Khardah Company Ltd. Vs. Raymon &
Co. (India) Private, Ltd.  INSC 207 (4 May 1962)
04/05/1962 AIYYAR, T.L.
VENKATARAMA AIYYAR, T.L. VENKATARAMA SINHA, BHUVNESHWAR P.(CJ) SUBBARAO, K.
AYYANGAR, N. RAJAGOPALA MUDHOLKAR, J.R.
CITATION: 1962 AIR 1810 1963 SCR (3) 183
F 1963 SC 90 (17,18,24) APL 1964 SC1526 (8) R
1969 SC 9 (8) R 1974 SC1579 (6) D 1985 SC1156 (19,24,49,53) F 1989 SC 839 (18)
Forward Contract-Contract for sale of
goods-Government notification forbidding forward contracts other than nontransferable
specific delivery contracts Validity of the contract--Clause providing for
arbitration-clause, if valid even if contract were invalid-Parties appearing
before arbitrator--Estoppel--Forward Contracts (Regulation) Act, 1952 (74 of
1952), ss. 2 (c) (f) (i) (m) (n), 15(1), 17, 18(1).
On September 7, 1955, the appellant company entered into a contract with the respondents for the purchase of certain bales
of jute cuttings to be delivered by the respondents in equal installments every
month in October, November and December, 1955. Under cl. 3 of the agreement the
sellers were entitled to receive the price only on their delivering to the
buyers the full set of shipping documents. Clause 8 conferred on the sellers
certain rights against the buyers such as the right to resell if the latter
refused to accept the documents. Clause 14 provided that 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 the appellants applied to the Bengal Chamber of Commerce for
arbitration. The 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, 1940, 184 challenging the validity of the award on the
ground that the contract dated September 7, 1955, was illegal as it was in
contravention of the notification of the Central Government dated October 29,
1953, issued under s. 17 of the Forward Contracts (Regulation) Act, 1952, which
declared that no person shall enter into any forward contract other than a non-transferrable
specific delivery contract for the sale or purchase of raw jute in any
form........... The appellant pleaded (1) that on the terms of the arbitration
clause the question whether the contract dated September 7, 1955, was illegal
was one for the arbitrator to decide and that it was not open to the
respondents to raise the same in proceedings under s. 33 of the Arbitration Act
; (2 ) that the respondents were estopped from questioning the validity of the
award by reason of their having submitted to the jurisdiction of the
arbitrators ; and (3) that, in any case, the contract was a non-transferrable
specific delivery contract within s. 2 (f ) of the Forward Contracts
(Regulation) Act and was not hit by the notification dated October 29, 1933.
Held, that : (1) the dispute as to the
validity of the contract dated September 7, 1955, was not one which the
arbitrators were competent to decide under cl. 14 and that in consequence the
respondents were entitled to maintain the application under s. 33 of the Arbitration
When an agreement is invalid every part of it
including the clause as to arbitration contained therein must also be invalid.
Leyman v. Darwins Lid.,  A. C. 356,
Union of India v. Kighorilal Gupta and Brothers,  1 S. C. R. 493, Tolaram
v. Birla Jute Manufacturing Company Lid., I. L. R.
 2 Cal. 17, relied on.
(2)the respondents were not estopped by their
conduct from questioning the validity of the award.
Ex parte Wyld, (1861) 30 Law J. Rep. (N. S.)
Bank. 10, explained.
(3)on the true construction of the contract
dated September 7, 1955, read with the terms of the import licence in favour of
the appellant, the agreement between the parties was that the contract was not
to be transferred.
In construing a contract it would be
legitimate to take into account surrounding circumstances and, therefore, on
the whether there was an agreement between the parties 185 that the contract
was to be non-transferable, the absence of a specific clause forbidding
transfer was not conclusive.
Virjee Daya & Co. v. Ramakrishna Rice
& Oil Mills, A. 1. R.
1956 Mad. 11O, approved.
British Waggon Co. v. Lea, (1880) 5 Q. B. D.
Accordingly, the contract in question was not
hit by the notification dated October 29, 1953.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 98 and 99 of 1960.
Appeal from the judgment and order dated
April 16, 1958, and April 11, 1958, of the Calcutta High Court in Appeal from
Original Order and decree Nos. 173 and 151 of 1957, respectively.
H.N. Sanyal, Additional Solicitor-General of
Indin, M. G. Poddar and D. N. Mukherjee, for the appellant.
