Shivnarayan Kabra Vs. The State of
Madras  INSC 139 (23 August 1966)
23/08/1966 RAMASWAMI, V.
BHARGAVA, VISHISHTHA DAYAL, RAGHUBAR
CITATION: 1967 AIR 986 1967 SCR (1) 138
F 1975 SC1223 (18) RF 1980 SC2047 (13)
Indian Penal Code, 1860, s. 420-Forward
Contract (Regulation) Act, 1952 (74 of 1952), ss. 2(c), 15, 21-Pucca adatia not
a member of any association recognised under the Act-Representing that he would
carry out business through such associations-Constituent parting with money to
him for such transaction -Offence of cheating whether committed--S. 15 of the
Act of 1952 whether contravened.
The appellant who held out as a pucca adatia
made a public advertisement inviting people to enter into forward transactions
through him. He further said in his advertisement that he undertook forward
business in accordance with pucca adatia system and according to the usual
practice and usage of the various associations concerned. One of his
constituents made a complaint against him on e allegation that by his false
representation that he was entitled to lawfully conduct forward business he had
induced the complainant to part with money. The appellant was not a member of
any of the recognised associations whose members were entitled to carry on
forward business. The prosecution of the appellant was under s. 420 of the Indian
Penal Code and s. 21 of the Forward Contracts (Regulation) Act, 1952 (74 of
1952). In his defence the appellant said that he carried out the transactions
in question through members of the recognised associations as an agent of the
complainant. The trial court convicted him and the conviction was upheld by the
Session Judge and the High Court, whereupon with special leave an appeal was
filed in this Court.
HELD : (i) From the evidence it was clear
that the complainant would not have parted with his money but for the
inducement contained in the appeals advertisement and his false representation
that he could lawfully carry on forward contract business. The offence under s.
420 I.P.C.was therefore proved. [141 C-D] It was not necessary that a false
pretence should be made in express words for s. 420 I.P.C. to be applicable. It
may be inferred from all the circumstances including the; conduct of the person
charged. [141 B-C) (ii) The speculative contracts entered into by the appellant
with the complainant fell within the definition of 'forward contracts' within
the meaning of the Forward Contracts (Regulation) Act, 1962. If such contracts
were not included within the definition of 'forward contract' in s. 2(c) of the
Act the very object of the Act which was passed in order to put a stop to
undesirable forms of speculation in forward trading and to correct the abuses
of certain forms of forward trading in the wide interests of the community and
in particular of the consumers would be defeated. [144 F-H] Heydons case,
(1584) 3 W. Rep. 16 and Bengal Immunity Company Ltd. v. State of Bihar and
others,  2 S.C.R.
603, referred to.
(iii) There was no evidence on record to show
that the appellant placed the order for the notified good with a member of a
recognized 139 association. But even on the assumption that the appellant
placed an order for the notified goods through a member of a recognised
association there was a breach of the provisions of the Act. The appellant was
doing forward contract business as a pucca adatia. It is well established that
the pucca adatia has no authority to pledge the credit of the upcountry
constituent to the Bombay merchant and there is no privity of contract between
the upcountry constituent and the Bombay merchant. The pucca adatia is entitled
to substitute his own goods towards the contract made for the principal and buy
the principal's goods in his personal account. In other words the pucca adatia
is acting as a principal as regards his constituent and not as a disinterested
middleman to bring the two principals together. The appellant was acting as
principal to principal so far as the complainant was concerned and the
contracts were hit by s. 15 of the 1952 Act. [145 B-F] Bhagwandas Narotwndas v.
Kanji Deoji, I.L.R. 30 Bom. 205 and Bhagwandas Parasram v. Burjorio Ruttonji
Bomanji, 45 I.A.
29, referred to.
(iv) The appellant was represented at the
trial by eminent counsel and there was no prejudice caused to him by the fact
that the trial was conducted in Tamil and English both of which he did not
know. The breach of S. 361 Criminal Procedure Code was only an irregularity
curable under s.537 of the Code. [146 C-D]
CRIMINAL APPELLATE JURISDICTION : Criminal
Appeal No. 20 of 1964.
Appeal by special leave from the judgment and
order dated July 16, 1963 of the Madras High Court in Criminal Revision Case
No. 1139 of 1961 (Criminal Revision Petition No. 1095 of 1961).
Naunit Lal, for the appellant.
