal Kumar, 1952-3 SCR 501; (AIR 1952 SC l19). But the question is not whether Cl. 14 is all comprehensive but whether it, could be enforced when the agreement of which it forms an integral part is held to be illegal. Logically speaking, it is difficult to conceive how when an agreement is found to be bad, any portion of it can be held to be good. When the whole perishes, its parts also must perish, Ex nihilo nil fit." On principle, therefore, it must be held that when an agreement is invalid every part of it including the clause as to arbitration contained therein must also be invalidWe are accordingly of the opinion that the dispute that the contract dated September 7, 1955 is illegal and void is not one which the arbitrators are competent to decide under Cl. 14 and that in consequence the respondents are entitled to maintain the present application under S. 33 of the Arbitration Act18. To analyse the scheme of the Act; it divides contracts of sale of goods into two categories, ready delivery contracts and Forward Contracts. Forward Contracts are classified into those which are specific delivery contracts and those which are not. Then again specific delivery contracts are divided into transferable specific delivery contracts and non-transferable specific delivery contracts, Section 18 (1) exempts from the operation of the Act non-transferable specific delivery contracts. The net result of these provisions is that all forward contracts except those which are non-transferable specific delivery contracts can be declared illegal by notification issued under the ActThe contract with which we are concerned in these appeals was entered into on September 7, 1955, when the notification aforesaid was in force, and so it would be hit by it, unless it is a non-transferable specific delivery contract and the point for decision is whether it is that. There is no dispute between the parties that it is a specific delivery contract. It is between named buyers and sellers, the goods are specified, as also the period during which they have to be actually delivered and their price is fixed. What is in controversy is whether it is transferable or non-transferable. There was considerable argument before us on the question as to assignability of a contract. The law on the subject is well settled and might be stated in simple terms. An assignment of a contract might result by transfer either of the rights or of the obligations thereunder. But there is a well-recognised distinction between these two classes of assignments. As a rule obligations under a contract cannot be assigned except with the consent of the promisee, and when such consent is given, it is really a novation resulting in substitution of liabilities. On the other hand rights under a contract are assignable unless the contract is personal in its nature or the rights are incapable of assignment either under the law or under an agreement between the partiesAs it is only a benefit under a contract that can be assigned, the discussion really centres round two questions, are the buyers entitled to assign their right to get the goods on payment of price? And are the sellers entitled to assign their right to receive the price on delivery of the goods ? On the question as to the rights of the buyers to assign their right to the goods, the matter is clear beyond all doubts. The licence which authorises the appellants to import the goods from East Pakistan also prohibits them expressly from assigning the same. In this connection it should be noted that, owing to the exigencies of Foreign Exchange, there have been in force, at all material times, restrictions on import of goods. The nature of these restrictions and the policy behind them were examined by this Court quite recently in Daya v. Joint Chief Controller of Imports and Exports, Civil Appeal No. 226 of 1961 D/- 16-4-1962 : (AIR 1962 SC 1796  ) and it is unnecessary to repeat them. It is sufficient for the present purpose to state that the issue of import licences by the Government was restricted to persons who had been engaged in the business of import during a specified period and there were also limitations on the extent to which they could importThere is in law a clear distinction between assignment of rights under a contract by a party who has performed his obligations thereunder, and assignment of a claim for compensation which one party has against the other for breach of contract. The latter is a mere claim for damages which cannot be assigned in law, the former is a benefit under an agreement, which is capable of assignment. The fact, therefore, that the rights under Cl. 8 are incapable of assignment does not stand in the way of the respondents assigning their rights to receive the price after they had performed their obligationsBut the question is not what could have been done by a seller in a forward contract generally, but what was in fact contemplated by the parties to this contract under cl. 3. The provisions that the shipping documents in Pakistan should be taken in the name of the buyers, that the sellers should deliver them to the buyers and receive the price, and that the goods should be delivered at the Mills of the buyers, strongly suggest that the intention of the parties was, that neither of them should assign the contract29. Contract No. 2306 referred to in this enter is the contract dated September 7,1955 involved in this dispute. It is on the strength of this letter of authority that the respondents opened a letter of credit with a Bank in East Pakistan and the goods were imported. We have not overlooked the fact that while the contract is dated September 7, 1955, the licence is dated September 22, 1955, and the letter of authority to the respondents is even later, and it might strike one as an anachronism to read the licence and the letter of authority into the contract. But it should be remembered that the licences are in standard form and are renewed from time to time except as to details concerning the imports, and the course of business followed in the jute market was throughout in conformity with the conditions laid down in the licence, and was of the same pattern. Now the agreement provides that the shipping documents in Pakistan are to be taken in the name of the buyers that the sellers are "to open letter of credit" and that the goods are to be delivered "at the buyers Mill siding". We have no doubt that these terms have been inserted with a view to give effect to the conditions on which licences are granted and that it was the understanding of both the sellers and buyers that the rights under the contract were not to be transferredWe agree that when a contract has been reduced to writing we must look, only to that writing for ascertaining the terms of the agreement between the parties but it does not follow from this that it is only what is set out expressly and in so many words in the document that can constitute a norm of the contract between the parties. If on a reading of the document as a whole, it can fairly be deduced from the words actually used therein that the parties had agreed on a particular term there is nothing in law which prevents them from setting up that term. The terms of a contract can be express or implied from what has been expressed. It is in the ultimate analysis a question of construction of the contract. And again it is well established that in construing a contract it would be legitimate to take into account surrounding circumstances. Therefore, on the question whether there was an agreement between the parties that the contract was to be non-transferable, the absence of a specific clause forbidding transfer is not conclusive. What has to be seen is whether it could be held on a reasonable interpretation of the contract, aided by such considerations as can legitimately be taken into account that the agreement of the parties was that it was not to be transferred. When once a conclusion is reached that such was the understanding of the parties, there is nothing in law which prevents effect from being given to it. That was the view taken in Virjee Daya and Co. v. Ramakrishna Rice and Oil Mills AIR 1956 Mad l10, and that in our opinion is correctThe intention of the legislature as expressed in the section is, it must be admitted, clouded in obscurity and uncertainty. But in the view we have taken, that the contract is on its terms properly construed, non-transferable, it becomes unnecessary to decide between the rival contentions as to the true import of S. 2 (f).