C.B. Aggarwala and S. N. Mukherjee, for the
1962. May 4. The Judgment of the Court was
delivered by VENKATARAMA AIYAR, J.-These are appeals against the judgment of
the High Court of Calcutta, setting aside an award of the arbitrators, which
directed the respondent to pay to the appellants Rs. 41,250 as compensation for
breach of contract, on the ground that the said contract was in contravention
of a notification of the Central Government dated October 29, 1953, and was in
consequence illegal and void.
The facts are that the appellants own a Jute
Mill at Calcutta and carry on the business of manufacture and sale of Jute. On
September 7, 1955 they entered into a contract with the respondents who are
doing business as 186 dealers in jute, for the purchase of 750 bales of Jute
cutting 'raw) of Pakistan at Rs. 80 per bale of 400 lbs. to be delivered in
October, November and December at the rate of 250 belles every month. Clause 14
of the agreement provides that all disputes arising out of or concerning the
contract should be referred to the arbitration of the Bengal Chamber of
Commerce. The respondents failed to deliver the goods as agreed whereupon the
appellants applied to the Bengal Chamber of Commerce for arbitration in
accordance with el. 14 of the agreement. The respondents appeared before the
arbitrators, and contested the claim on the merits. The arbitrators made an
award in favour of the appellants for Rs. 41,250 with interest, and that was
filed under s. 14(2) of the Indian Arbitration Act in the High Court of
Calcutta in its original side and notice was issued to the respondents.
Thereupon the respondents filed an application in the High Court, presumably
under s. 33 of the arbitration Act, wherein they prayed for a declaration that
the contract dated September 7, 1955, was illegal, as it was in contravention
of the notification of the Central Government dated October 29, 1953, and that
in consequence proceedings taken there under before the Chamber of Commerce and
the award in which they resulted were all void. The learned Judge 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 this judgment and order,
the respondents preferred appeals to a Division Bench of the High Court,
Appeals Nos. 154 and 173 of 1957.
They were heard by Chakravartti, C. J., and
Lahari, J., who hold that the contract dated September 7, 1955, was illegal as
it fell within the prohibition of the notification aforesaid and accordingly
allowed the appeal and set aside the award. The appellants 187 then applied for
a certificate under Art. 133 (1) of the Constitution and the same was granted. This
is how the appeals come before us.
The learned Additional Solicitor-General who
appeared for the appellants urged the following contentions :(1)On the terms of
the arbitration clause the question whether the contract dated September 7.
1955, isillegal is one for the arbitrator to decide and that it was not open to
the respondents to raise the same in the present proceedings under s. 33 of the
Arbitration Act, (2)The respondents are estopped from questioning the validity
of the award by reason of their having submitted to the jurisdiction of the
(3)The agreement dated September 7. 1955, is
a nontransferable specific delivery contract within s. 2(f) of the Act and it
is not hit by the notification dated October 29, 1953.
We now proceed to discuss these questions
(1)Taking up the first questions, cl, 14 of
the agreement which provides for arbitration is as follows :"All the
matters, questions, disputes, differences and/ or claims arising out of and/ or
concerning and/ or in connection with and/ or in consequence of or relating to
this contract including matters relating to insurance and demurrage whether or
not the obligations of either or both parties under this contract be subsisting
at the time of such dispute and whether or not this contract has been terminated
or purported to be terminated or com188 pleted shall be referred to the
arbitration of the Bengal Chamber of Commerce and Industry under the rules of
its Tribunal of Arbitration for the time being in force and according to such
rules the arbitration shall be conducted and any Award made by the said
Tribunal under the clause. shall be final, binding and conclusive on the
parties." Now the contention of the appellants is that the clause is
general in its terms and is wide enough to include dispute as to the validity
of the contract that in consequence the only right of the respondents is to
agitate this question before the arbitrators and if the award goes against them
to move the Court either to modify it under s. 15 of the Arbitration Act or to
remit it under s. 16 or to set it aside under s. 30 on the grounds mentioned
therein and that the present application for a declaration that the contract is
illegal, and that the arbitration proceedings are without jurisdiction is
therefore incompetent and misconceived.
it cannot be disputed that the expression
"arising out of " or "concerning" or " in connection
with" or "in consequence of" or "relating to this
contract" occurring in el. 14 are of sufficient amplitude to take in a
dispute as to the validity of the agreement dated September 7, 1955 Vide Ruby
General Insurance Co. Ltd. v. Pearey Lal ,Kumar (1) But the question is not
whether el. 14 is all comprehensive but whether it could be enforced when the
agreement of which it forms an integral part is held to be illegal. Logically
speaking, it is difficult to conceive how when an agreement found to be bad,
any portion of it can held to be good.