A. V. Rangam, for the respondent.
The Judgment of the Court was delivered by
Ramnswami, J. This appeal is brought, by special leave, from the judgment of
the Madras High Court dated July 16, 1963 in Criminal Revision Case No. 1139 of
The appellant was charged for having
committed offences under s. 420, Indian Penal Code and s. 21(d) and (e) of the
Forward Contracts (Regulation) Act, 1952 (Act 74 of 1952), hereinafter called
the "Act", with regard to certain transactions between the appellant
and P.W. 2, Rajam. The appellant was convicted of all the charges and was
sentenced to rigorous imprisonment for one year and a fine of Rs. 1,000/under
S. 420, Indian Penal Code and a fine of Rs. 100/under each of clauses (d) and
(e) of s. 21 of the Act by the District Magistrate, Kumbakonam. He further
directed that a sum of Rs. 1,000/out of the said fine should be paid to P.W. 2.
On appeal, the convictions and sentences were affirmed by the Sessions Judge,
140 The appellant took the matter in revision
to the Madras High Court but the revision application was dismissed.
The appellant was the proprietor of a firm in
Bombay known as "Jawarmal Gulab Chand". He advertised that people
could invest capital in cotton, oil-seeds and other commodities and that J. G.
Market reports issued by him could help them in the matter. P.W. 2, a
whole-sale merchant dealing in cotton seed, ground nut cakes etc. at Kumbakonam
bacame a subscriber to the reports. P.W. 2 asked the appellant for his business
terms. The appellant sent him Ex. P-30 wherein he stated that he undertook
export, import, ready and forward business in various commodities in accordance
with Pucca Adatia system and according to the usual practice and usage of the
various associations concerned. Neither the appellant nor his firm was a member
of any recognised association within the meaning of the Act. P.W. 2 placed
orders with the appellant and correspondence and statements of accounts were
exchanged between the appellant and P.W. 2 who paid a sum of Rs. 12,000/as
margin. Subsequent to the demand of P. W. 2 the appellant sent Rs. 1,000/and
also a final statement showing loss in the transaction and claiming that a sum
of Rs. 398 52 P was due to the appellant.
According to the prosecution case, the
appellant induced P.W. 2 to send him Rs. 12,000/between May 1, 1958 and June
15, 1958 for forward contract business in cotton, castorseeds and ground nut by
a fradulent representation that the appellant conducted such business even
though he was not actually entitled to do any such business and thereby cheated
P.W. 2). The case of the appellant was that he could do business under the
Pucca Adatia system with members of recognised associations like the Bombay
Oil-Seed and Oil Exchange, and the East India Cotton Association, Bombay,
though he himself was not a member of either of these associations. The
appellant denied that he made any false representation or that he induced P.W.
2 to part with his money. The case of the appellant was rejected by the
District Magistrate of Kumbakonam who accepted the prosecution case as true and
convicted and sentenced the appellant on all the charges. The decision of the
District Magistrate was affirmed by the Sessions Judge, West Thanjavur in
It was argued, in the first place, on behalf
of the appellant that on the admitted or proved facts no case of cheating has
been made out against the appellant and therefore his conviction under s. 420, Indian
Penal Code was illegal. We are unable to accept this argument as correct.
It has been found that the appellant sent a
letter, Ex. P34 along with a copy of the business terms, Ex. 34(a) "on
which we undertake business of our clients". In this document the
appellant has made the representation that he 141 could do business in forward
contracts in cotton, grains, seeds, bullion, black pepper etc. in accordance
with the pucca adatia system and "in accordance with the usual practice
and usage of the various associations concerned".
In Ex. P-33 the appellant sent a telegram to
P.W. 2 intimating that "buying is advisable for quick profits".
The appellant knew full well that he had no
right to do forward business and that he was not a member of any recognised
association and that he could not lawfully advertise to P. W. 2 for investment
in forward contracts. It is not necessary that a false pretence should be made
in express words by the appellant. It may be inferred from all the
circumstances including the conduct of the appellant in obtaining the property
and in Ex. P-34(a) the appellant stated something which was not true and
concealed from P. W.
2 the fact that he was not a member or any
recognised association and that he was not entitled to carry A on the forward
contract business. It is clear that P. W. 2 would not have parted with the sum
of Rs. 12,000/but for the inducement contained in Ex. P-34 and the
representation of the appellant that he could lawfully carry on forward
It was then submitted on behalf of the
appellant that the forward contract in the present case was a wagering contract
and fell outside the purview of the Act and the provisions of s. 15 of that Act
were therefore not attracted to this case. In our opinion, there is no
justification for this argument. Before setting out the statutory provisions it
is desirable to indicate briefly the economic implications of forward trading
in commodities, the need for the regulation of such trading and the mischief
which the Act was intended to remedy. The expert committee to which the Bill
which became the Act was referred, explained in their report the meaning of
forward trading as follows :
"Forward trading involves speculation
about the future, but not all forms of forward trading could be considered as
either unnecessary or undesirable for the efficient functioning of anything but
the most primitive economy............ To the extent to which forward trading
enables producers, manufacturers and traders to protect themselves against the
uncertainties of the future, and enables all the relevant factors, whether
actual or anticipated, local or international, to exercise their due influence
on prices, it confers a definite boon on the community, because, to that
extent, it minimises the risks of production and distribution and makes for
greater stability of prices and supplies. It thus plays a useful role in modern
business. At the same time, it must be admitted that this is an activity in
which a great many individuals with small means and inadequate 142 knowledge of
the market often participate, in the hope of quick or easy gains and
consequently, forward trading often assumes unhealthy dimensions, thereby
increasing, instead of minimising, the risks of business.
