WAVERLY JUTE MILLS CO. LTD versus RAYMON & CO. (INDIA) PRIVATE LTD

3 S.O.R.

StJl>REME COURT REPORTS

I

209

WAVERLY JUTE MILLS CO. LTD.

v.

196!

Moiy 4.

..

,'

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•

RAYMON & CO. (INDIA) PRIVATE LTD.

(And connected appeals) (B. P. SINHA, c. J., K. SUBBA RAO, N. RAJAGOPALA AYYANGAR, J. R. ALUDHOLKAR, and T. L. VENKATARAMA AIYAR, JJ,)

.

Forward Gontract-iegiBlative validity of enactment Gonstitutlonal . forward validity-Notification. prohibiting contracts other than non-transferable specific delivery contract Gontract for sale of goods-Validity--Glause providing for arbitration-Parties appearing arbitration-Effect Forward Contracts (Regulation) Act, 1952 (74 of 1952), ss.2(f), 17, 18-Gonstitution of India, Art. 14, Sch. 7, List I, EnJry 48, Li&t II, Entries 26, 27, List fl!, Entry 7.

before

The appellant company entered into a contract with the respondents on September 7, 1955, for the purchase of certain bales of jute cuttings to be delivered by the respondents in equal instalments every month in October, November, and December, 1955. Under cl. 14 all disputes arising out of or concerning the contract should be referred. to the arbitration of ' the Bengal Chamber of Commerce. As the respondents failed to deliver the goods as agreed, an application was made by the appellant for in cl. 14. The the arbitration as provided respondents appeared before the arbitrators and contested the claim, but an award was made in favour of the appellant. Thereupon the respondents filed an application in the High Court of Calcutta under s. 33 of the Arbitration Act challeng ing the validity of the award on the ground that the contract dated-September 7, 1955, was illegal as it was in contraven tion of the notification of the Central Government dated October 29, 1953, issued under s. 17 of the Forward Contracts (Regulation) Act, 1952, by which no person "shall enter into any forward contract other than a non-transferable specific delivery contract for the sale or purchase of raw jute in any form ....... ". The appellant pleaded (1) that the Forward Contracts (Regulation) Act, 1952, was invalid and ultra vires because (a) Parliament had no competehce to enact it, and (b) the provisions of the Act were repugnant to Art. 14 of the Constitution of India, and, therefore, the notification dated October 29, 1953, was null and void; (2) that on the terms of the arbitration clause the question whether the contract dated

Waverl1 Jut1 Mills Co. Lid. •• Raymon dJ Oo. (India) P•t. Lid.

•

..

210

SUPREME COURT REPORTS ~1963]

September 7, 1955, was illegal was one for the arbitrators to decide and that it was not open to the respondents to raise the same in an applicaticm under s. 33 of the Arbitration; (3) that the respondents submitted to the jurisdiction of the arbitrators and that amounted to a fresh agreement for arbit ration and tiierefore, the award was valid and binding on the contract dated in any case, them; and (4) September 7, 1955, was a non-transferable specific delivery therefore, was not hit by the' notification contract and, dated October 29, 1953.

that,

Held, that: ( 1) a legislation on Forward Contracts would

be a legislation on Futures Markets and, Forward Contracts (Regulation) Act, 1952, fell within the exclusive competence of Parliament under entry 28 List I of Sch. 7 of the Constituti.on of India, accordingly, the Act could not be challenged on the ground of legislative incompetence .

therefore, the' "'

Duni Chand Rateria v. Dhuwalka Brothers Ltd., (1955]

I S.C.R. 1071, follow~d.

(2) the Act did noi infringe Art. 14 of the Constitution. , M/s. Ragh'llbar Dyal Jai Prakash v. The Union of India.

[1962] 3 S. C.R. 547, followed,

'

(3) if a contract was illegal and void, an a~bitration clause which was one of the terms thereof must perish along with it, and a dispute relating to the validity of ~ contract was in auch cases, for the court and not the arbitrators to. ' decide.

Khardah Company Ltd. v. Raymon & Co.

(India)

Private Ltd., [1963] 3 s.c.R. 183, followed.

(4) the respondents were not.pre~luded by what they did before the arbitrators from agitatmg the .quesuon of the validity of the contract in the present proceedmgs before the . High Court. Sh'va Jute Baling Ltd. v. Hindley and Company Ltd.' (l9GO] l 's.c.R. 569 and East India '!rading Co. v. Badat and Co., 1.L R. [l959] Born. 1004, considered.

~

(5) the contract dated September 7, 1955,. was a non• transferable specific delivery coutr~ct as defined. m s.~(f) of the Act and; therefore, was not hit by the notificat10n dated October 29, 1953.

Khardah Company

fA.d. v. R1Jymon & Co.

(India) 1•

Priwte [Jd., [1963] 3 S.C.R. 183, followed,

3 S.C.R.

SUPREME COURT REPORTS

.

I

211

>

)

<

Kha,dah Compa~)I Ltd. v. Ra.>mon di Co. (lndi11) Pot. Ltd.

