Case: Jaikishan Dass Mull Vs. Luchhiminarain Kanoria &amp; Company

2. The appellants and the respondents were both at all material times members of the East India Jute and Hessian Exchange Ltd. (hereinafter referred to as the Exchange). On 13th June, 1969, the appellants entered into two contracts with the respondents agreeing to purchase 12,00,000 yeards of hessain cloth at the price of Rupees 70.50P. per hundred yards and 6,00,000 yards of hessain cloth at the price of Rs. 70/per hundred yards on the terms and conditions set out in the respective contract notes which were in the printed contract form prescribed in Appendix IV to theof the Exchange. These two contracts were transferable specific delivery contracts for jute goods in the city of Calcutta. It was stated in the body of each of the two contract notes within the cage that the contract was one for delivery alongside export vessel in the port of Calcutta. The other terms and conditions set out in the two contract notes were identical but it is not necessary to refer to all of them. We may reproduce only a few which are material.Goods to be packed folded, well pressed, market and shipped by sellers in covered cargo boats in iron bound bales of 2000 yards or 1829 metres each.4. Delivery of the said goods in to be given and taken as follows :September 1969 (Payment against P.D.O.)Each delivery under this contract shall be treated as a distinct and separate contract.5. Arbitration : The Bengal Chamber of Commerce and Industry/The Indian Chamber of Commerce.The printed contract form prescribed in Appendix 17 to theof the Exchange contained Clause 2, which was as follows :"2. Buyers to give .... clear working days notice to place goodsthis clause was scored out and cancelled in the contract notes in respect of these two contracts. There was accordingly no provision made in either of these two contracts for the buyers to give a particular number of clear working days notice to the sellers to place goods alongside export vessel in the port of Calcutta.3. Though the period of delivery specified in each of the two contracts dated 13th June, 1969 was September, 1969, it was by mutual agreement arrived at between the appellants and respondents on 18th June, 1969, extended to October/December, 1969 at a discount of Re. 1/per hundred yards on the contract price. The result was that in these two contracts, as modified, the period of delivery was changed to October/ December, 1969 and the price was reduced to Rs. 69.50 per hundred yards in the case of the first contract and Rs. 69/per hundred yards in case of the other contract.4. On 4th November, 1969, the appellants entered into three contracts with the respondents and under each of these three contracts the appellants agreed to sell to the respondents 6,00,000 yards of hessian cloth at the price of Rs. 87/per hundred yards. Rs. 84.50 per hundred yards and Rs. 82.50 per hundred yards respectively. The terms and conditions on which these three contracts were entered into between the appellants and the respondents were set out in contract notes in the printed contract form prescribed in Appendix II to theof the Exchange. These three contracts were also transferable specific delivery contracts in jute goods in the city of Calcutta. The terms and conditions of these three contracts were identical with those of the earlier two contracts dated 13th June, 1969 save and except that the provision in regard to delivery in Clause (4) of the terms and conditions was "October, 1969 (Due Date P.D.O.) in respect of the first contract, "November, 1969 (Due Date P.D.O.) in respect of the second contract and December 1969 (Due Date P.D.O.) in respect of the third contract. Here also Clause 2 of the printed contract form was scored out and cancelled and the contract notes in respect of these three contracts did not contain any provision requiring the buyers to give any particular number of clear working days notice to the seller to place goods alongside export vessel in the port of Calcutta.5. Since the three contracts dated 4th November, 1969 wereby way of settlement of the earlier two contracts dated 13th June, 1969, the deliveries under the two sets of contracts were set off against each other and differences in price became due and payable by the respondents