There are forms of forward trading for
example, options, which facilitate participation by persons with small means
and inadequate knowledge.......... It is, therefore, necessary to eliminate
certain forms of forward trading, and permit others under carefully regulated
conditions, in order to ensure that, while producers, manufacturers and traders
will have the facilities they need for the satisfactory conduct of their
business the wider interests of the community, and particularly, the
interest,-, of consumers, will be adequately safeguarded against any abuse of
such facilities by others." It was with these objects that the provisions
of the Act were enacted.
It is necessary at this stage to set out the
relevant provisions of the Act. The object of the Act as stated in the preamble
is 'to provide for the regulation of certain matters relating to forward
contracts, the prohibition of options in goods and for matters ,connected
Section 2(c) of the Act defines a
"forward ,contract" as a contract for the delivery of goods at a
future date and which is not a ready delivery contract. Section 2(i) defines a
"ready delivery contract" as a contract which provides for the
delivery of goods and the payment of a price therefore, either immediately or
within such period not exceeding eleven days after the date of the contract.
The statute therefore makes a distinction between "ready delivery contracts"
and "forward contracts". Forward contracts are again divided into two
categories 'specific delivery contracts' and 'non-transferable specific
delivery contracts'. 'Specific delivery contracts' mean forward contracts which
provide for actual delivery of specific goods at the price fixed during
specified future period.
'Non-transferable specific delivery
contracts' are specific delivery contracts the rights or liabilities under
which are not transferable. Section 15 of the Act confers power on the Government
to issue notifications declaring illegal forward contracts with reference to
such goods or class of goods and in such areas as may be specified. Section 15
states "15. (1) The Central Government may by notification in the Official
Gazette, declare this section to apply to such goods or class of goods and in
such areas as may be specified in the notification, and thereupon, subject to
the provisions contained in section 18, every forward contract for the sale or
purchase of any goods specified in the notification which is entered into in
the 143 area specified therein otherwise than between members of a recognized
association or through or with any such member shall be illegal.
(2) Any forward contract in goods entered
into in pursuance of sub-section (1) which is in contravention of any of the
bye-laws specified in this behalf under-clause (a) of sub-section (3) of
section II shall be void(i) as respects the rights of any member of the
recognised association who has entered into such contract in contravention of
any such bye law, and also (ii) as respects the rights of any other person who
has knowingly participated in the transaction entailing such contravention.
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 made applicable. Section 18
exempts nontransferable specific delivery contracts from the operation of these
sections. Section 21 relates to penalties and reads as follows:
"21. Any person who(a)
(d) not being a member of a recognised
association, wilfully represents to, or induces, any person to believe that he
is a member of a recognised association or that forward contracts can be
entered into or made or performed, whether wholly or in part, under this Act
through him, or (e) not being a member of a recognised association or his agent
authorised as such under the rules or bye-laws of such association, canvasses,
advertises or touts in any manner, either for himself or on behalf of any other
person, for any business connected with forward contracts in contravention of
any of the provisions of this Act, or shall, on conviction, be punishable(i)
for a first offence, with imprisonment which may extend to two years, or with a
fine of not less than one thousand rupees, or with both;
144 (ii) for a second or subsequent offence,
with imprisonment which may extend to two years and also with fine; provided
that in the absence of special and adequate reasons to the contrary to be
mentioned in the judgment of the court, the imprisonment shall be not less than
one month and the fine shall be not less than one thousand rupees." It was
argued on behalf of the appellant that the contracts in this case were not
really meant for delivery of goods but were speculative in character. It was
contended that to a contract of this description the Act has no application.
Mr. Naunit Lal argued that the words of s.
2(c) must be literally construed and must be taken to cover only those
contracts in which the parties intended actual delivery of goods at a future
date. In our opinion, the interpretation for which Mr. Naunit Lal contends is
against the whole scheme and purpose of the Act. If the expression
"forward contracts" in s. 2(c) is not construed so as to include speculative
contracts which ostensibly are for delivery of goods the provisions of the Act
would be rendered nugatory.