When the whole perishes, its parts also must
perish. 'Ex nihilo nil fit'. On principle therefore it must be held that when
an 189 agreement is invalid every part of it including the clause as to
arbitration contained therein must also be invalid.
That indeed is what has been laid down in the
decisions which have been cited before us. The leading case on the subject is
the decision of the House of Lords in Heyman v. Dacwins Ltd(1). There the
question was whether repudiation of a contract by a party thereto had the
effect of annulling' the arbitration clause contained therein. It was held that
it had not. It was in this context that the law as to the circumstances under
which an arbitration clause in an agreement would become unenforceable came in
for elaborate discussion. Summing up the law on the subject Viscount Simon, L.
C. observed: "If the dispute is whether the contract which contains the
clause has ever been entered into at all, that issue cannot go to arbitration
under the clause, for the party who denies that he has ever entered into the
contract is thereby denying that he has ever joined in the submission.
Similarly, if one party to the alleged contract is contending that it is void
ab initio (because, for, example, the making of such a contract is illegal),
the arbitration clause cannot operate, for on this view the clause itself also
is void. But, in a situation where the parties are at one in asserting that
they entered into a binding contract, but a difference has arisen between them
whether there has been breach by one side or the other, or whether
circumstances have arisen which have discharged one or both parties from
further performance, such differences should %be regarded as differences which
have arisen "in respect of" or "with regard to" or,
"under" the contract, and an arbitration clause which. Uses these. or
similar, expressions ,should be construed accordingly." (1) (1942) A.C.
190 Lord Macmillan with whom Lord Russel
agreed observed: "If it appears that the dispute is whether there has ever
been a binding contract between the parties, such a dispute cannot be covered
by an arbitration clause in the challenged contract. If there has never been a
contract at all, there has never been as part of it an agreement to arbitrate.
The greater includes the less. Further, a claim to set aside a contract on such
grounds as fraud, duress or essential error cannot be the subject matter of a
reference under an arbitration clause in the contract sought to be set
aside." in the speech of Lord Wright there are the following observations
on which the appellants rely: "Hence, if the question is whether the
alleged contract was void for illegality or being voidable was avoided because
induced by fraud or misrepresentation, or on the ground of mistake, it depends
on the terms of the submission whether the dispute falls within the
arbitrator's jurisdiction." The argument is that if the arbitration clause
is general and unqualified it will include a question as to the legality of a
contract also. The above observation does lend support to the view that if it
was a term of the contract that a dispute as to its legality could be referred
to arbitration, then it is valid. If that is what was meant by Lord Wright it may
be difficult to reconcile it with the view expressed in the passages already
cited. But it is to be noted that the noble Lord wound up with the following
observation "Finally, I agree with the general conclusions on the matter
summarised by the Lord Chancellor in the closing paragraphs of his opinion".
The appellants also rely on the following
observations in the speech of Lord Porter: "If two parties purports to
enter into a contract and a dispute arises whether they have done so or not,
191 or whether the alleged contract is binding on them. I see no reason why
.-hey should not submit that dispute to arbitration. Equally I see no reason
why, if at the time when they purport, to make the contract they foresee the
possibility of such a dispute arising, they should not provide in the contract
itself for the submission to arbitration of a dispute whether the contract ever
bound them or continues to do so............ It may require very clear language
to effect this result, and it may be true to say that such a contract is really
collateral to the agreement supposed to have been made, but I do not see why it
should not be done".
But these dicta must be read with the
following observations in the same speech: "Where the contract itself is
repudiated in the sense that the original existence or its binding force is
challenged, e. g., where it is said that the parties never were ad idem, or
where it is said that the contract is voidable ab initio (e. g., in cases of
fraud, misrepresentation or mistake) and that it has been avoided, the parties
are not bound by any contract and escape the obligation to perform any of its
terms including the arbitration clause unless the provisions of that clause are
wide enough to include the question of jurisdiction" According to Lord
Porter, then; there can be an agreement to refer a dispute as to the validity
of a contract to arbitration, that where such an agreement is part of the
contract which is impugned as invalid, then it can have no existence apart from
it and there can be no reference based thereon, but where such an agreement is
distinct and separate from the impugned contract. a reference pursuant thereto
will be valid and if is possible that both these agreements might be contained
in one document.