to the appellants. The appellants accordingly submitted five bills for an aggregate amount of Rupees 2,76.000/to the respondents and called upon the respondents to make payment of this amount to the appellants. The respondents, however, failed to pay any amount to the appellants under the said five bills and the appellants, therefore, relying on the arbitration clause contained in each of these several contracts, referred their claims under the said five bills to the arbitration of the Bengal Chamber of Commerce and Industry, Calcutta. These references were numbered as Case Nos. 58, 59, 61, 62 and 64 of 1970. The notices of these references were given to the respondents and they were called upon to file written statements in answer to the claims preferred by the appellants. The respondents from time to time applied to the arbitration tribunal of the Bengal Chamber of Commerce and Industry, Calcutta for extension of time for filing their written statements, and, though extension of time was granted, the respondents did not ultimately file their written statements but instead preferred an application under Section 23 of the Arbitration Act challenging the existence and validity of the arbitration clause contained in each of these several contracts entered into between the parties. The main ground on which the existence and validity of the arbitration clauses was challenged was that though the contracts giving rise to the disputes between the parties were forward contracts entered into between members of a recognised association, they were in contravention of bylaws 1(b) and 15 read with17 contained in Chapter V of theof the Exchange and were, therefore, illegal and void under S. 15,(3A) of the Forward Contracts Act. This ground appealed to Mr. Justice S. C. Ghose, who heard the application, and he allowed the plea of the respondents holding that since Clause 2 of the printed contract form was scored out and cancelled in the contract notes in respect of all these contracts, they could not be said to be in the prescribed form as required by1(b) nor could they be said to be entered into on the terms and conditions prescribed under theas mandated by15 and consequently, they were illegal and void by reason of Section, 15,(3A) of the Forward Contracts Act and the arbitration clauses contained in these contracts must also, therefore, fall along with the contracts of which they formed part. This decision of Mr. Justice S. C. Ghose is impugned in the present appeal preferred by the appellants with special leave obtained from this Court.6. Now, there can be no doubt that if a contract is illegal and void, an arbitration clause, which is one of the terms thereof must also perish along with it. As pointed out by Viscount Simon, L. C. in Heyman v. Darwins Ltd., 1942 AC 356. "...If one party to the alleged contract is contending that it is void ab initio (because, for example, the making of such a contract is illegal), the arbitration clause cannot operate, for on this view the clause itself also is void. the arbitration clause being an integral part of the contract cannot stand, if the contract itself is held to be illegal. Logically speaking, it is difficult to conceive how when a contract is found to be bad, any portion of it can be held to be good. When the whole perishes, its parts must also perish. Ex nihilo nil fit. On principle, therefore, it must be held that when a contract is invalid, every part of it, including the clause as to arbitration contained therein, must also be invalid. That is also the view taken by this Court in at least two decisions, namely, Khardah Company Ltd. v. Raymon and Co. (India) Pvt. Ltd. (1963) 3 SCR 183   = (AIR 1962 SC 1810  ) and Waverly Jute Mills Co. Ltd. v. Raymon and Co. (India) Pvt. Ltd. (1963) 3 SCR 209   = (AIR 1963 SC 90  ). The question which, therefore, arises for consideration is whether the two earlier contracts dated 13th June, 1969 and the three contracts dated 4th November, 1969which are the contracts giving rise to the disputes between the partiescould be branded illegal and void under Section 15,(3A) of the Forward Contracts Act. If they could be, the arbitration clauses which form an integral part of them would be invalid: otherwise the arbitration clauses would have to be held to be valid.

