State of Gujarat Vs. Manilal Joitaram
& Co  INSC 253 (8 November 1967)
08/11/1967 HIDAYATULLAH, M.
BHARGAVA, VISHISHTHA VAIDYIALINGAM, C.A.
CITATION: 1968 AIR 653 1968 SCR (2) 117
Forward Contracts (Regulations) Act, 1952, ss.
18 and 20--Non-transferable specific delivery contracts -No actual
The members of a Ghee and Tel Brokers
Association, used to enter into contracts for the sale and purchase of
groundnut oil. Week after week contracts were cancelled by cross-transactions
and there was no delivery. Instead of payment of price losses resulting from
the cross transactions were deposited by the operators in loss with the
Association. On the due date also there was no delivery but adjustment of all
contracts of sales against all contracts of purchase between the same parties
and delivery was of the outstanding balance. Even this delivery was often
avoided by entering into fresh contract at the rate prevailing on the due date,
as part of the. transactions in the next period. The Sessions Judge convicted
the respondents--the Association's President, Secretary and Directors. holding
that these were forward contracts prohibited under the Forward Contracts
(Regulation) Act and the Association was not recognised. The High Court set
aside the convictions. In appeal, this Court:
HELD: Section 18(1) of the Act speaks of true
non- transferable 'specific delivery contracts but the proviso at the same time
makes it illegal for an unrecognised association to so arrange matters that
non-transferable specific delivery contracts will-be worked out without actual
delivery. Such conduct is prohibited by the proviso and directly punishable
under s. 20(1)(b). An offence under that clause of s. 20(1) and also under el.
(c3 of that section read with s. 15 was made out. There was no question of
considering the matter first under the main part of the first sub-section and
then to put the proviso out of the way because the first sub-section did not
apply. The Legislature contemplates that the first sub-section of s.
18 might be complied with in the documents
evidencing the contract but in actuality the contract might be differently
performed and has. therefore, provided for the identical situation which arose
in this case. [182F-H, D]
CRIMINAL APPELLATE JURISDICTION: Criminal
Appeal No. 250 of 1964.
Appeal from the judgment, and order dated
March 14, 1963 of the Gujarat High Court in Criminal Revision Application No.
124 of 1961.
R. Ganapathy Iyer and S.P. Nayar, for the
M.V. Goswami and C.C. Patel, for the
The Judgment of the Court was delivered by
Hidayatullah, J. In this appeal by certificate under Art. 134( 1 ) (c) of the
Constitution the State of Gujarat appeals against 178 the judgment, March 14,
1963, of the High Court of the State acquitting the respondents of diverse
offences under the Forward Contracts (Regulation) Act, 1952. Originally 31
persons were charged before the Judicial Magistrate, Ahmedabad, who acquitted
14 and convicted the rest. The present respondents, who are 11 in number
(accused 1 to 9, 11 and 12), were convicted under s. 20(1)(c) of the Act and
fined Rs. 51/- (15 days' S.1. in default). They were also convicted under s.
21(b) of the Act but no separate sentence was imposed. Nine of them (accused 1
to 9) were further convicted under s. 21(c) of the Act and fined Rs.
25/- (one week's S.1. in default). The
remaining accused were convicted under s. 21 (b). All appealed to the Court of
Sessions Judge. The conviction of accused 1 to 9, 11 and 12 was maintained but
conviction under s. 20(1)(b) was substituted for that under s. 20(1)(c). The
other accused' were convicted of all the charges. The High Court was then moved
in revision. All the accused were acquitted of all the charges. The State
Government now appeals.
All respondents are members of the Ghee and
Tel Brokers Association Ltd., Ahmedabad. Nine of them are Directors and two of
these are President and Secretary of the Association.
The accused, who are not before us, were
brokers and servants of the Association or of the brokers. The prosecution case
is this: The Association has an office where the members and brokers used to
enter into contracts for the sale and purchase of groundnut oil. These
contracts were largely speculative. A large number of contracts used to be
entered into but were not performed by actual delivery and payment of price.
They were adjusted on a due date after the expiry of a fixed period. This
period was generally from the 5th of one calendar month to the 25th of the
following month and the latter was the due date. On each Saturday during the
period the Association exhibited the prevailing rate and according to that rate
cross transactions entered earlier were adjusted and the persons in loss
deposited money representing their particular losses with the Association. On
the due date all outstanding transactions were finally adjusted by cancelling
sales against purchases and delivery used to be ordered in respect of the
balance which had to be completed by the end of the month of the due date.