192 The law is thus summarised in Halsburys
Laws of England, Third Edition, Vol. 2, p. 24,. par& 56: The matter in
question in the legal proceedings which it is sought to stay must be within the
scope of the arbitration agreement............. If, however, the point in
dispute is whether the contract containing the clause was ever entered into at
all, or was void ab initio, illegal, or obtained (for example) by fraud duress
or undue influence, the clause does not apply and a stay will be refused."
This question arose incidentally for discussion in the Union of India v. Kishorilal
Gupta and Brothers(1) where on an examination of the authorities, including
Heyman v. Darwins Ltd. (2) this Court held that an arbitration clause embodied
in an agreement is an integral part thereof and that it that agreement is non
est either because. it was never legally in existence or because it was void ab
initio., then the arbitration clause would also perish with it. Similar
decisions had been given in Tolaram Nathmull v. Birla Jute Mfg. Company Ltd.(3)
and Hussain Kasam Dada v. Vijayanagaram Commercial Association(4).
Reference might in this connection be made to
s. 33 of the Arbitration Act which enacts that a party to an arbitration
agreement who desires to challenge the existence or validity of an arbitration
agreement should apply to the Court for determination of the question. This
section represents the law on the subject as understood in England at the time
of that legislation and as declared later by the House of Lords in Heyman v.
Darwins Ltd. (2). The scope of s. 33 came up for consideration before this
Court in Shiva Jute Baling Ltd. v. Hindley & Co. Ltd. (5). There a petition
had been filed under that section praying inter alia for a declaration that the
contract between the parties containing an (1)  1 S.C.R. 493. (2) I. L.R.
 2 Cal. 171.
(3)) A.I.R. 1945 Mad. 528. 531. (4)  1
(5) (1861) 30 Law. J. Rep. (N.S.) Banks. 10.
193 arbitration clause, was void ab initio on
the ground of uncertainty and that there was in fact no contract owing to
mutual mistake and it was held that these were questions for decision by Courts
and not by arbitrators. We are accordingly of the opinion that the dispute that
the contract' dated September 7, 1955, is illegal and void is not one which the
arbitrators are competent to decide under cl. 14 and that inconsequence the
respondents are entitled to maintain the present application under s. 33 of the
(2)It is next contended for the appellants
,that even if cl. 14 should be held to be inoperative by reason of the fact
that the dispute is one relating to the validity of the contract, the
respondents are estopped from now challenging the award on that ground, because
they appeared before the arbitrators and took part in the proceedings before
The decision in Ex p. Wyld (1) is relied on
in support of this contention. In that case a dispute between an assignee in
bankruptcy and a creditor, Mr. Wyld, was referred to arbitration on the, basis
of an agreement in writing between them. An award having been pronounced
against Mr. Wyld, he disputed its validity on the ground that the assignee had
not obtained the leave of the Court for entering into the arbitration. In
rejecting this contention the Court observed that under the law the agreement
was binding on Mr. Wyld even though the leave of the Court was not obtained and
that therefore he was not entitled to take this objection based on the
informality of the submission as he had himself acted on it. This decision is
clearly of no assistance to the appellants because there was a valid and
subsisting submission on which the jurisdiction of the arbitrators to bear the
dispute was complete, and that was not affected by the failure of the assignee
to obtain the requisite (1) (1861) 30 Law J. Ref. (N.S.) Bankr. 10.
194 leave because that was a matter between
him and the Court.
But here if the agreement dated September 7,
1955, is void then there was no submission which was alive on which the
arbitrators could act and the proceedings before them would be wholly without
jurisdiction. If there had been another arbitration agreement apart from and
independent of cl. 14 of the contract dated September 7, 1955, it might have
been possible to sustain the proceedings before the arbitrators as referable to
that agreement. But none such has been set up or proved in the present case.
All that is alleged is that the respondents acquiesced in the proceedings. But
what confers jurisdiction on the arbitrators to hear and decide a dispute is an
arbitration agreement as defined in s. 2(a) of the Arbitration Act, and where
there is no such agreement, there is an initial want of jurisdiction which
cannot be cured by acquiescence. It may also be mentioned that the decision in
Ex. p. Wyld (1) has been understood as an authority for the position that when
one of the parties to the submission is under a disability that will not be a
ground on which the other party can dispute the award if he was aware of it.