Aiyar J,

CIVIL APPELLATE JuruSDICTION: Civil Appeal

Noa. 389 to 392 of 1960.

Appe1tls by speci1tl lea..-e from the judgment and orders dated July 15, 16, 1958. of the Calcutta High Court in Appeals from Original Orders and Decrees Nos. 140 to 143 of 1957 respectively.

B. Das and Ghosh, for the appellant (in C. A.

Nos. 389 and 39,0 of 11:160).

B. Sen, Shankar Ghosh and B. N. Ghosh, for. the appellant (in C. A. Nos. 391 and 392 of 1960).

O. B. Aggarwala and S. N. Mukherjee, for the

respondents.

0. K. Daphtary, Solicitor-General of India, Da'ldat Ram Prem and P. D. Menon, for the Attorney-General of India (lntt>rvener).

1962. May ~-

W&il delivered by

The Judgment of the Court

VENKATARA.MA AIYAR, J.-These are appeals by special le<tve against judgments of High Court of Calcutta setting aside awards which directed the. respondents to pay compensation to the appellants for Breach of contracts, on the ground that they were in contravention of a notification of the Central Government dated October :W, 1953., and were in consequence illegal and void. These appeals were heard along with Civil Appeals Nos. 98 & 99 of 1960 as there were common questions of law to be decided in all.

In Civil Appeals Nos. 389 & 390 of 1960 the facts are tpat on September 7, l!J55, the appellants who are a company owning a Jute Mill at Calcutta entered into an agreement with the respondents who are also a Company doing business as dealers in jute, for the purchase of 2,250 bales of the jute

-, '"'

Wa1'tr{1 Jute Milla Co. Lid. v. Rcomon &: Oo. (India) Pot. Lid.

.Ai)'tlr J.

212

SuPREME COURT REPORTS (1963]

"·

;.

in the High Glourt of .

cuttings at Rs. 80 per bale of 400 lbs. to be d.eli- ~ vered 750 bale!! every month in October, November and December, 1955. Clause 14 of the agreement provides that all disputes arising out of or concern- ing the contract should be referred to the arbitra- tion of the Bengal Chamber. of Commerce. The respondents delivered, pursuant to the oontraot, in all 2000 bales and made default in the delivery of the balance. The appellants then applied to the Bengal Chamber of Commerce for arbitration in aocordance with cl. 14 of. the agr~ement. The respondents appeared before the arbitrators and contested the claims on the merits. The arbitrators made an award in favour of the appellant11 for Rs. 10,525, and that w~s filed under s. 14(2) of the ~ Indian arbitration Act Calcutta. on its original side and notice was issued to the respondents. Thereupon they filed an application presumably under s. 33 of the Arbitra- tion Act for a declaration that the con tract · dated September 7, 1955, was illegal as it was in contra . notbificat the dCenhtral Govern- n o vention of dth1' f io 0 53 9 9 2 , an ment date t at the award , l cto er · The learned Judge based tht-reon was a nullity. 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 the order, the respondents preferred appeals to a Division Bench of the High Court, appeals Nos. 148 & 141 of 1957; They were heard by Chakravartti, C. J., and Lahiri, J., who held that the contraot dated September 7, 1955, was illegal, as it fell within the prohibition contained in a notification of the Central Government dated October i9, 1953, and ac~ordingly allowed the appeals and set aside the award. The appellants then applied for a certificate under Art. 133(3) of ,, the Constitution but the same was refused: There- r after they applied to this Court for leave under

\. (;

'-.

,....

1662

WaveT/V Ju~ Mills Co. Ltd. v. Raym1n ch Co. (India) Pvt. Ltd.

•

3 S.O.R.

SUPREME COURT REPORTS

213

Art. 136 of the Constitution and that was· granted. This is how these appeals come before us.

rhe

re:ipondents made default

In Civil Appeals Nos. 391 and 392 of 1960 the facts are similar. The appellants' who are a company carrying on business in t,he manufacture of jute entered into a contract with the respondents on October 17, 1955, for the purchai:ie of 500 bales of jute cuttings at Rs, 87-8-0 per bale of 400 lbs., to be delivered in equal instalment of 250 bales in November and in December 1955. Clause 14 of the agreement provides that all differences arising out of or concerning the contract should be referred to the Bengal Chamber of Commerce for arbitra· tion. in the delivery of the goods and thereupon the appellants moved the Chamber of Commerce for arbitra.tion under cl. 14 of the agreement. The respondents appeared before the arbitrators and contested the claim on the merits. ·rhe arbitrators made an award in favour of the ~ppellants for Rs. 17 ,500, and that was filed in the High Court of Calcutta on it original side and notice under s. 14(2) of the Arbitration Act was served on the respondentfl. ' Thereupon they filed an application in the High Court of Calcutta, presumably under s. 33 of the Arbitration Act, for a declaration that the con tract datf.ld October 17, 1955, was in contravention of the notification of the Central Government dated October 29, 1953, and was therefore illegal and that the arbitration proceedings pursuant thereto and therein were all void. The the award passed learned single Judge on the original side before whom the application came up for hearing dis missed it and passed a decree in terms of the award. Against the above judgment and order the respon dents preferred appeals to a Division Bench of the High Court, Appeals Nos. l42 and 1±3 of Hl57. '.fhey were heard by Chakra.va.rtti, O.J., a.nd La.biri1 J ••

1962

lls•1r~Jut1 Mill• c •. Lti. v. R•yrMn "1 c •. {/nlllr<) ~ ... Lid.