It is a sound rule of interpretation that a
statute should be so construed as to prevent the mischief and to advance remedy
according to the true intention of the makers of the statute. In construing
therefore s. 2(c) of the Act and in determining its true scope it is
permissible to have regard to all such factors as can legitimately be taken
into account in ascertaining the intention of the legislature, such as the
history of the statute, the reason which led to its being passed, the mischief
which it intended to suppress and the remedy provided by the statute for curing
the mischief. That was the rule laid down in Heydon's case(1) which was
accepted by this Court in The Bengal Immunity Company Limited v. The State of
Bihar and others(2).
As we have already pointed out, the Act was
passed in order to put a stop to undesirable forms of speculation in forward
trading and to correct the abuses of certain forms of forward trading in the
wide interests of the community and, in particular, the interests of the
consumers for whom adequate safeguards were essential. In our opinion,
speculative contracts of the type covered in the present case are included
within the purview of the Act. One of the contracts in the present case is Ex.
P-42 in which P. W. 2 placed an order for supply of 100 bales of cotton Jarilla
to be delivered in August, 1958 at Rs. 654/per Candy. We think that a contract
of this description falls within the definition of "forward contract"
within the meaning of this Act and the provisions of that Act are therefore
applicable to this case. We consider that Mr. Naunit Lal has been unable to
make good his submission on this aspect of the case.
(1)  3 W. Rep, 16: 76 E.R. 637 (2)
 2 S.C.R. 603.
145 It was then contended for the appellant
that even if the Act was applicable there is no breach of the provisions of s.
15 because the appellant placed his order for the goods covered by the contract
through "a member of the recognised association" as contemplated in
s. 15 of the Act. The argument was stressed that the appellant was merely
acting as an agent of P. W. 2 and had placed an order for the notified goods
through a member of the recognised association and there was no breach of any
of the provisions of the Act. We are unable to accept this argument as correct.
In the first place, there is no evidence on the record of the case to show that
the appellant placed the order for the notified goods with a member of the
recognised association. But even on the assumption that the appellant placed an
order for the notified goods through a member of the recognised association
there is, in our opinion, a breach of the provisions of the Act. The reason is
that the appellant was doing forward contract business as a Pucca adatia. It is
well-established that the pucca adatia has no authority to pledge the credit of
the upcountry constituent to the Bombay merchant and there is no privity of
contract as between the upcountry constituent and the Bombay merchant. The
pucca adatia is entitled to substitute his own goods towards the contract made
for the principal and buy the principal's goods on his personal accounts. In
other words, the pucca adatia is not the agent of his constituent but he is
acting as a principal as regards his constituent and not as a disinterested middleman
to bring two principals together. The legal position has been explained by the
Bombay High Court in Bhagwandas A Tarotamdas v. Kanji Deoji(l) and affirmed by
the Judicial Committee in Bhagwandas Parasram v. Burjorji Ruttonji Bomanji(2).
In the present case, therefore, the appellant was acting as principal to
principal, so far as P. W. 2 was concerned and the contracts are hit by the
provisions of s. 15 of the Act.
We pass on to consider the next contention of
the appellant that there was a breach of s. 361, Criminal Procedure Code which
"361. (1) Whenever any evidence is given
in a language not understood by the accused, and he is present in person, it
shall be interpreted to him in open Court in a language understood by him.
(2) If he appears by pleader and the evidence
is given in a language other than the language of the Court, and not understood
by the pleader, it shall be interpreted to such pleader in that language.
(1) I.L.R. 30 Bom. 205. (2) 45 I.A. 29.
146 It was said that the evidence of the
prosecution witnesses was given either in Tamil or in the English language and
the appellant did not know either of the languages and so he was not able to
take part in the trial. Mr. Naunit Lal contended that there was a breach of the
requirement of s. 361 (1), Criminal Procedure Code and the trial was vitiated.
We do not think there is any substance in
Even if it is assumed that the appellant did
not know English or Tamil the violation, if any of s. 361(1), Criminal
Procedure Code was merely an irregularity and it is not shown in this case that
there is any prejudice caused to the appellant on this account. It is pointed
out by the Sessions Judge that the appellant did not make any objection at the
time the evidence was given and it appears that he was represented by two
eminent advocates-Sri V. T.
Rangaswami Iyenger and Sri R. Krishnamoorthy
Iyer-in the trial court who knew both these languages and who would not have
allowed the interest of the appellant to be jeopardised even to the smallest
extent. In our opinion, the irregularity has not resulted in any injustice and
the provisions of s. 537, Criminal Procedure Code are applicable to ,cure the
Lastly, it was submitted that the 6 items of
allged cheatinwere combined together in one charge and the conviction of the
appellant is therefore illegal. There is no merit in this argument because the
lower courts have found that all the six items of cheating were part and parcel
of one transaction and the trial of the appellant on a single charge was
therefore permissible under s. 239, Criminal Procedure Code.
For the reasons expressed we hold that the
decision of the High Court should be affirmed, and this. appeal should be dismissed.
G.C. Appeal dismissed.