Court's reasoning:
11. Now there can be no doubt that clause (2) of the prescribed form was scored out and omitted from the contracts notes in respect of the contracts between the parties. There was no provision included in any of these contracts requiring the buyers to give any particular number of clear working days notice to the sellers to place goods alongside export vessel in the port of Calcutta. The contracts thus clearly departed from the prescribed form in respect of this particular provision. The question is whether on this account it could be said that the contracts were not in the prescribed form in accordance with the requirement of1 (b. Now, when can a contract be said to be in the prescribed form and when not is no longer a question which presents any serious difficulty. It is settled by the high authority of the Judicial Committee of the Privy Council and there is also a pronouncement of this Court on the point. We may first refer to the decision of the Privy Council in Radhakisson Gopikisson v. Balmukund Ramchandra. 60 Ind App 63 = (AIR 1933 PC 55  ). The question which arose for determination in this case was whether certain contracts entered into whether the parties contravened any of themade by the Board of Directors of the East India Cotton Association Ltd. and were, therefore, void under Section 5 of the Bombay Cotton Contracts Act 1922.81 provided that "contracts...shall be in writing in the form given in the Appendix. The contracts in question were admittedly inconsistent with the terms and conditions set out in the prescribed form in at least two respects and yet the contention of the appellants was that the contracts were in the prescribed form and there was no contravention of81 so as to render the contracts void under Section 5. The Judicial Committee of the Privy Council negatived this contention. Lord Thankerton, delivering the opinion of the Judicial Committee. pointed out at page 70 of theLordships are of opinion that the form prescribed is, in its terms, applicable to contracts between a commission agent and his constituent, and that the parties in the present case were bound to comply with theand its form. They are unable, however, to agree with the view that the form is a streotyped one and that literal compliance with it is essential; in their opinion, the contract must contain all the terms and conditions set out in the form in order to comply with it. For instance, in the prescribed form the main terms and conditions are contained in the memorandum of contract... sent by the agent to his constituent, in which the former reports the fulfilling of the order by a purchase or a sale, as the case may be, in Bombay. If identical terms and conditions, instead of being in the memorandum sent by the agent, were contained in the initial order by the constituent, their Lordships are of opinion that there would be protanto sufficient compliance with theBut that is clearly not found in the present case, for the initial orders are inconsistent with the terms and conditions set out in the prescribed form in at least two respects.... It follows that the contracts having failed to comply with thethey are rendered void under the provisions of S. 5 of thesame view was reaffirmed by this Court in (1971) 2 SCR 751   = (AIR 1971 SC 166  ) where Grover, J., speaking on behalf of the Court, said with reference to the same1 (b) with which we are concerned in the present appealand what was said there is binding uponcompliance 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 60 Ind App 63 = (AIR 1933 PCis, therefore, clear that in order that a contract may be in the prescribed form, literal compliance is not essential: what is necessary is that the contract must contain all the terms and conditions set out in the prescribed form. If this test is applied, as it ought to be, there can be no doubt that the contracts in the present case were not in the prescribed form as they did not contain any term or condition corresponding to clause (2) of the printed form requiring the buyers to give a particular number of clear working days notice to place goods alongside export vessel in the port of Calcutta.In the first place it is not correct to say that the prescribed form may be followed only in so far as circumstances may admit. The prescribed form, as we have already pointed out above, is imperative and a contract in order to be valid must contain all the terms and conditions set out in the prescribed form. Either the contract must incorporate all those terms and conditions or no contract can be made at all. No term or condition in the prescribed form can be dispensed with on the plea that it is inapplicable. What Bankes L. J. said in Burchell v. Thompson, (1920) 2 KB 80, with reference to Section 9 of the Bills of Sale Act, 1882, namely, "...a bill of sale will be void unless all the blanks which are included in the statutory form are filled up, applies equally in the present case. Nothing can be omitted from the contract which is included as a term or condition in the prescribed form. The only departure that is permissible from the prescribed form is that provided in23 where contract is not for export but for inland delivery. The words "free alongside delivery export vessel in the port of Calcutta would in case of such a contract be wholly inapplicable, and therefore,23 permits these words to be substituted by some such words as F.O.R. or C. and F. or C.I.F. or F.O.B., as the case may be. That is the only variation permissible under theand beyond that there can be no departure from the prescribed form.23 indeed, by necessary implication, clearly suggests that the prescribed form is mandatory and must be followed scrupulously in regard to all the terms and conditions therein set out except to the limited extent to which departure may be permitted under thatThat is the plain intendment and effect of1 (b), 15, 17 and 23 read with Section 15,(3A.). Vide 60 Ind App 63 = (AIR 1933 PC 55  ) and (1971) 2 SCR 751   = (AIR 1971 SC 166  ).The omission of clause (2) of the prescribed form from the contracts in question must, therefore, be held to render