Ary.1 J.

214

SUPREME COURT RJ«pPRTS [1963).

who held that the contract dated October 17, 1955, was illegal, as it fell within the prohibition contained in, the n·otification of the Central Govorn ment dated October 29, 1953, and accordingly allowed the appeals an§".set aside the awards. Th~ appellant thereafter applied under Art. 133(1)( c) for a certificate and that having been refused they obtained from this Court leave under Art. 136 of the Constit'utinn and that is how theae appeals come before us. The points for decision in &11 these ap}ieals a•e the same and this Judgment will govern all of them.

The following contentionli have 9efm urged

in support of these app1lals:-

( I) The Forward Contracts (R&'1!l&tion) Act, 1952, iA ultru tiires ancf the l!lotificatioR dated October 29, 1953, is in conael!utmee Bull &Bel '\l'oid.

the

(t) On

termli the question whother September 7,

ef tlte &rlilitratieu the C!OB· clause 1955, &nd tracts dated one October 17, 1955, &re for the arbitrators to decide and that it w&11 not open to respondents to raise the same in applications under s. 33 of the .. rbitr&tion Act.

illegal

ie

(3) The respondents submitted to the &rbitrators and

the jurisdiction of that amounts to fresh agreement for arbitration and the award is accordingly valid and bind ing on them.

(4) The contracts dated September 7; 1955, and O~tobE1r, 17, 1955 are non-ti:ansferable ~yecific delivruy contracts and they are not hit ·flf the potifif'.atjop dp.ted 9ct?ber 29 1

l95?,

•

3 S.O.R.

SUPREMg COURT REPORTS

215

(1) The first question relates to the vires of Forward Contracts (Regulation) Act, 1952 (Act 74 of 1952), hereinafter referred to as 'the Act'. This statute was enacted by Parliament and receiv ed the assent of the President on December 26, 1952. Its validity is attacked on two grounds; that Parlia ment had no competence to enact it, and that the provisions of the Act are repugnant to Art. 14 and Art. 19(l)(g) of the Constitution and therefore void. If this oontention is well founded, then the notifica tion dated October 29, 1953, which was issued by the Central Government in exercise of the powers conferred by s. 17 of the Act would be null and void.

1962

Wa111r1, Juli Miila Oo. Lit/

•• Rspnon ~.c •. (I n/ia) :f'1t. Lt/.

Aiyar J.

•'

Dealing first with the question as to the com· ·

petence of Parliament to enact the impugned law, it will be convenient to set out the entries in the Legislative Lists in Seventh Schedule of the Consti· tution bearing on this question.

'y

List I-Entry 48-Stock Exchanges and

Futures Markets.

List II-Entry 26-Trade and commerce within the State subject to the provisions of entry :>3 of List III.

Entry 27-Production, supply and distri

bution of goods subject to the provisions of entry 33 of List III.

List III-Entry 7-Contracts,

including partnership, 11gency, contracts of carriage, a.nd other special forms of contracts, but not in· eluding contracts relating to agricultural land.

Now the contention of the appell11nts is that the subject-matter of the impugned legiBlation is either Trade and Commerce or Production, supply and difitribution of good .. , within entries ~· 6 or 2·1 in List II of the Seventh Schedule, and that it is with· in the exclusive domain of the State Legislature.

I96Z

~;t.6 SUPREME COURT REPORTS,[1963]

and

"forward

rhe. contention of the respondents, and 9£ the Union which has intervened, is that the impugned Act ~s legislation on •Futures Markets' falliqg under. en~ry 48 in List.I and that it is Parliament whic)l has the exclusive" competence over it, and.in tlie alternative it is one on contracts, and that is cover ed by entry 7 in List III in the Seventh Sclied~~e and is intra vires. To decide this question, it is micessary to ascertain the true nature and sco,pe of the legislation, its pith and substance, The objecp, of the Act as stated in the preamble is "to provide for thQ regulation of certain matters ·relating to foi;ward contracts, the prohibition of opti9ns in goods and for the matters connected therewith". The statute makes a distinction between "ready delivery contracts" contracts.'' When a contra.ct provides for the delivery, ef goods. and payment of price therefor either immediately. or within a period not exceeding eleven days it is a ready delivery contrac~. All other contracts a.re forward· contracts. Forward contra.eta are again divided into two categories 'specific deliTery contr acts' and 'no:1-tranRferable specific delivery contr: acts', 'Specific delivery contracts' mean fol'Ward contracts which provide for actual delivery of specific goods at the price fixed during specified future . period. specific deli very contracts' are specific delivery contracts liabilities under which are not the ri~hts or transferable. Section 15 confers power on the Government t'o issue notifications declaring illegal forward contracts with reference to such goods or class of goods and in such areas as may be specified. Section 17 authorises the Government to prohibit by notification any forward contract for the, sale or purchase of any goods or class of goods to which the provisions of s.15 have not been mad!J appl.i cable. Section 18 exempts non-transferabl~ specific:i 9eliverr contra.ate {row the operatioµ. of t}\e~~

'Non-transferable

•

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..