Vide Russel on Arbitration, 16th Edn, p, 320. We are therefore Unable to accept
the contention of Mr. Sanyal, that the respondents are estopped by their
conduct from questioning the validity of the award.
(3)We may now proceed to consider the
question whether the contract dated September 7, 1955, is illegal as falling
within the prohibition enacted in the notification of the Central Government
dated October 29, 1953. It will be convenient to set out the relevant statutory
provisions bearing on this question. Section 2(i) of the Forward Contracts
(Regulation) Act, 1952, (Act 74 of 1952) hereinafter referred to as 'the Act'
(1) (1861) 30 Law J. Ref. (N.S.) Bank. 10 .
195 defines ready delivery contract' as
meaning "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".
'Forward contract' is defined in 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 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 'non transferrable 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" and
finally s. 2(n) defines transferable specific delivery contract as meaning
"a specific delivery contract which is not a nontransferable specific
Chapter IV of the Act contains provisions
conferring authority on the Central Government to prohibit certain classes of
forward contracts. ,Section 15(1) of the Act enacts:
"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 area specified 196 therein otherwise
than between members of a recognised association or through or with any such
member shall be illegal." Where a notification has been issued under 15(1)
it is provided in s. 16 that all forward contracts falling within the notification
shall be deemed to be closed out and that the seller shall not be bound to give
and the buyer shall not be bound to take delivery of the goods".
Then comes s. 17 which is as follows:"1711).
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 subsection (1) entered into after the date of publication of
the notification there under shall be illegal.
(3)Where a notification has been issued under
subsection (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." 197 Section
18(1) provides that these provisions shall not apply to non-transferable
specific delivery contracts for the sale or purchase of any goods.
To analyse the scheme of the Act; it divides
Contracts of sale of goods into two categories, 'ready delivery contracts, and
'Forward Contracts'. Forward Contracts are classified into those which are
Specific delivery contracts' and those which are not., Then again
"specific delivery contracts' are divided into transferable specific delivery
contracts' and non-transferable specific delivery contracts.' Section 18(1)
exempts from the operation of the Act "non-transferable specific delivery
contracts'. The net result of these provisions is that all forward contracts
except those which are non-transferable specific delivery contracts can be
declared illegal by notification issued under the Act.
Such a notification was issued by the Central
Government in exercise of the powers conferred by s. 17 of the Act, on October
29, 1953. It is as follows :"No. 2(24) Jute/53-In exercise of the powers
conferred by section 17 of the Forward Contracts (Regulation) Act, 1952 (LXXIV
of 1952), the Central Government hereby declares that no person shall enter
into any forward contract other than a nontransferable specific delivery
contract for the sale or purchase of raw jute in any form, except to the extent
and in the manner specified below, that is to say:
(1)all forward contracts, other than nontransferable
specific delivery contracts for the sale or purchase of raw jute entered into
before the date of this notification and repaining to be Performed after the
said date 198 shall be deemed to be closed out at the rate prevailing at the
time at which the Forward Market closed on the said date:
(2)all differences arising out of any
contracts so deemed to be closed out shall be payable on the basis of the rate
specified in clause (1) of this notification and the seller shall not be bound
to give and the buyer shall not be bound to take delivery of raw jute." The
contract with which we are concerned in these appeals was entered into on
September 7, 1955, when the notification aforesaid was in force, and so it
would be hit by it, unless it is a non-transferable specific delivery contract
and the point for decision is whether it is that. There is no dispute between
the parties that it is a specific delivery contract. It is between named buyers
and sellers the goods are specified, as also the period during which they have
to be actually delivered and their price is fixed. What is in controversy is
whether it is transferable or nontransferable. There was considerable argument
before us on the question as to assign ability of a contract. The law of the
subject is well settled and might be stated in simple terms. An assignment of a
contract might result by transfer either of the rights or of the obligations
there under. But there is a well-recognised distinction between these two
classes of assignments. As a rule obligations under a contract cannot be
assigned except with the consent of the promisee, and when such consent is
given, it is really a novation resulting in substitution of liabilities. On the
other hand rights under a contract are assignable unless the contract is
personal in its nature the rights are incapable of assignment either under the
law or under an agreement between the parties.
