Modi & Co. Vs. Union of India
 INSC 290 (7 December 1967)
07/12/1967 RAMASWAMI, V.
CITATION: 1969 AIR 9 1968 SCR (2) 565
CITATOR INFO :
RF 1979 SC 553 (12)
Forward Contract (Regulation) Act 74 of 1952,
ss. 2(f) and 15(1)--Contract for sale of Twills providing for delivery on
specified date-If a 'non-transferable specific delivery contact within s.
2(f)-Principles for determining.
The appellant entered into a contract in
September 1960 with the respondent through the Director-General, Supplies and
Disposals, whereby he agreed to sell 500 bales Twills on terms and conditions
contained in an exchange of letters.
The date of delivery was fixed as November
30, 1960 and after the contract was entered into, the appellant deposited with
the Reserve Bank of India an amount by way of security deposit in accordance
with the terms of the contract. On November 30, the appellant informed the
respondent that the contract was void and illegal being in violation of the
provisions of the Forward Contract (Regulation) Act 74 of 1952 and that the
security deposit should therefore be refunded. The respondent however took I
the position that the contract was legal and binding and as the appellant had
failed to deliver the goods as stipulated, it would purchase the goods
elsewhere at the risk of the appellant. The respondent thereafter incurred an
extra expenditure of about Rs. 76,000 and after giving credit to the appellant
for the amount of security deposit claimed the balance amount of 'about Rs.
56,000 from the appellant. Upon the latter's failure to pay, the respondent
took recourse to the arbitration clause of the contract and appointed an
arbitrator to determine the dispute.
Before the arbitrator could give his award,
the appellant filed an application before the High Court under s. 33 of the
Arbitration Act, praying for a declaration that the arbitration clause was
illegal and void and for an injunction restraining the respondent from
prosecuting the arbitration proceedings. The High Court dismissed the
application holding that the contract was a "nontransferable specific
delivery contract" and was not hit by the provisions of the Act.
On appeal to this Court,
HELD : (dismissing the appeal) The question
as to whether the contract was a transferable or non-transferable specific
delivery contact is, a question which ultimately depends on a reasonable
construction of the contract. On a proper construction of the terms of the
contract and having regard to the surrounding circumstances, there was an
implied agreement between the parties that the rights and liabilities under the
contract were not to be transferred and the bill of lading relating to the
contract was also not to be transferred. It follows therefore, that the
contract in question was a non-transferable specific delivery contract within
the meaning of s' 2(f) of the Act and was not hit by the notification issued on
March 29, 1958 issued by the Central Government under s. 15 (1) of the Act relating
to jute/goods. [569 E; 571 C-E] Khardah Company Ltd. v. Raymon & Co.
(India) Private Ltd.
 3 S.C.R. 183, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 395 of 1965.
Appeal by special leave from the judgment and
order dated September 18, 1963 of the Calcutta High Court in Matter No.
97 of 1963.
A.K. Sen and D. N. Mukherjee, for the
B.R. L. Iyengar and R. N. Sachthey, for the
The Judgment of the Court was delivered by
Ramaswami, J. This appeal is brought, by special leave, from the judgment of
the Calcutta High Court dated September 18, 1963 dismissing an application
under S. 33 of the Arbitration Act.
By its letter dated September 14, 1960, the
appellant made an offer for sale to the respondent of 500 Bales (1,50,000 bags)
'B' Twills on the terms and conditions mentioned in the said letter. The offer
was accepted by the Director General, Supplies & Disposals on behalf of the
respondent by his letter No. CAL/ DL-1/5750-L/II/Modi/158 dated September 16,
1960. The appellant deposited with the Reserve Bank of India the sum of Rs.
20,182-50 P. towards security deposit on September 22, 1960 as required by the
The date of delivery fixed under the contract
was November 30, 1960 and the respondent sent the appellant despatch
instructions dated November 21, 1960, through the Director of Supplies &
Disposals. On November 30, 1960 the appellant, however, intimated to the
respondent that the contract was void and illegal and requested that the
security deposit should be refunded. The case of the appellant was that the
contract was in violation of the provisions of the Forward Contract
_(Regulation) Act, 1952 (Act 74 of 1952), hereinafter called the 'Act'. By his
letter dated December 1, 1960 the Director of Supplies wrote on behalf of the
respondent that the contract was legal and binding and as the appellant had
failed to deliver the goods as provided in the agreement the respondent would
purchase the goods at the risk of the appellant. The respondent incurred extra
expenditure amounting to about Rs. 76,410 and after giving credit to the
appellant for the amount of Security Deposit, a sum of Rs. 56,000 still
remained due to be paid by the appellant to the respondent. As the appellant
failed to pay, the respondent took recourse to the arbitration cl. 21 of the
contract and appointed an Arbitrator to determine the dispute between the
parties regarding the agreement. Before the Arbitrator could give his award,
the appellant filed an application before the High Court under S. 33 of the
Arbitration Act praying for a declaration that the arbitration clause was
illegal and void and for an injunction restraining 567 the respondent from
prosecuting the arbitration proceedings.
