FORT GLOSTER INDUSTRIES LTD. versus SETHLA MERCANTILE (P) LTD.

FORT GLOSTER INDUS'IRIES LTD. v. SEDllA MERCANTILE (P) LTD.

March 19, 1968 [1. C. SHAH, V; RAf.usWAMI AND G. K. MITTER, 11.]

Forward Contract-Discrepancy behveen bought and sold 11otes Contrac1 whether binding-Other evidence whether may be looked inJD Forward Controcts (Regulation) Act 14 of 1952, s. 11-Bye-/aws framed under-Effect of bye-laws 1(c) and 8(b) on construction of contract.

The appellant and the respondent were both members of

the East lrulia Jute aod Hessian Exchange Ltd., aod were bound by its rules and regulations framed under s. 11 of the Forward Contracts (Regulation) Act 74 of 1952 for regulating aod conl!Olliog forward cootraets in the jute trade. The appellant in August 1960 agreed to purchase aod the respondent to sell 750 bales of Pakistan raw jute for delivery during October and/orNovember, 1960. According to the custom of the trade which was recognised by the bye-laws. the brokers sent a sold note on behalf of the respondent to the appellant, and issued a• bought oote oo behalf of the appellant which was sent to the respondent. Differences arose between the parties in respect of the execution of the contract and the appellant referred a claim against the respondent to the Tribunal of Arbitration of the Bengal Chamber of Commerce aod Industry. The respondent thereupon moved oo the original side of the Calcutta High Court, a petition under s. 33 of the Arbitration Act, 1940 challenging the existence and validity of the alleged arbitration agreement between the parties. The principal ground in support of the petition was that the terms of the bought and sold notes in respect of payment and otherwiso did not tally, and on that account there was no concluded contract. lo the affidavit filed by the appellant the genuineness of the sold note set up hr the respondent was questioned. The High Court decided in favour of the resporulent and the appellant by special leave came to this Court.

HELD : (i) The term as to payment is an important term of a written conll"act. The bought and the sold notes have the bye-laws to be in writing and in the prescribed form and if. there be any discrepancy bet ween the two i.e. the tenns as to payment are specified in one note and not in the other, prima facie, there is no concluded contract. [455 B-CJ

(ii) In view. of the bye-laws of the Association which make it obliga tory on the parties that the terms of the contract shall be in writing and that they shall be in the fo'rm prescribed, it could not be held tha~ apart from the terms of the bought and the sold notes which by custom of the market are issued, evidence may be Jed to prove the parties had aifeed to certain terms not set out in the bought and sold notes. [456 El (iii) The bought note did not comply with bye-law 7(c) in so far as the latter required a letter of authority to import Pakistan jute. In bye-law 8(b) two alternative methods of payment were provided; the bouaht note mentioned one of them, while · the sold note mentioned neither. In these circumstances, even if bye.Jaws 7(c) and 8(b) were read into the contract it. could not be said that there was no discrepancy between the houltht and the sold notes. The bought and sold notes as produced in Court could not be regarded as creating a binding contract. (457 F-458 CJ

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F. G. INDUSTRIES V. S. MERCANTILE LTD. (Shah, J.)

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(iv) The question whether the sold note produ""d

in Court was genuine must be decided by the trial court after taking fresh evidene<:. (Case remanded to trial court for this purpose.) [458 DJ

Cowie & Ors. v. Wil/iani Remjry and others, 3 M.I.A. 448. Durga Prosad Sureka & Ors. v. Bhajan Lall & Ors. L.R. 31 I.A, 122 and Rodhakrislma Sil'adutta Rai & Ors. v. Tayebol/i Dawoodbhal, [1962) Supp. 1 S.C.R. 81, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 573 of

1965.

Appeal by special leave from the judgment and order dated July 26, 1962 of the Calcutta High Court in Awaid No. 181 of 1961.

S. T. Desai, S. Tibriwala, Sobhag Mal Jain and B. P. Mahesh

wari, for the appellants.

S. V. Gupte, C. M. Kohli and G. R. Chopra, for the

pondent.

res

The Judgment of the Court was delivered by Shah, J. The East India Jute & Hessain Exchange Ltd. hereinafter called "the Association"-is recognized for the pur pose of the Forward Contracts (Regulation) Act 74 of 1952 as an association concerned with the regulation and control of for waid contracts in jute and jute g$0ds. The Association has, under s. 11 of the Forwaid Contracts (Regulation) Act, with the pre vious approval of the Central Government, made bye-laws to regulate and control forwaid contracts in jute and jute goods, and for trading in Transferable Specific Delivery Contracts in raw jute and jute goods. Clause 1 (a) in Ch. V of the bye-laws pro vides that no trading in Transferable Specific Delivery Contracts in any delivery or deliveries in raw jute and/or· jute goods shall be effected otherwise than between members or through or with any member, or where the servi\:e5 of a broker, who is not a member, are employed by a member, otherwise than through a licensed broker. Clause l(b) provides that all Transferable Specific Delivery Contracts shall be in writing in the prescribed forms.