1968

..

Wav•r!Ji Jut1 Mills Co. LU.

R aymon & Co. (India) Pvt. Ltd,

Aiyar J,

a s.c.R.

SUPREME COURT REPORTS

217

secti~ns. Thus the law is what it purports to be, a law regulating Forward Contracts.

That being the scope of the enactment, the point debated before us is whether it is a law on Trade and Commerce or Production, supply and distribution of goods within entries 26 or 27 in List 11 or on Futures Markets within entry 48 in List I. It would be noticed that both the entries 26 and 27 in List II are subject to entry 33 in List III. Entry 33 as it now stands is: "1'rade and commerce in, and the Production, supµly distribution of ...... ( e) raw jute". The impugned Act in so far as it relates to raw jute-and that is what we are concerned with in these appeals-will clearly be intra vires if it fell under this entry. But it should be mentioned that cl. (e) in entry 33 was inserted by the Constitution (Third Amendment) Act, 195·! and as the impugned Act was passed in 1952, its validity must be determined on the provisions of the Constitution as they stood prior to the Amendment Act in 1954 and in List III therefore must be excluded entry 33 from consideration. Now turning

the question whether the impugned Act is legislation on Futures Markets or the contention of the on Trade and commerce, appellants is that a law with respect to Forward Contracts, is not a law with respect to Futures Markets, because the ordinary and accepted mean ing of •Market' is that it is a place where business in the sale and purchase of goods is carried on, In support of this contention we are referred to the Dictionary moaning of the word •Market' and the decisions of the Madras High Court reported in Puhlic Prosecutor v. Cheru Kutti (1) and Commissioner, Coimbatore Municipality v. Ohettimar Vinayagar Ttmple Committee( 2l. According to the Concise Oxford Dictionary the word 'market' means •gathering of people for purchase & sale of provi11ions. livestock, in etc.;

covered

epaoe

open

or

to

building ( 2) [ l956J 2 MJ..J, 56S.

~ J) AJ.R. 1925 Mad. 109,,

1962

'

I

" '

Wa1.1erly J..qte .Milla C<>. Lkl. Y. Ra1tnon..c6 Oo. (India) P~t. Ltd.

.21s·

SUPREME OOURT REPORTS [1963]

(1)

for sale".

which cattle etc. a.re exposed In the Public Prosecutor v. · Cheru K utti facts were that the accused was cha.rged under s. 170 of the Madras Local Boards Act", 1920 for 4eeping open a new private i:na.rket without a licence. His defence was that the place where the sales· were held was not truly a market, and tha.t In that ·context, discussing· the was accepted. meaning of the word.~market', ·the Court observed that it meant "a place set apart for the meeting of the general public of buyer~ and sellers, freely open to any such to assemble together, where any seller may expose his goods for sale and any buyer .ma.y In Commissioner, Coimbatore Munici purchase". pality v. Ohe,ttir.nar Vinayagar Temple Committee (1), the question arose this time with reference to the provision in Madras District Municipalities Act, 1920, requiring a place used as an open market under the Act to be licensed. The Court held that the ordinary meanii)g of market was place where the public coqld go during particular 'times for purpose of buying and selling and that on the facts· It is contended the place in question was market. on the strength of. the above rulings the impugned Act is not one with reference to building is qeing transacted it is not a law where business with reference to m.o.rkets.

th11t

11.s

transactions

We are unable to agree with this contenti9n. Mp,rket no doubt ordinarily means a place where tr11.nsacted. That was probably business is being all that it meant at a time when trade was not developed and when took place at ;But with the development of com sp(lcified places. merce, bargains came to be concluded more often than not through correspondence and the connota tion of the word 'market' underwent a correspond In modern parlance the word ing expansion. 'market' has coine to mean business as well as the place where business is carried on. Labour Market i,s not a. place where ]abc.urers a.rn for example, .-eoruited but the conditions' of q1e J:rps;pess of

ii) _11956] 2 M·L./ • ~~·

<I

' , '

I

1962

Waverly Jute Mi!l1 'c,, Lid. v. Raymon &1 Co. (India) Pvt• Ltd.