199 In the light of the principles stated
above, we shall now consider whether the contract dated September, 7, 1955, is
or is not transferable. As it is only a benefit under a contract that can be
assigned, the discussion really centres round two questions, are the buyers
entitled to assign their right to got the goods on payment of price ? And are
the sellers entitled to assign their right to receive the price on delivery of
the goods ? On the question as to the rights of the buyers to assign their
right to the goods, the matter is clear beyond all doubts, The licence which
authorises the appellants to import the goods from East Pakistan also prohibits
them expressly from assigning the same. In this connection it should be noted
that, owing to the exigencies of Foreign Exchange, there have been in force, at
all material times, restrictions on import of goods. The nature of these
restrictions and the policy behind them were examined by this Court quite
recently in Daya v. Joint Controller of imports and Exports (1) and it is
unnecessary to repeat them. It is sufficient for the present purpose to state
that the issue of import licences by the Government was restricted to persons
who had been engaged in the business of import during a specified period and
there were also limitations on the extent to which they could import.
Manufacture of jute occupies the pride of
place among the industries of West Bengal. Raw jute required for the business
is largely imported from East Pakistan, and for that purpose import licences
were being granted from time to time, to manufactures of jute. During the
period of the contract with which we are concerned the appellants held two
import licences from the Government of India (1) No. A 062290/52 and (2) A
063733/52. The licence No. A 062291)/52 which is in the standard.
(1) (1963) 2 S.C.R. 73.
200 form is. so far as it is material for the
present discussion, as follows:"Import Trade Control.
Office of the Joint Chief Controller of
Licence No. A 062290152/A.U./C.C.I/C. For
Exchange Control purposes only.
Class of Importer.
Actual User or Contract.
(Valid at any Indian Port).
(Not transferable except under a letter of
authority from the authority who issued the licences or from any Import Trade
Controller). Messrs. Khardah Co. Ltd. of 7. Wellesley Place, Calcutta are
hereby authorised to import the goods of which particulars are given below :
1. Country from which consigned ....
2. Country of origin .... "
3. Description of goodsRaw Jute .... Raw Jute
4. Serial No. and part of the I.T.C. Schedule
... 174-IV 5, Quantity .... 50,000 Mds.
..(Fifty thou....sant ma... unds only).
This licence is issued subject to the
condition that the goods will be utilised only for consumption as raw material
or accessories in the licence bolder's factory and that no portion thereof will
be hold to any party." 201 It will be noticed that the licence is
non-transferable and that further the goods to be imported are not to be sold
to any party but to be utilised for manufacture in the factory of the licencee.
In view of the terms of the licence there can be no question of assignment of
the contract by the buyers. That is not disputed.
Turning next to the sellers, can they assign
their right to the price on delivery of the goods ? The learned Judges in the
Court below held that they could, because there was noting personal in the
contract, and nothing in its terms which barred the right to assign a benefit
which a party had under the general law. The appellants assail the correctness
of this decision. They contend the terms of the contract must be construed in
the light of the surrounding circumstances, and especially of the import licence,
and that if that is done, the pro.per conclusion to come to is that the
agreement is not transferable. This contention must now be examined.
The appellants sought, in the first instance,
to establish on the basis of clauses 12 and 14 that the agreement is personal
in its character, and is therefore not assignable.
Now the contract in question is one for the
sale of goods, and ordinary there can be nothing personal about it. It is of no
consequence to the buyer as to who delivers the goods.
What matters to him is that the goods
delivered should be in accordance with the specifications. But it is argued
that the status of the parties was a determinative factor in the making of the
agreement, and that is sought to be deduced from el. 12 of the contract. That
clause provides that if either or both the parties to the contract are members
of the Indian Jute Mills Association and if either of them is placed in the
disapproved list of Association then the contract shall be deemed to 202 have
been broken by that party. That shows, it is said, that the contract was
entered into on the faith of the status of the parties as members of the Jute
Mills Association. But it is clear from the wording of the clause that the
parties to the contract need not necessarily be members of the Association and
that being so, the element of status does not enter into it. Clause 14, Which
is the arbitration clause, is also relied on as an indication that the contract
is personal in its character and incapable of assignment on that ground. But it
is settled law that an arbitration clause does not take away the right of a
party to a contract to assign it if it is otherwise assignable.
Vide Shayler v. Woolf (1) and Russel on
Arbitation, 16th Edition, p. 65.