The appellant and the respondent are members of the Asso ciation. On August 11, 1960, the appellant agreed to purchase and the respondent agreed to sell 750 bales of Pakistan raw jute. at the rate of Rs. 103 per bale of 400 lbs. net ex-Naiayan ganJ and/or Daulatpur and/or Khulna for delivery during Octo ber and/or NoVember 1960. In the transaction W. Haworth & Co. (P) Ltd. acted as brokers for both the paities. According to the CU$!Om of the trade which is recognized by the bye-laws, the brokers sent a sold note on behalf of the respondent to the appel lant, and issued a bought note on behalf of the appellant which

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was sent to the respondent. The goods contracted to be pur· chased by the appellant were to be imported from Pakistan. The appellant was in terms of the sold note to furnish to the respon· dent import licence and a letter of authority issued by the proper officer authorising the respondent or his nominee to import the requisite quantity of jute from Pakistan for delivery to the appel· !ant. For importing jute from Pakistan, a letter of credit had, under the terms of the contract, to be opened by the respon · dent.

Differences arose between the parties in respect of the exe cution of the contract and on January 11, 1961, the appellant referred its claim for Rs. 1, 17,7 50/ • against the respondent to the Tribunal of Arbitration of the Bengal Chamber of Commerce and Industry, on the plea that the respondent had failed to open a letter of credit for importing the stipulated 750 bales of "jute cuttings" from Pakistan according to the terms of the contract.

On June 26, 1961, the respondent moved, before the High Court of Judicature at Calcutta on its original side, a petition the under s. 33 of the Arbitration Act, 1940, following orders :

inter alia, for

(a) that the existence or validity or otherwise of the alleged arbitration agreement dated August 11, 1960, between the appellant and the respondent be adjudicat· ed upon and determined by the High Court; and

(b) that it be declared that the alleged arbitration illegal and ineffective and of no

agreement is void, effect and such arbitration agreement to be set aside.

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The principal ground in support of the petition was that the terms of the bought and sold notes did not tally, and on that account there was no concluded contract.

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In support of the petition one Sobania! Sethia a director of the respondent affirmed an affidavit. The appellant filed its affi davit in reply contending, inter alia, that the sold note set up by the respondent in support of its petition under s. 33 of the Arbitration Act was not the sold note issued by the brokers at the time when the contract was entered into. An order was pass ed by the High Court under the proviso to s. 33 of the Arbitra tion Act directing that the petition be set down for hearing on evidence on the following iss11es :

"1. (a) Do the Bought and· Sold Notes vary in mate· rial particulars as alleged in paragraph 2 of the petition ?

(b) If so, what is the effect thereof ? 2. (a) Is the Sold Note which has been produced in

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Court by the seller. the original Sold Note? (b) If so, what is the effect thereof ? 3. Is there a subsisting arbitration agreement bet-

ween the parties ?"

One Jitendra Nath Basu, Manager of the respondent, and one Sudhir Kumar De, Head Clerk of W. Haworth & Co. (P) Ltd .. were examined in support of the case of the respondent. On behalf of the appellant Shib Narayan Mundhra, an employee of the appellant, was examined. A. N. Ray, J ., declared that there was no concluded arbitration agreement dated August 11, 1960, between the parties. Against that order, this appeal has been preferred with special leave.

Two questions arise in this appeal :

(1 ) Whether there was a lawful contract for sale and purchase of jute cuttings between the appellant and the res pondent; and

( 2) Whether the sold note set up by the respondent was a fabricated document set up in collusion with W. Haworth

& Co. (P) Ltd.

The Hir,h Court has answered both the questions in the nega tive.

The form of contract prescribed by the Bye-laws of the Trans

ferable Specific Delivery reads as follows :

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"The East India Jute & Hessian Exchange Ltd., Calcutta

APPENDIX IV Calcutta .......... 19 .. ..

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Transferable Specific Delivery Contract for Raw Jute. No ................ .

To Messrs ................. .

Dear Sirs,

We have, subject to the terms and conditions here inafter referred to, this day, bought from/sold to .... . . . . . . . . by/your order and on your account, the fol lowing goods which are *Pakistan Jute/Jute:- ---------------·-------- Crop 19 .... 19. . . . maunds/kilograms, bales of jute/mesta/Bimli/ cuttings, of the inark, assortment and quality as per margin and in sound, dry storing condi tion at the rate of : - Rupees Rupees Rupees

•Score out if not applicab~

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free to buyers' mill, siding and/ or ghat.