Aiyar J,

-

r

I .,'

3 S.C.R.

stJPREME COURT REPORTS

219

(2),

to provisions

111 unicipality v.

labour. The word 'market' being thus capable of signifying both business and the place where the business is carried on, the question in what sense it is used in a particular statute must be decided on a consideration of the context of that statute. Thus in Public Prosecutor v. Cheru K11,tti (1) and Commi ssioner, Coimbator Chet~imar Vinayagar Tempk Committee the question reference arose with to as licensing local authorities, by for that purpose market was interpreted as meaning a place. So we must examine what the word market means in entry 48 ''Futures' Markets" in List I. The word 'Futures' is thus defined in Encyclopaedia Britan nica: "contracts which consist of a promise to deliver specified qualities of some commodity at a is time. The specified for a single quantit,y in a given montb ...... Futures are thus a. form of security, analogous to a bond or promissory note". In this sense a market can have reference only to business and not to any loca.tion. In our opinion a legislation on Forward Contracts would be a legi1o1lation on Futures Markets.

obliga.tion

future

and

It is next a.rgued for the appellants that even if a law on Forward Contracts can be said to be a law on Futures Markets, it must be held to be legislation falling under entry 26 in List II, and not entry 48 in list I, because Forward Contracts form a. major sector of modern trade, and constitute it1 very core, and to exclude them from the ambit of entry 26 in List II, would be to rob it of much of its contents. Reliance was placed in support of this contention, on the rule of construction that the entries in the Lists should be construed liberally and on the decision in Bhuwalka Brothers Ltd. v. Dunichand Rateria ("), which, on this point was this Court in Duni Chand Rattria affirmed by v. Bhuwalka Brothers Ltd. ('). • The rule of cons truction is undoubtedly well established that the

(I) A.I.R. 1925 Mad.1095. (3) A.J.R. 1952 c111. 74().

(2) [1956] 2 M.L.J. 563. (f) [1955] I s.c.R. 1071.

196~ - ' ' - WbHriy :ride Mills Co: f.L)ff. ••

Raymon'&,· Co. (lndi'.'.).'_:'.'_'.: Ltd,

Aiyar ~·

22!).

su_PREME COU,&T R.EPO.fl.XS J:l963]

in

itself. to this Court

tlici Lists 8hould be· construed broadly entries and ·nq} in a narrow or pedantic sense. But there is no need for the appellants to call this rulfl in a,id of their contention, as trade and commerce would, in tb.eir .ordinary and accepted sense, include for ward contracts. That was the view whioh was adoptea iii.'Blmwalka Brothers Ltd. case(1) and which commended in Duni Chand, Rateria's case ('). Therefore, if the question were simply whet)ler a law on Forward Contracts would be a law with respect to Trade and commerce, there should be no difficulty in answering it in the affir- mative. But the point which we have got to decide is as to the scope pf the entry •Trade and commerce' read in juxtaposition with entry 48 of List I. As the, two entries relate to the powers mutually exclusive of two different legislatures, the question is how ·these two are to be reconciled. Now it is a rule of construction as well established as that on that the entries in the which the appellants rely, to .all Lists s)l.ou!d be so construed as to give effect of them ,and that.a canstruotion which will result. in any of them beii:ig rendered futile or otiose .must be avoided. It follows from this that where there a~e two entries, one genera.I in its character and the oJ;her specific, the former must be construed as excluding the latter: This is only an application of the genei:;i.l maxim that Ge:neralia specialibus non derogant. It is obvious that if entry 26 is to be cons trued as comprehending Forward Contracts, then "Futures Markets" in entry 48 will be rendered useless. We are therefore of opinion that legisJa. tion on Fo1;ward Contracts must be held to fall w,ithin the exclusive competence of the Union urn;ler entry 48 in List I. ,

It now remains to deal with the decisions on in support of their con- which .~elition that the legislation is really one on :rra.d\)

tl\e appellants rely

ll) A.,.R. l?~~ ~L 11(1,•

(2) p955] I S.C.R.19'1Ji

.•

\~

•

'\ ....

196~

Wa~•rb' Jut• Mills Co. Lid. v. Roymon rh Oo. (India) Pvt. Ltd.

4i;lar J,

~ s.c.tt.

SUPREME COURT REPORTS

221

and oommeroe falling within entry 26. In Bhuwalka Brothers Ltd. case (1) the question was with referenoe to the validity of the West Bengal Jute Goods Futures Ordinance, 1949. That Ordinance had been promulgated by the Governor without obtaining the consent of the Governor-General and the contention was that the legislation fell within entry 7 'Contracts' in List III and as the consent of the Governor-General had not been obtained it was invalid. As against this it was contended that the legislation was with respect, to Trade and commerce which fell within List II and that there fore the consent of the Governor-General was not necessary. In accepting the latter contention the Court ,observed : "In pith and substance th~ legis lation was one on trade and commerce and not on contracts and that therefore it was . within the powers of the provinoial legislature". There was an appeal taken against this decision to this Court and there the correctness of this view was accepted. Vide Duni Ohand Rareria's case( 2 ). Now the conten tion before 1,1s is that on this authority it should be held that the legislation was one on Trade and oom merce falling within entry 26.

We are unable to accept this oontention. The validity of the West Bengal Jute Goods Futures Ordinanoe, 1949, has to be judged in accordance with the provisions of the Government of India Aot, 1935, which was the Constitution Act then in In that Act there was no specific entry force. relating to 'Futures Markets'. Suoh an entry was in troduced for the first time in the present Constitu tion in 1952. The contest in Bhuwalka Brothers Ltd. case(1) therefore was not between a g1meral entry on trade and commerce and a specific entry on the futures markets, as in the present case, but between Trade and commerce in List II and Contracts in List

(I) A.I.R.1952 Cal. 74-0.