During the stated period extensive trading through sales and purchases took
place without any delivery. Each member could enter into as many transactions
of either kind as he liked provided that each transaction was in multiple of 50
Between March 5 and April 25, 1957 the total
transactions put through totalled 4,33,600 Bengali Maunds but the actual
delivery on the due date was about 5,500 Bengali Maunds only, that is to say,
just over 11/4 per cent. The share of the several operators in these deliveries
was insignificant and the deals were really forward 180 any such member,
becomes illegal, and the contract itself becomes void, except in the case of a
person who has no knowledge that the transaction is prohibited. We are not
concerned with ss. 16 and 17 and may omit them from consideration. Then comes
s. 18, sub-section (1) whereof provides:
"18. Special provisions respecting
certain kinds of forward contracts.-- (1) Nothing contained in Chapter III or
Chapter IV shall apply to non-transferable specific delivery contracts for the
sale or purchase of any goods:
Provided that no person shall organise or
assist in organising or be a member of any association in any area to which the
provisions of section 15 have been made applicable (other than a recognised
association) which provides facilities. for the performance of any
non-transferable specific delivery contracts by any party thereto without
having to make or to receive actual delivery to or from the other party to the
contract or to or from any other party named in the contract." This
sub-section read with ss. 20 and 21 is at the foundation of :the charge and as
s. 19 is irrelevant here, we may proceed to read them at once. We are concerned
only with cls. (b) and (c) of sub-s. (1) of s. 20 and (b) and (c) of s. 21 and
will, therefore. omit the other clauses:
"20. Penalty for contravention of
certain provisions of Chapter IV.-- (1) Any person who--- (a) (b) organises, or
assists in organising, or is a member of, any association in contravention of
the provisions contained in the proviso to sub-section (1) of section 18;
or (c) enters into any forward contract or
any option in goods in contravention of any of the provisions contained in sub-section
(1) of section 15, section 17 or section 19, shall, on conviction, be
punishable with imprisonment for a term which may extend to one 'year, or with
fine, or with both.
179 transactions in which there was no
intention to take-or give delivery. The prosecution, therefore, submitted that
these were forward contracts prohibited under the Act and as the Association
was not recognised the offences charged were committed. The High Court having
acquitted all the accused the State' contends now that the acquittal recorded
by. the High Court is wrong and proceeds on a misapprehension of the provisions
of the Act and of the facts on which the charges rested.
To consider the submissions of the parties
the relevant provisions of 'the Act, which has been passed, among other things,
to regulate forward contracts, will have to be seen.
Before we do so we may first glance at some
definitions leaving out those attributes of the terms defined in which we are
not interested. "Forward contract" under the Act means a contract
which is not a ready delivery contract but a contract for future delivery (s.
2(c) ). A "ready delivery contract" is one in which there is delivery
and payment of price either immediately or within a period which is not to
exceed 11 days even by consent of parties or otherwise (s. 2(1) ). The
expressions "transferable specific delivery contract" and
"non-transferable specific delivery contract" are defined' with
reference to the latter expression which means a specific delivery contract,
the rights or liabilities under which are not transferable (s. 2 (f)) and
"specific delivery contract' means a forward delivery contract which
provides for actual delivery of specific qualities or types of goods either
immediately or during a period not exceeding 11 days at a price fixed thereby
or to be fixed in the manner thereby agreed and in which the names of both the
buyers 'and sellers are mentioned (s. 2(m) ).
The effect of these definitions is clearly to
distinguish, firstly, forward contracts from ready delivery contracts by
limiting the time in which ready delivery contracts must be completed by
delivery and payment of price; secondly, to distinguish between transferable
and non-transferable specific delivery contracts; and finally to distinguish
forward contracts in which there is either no provision for actual delivery or
the parties are not named, from a specific delivery contract.
The Act then proceeds to lay down in Chapter
III the conditions of recognition of Associations. Since this Association was admittedly
not recognised it is unnecessary to review the provisions of that Chapter.
Chapter IV then makes certain provisions regarding forward contracts and option
in goods. Chapter V then provides for penalties. The relevant provisions of
these two Chapters need to be carefully considered. Section 15(1) declares
illegal forward contracts in notified goods and on the notification so issuing
every forward contract in notified goods otherwise than between members of a
recognised association or through or with 181 "21. Penalty for owning or
keeping place used for entering into forward contracts in goods.---Any person
who-- (b) without the permission of the Central Government, organises, or
assists in organising, or becomes a member of, any association, other than a
recognised association, for the purpose of assisting in, entering into or
making or performing, whether wholly or in part, any forward contracts in
contravention of any of the provisions of this Act, or (c) manages, controls or
assists in keeping any place other than that of a recognised association, which
is used for the purpose of entering into or making or performing, whether
wholly or in part, any forward contracts in contravention of any of the
provisions of this Act or at which such forward contracts are recorded or
adjusted, or rights or liabilities arising out of such forward' contracts are
adjusted, regulated or enforced in any manner whatsoever, or shall, on
contravention, be punishable with imprisonment which may extend to two years,
with fine, or with both." The respondents were charged under ss. 20 (1)
(b)., 20 (1) (c) and 21(a), (b), (c) and (f). As the State does not press its
case under s. 21 (a) and (f) they have been left out. Before we analyse the
penalty sections it is necessary to see whether the case fails within s. 18 (1)
of the Act.