Weight guaranteed at buyers' mill. Delivery to : - Shipment or despatch during : Payment:- Arbitration : - Re-weighment : -

The foregoing terms and conditions as well as other terms and conditions applicable to this contract are as per the terms and conditions of the Transferable Specific Delivery Contract for raw jute of the East India Jute & Hessian Exchange Ltd., Calcutta, and are subject to the bye-laws of that Exchange for trading in Transfer able Specific Delivery Contracts for raw jute in force for the time being.

Brokerage at . . . . per cent.

Yours faithfully, Member/Licensed Broker. The East India Jute & Hessian Exchange Ltd. -------------------------- (CONFIRMATION SLIP)

Received from Shri/Messrs . . . . . . . . . . . . his/their Contract No. , ....... dt. .......... and I/we con- firm having bought from/sold to ............ through him/them .............. "

The respondent claimed that the terms of the bought and lhe sold notes issued by the brokers did not tally and there was on that account .no contract between the parties. They claimed 'that whereas in the bought note under the heading "payment" it was recited : "Cash on presentation in Calcutta a full set ot shipping documents and insurance cover", in the sold note ten dered in evidence by the respondent no entry was n1ade under In both the notes there was a note to the following that heading. .effect:-

"Buyers to provide import licence, during the ship ment period serially to their purchase of Pakistan cut tings. In case of non-availability of licence in full or part thereof, the quantity thus remained will be treated as cancelled without any difference to either parties." At the foot of the bought note it was .recorded-"Sellers to open Letter of Credit", but no such recital was found in the sold note. Again· at the foot of the bought note the rate of brokerage was

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F. G. INDUSTRIES V, S. MERCANTILE LTD. (Shah, r)

455

not incorporated, whereas in the sold note it was stated that the rate of brokerage was 1 per cent. Ray, J., observed that the bought and the sold notes differed and on that account there was no contract between the parties. The learned Judge did not set out in detail what in his opinion were the differences between the two notes. But it is clear that he relied upon the discre pancy in the recital under the heading "payment''. The term as to payment is an important term of a written contract.. The bought and the sold notes have by ·the bye-laws to be in writing and in the prescribed form, and if there be any discrepancy bet - ween the two, i.e., the terms as to payment are specified _in one note and not in the other, prima facie, there is no concluded In Cowie and others v. William Remfry and others(') contract. the bought and the sold notes in respect of a contract for -the purchase and sale of indigo differed in certain material terms. In an action brought by the sellers against the purchaser for non performance of the contract contained in the sold note, the Judi cial Committee held that the transaction was one by bought and the sold notes, and that the circumstances attending the purcha ser's alteration of the_ sold note and affixing his initials, were not sufficient to make that note, alone, a binding contract, and that there being a material variation in the terms of the bought note with the sold note, they together did not constitute a binding con tract.

Counsel for the appellant urged that a discrepancy between the terms of the bought and the sold notes may be explained bv ) merely lays down a extraneous evidence, and'that Cowie's case ( 1 presumption and not an absolute rule. Counsel relied upon the observations in Remfry's Sale of Goods in British fndia-Tagore Law Lectures 1910 at p. 69, and upon the opinion expressed in Woodroffe & Ameer Ali's Law of Evidence, 11th Edn., at p. 1533, that the rule laid down by the Judicial Committee raises merely a presumption which may be rebutted by evidence. Coun sel also relied upon the observations of the Judicial Committee in Durga Prosad Sureka and others v. Bhafan Lall and others ('} that:

"In India a contract of sale can be proved by parol : and the bought and sold notes having in this instance been falsified, the aggrieved purchaser was entitled to disregard them and prove his contract by other and an tecedent material. This he has done conclusively by the evidence of the broker and by the telegram."

But in Durga Prosad's case(') it was established that the notes had been falsified; there was also evidence to show that' the real In Cowie's contract was, and effect was given to that contract. (I) 3M.I.A. 448.

(~J L.R. 31 I.A. 122.

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case('): apart from the bought and sold notes there was no evid the ence of the tenns of the contract, and sinee the terms of bought and sold notes differed, the parties were not ad idem. In Durga Prosad's case(') there was evidence of a parol contract and the bought and sold notes did not, because of fraud, cor rectly record the tenns of that contract. Again in neither of these cases, the contract was required by Jaw to be in writing and in a fonn statutory prescribed. But the l!'ansaction between the parties in the case in hand is governed by special rules of the Association which make it obligatory that the contract shall be in a particular form and in writing. Durga Prosad's case {') can, therefore, have no application in the present case.

In Radhakrishna Sivadutta Rai and others v. Tayeballi Da woodbhai(8) this Court cited Cowie's case(') with apparent ap In that case the contract was by the bought and sold proval. notes. Gajendragadkar, J., speaking for the Court proceeded to consider the effect of the bought and sold notes according to the established custom of the mercantile world and accepted the contention for counsel for the respondent that according to the established commercial usage if there is any variation or disparity between the bought and sold notes, the consequence follows, from aff legal principles, that no binding contract has resulted.