\2) [1955] I S.C.R. 1071.

"

'-'

J9MI

Wa1J1rly,Jut1 Mills ,[Jq. Ltd. .v • . llajmon ~. G;o. ,!India) Pvt .,~td.

SUPn.l!lME 00t:t.K1' REPoRTS t1963J

.•

~22 .

!IE In the absence of a specific entry like the one. contained in entry 48 in List I, the decision iQ Bhuwalka Brothers Ltd. case (1) would be correct but 'it is no longer ll!>W in view of the change in t)he Constitution.

/ In the present case the question was. ·also raised whether the impugned legislation would fall under entry 7 of List III. While the respondents insisted that it fell under entry 48 in List I, they were also prepared, in case that contention failed, to fa.II back on entry 7 in List III as a second line of defence. Entry 7 is general in its terms·and cannot prevail as against specific entry such a.a entry 4~ in List I or 26 in List II. On this point, we are in agreement. with the decision in Bhuivalka Brotliers Ltd. case('). Io the-re~ult we mu~t hold that the attack on the impugned Act on the ground of · legislative incompetence must. fail.

The second ground of attack on the nires. of the Act is that it is .repugnant to Art. H a'.!ld to Art. 19( l )(g) of th~ Constitution and is, therefore, void,. So far as Art. 14 is concerned, the, question is now concluded by the decision of this Court in M/s. RU1]huhar Dayal. Jai Prakash v. The Union of India ( 2 ) where it has. been held that the impugned Act does not infringe that Article and is v~lid. This point is therefore DO longer Open to 'debate and indeed th{) appellants addressed no arguments on it.

Then as regard,s the attack based on Art. 19( l )(g) the position is that though the appellants raised this contention in the pleadings they did not press it before the learned Judges in the Court below because there .was a decision of the Bench of the Calcutta High Court which had <;Iecided the point against .the appellants. The point, how,ev,er WI!{! taken in the grounds of appeal to this Court,

(I) A.1.R. m2 Oat. 7411.

(2) [1962] s s.c.R. 547.

,_

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•.

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Wavwly J11te Mill• Co. Lid. v. Raymon &: Co. (India) Pot, Ltd,

Aiyar J.

3 S.C.R.

SUPREME COURT REPORTS

and has been sought to be pressed before us. The respondents complain and rightly that a point like this should not be allowed to be taken at this etage as a decision thereon will turn on investigation of facts which has not been made. It is also con tended that thoce being a strong presumption in favour of the constitutionality of a legislation the appellants must fail as they have not placed any materials before the Court to rebut that presumption. The answer of the appellants to this contention is that as the Act is on the face of it violative of the fundamental rights under Art. 19{ I )(g), it was for the other side to place materials for showing that it was protected by Art. 19 (6) as one which is reasonable and ma.de in the interests of the general public, and not for them to show negat ively that it was not and reliance was placed on the observations oft.his Court in Saghir Ahmed v. The State of Uttar Pra4esh and Others (1). We a.re of opinion that those observations cannot be read as negativing the presumption as to the cJnstitutionality of a statute. But it is unnecessary to say more about it, as the appellants abandoned this point after some argument. This contention also must therefore be found against the appellants.

(2) It is next contended for the appellants that the question as to the validity of the contracts between the parties was one for the arbitrators to decide and that in consequence it was not open to the respondents to raise it in an independent appli cation under s. 33 of the Arbitration Act, This question has been considered by us in Khardah Com pany Ltd. v. Raymon &: Oompany (P) ) with which these appeals were heard Ltd. (2 and therein we have held that it a contra.ct is illegal and . void, an arbitration clause which is one of the terms thereof, must also perish along

(India)

(I) [1955] l S.C.R.101, 726.

(2) (1963) 3 S.C.R. I83,

-,

1962

.

" \W:01'1r{7 Jut1tMills Cq.Lta.

• v. .R.rymon &> Co. (India) P" •IM.

. ~ ()'oi il.

224

SUPREME COURT REl'OR'.l'S (1963)

with it and that a dispute relat.ing to the validity of a contract is in such oases for the Court a~ '!"ollowing that not for. the ar~itrators to decide. decision we must overrule this contention.·