It is also argued that the rights conferred
on the 'sellers under el. 8 are incapable of assignment in law, and that is an
indication that the rights under the agreement are not transferable. Clause 8
confers on the sellers certain rights against buyers, such as the rights to
resell and so forth, when the latter refuse to accept the documents. What is
said is that these rights cannot be assigned in law as they are really claims
founded on breach of contract by the buyers. That undoubtedly is so, but that
does not conclude the question. There is in law a clear distinction between
assignment of rights under a contract by a party who has performed his
obligations thereunder, and assignment of a claim for compensation which one
party has against the other for breach of contract. The letter is a mere claim
for damages which cannot be assigned in law, the former is a benefit under an
agreement, which is capable of assignment.
The fact therefore that the rights under el.
8 are incapable of assignment does not stand in the way of the respondents
assigning their rights to receive the ice after they had performed their
obligations. Pr (1)  2 All. E. R. 54.
203 That brings us on to cl. 3 on which the
Under that clause the sellers are entitled to
receive the price only on their delivering to the buyers the full set of
shipping documents. Now the argument is that as the delivery of documents and
payment of cash are to be simultaneous, it is a case of benefit under a
contract being burdened with a liability, and that such a benefit is incapable
of assignment under the law. The learned Judges in the Court below took the
view that there was nothing in this clause which prevented the seller from
transferring the documents to a third party authorising him to deliver them to the
buyers, and then to receive the price from them, and they further observed.
"Although in presenting the shipping documents the transferee from the
seller may act as his agent, he will not be an agent in receiving payment from
the buyer, because the right to receive the payment has been transferred to him
and has become his own right".
The respondents maintain that that is the
correct view to take of the rights of the parties under this clause and rely on
the statements of law in Halsbury's Laws of England, and the decision British
Waggon Co. v. Lea (1). In Halsbury's Laws of England, 3rd Edn., Vol. 8, p. 258,
para 451, the law is thus stated : "There is, however, no objection to the
substituted performance by a third person of the duties of a party to the
contract where the duties are disconnected from the skill, character, or other
personal qualifications of the party to the contract. ID such a circumstance,
however, the liability of the original contracting party is not discharged, and
the only effect is that the other party may be able to look to the third party
for the performance of the contractual obligations in addition to the original
contracting party". In British Waggon Co. v. leg(1) the facts (1) (1880) 5
Q.B.D. 149, 154.
204 were that a company called the Parkgate
Waggon Company had hired waggons to the defendant on the terms that he should
pay rent for their use, and that the Company should execute the necessary,
repairs for them. The company then assigned its rights under the contract to
another company called the British Company, subject to the obligation to
execute the repairs. In accordance with his agreement the assignee did execute
the repairs. Thereafter Parkgate Waggon Co, demanded rent from the defendant,
who resisted the claim on the ground that the Company had disabled itself from
performing the contract, by reason of assignment to which he had not consented.
In overruling this contention the Court observed that as the work to be done
under the contract did not require personal skill Or confidence, the Parkgate
Waggon Company could get it done by any person, and that would be sufficient
performance. This decision would be in point if the respondents had arranged to
deliver the jute to the appellants through another person, and then claimed the
price, and that claim was disputed. But it is not an authority on the question
which we have to decide, whether the assignment of the benefit under the
contract burdened as it is with an obligation would itself be valid. It is true
that the Court observed in passing "That a debt accruing due under a
contract can, since the passing of the Judicature Acts, be assigned at law as
well as equity, cannot since the decision in Brice v. Bannister(1) be
disputed". But it should be noted that both the companies figured is
plaintiffs, and therefore it is not possible to read chose observation as a
decision that an assignment of a benefit burdened with an obligation is valid.
It was argued for the respondents that it
would have been open to them to first obtain the requisite certificate from the
Dank in East Pakistan (1) (1878) 3 Q.B.D. 560.