It is established in the case that the
Association was unregistered. It is also clear that the contracts, although
they appeared to be non-transferable specific delivery contracts were not
intended to be completed by delivery immediately or within a period of 11 days
from the date of the. contract. In fact week after week contracts were
cancelled by cross-transactions and there was no delivery.
Instead of payment of price losses resulting
from the cross- transactions were deposited by the operators in loss with the
Association. Further, on the due date also, there was no delivery but
adjustment of all contracts of sales against all contracts of purchase between
the same parties and delivery was of the outstanding balance. Even this
delivery was often avoided by entering into fresh contract at the 182 rate
prevailing on the due date, as part of the transactions in the next period.
There is evidence also to establish this. In other words, the transactions on
paper did seem to comply with the regulations but in point of fact they did not
and the Association arranged for settlement of the entire transactions (barring
an insignificant portion if at all) without delivery.
Turning now to the provisions of sub-s. (1)
of the 18th section it is clear that the provisions of Chapters III and IV
would not have applied to the respondents if their transactions were true
non-transferable specific delivery contracts. They would have been so if the
nature of the transaction, not on paper, but in actuality was such as the Act
contemplates. This is why the proviso to s. 18 has been added to prohibit
certain things. The proviso enacts that no person shall organise or assist in
organising or be a member of an association (except a recognised association)
which provides facilities for the performance of any specific delivery contract
without having to make or to receive actual delivery. The Legislature
contemplates that the first sub-section of s. 18 might be complied with in the
documents evidencing the contract but in actuality the contract might be
differently performed and has, therefore, provided for 'the. identical
situation which, arises in this case.
Now the difference between the Magistrate and
the Sessions Judge arose on the application of the first sub- section of s. 18
with its proviso. The Magistrate felt that the transactions were not
non-transferable specific delivery contracts and the matter fell within the
Having found this, it is not a little
surprising that he did not apply s. 20(1)(b), which was clearly attracted. His
reasoning on this point is difficult to appreciate. He seems to think that as
the first sub-section of the eighteenth section dealt with non-transferable
specific delivery contracts, it had no application here. Therefore, the charge
of being members of an association in contravention of the proviso thereto did
not survive and hence no offence under s. 20(1)(b) was disclosed. In this the
Magistrate was clearly in error. Section 18( 1 ) speaks of true
non-transferable specific delivery contracts but the proviso at the same time
makes it illegal for an unrecognised association to so arrange matters that
non- transferable specific delivery contracts will be worked out without actual
delivery. The Magistrate should have seen that the conduct of the members of
this unrecognised association was precisely this and was, therefore, prohibited
by the proviso and directly punishable under s.
20(1 )(b). An offence under that clause of s.
20(1) and also under el. (c) of that section read with s. 15 was made out.
There was no question of considering the matter first under the main part of
the first subsection and 'then to put the proviso out of the way because the
first sub-section did not apply. The Magistrate, however, con- 183 victed the
members under s. 21 (b) for organising an unrecognised association for the
purpose of assisting in or entering into or making or performing, whether
wholly or in part, any forward contracts in contravention of the provisions of
the Act and further under s. 21 (c) for managing, controlling or assisting in
keeping a place other than that of a recognised association where forward
contracts in contravention of the Act or at which forward contracts are
recorded or adjusted or rights or liabilities arising out of such forward
contracts are adjusted, regulated or enforced in any manner whatsoever.
When the respondents. appealed to the
Sessions Judge, the conviction under s. 21 (b) and (c) was confirmed and the
other conviction was altered from s. 20(1)(c) to s. 20(1)(b). The Sessions
Judge rightly pointed out that the so-called non-transferable specific delivery
contracts were so arranged that they could be resolved after the period of
eleven days and without actual delivery. The Sessions Judge was of the opinion
that the respondents had acted in breach of the proviso to s. 18 (1 ) and were
clearly guilty of the offence. In a precise and clear judgment the Additional
Sessions Judge explained the pertinent sections and rightly held the proviso to
s. 18(1) and s. 20(1)(b) applicable.
The High Court then in revision held that it
was not open to the Sessions Judge to alter the conviction from s.
20(1)(c) to s. 20( 1 )(b) as the acquittal
under the latter section by the Magistrate was not appealed against and in an
appeal from a conviction there could be no change of finding to convert art
acquittal into conviction. The High Court also held that no offence under s. 21
(b) or (c) was made out. In a fairly long judgment the High Court pointed out
that the decision of this Court in The State of Andhra Pradesh v. Thadi
Narayana(1) prohibited the alteration of the finding. The High Court then went
further to hold that there could not be a conviction under s. 20( 1 ) (c) as
the Sessions Judge had acquitted the appellants and there was again no appeal
against that acquittal. The High Court also set aside the conviction under s.