in

filed

the befo,re

•question, when

subsequently appeared

::(3) The appellants next contend that .even if the- aroitration clause in the original agrf)t'IIl,ent between the parties shoqld be held to be inopNa· tive by reason ·of the validjty of the COl),,tr.act res itself being pondents .the statements in support of arbitrators and . their defence, that must be held to amount .to a new ag~eement by them for arbitration, 'on ~hich the arbitrators would be entitled to act and ·that ·in consequence the award could not be attacked _on the ground ofw!\nt of jurilldiction. T4is t}j.e respon dents. dispute. They contend that mer!l .partici pation in thii arbitration proceedings C\Lnnot' be :held to be a new agreement for arl)itration, and that the jurisdiction of the arbitrators mu.s,t. be decided solely. with reference to. cl. 14 .of the agree ment. The point for decision is as to t4e true effect of what happened before the 11-rbitrators on their jurisdiction to .hear :r'he prin· ciples applicable in the determination of this ques· tion ate well settled. A dispute as to the valiqity subject of matter of an agreement of arbitration in the" same mannei: as a: dispute relati:µg to a claim made under ·the' contract. But such an agreement wi:Ju'ld be effedtive arld qperative only when it is separate from and independent of the qontract whi<lh is imp\lgned aa illegal.· Where, however, it . is a term of the very contract whose validity is· in question, it has,'·a:s held by us in Khardah Oo. Lid. · case·(1), no existence apart from the impU'gned contract and ·mus't perish with it. (1963) 3 S.C.R. J83.

the·dispute.

contract·

could

the

be

(1)

a

<

J

a s.c.R.

SUPREME COURT REPORTS

225

196!

Waverly Jui. M illt Co. Ltd. V• Royrn1111 &r c •• (Indio) Pvt. L!d

Atjor J.

these

We shall now refer to the decisions cited bafore us, bearing on this distinction between the two categories of agreements. In Shiva Jute Baling LUl. v. Hindley and Company Ltd., (1) the difference between two classes of agreements was noticed, though in a somewhat different context. A decision ~irectly bearing on this distinction is the one iu East India Trading Company v. Badat ). There the facts were that there was a and Go. (2 general agreement between the parties as to the terms on which they should do business and ;t was provided therein that all disputes arising out of the contract should be settled by orbitration. Subsequent thereto the parties entered into several contracts and then a dispute arose with reference to one of them. One of the parties denied the contracts and the question was whether an award passed by the arbitrators with reference to that dispute was without jurisdiction. In holding that the arbitrators had jurisdiction to decide the matter by virtue of the agreement antecedent to the disputed one, the Cuurt observed: "Now, the principle of the matter is this that when a party denies the arbitration agreement, the very basis · on which the arbitrator can acts is challenged and therefore the Courts have taken the view that in such a case the arbitrator has no jurisdi<'tion to decide whether he himself has jurisdiction to adjudi- cate upon the dispute .......................... If the arbitration agreement is part and parcel of the contract itself, by denying the factum of the con tract the party is denying the submission clause and denying the jurisdiction of the arbitrators. But in this case the position is different. We have an independent agreement by which the parties agreed to refer the disputes to arbitration. Pursuant to this agreement, contracts were entered into and when the plaintiffs made a claim against t'i.te defen· the defendants denied their liability. dants, [1959] I.L.R Bom-. to!l4 tol6, 1011. (I)

[I960] l s.C.R. 569.

(2)

1962',

W .Qv;.rh1"1ute. Mills Co. Lld.

. ..

!le;mon &: Co. (/,.~io) Pot. Lta.

•

226

SUPREME COURT REPORTS [196~]

Therefore, wha.t was denied was not the jurisdi<> tion of the arbitrators, not the submission olartse,· but business qone pursuant to the submission clause and to which the submission claus·e applied". That in our judgment is a. correct statement of tJi.e true legal position.

·

The point then for decision is whether there is in this case an agreement for reference to arb1- _ tfation apart from cl. 14 of the contra.ct. It is not contended f<;>r the appellants that there w.as any expr~ss agreement between the parties for the disputes under the contract date~ referring is Sept~mber 7, ·1955, said is that the respondent fil_e_d statements before tbe arbitrators setting out their defence on tlje. me~its, and that must be construed as an indepen qent agreement for arbitration and the decisfona in National Fire and General Insurance Oo. Ltd. v. t/niori of India (1) and PratabmuU BGmeswar' v. K. 0. Sethia Ltd. (') are cited as au{ho.rities in f!upport of ~his contention.

to arbitrators. All that

• Now a'n agreement for arbitration is the very foundation on which the jurisdiction of the arbi trators to act rests, and where that is not in existence, at the time when they enter on their duties, the proceedings must be held to be wholly without jurisdiction. And this defect is not cured by the· appearance of the parties in those procee dings, even if· that· is'withmit protest, because it is'well settled that consent cannot confer juris· diction. But in "such a case there is nothipg to from entering into a fresh prevent, the· parties agreement to refer the dispute to arbitration while it is pending adjudication before the arbitrators, and in'· that event the proceedings thereafter before them'might be uphelp as· reforrable to that-agr.ee: ment, and-the-award will· not be open to attack a's without jurisdiction. But it will make all· tne '<Ii. Ah.it: '!'56' ca!Ji.-

(1959) 64 c.w,Ni 616; '

.. (2)

Wa.-rl1 lul< Mil/1 Co. Lt.d, v. R 11mon &I Co. (Jndio) Pol. Lid •.

3 S.C.R.

SUPREME COURT REPORTS

227

difference in the result whether the parties have entered into an arbitration agreement as defined in r. 2(a) of the Arbitration Aot or have merely taken eteps in the oonduot of proceedings assumed or believed to be vatid. In the former case the award will be valid; in the latter, a nullity.