205 then deliver it to the appellants, and
then assign their right to the price. But the question is not what could have
been done by a seller in a forward contract generally, but what was in fact
contemplated by the parties to this contract under el. 3, The provisions that
the shipping documents in Pakistan should be taken in the name of' the buyer
that the sellers should deliver them to the buyers and receive the price, and
that the goods should be delivered at the Mills of the buyers, strongly suggest
that the intention of the parties was, that neither of them should assign the
Whatever doubts one might have as to the true
import of cl, 3-it may be conceded, that it lends itself to the construction
put on it by the learned Judges in the Court below, the position becomes
unmistakably clear when it is construed in the light of the import licence in
favour of the appellants. It has been already mentioned that it is this which
authorises the appellants to import raw jute from East Pakistan. It is statedly
not transferable, and further the goods imported there under are to be used
only for consumption in the Mills of the appellants. It is contended for the
respondents that they are not parties to this licence and that their rights
under the general law to assign benefits under the contract remain unaffected
This is to take too narrow a view of the true
position. Far from being strangers to the licence, the evidence clearly
establishes that they are very intimately associated with it. On September 26,
1955, acting under licence No, A 062290/52 the appellants wrote to the Joint
Chief Controller of Imports and Exports, Government of India, to "issue a
letter of authority in favour of sellers Messrs. Raymon & Company (India)
Ltd., for 2,500 maunds jute cuttings to be imported from Narayanganj, (East
Pakistan), against the above (licence)." 206 The letter of authority was
received by the appellants on September 29, 1956, and they sent it on to the
respondents with the following letter "Dear Sirs, Contract No. 2306 We are
sending. here with the Exchange Control Copy of Letter of Authority for 1250
Mds. Jute cuttings against the above." Contract No. 2306 referred to in
this letter is the contract dated September 7, 1955, involved in this dispute.
It is on the strength of this letter of authority that the respondents opened a
letter of credit with a Bank in East Pakistan and the goods were imported. We
have not overlooked the fact that while the contract is dated September 7,
1955, the licence is dated September 22, 1955, and the letter of authority to
the respondents is even later, and it might strike one as an anachronism to
read the licence and the letter of authority into the contract. But it should
be remembered that the licences are in standard form and are renewed from time
to time except as to details concerning the imports, and the course of business
followed in the jute market was throughout in conformity with the conditions
laid down. in the licence and was of the same pattern. Now the agreement
provides that the shipping documents in Pakistan are to be taken in the name of
the buyers that the sellers are "to open letter of credit" and that
the goods are to be delivered ,at the buyer's Mill siding". We have no
doubt that these terms have been inserted with a view to give effect to the
conditions on which licences are granted and that it was the understanding of
both the sellers and buyers that the rights under the contract were not to be
207 But it is argued for the respondents that
unless there is in the contract itself a specific clause prohibiting transfer,
the plea that it is not transferable is not open to the appellants and that
evidence aliunde is not admissible to establish it and the decision in
Seetharamaswami v. Bhagwathi Oil Company(1), Hanumanthiah v. Thimanthiah(2) and
Hussain Kasam Dada v. Vijayanagaram Comm. Asson. (3) are relied on in support
of this position. We agree that when a contract has been 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 on a reading of the document as a
whole, it can fairly be deduced from the 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 a contract can be expressed or
implied from what has been expressed. It is in the ultimate analysis a question
of construction of the contract. And again it is well established that in
construing a contract it would be legitimate to take into account surrounding
circumstances. Therefore on the question whether there was an agreement between
the parties that the contract was to be non-transferable, the absence of a
specific clause forbidding transfer is not conclusive. 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 of the parties was that it was not to be transferred. When once a
conclusion is reached that such was the understanding of the parties, there is
nothing in law which prevents effect from being given to it. That was the view
(1)  1 M.L.J. 147. (2) A.I.R. 1954 Mod. 87.
(3) A.I.R. 1958 Mad. 528, 531.
208 taken in Virjee Daya & Co. v.
Ramakrishna Rice & oil Mills(1), and that in our opinion is correct.
It remains to deal with one other question on
which the parties have been at issue. It turns on a consideration of s. 2(f) of
the Act. A non-transferable specific delivery contract is defined in s. 2(f),
omitting what is not material, as a specific delivery contract the rights or
liabilities under which are not transferable. Now the contention of the
appellants is that as admittedly the liabilities under the contract are not transferable
it is a non-transferable contract within s. 2(f). But the respondents argue
that on that construction no forward contract will be hit by the notification
because liabilities under the contract can never be transferred and so the
notification would become futile. They accordingly contend that word or' should
be read as and that on that construction unless both the rights and liabilities
under the contract are non-transferable it is not a nontransferable contract as
defined in a. 2(f). The appellants urge that on this construction no contract
would be nontransferable as rights under a contract can always be transferred
unless it is personal in its character and the section would become practically
useless. The intention of the legislature as expressed in the section is, it
must be admitted, clouded in obscurity and uncertainty. But in the view we have
taken, that the contract is on its terms properly construed, non-transferable,
it becomes unnecessary to decide between the arrival contentions as to the true
import of s. 2(f).
In the result the appeals are allowed with
costs one set throughout and one hearing fee.
(1) A.I.R. 1956 Mod. 110.