21 (b) and (c). The High Court reached its conclusion on the 'basis of the
finding of the Sessions Judge that the contracts entered into were non-
transferable specific delivery contracts and the appellants were, therefore,
not guilty of the offence under s. 20(1)(c) of the Act. The High Court then
proceeded to reason that as no part of the Act prohibited performance of non-
transferable specific delivery contracts otherwise than by making or receiving
actual delivery, the acts of the appellants were not offences under the Act.
The learned Judge while dealing with s. 18 ( 1 ) proviso observed:
(1)  2 S.C.R. 933334.
184 "The performance of a
non-transferable specific delivery contract by a mode other than giving and
taking of actual delivery would be contrary to law only if there is some
provision of law which prohibits it. But unfortunately for the prosecution, the
Legislature has not chosen to enact any such provision. The only nearest
approximation I could find was the proviso to sub-section(1) of section 18 but
that proviso does not prescribe that a non-transferable specific delivery
contract shall be performed by making and receiving actual delivery and that
the parties to such a contract shall not perform it otherwise than 'by making
and receiving actual delivery. All that it enacts is that no person shall
organise or assist in organising or be a member of any association in any area
to which the provisions of section 15 have been made applicable (other than a
recognised association) which provides facilities for the performance of any
non- transferable specific delivery contract by any party thereto without having
to make or receive actual delivery to or from the other party to the contract
or to or from any other party named in the contract. What this proviso seeks to
achieve is to secure that no Association other than a recognized Association
shall provide facilities for performance of a non-transferable specific
delivery contract by the parties thereto without having to make or receive
actual delivery. But it is a long step in the argument to conclude from the
proviso that performance of a non-transferable specific delivery contract
otherwise than by making and receiving actual delivery is prohibited. The
language of the proviso cannot bear any such extended artificial
construction........ " The learned Judge was clearly in error and
misunderstood the connection between the first sub-section and its proviso.
Distinction is made in the proviso between recognised and unrecognised
associations. Persons can organise and assist in organising or be member of an
association which is recognised even if the association provides for
performance of non-transferable specific delivery contracts without actual
delivery. The prohibition is against persons arranging for avoidance of
delivery through an unrecognised association and read with the penalty
sections, it is clear that such. acts are rendered illegal. If the acts are
illegal then non-transferable specific delivery contracts by members of
unrecognised associations become illegal also. They are forward contracts and
being entered into otherwise than between members of a recognised association
or through or with any such member are rendered illegal by s. 15.
185 Thus there is no doubt whatever in the
case that offences under s. 21(b) and (c) were committed. It is enough to read
these clauses to see that they fit the acts of nine respondents (accused 1-9)
and their position vis-a- vis the unrecognised association of which they were
directors makes them liable to penalty under s. 21 ('b) and (c) but the
remaining two respondents (accused 11 and 12) being only members are liable to
penalty under s. 21 (b) only. As regards the other offences under s. 20(1)(b)
and (c) we are clear that these offences were also committed.
But as the Sessions Judge acquitted them
under cl. (c) and there was no appeal to the High Court we say nothing about
it. As regards the offence under s. 20(1)(b) the Magistrate did not clearly
record a finding of acquittal. However, his reasoning seems to be in favour of
holding that the clause did not cover the case as the contracts were not non-
transferable specific delivery contracts. His finding was the reverse of the
finding of the Sessions Judge. The question thus remains whether the Sessions
Judge could alter the finding in an appeal from a conviction (and the High
Court too if it so chose) when it was a question of choosing between two
clauses of a penalty section depending on whether the true nature of the
contracts was as held by the Magistrate. The ruling of this Court cited earlier
was invoked to suggest that such a course was not possible for the Sessions
Judge or the High Court. We do not pause to consider whether the ruling
prohibits such a course and if it does whether it does not seek to go beyond
the words and intendment of s. 423(1)(b) of the Code of Criminal Procedure.
This is hardly a case in which to consider such an important point. We,
therefore, express no opinion upon it. It is sufficient to express our dissent
from the High Court on the interpretation of the Act and hold the respondents
guilty of infractions where the ruling does not stand in the way.
We accordingly set aside the acquittal of the
respondent under cls. (b) and (c) of s. 21 and restore their conviction under
those clauses as confirmed by the Sessions Judge. We sentence all the
respondents to a fine of Rs. 25 (or one week's simple imprisonment in default)
under s. 21(b). No separate sentence under s. 21 (c) is imposed on the
respondents who were original accused Nos. 1-9. The appeal shall be allowed to
the extent indicated. in this paragraph.
Y.P. Appeal allowed in part.