By its judgment dated November 19, 1963, the
High Court held that the contract was a "non-transferable specific
delivery contract and was not hit by the provisions of the Act and accordingly
dismissed the application of the appellant.
The question presented for determination in this
appeal is whether the contract in question is a transferable or nontransferable
specific delivery contract within the meaning of the Act.
Section 2(i) of the Act defines a "ready
delivery contract" as meaning "a contract which provides for the
delivery of goods and the payment of a price therefor, either immediately or
within such period not exceeding eleven days after the date of the
contract......... ". A "forward contract" is defined under s.
2(c) as meaning "a contract for the delivery of goods at a future date and
which is not a ready delivery contract". Section 2(m) defines a
"specific delivery contract" as meaning "a forward
contract" which provides for the actual delivery of specific qualities or
types of goods during a specified future period at a price fixed thereby or to
be fixed in the manner thereby agreed and in which the names of both the buyer
and the seller are mentioned". Section 2(f) defines a "nontransferable
specific delivery contract" as meaning "a specific delivery contract,
the rights or liabilities under which or under any delivery order, railway
receipt, bill of lading, warehouse receipt or any other document of title
relating thereto are not transferable. Finally, s. 2(n) defines a
"transferable specific delivery contract" as meaning "a specific
delivery contract which is not a nontransferable specific delivery
Chapter IV of the Act contains provisions
conferring authority on Central Government to prohibit certain classes of
forward contracts. Section 15(1) of the Act states as follows :
"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 for-ward contract for the sale or purchase of any goods specified in the
notification which is entered into in the area specified therein otherwise than
between members of a recognised association or through or with any such member
shall be illegal." Section 17 provides :
"17. (1) The Central Government may, by
notification in the Official Gazette, declare that no person shall, save with
the permission' of the Central Government, enter into any forward contract for
the sale or purchase of any goods or class of goods specified in the
notification and to which the provisions of section 15 have not been made
applicable, except to the extent and in the manner, if any, as may be specified
in the notification.
(2)All forward contracts in contravention of
the provisions of sub-section (1) entered into after the date of publication of
the notification there under shall be illegal.
(3)Where a notification has been issued under
sub-section (1), the provisions of section 16 shall, in the absence of anything
to the contrary in the notification, apply to all forward contracts for the
sale or purchase of any goods specified in the notification entered into on or
before the date of the notification and remaining to be performed after the
said date as they apply to all forward contracts for the sale or purchase of
any goods specified in the notification under section 15." Section 18(1)
states that these provisions will not apply to nontransferable specific
delivery contracts for the sale or purchase of any goods.
According to the scheme of the Act therefore
contracts of sale of goods are divided into two categories, 'ready delivery
contracts' and "forward contracts". Forward Contracts are classified
into those which are "specified delivery contracts" and those which
are not. Then again, 'specific delivery contracts' are divided into
'transferable specific delivery contracts' and 'nontransferable specific
delivery contracts'. Section 18(1) exempts from the operation of the Act
non-transferable specific delivery contracts. The net result of these statutory
provisions is that all forward contracts except those which are nontransferable
specific delivery contracts, can be declared illegal by a notification issued
under the Act.
Such a notification was issued,in this case
by the Central Government on March 29, 1958 which is to the following effect
"In exercise of the powers conferred by subsection (1) of section 15 of
the Forward Contracts (Regulation) Act, 1952 (74 of 1952) the Central
Government hereby declares that the said Section shall apply to Jute/goods
(Hessian cloth made of jute or bags made of such Hessian cloth and sacking
cloth made of jute or bags made of such Sacking cloth) in the City of Calcutta.
569 Explanation :-"The expression 'City
of Calcutta' means (1) Calcutta as defined in clause (11) of Section 5 of the
Calcutta Municipal Act, 1951, (West Bengal Act No. 33 of 1951), together with
part of the Hastings North or South edge of Clyde Row and Strand Road to the
river bank and the areas which were previously under the new defunct Tollygunge
(2) The Port of Calcutta; and (3) The
Districts of 24 Parganas, Nadia, Howrah and Hooghly".
It was argued on behalf of the appellant that
the contract in question was a forward contract within the meaning of the Act
and was prohibited by the Government notification and therefore no right or
liability accrued to the parties on the basis of the contract. The contention
of the appellant was that the contract was not a non-transferable specific
delivery contract as defined in s. 2 (f ) of the Act and as such it was illegal
and void and the arbitration clause contained therein was of no effect and
could not be availed of by either of the parties. We are unable to accept the
argument put forward on behalf of the appellant as valid.