these contracts illegal under section 15,(3A).14. Secondly, in any event, clause (2) of the prescribed form could not be said to be inapplicable in case of the present contracts. It is clear from theand particularly the prescribed form and23 that a contract which is a transferable specific delivery contract may be of one of two kinds. It may be either a contract for export or a contract for inland delivery. A contract for export would stipulate a price "free alongside export vessel in the port of Calcutta, while in a contract for inland delivery, the price would be F.O.R. or C. and F. or C.I.F. or F.O.B., as the case may be. The contracts in the present case were clearly contracts for export and under these contracts the sellers were bound to deliver goods alongside export vessel in the port of Calcutta. That is why clause (3) in each of the contracts provided that the goods shall be "packed, folded, well pressed, marked and shipped by sellers in cargo boats in iron bound bales of 2000 yards or 1829 Metres each." But then what is the effect of clause (4) which provided that "Delivery of the goods shall be given and taken as follows: the specified month of delivery "(Due Date P.D.O.). This clause clearly contemplated delivery of Pucca Delivery Orders on/or before due date under each of the contracts. Could this be said to be inconsistent with clause (2) of the prescribed form so as to render that clause inappropriate for application to these contracts? We do not think so. The question has to be examined against the background of the practice followed by traders in effecting transferable specific delivery contracts in jute goods in the city of Calcutta. There is usually a chain of contracts starting from the Mill Company and ending with the actual shipper of the goods. There are in between the Mill Company and the ultimate shipper various intermediate buyers and sellers who enter into chain contracts on the same terms and conditions as the original contract between the Mill Company and its buyer. Where the first contract between the Mill Company and its buyer provides for delivery of Pucca Delivery Orders against payment of the priceand such a provision is clearly contemplated by4(a) in Chapter VIIa similar provision would be repeated in the entire chain of contracts and the Pucca Delivery Orders would be issued by the Mill Company to its buyer and they would then go on being transferred by the endorsement from one buyer to another along the chain until they reach the last buyer who is the shipper of the goods. The last buyer being the shipper would get himself registered as the holder of the Pucca Delivery Orders in the books of the Mill Company under3 of chapter VIII and he would then give shipping instructions to the Mill Company in writing accompanied by the Pucca Delivery Orders to place the goods alongside a specific export vessel or wharf or jetty in the port of Calcutta as provided in5 of Chapter VIII. When the registered holder of the Pucca Delivery Orders gives shipping instructions to the Mill Company, the effect is as if eo instanti such shipping instructions are given by the registered holder to his seller and by such seller to his immediate seller and so on along each link of the chain until they reach the Mill Company. The process of the registered holder giving shipping instructions to his seller and each successive buyer passing on such shipping instructions to his immediate seller so as ultimately to reach the Mill Company would be cumbrous and time consuming and would impede quick movement of goods in performance of export contracts and5 of Chapter VIII, therefore, provided that, instead of going through this tortuous process of passing on shipping instructions from one end of the chain to another through each link in the chain, the last buyer who is the registered holder may directly give shipping instructions to the Mill Company and that would be tantamount to giving shipping instructions in performance of each of the chain contracts all along the line. The presence of a clause in the chain contracts providing for delivery of Pucca Delivery Orders against payment of the price does not, therefore, exclude giving of shipping instructions by the buyers to the sellers. In fact, shipping instructions have to be given, because the contracts are export contracts providing for delivery free alongside export vessel in the port of Calcutta and, as pointed out above,5 of Chapter VIII clearly provides for giving of shipping instructions. Now, obviously when shipping instructions are to be given, each of the chain contracts may legitimately stipulate that a particular number of clear working days notice to place goods alongside shall be given by the buyers to the sellers and that is precisely what is provided by cl. (2) of the prescribed form. Clause (2) of the prescribed form requiring buyers to give a particular number of clear working days notice to place goods alongside cannot, therefore, be said to be inconsistent with the provision for delivery of Pucca Delivery Orders against payment of the price.It is, therefore, clear, both on principle and authority, that in case of a transferable specific delivery contract for export, clause (2) of the prescribed form requiring buyers to give a particular number of clear working days notice to place goods alongside is not rendered inapplicable by a provision in the contract under clause (4) stipulating for deliver of Pucca Delivery Orders against payment of the price. Clause (2) of the prescribed form can be appropriately incorporated in such a contract and omission to include, it cannot be justified on the plea that it would be inconsistent with clause (4) of the contract.17. We must, therefore, hold that since the contracts in the present case did not contain any provision corresponding to clause (2) of the prescribed form requiring buyers to give a particular number of clear working days notice to place goods alongside, they were not in the prescribed form and hence they were illegal under Section 15,(3A) and the arbitration clause contained in each of these contracts was also consequently void.