In view of the bye-laws of the Association which make it obligatory on the parties that the terms of the contract shall be in writing and that they shall be in the fonn prescribed, we are unable to hold that, apart from the tenns of the bought and sold notes which by cus(om of the market are issued, evidence may be led to prove that the parties had agreed to certain terms not set out in the bought and sold notes.

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In the bought note the price was made payable

in "Cash on presentation in Calcutta a full set of shipping documents and insurance cover". There was no term in the sold note about the payment of price. Counsel for the appellant, however, contend ed that under the prescribed fonn the contract is made subject to the terms and conditions hereinafter referred to and it is expressly recited that "the foregoing tenns and conditions as well as other terms and conditions applicable to this contract are as per the terms and conditions of the Transferable Specific Delivery Con tract for raw jute of the East India Jute & Hessian Exchange Ltd., Calcutta, and are subject to the bye-laws of that Exchange for trading in Transferable Specific Delivery Contracts for raw jute in force for the time being". He submits that bye-laws 7 ( c) and 8(b) framed by the Association being made part of the con tract, there is in truth no discrepancy between the bought anc'

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(I) 3M.I.A. 448.

(2) L.R. 311.A. 122.

(3)

[1962] S"pp, I S.C.R. 81.

F. O. ISDUSTRIES V. S. MERCANTILE LTD. (Shah, J.)

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sold notes. reads:-

Jn Ch. IX, bye-law 7 ( c) insofar as it is material,

"In the case of Pakistan Jute, buyers to deliver to sellers, or sellers' nominee, letter of authority to import the Pakistan Jute or open confirmed, irrevocable Letter of Credit in terms of paragraph S(b)(ii) within 14 work ing days from the commencement of the delivery period of the contract failing which there shall be free extension for delivery equal to the period of. delay occurring ~ter ., If buyers do not dehver the 14 working days, . . Jetter of authority or open confirmed irrevocable Letter of Credit within one month from the commencement of the delivery period of the contract, the sellers shall be entitled to exercise any one of the following options

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Bye-law S(b) which relates to payment or what· is called "reim bursement" states, insofar as it is material :

"In the case of Pakistan jute reimbursement shall be

either:-

(i) Cash, on presentation in Calcutta of a full set

of shipping documents and insurance cover.

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(ii) By confirmed irrevocable Letter of Credit for 100% of the value of goods, less transit insurance, Ben gal Raw Jute Tax (as applicable to West Bengal) and freig4t "to pay", if any, to be opened by buyers with a scheduled Bank in Pakistan within 14 working days from the commencement of the delivery period of the contract . . . . "

Bye-law 7 ( c) contemplates two alternatives. Where there is a contract for the sale and purchase of Pakistan Jute, the buyer has to deliver to the seller, or seller's nominee, a letter of autho rity to import Pakistan Jute or to open confirmed, irrevocable Letter of Credit in terms of paragraph S(b)(ii). Bye-law 8(b) also contemplates two alternatives : in the case of a contract for sale and purchase of Pakistan Jute payment has to be made in cash on presentation in Calcutta of a full set of shipping docu ments and insurance cover or by confirmed irrevocable Letter In the bought note of Credit for 100% of the value of goods. in question it was recited that the buyer had to provide the im port licence during the shipping period. Nothing was stated about the Letter of authority to import Pakistan Jute and the stipulation relating to the application to provide the import licence cannot be equated with the issue of. a letter of authority to import Pakis tan Jute. It is true that under bye-law 7(c) the buyer has to do one of the two things-he has to issue a letter of authority to

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impon Pakistan Jute or to open a Letter of Credit in terms of paragraph 8(b) (ii) and under bye-law 8(b) payment maybe either in cash on presentation of a full set of shipping documents and insurance cover or by confirmed irrevocable Letter of Credit. When nothing was written in the sold note, under the head "Pay In the ment", either of the two alternatives could be adopted. endorsement at the foot of the note, it was recorded that the B seller had to open Letter of Credit, but thJs is not found in the sold note. This further emphasizes that the two parties could not be said to have agreed on how the payment was- to be made. If the sold note produced in Coun is genuine, we are unable to agree with counsel for the appellant that the terms of the con tract were agreed upon between the parties. The bought and sold notes as produced in Coun cannot be regarded as constituting a C binding contract.

But the question whether the sold note "was fabricated" still remains to be considered. Ray, J., observed, after briefly sum marising the evidence, that. he was unable to act on the "sugges tion of suspicion" and he did not believe that there was any foun- D dation in the plea of fabrication of the document.

[Their Lordships remanded the case to the High Court with

ap!propriate directions].

G.C.

Appeal remanded.

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