The question as to whether the contract was a
transferable or non-transferable specific delivery contract is a question which
ultimately depends on a reasonable construction of the contract. On behalf of
the appellant it was pointed out that there was no specific clause in the
contract which prohibited the transfer of the rights and liabilities or which
prohibited transfer of the bill of lading. But the absence of such a specific
clause is nor conclusive as to the intention of the parties. It is true that
when a contract is reduced to writing we must look only to that writing. for
ascertaining the terms of the agreement between the parties but it does not
follow from this that it is only what is set out expressly and in so many words
in the document that can constitute a term of the contract between the parties.
If upon a reading of the document as a whole, it can fairly be deduced from
,,he words actually used therein that the parties had agreed on a particular
term, there is nothing in law which prevents them from setting up that term.
The terms of the contract can be expressed or there can be a necessary
implication of a term from what has been expressed in the contract. The
question therefore resolves in the ultimate analysis upon the construction of
the terms of the contract between the parties. In this connection it is
well-established that in construing such a contract it is legitimate to take
into account the surrounding circumstances for570 ascertaining the intention of
the parties. As was pointed out by this Court in Khardah Company Ltd. v. Raymon
(India) Private Ltd.,(1), the absence of a
specific clause prohibiting transfer is not conclusive one way or the other on
the question whether there was an agreement between the parties that the,
contract was to be non-transferable. What has to be seen is whether it could be
held on a reasonable interpretation of the contract, -aided by such
considerations as can legitimately be taken into account that the agreement
between the parties was that it was :not to be transferred. In the present
case, it should be noticed that the contract cannot be sublet or assigned by
the seller under condition 10 read with para 3(b) of the "Conditions of
Contract contained in Form D.G.S. & D. 68 governing contracts placed by the
Central Purchase Organisation 'of the Government of India, 1959 edition".
Para 3(b) states :
"(b) Subletting of Contract.-The
Contractor shall not subject, transfer or assign the contract or any part
thereof without the written permission of the Purchaser. In the event of the
Contractor contravening this condition the Purchaser shall be entitled to place
the contract elsewhere on the Contractor's account and at his risk and the
Contractor shall be liable for any loss or damage which the Purchaser may
sustain in consequence or arising out of such replacing of the contract."
So far as the buyer is concerned, the contract itself shows that the jute bags
were intended for "packing foodgrains which were arriving in bulk" at
an Indian port. The last paragraph of the letter of acceptance dated September
16, 1960 states that "the gunnies are very urgently required at the
destination for packing imported foodgrains which are arriving in bulk"
and "it was therefore of utmost importance that shipment of the total
quantity ordered shall be made in the vessels nominated by the purchaser."
There is also a specific provision in the contract that the "stores shall
be, inspected prior to shipment by the A.T.I.G.S., East India, Hastings,
Calcutta, or his representative." There is also a further stipulation that
after the goods are inspected arrangements should be made to ship the stores in
accordance with the instructions contained in the contract and that goods which
are not accepted in inspection should not be shipped. The name of the consignee
is given in the contract as Asst. Director (Storage), Ministry of Food &
Agriculture, Transit Shed No. 4, Visakhapatnam Port, Visakhapatnam and payment
is to be made according to the procedure specified in the contract and the cost
was debitable to the Pay & Accounts Officer, Ministry of Food &
Agriculture, Bombay or New Delhi as the case may be under (1)  3 S.C.R.
571 Head of Account "87-Capital Outlay
on the Schemes of Govt.
Trading-Schemes for purchases of Foodgrains
A.I. (3)(1) expenditure in India Section IV Special Purchases both for Civil
& Defence requirements other Purchases-Purchase of gunnies for imported
food grains". In view of all these circumstances we are of opinion that it
was not contemplated by the parties that the rights under the contract should
be transferred either by the buyers or by the sellers. It was pointed out for
the appellant that normally the Bill of Lading par-takes of the nature of a
negotiable instrument and by endorsing it the holder of the bill of Lading can
transfer the property in the goods to which the Bill of Lading relates and by
parting with it-the holder parts not only with the property in the goods but also
with their possession. The proposition contended for by Counsel for the
appellant is no doubt correct, but the question in this case is not the
abstract question as to what the purchaser could or might have done but what
was in fact contemplated by the parties who were entering into the contract.
For the reasons already given, we hold that on a proper construction of the
terms of the contract and having regard to the surrounding circumstances there
was an implied agreement between the parties that the rights and liabilities
under the contract were not to be transferred and the Bill of Lading relating
to the contract was also not to be transferred. It follows therefore that the
contract in question was a non-transferable specific delivery contract within the
meaning of s. 2(f) of the Act and the contract was not hit by the notification
dated March 29, 1958 issued by the Central Government under s. 15(1) of the
For the reasons expressed we hold that the
decision of the Calcutta High Court dated September 18, 1963 is correct and
this appeal must be dismissed with costs.
R.K.P.S. Appeal dismissed.