Now what are the facts in the present case? We have gone through the statements filed by the the arbitrators, and we do . respondents before not find any thing therein out of which a new agreement to refer the dispute to arbitration could be spelt. The respondents merely contested the claim on the merit.a, and then added : "The sellers submit that this reference is improper, unwarrant ed, frivolous and vaxatious and should be dismissed with cost.'' It is impossible to read this statement as meaning an agreement to refer to arbitration.

(')

on

for

Dase

reli~d

The decisions in National Fire and General Ltd's. ca.oe (1) and Pratabmull lnsurauce Go. the Rame.swar's in point. In both appellants are not really these cases submission valid there was a on which the arbitrators proceeded to act. Before them the parties filed statements and therein they put forward a claim which was not actually cover ed by the reference, and invited them to give their decision thereon. The party against whom the award had gone contended that the arbitra tors had acted without jurisdiction in decidinir that In overruling this contention the Court ·claim. , held that it wa.s open to the parties to enlarge the scope of a reference by inclusion of a fresh dis pute, that they must be held to have done that when they filed their statements putting forward claims not covered by t~e original agreement, that tb.ese statements satisfied the requirements of s. 2( a) of tho Arbitration Act, and that it was

ll) A 1.R. 1956 Cal. U.

(2) [1959] M C.W.N. 616 ..

1

ff&iltrU1-·Uute lIIill• to. 'Lt6. v. Rbymun & Co. (hi.dial Put. LtJ.

228

SUPREME COURT REPORTS [1963]

competent. to the arbitrators to decide the dispute. The point to be noticed is that in both these cases there was no want of ·initial jurisdiction, but a feeding of existing jurisdiction by an enlargement of the scope of the reference. That this does not involve any question of jurisdiction of the arbitra tors will be clear from the scheme of the Act. If an award deals with a m;,.tter not covered by the agreement it could either be modified undei: s. 15(a) or remitted under s. 16(l)(a). And where such matter is dealt with on the invitation of the part ies contained in the statements, there can be no in holding that the arbitrators aotual difficulty within jurisdiction. In the present case the arbi trators had no jurisdiction when they entered on their duties, nor is it established that there was any subsequent agreement which could be held to ba a submission of the question as to the validity ·of the contracts. We are accordingly of the opi nion that the respondents are not precluded by what they did before the arbitrators from agita~ ting the question of the validity of the contracts in the present proceedings.

(4) The !a~~ contention of the appellants is that the coµ,,tracts dated September 7, 1955, and October 17,'" 1955, are non-transferable specific delivery contracts, as defined ins. 2(f) of the Act ancl. under s. 18, they are exempt from the opera tion of s. l'.7, an~,t~at they are therefore not hit by the notification dawd October 29, 1953. The facts are simHkr to those considered by this Court ·in Khardah Oofnpany Ltd. case{1)with which these appeals were hea~d, .and for the reasons given by us in our Judgment in those appeals delivered to-day, we accept the contention of the'appellants, and hold that the contracts in question are not h~t by the notification dated 'October 29, 1953.

(IJ c196"s) s s.d.R. uis. ' . ,

y

3 S.C.R.

SUPREME COURT REPORTS

229

In the result the appeals are allowed, with costs throughout. one set in Civil Appeals Nos. 389 and 390 of 1960 and one in Appeals Nos. 391 and 392 of 1960, and one hearing fee.

Appeal allowed.

PADMA VITHOBA CHAKKAYYA v.

MOHD. MULTAN!

(K. C. DAS T. L.

GUPTA., J. R. MunnoLKAR and VENKATA.RAMA AIYA.R, JJ.)

Adverse Possession-V svfructuary mortgagee obtaining invalid sale with consent of mortgagor-Mortgagor a minor Na ure of possession of mortgagee if altered.

In I 961 R executed a usufructuary mortgage of the suit lands in favour of M. Later, in 1923 he executed a sale deed of the same lands in favour of Rajanna, uncle of the appel· !ant. The appellant and Rajanna formed a joint Hindu family. As there was difficulty in obtaining possession by Rajanna, he R and M entered into an arrangement under the sale deed was cancelled by making endorsements which on the back of it and the lands were sold by R ti} M. Rajanna died in 1930 as a minor, and in 19H the appellant brought a suit aga.inst M for possession of the lands ori the ground that the cancellation of sale deed of 1923 was ineffective as it was not registered and that accordingly the sale deed in favour of M passed no title to him. M pleaded adverse possession on account of the invalid sale in his favour. The suit for posses sion was dismissed on the ground that the appellant had filed the suit more than three years after attaining majority.

Held, that though the suit for possession was time barred the appellant could maintain a suit for redemption if M had not prescribed title by adverse possession. M who had entered into possession as a mortgagee could acquire title by prescrip tion if there was a change in the character of his possession under an agreement with the owner. The endorsement of cancellation on the sale 'deed taken along with the sale deed

-I

1962

Wao1ri1 (, '

•• Raymon· ti: Co.,. (India) Poi. I.Id.

A.i)ar J.

.196t

M<1y4.

: .