Waverly Jute Mills Co. Ltd. Vs. Raymon
& Co. (India) Private Ltd.  INSC 150 (4 May 1964)
04/05/1964 AIYYAR, T.L. VENKATARAMA AIYYAR,
T.L. VENKATARAMA SINHA, BHUVNESHWAR P.(CJ) SUBBARAO, K.
AYYANGAR, N. RAJAGOPALA MUDHOLKAR, J.R.
CITATION: 1963 AIR 90 1962 SCR (3) 209
RF 1969 SC 504 (6) R 1973 SC2479 (13) R 1974
SC1579 (6) D 1985 SC1156 (24,49,53) R 1989 SC 839 (15) F 1990 SC 85 (24) RF
1990 SC 781 (13)
Forward Contract--Legislative validity of
enactment-Constitutional validity--Notification prohibiting forward contracts
other than non-transferable specific delivery contract--Contract for sale of
goods--Validity--Clause providing for arbitration--Parties appearing before
arbitration--Effect--Forward Contracts (Regulation) Act, 1952 (74 of 1952),
ss.2(f), 17, 18--Constitution of India, Art. 14, Sch. 7, List I, Entry 48, List
II, Entries 26, 27, List III, Entry 7.
The appellant company entered into a contract
with the respondents on September 7, 1955, for the purchase of certain bales of
jute cuttings to be delivered by the respondents ill equal installments every
month in October, November, and December, 1955. Under cl. 14 all disputes
arising out of or concerning the contract should be referred to the arbitration
of the Bengal Chamber of Commerce. As the respondents failed to deliver the
goods its agreed, an application was made by the appellant for the arbitration
as provided in cl. 14. 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 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, by
which no person "shall enter into any forward contract other than a
non-transferable specific delivery contract for the sale or purchase of raw
jute in any form.....". The appellant pleaded (1) that the Forward
Contracts, (Regulation) Act, 1952, was invalid and ultra vires because (a)
Parliament had no competence to enact it, and (b) the provisions of the Act
were repugnant to Art 14 of the Constitution of India, and, therefore, the
notification dated October 29, 1953, was null and void; (2) that on the terms
of the arbitration clause the question whether the contract dated 210 September
7, 1955, was illegal was one for the arbitrators to decide and that it was not
open to the respondents to raise the same in an application under s. 33 of the
Arbitration; (3) that the respondents submitted to the jurisdiction of the
arbitrators and that amounted to a fresh agreement for arbitration and
therefore, the award was valid and binding on them; and (4) that, in any case,
the contract dated September 7, 1955, was a non-transferable specific delivery
contract and, therefore, was not hit by the notification dated October 29,
Held, that: (1) a legislation on Forward
Contracts would be a legislation on Futures Markets and, therefore, the Forward
Contracts (Regulation) Act, 1952, fell within the exclusive competence of
Parliament under entry 28 List I of Sch. 7 of the Constitution of India,
accordingly, the Act could not be challenged on the ground of legislative
Duni Chand Rateria v. Dhuwalka Brothers Ltd.,
 1 S.C.R. 1071, followed.
(2) the Act did not infringe Art. 14 of the Constitution.
M/s. Baghubar Dyal Jai Prakash v. The Union
 3 S. C. R. 547, followed, (3) if a
contract was illegal and void, an arbitration clause which was one of the terms
thereof must perish along with it, and a dispute relating to the validity of a
contract was, in such cases, for the court and not the arbitrators to decide.
Khardah Company Ltd. v. Raymon & Co.
(India) Private Ltd.,  3 S.C.R. 183, followed.
(4) the respondents were not precluded by
what they did before the arbitrators from agitating the question of the
validity of the contract in the present proceedings before the High Court.
Shiva Jute Baling Ltd. v. Hindley and Company
Ltd.'  1 S.C.R. 569 and East India Trading Co. v. Badat and Co., I. L R.
 Bom. 1004, considered.
(5) the contract dated September 7, 1955, was
a nontransferable specific delivery contract as defined in s.2(f) of the Act
and, therefore, was not hit by the notification dated October 29, 1953.
Khardah Company Ltd. v. Raymon & Co. (India)
private Ltd.,  3 S.C.R. 183, followed.
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos. 389 to 392 of 1960.
Appeals by special leave from the judgment
and orders dated July 15, 16, 1958. of the Calcutta High Court in Appeals from
Original Orders and Decrees Nos. 140 to 143 of 1957 respectively.
B. Das and Ghosh, for the appellant (in C. A.
Nos. 389 and 390 of 1960).
B. Sen, Shankar Ghosh and B. N. Ghosh, for
the appellant (in C. A. Nos. 391 and 392 of 1960).
C. B. Aggarwala and S. N. Mukherjee, for the
C. K. Daphtary, Solicitor-General of India,
Daulat Ram Prem and P. D. Menon, for the Attorney-General of India,
1962. May 4. The Judgment of the Court was
delivered by VENKATARAMA AIYAR, J.-These are appeals by special leave against
judgments of High Court of Calcutta setting aside awards which directed the
respondents to pay compensation to the appellants for Breach of contracts, on
the ground that they were in contravention of a notification of the Central Government
dated October 29, 1.953, and were in consequence illegal and void. These
appeals were heard along with Civil Appeals Nos. 98 & 99 of 1960 as there
were common questions of law to be decided in all.
In Civil Appeals Nos. 389 & 390 of 1960
the facts are that on September 7, 1955, the appellants who are a company
owning a Jute Mill at Calcutta entered into an agreement with the respondents
who are also a Company doing business as dealers in jute, for the purchase of
2,250 bales of the jute 212 cuttings at Rs. 80 per bale of 400 lbs. to be
delivered 750 bales every month in October, November and December, 1955.
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 delivered,
pursuant to the contract, in all 2000 bales and made default in the delivery of
the balance. The appellants then applied to the Bengal Chamber of Commerce for
arbitration in accordance with cl. 14 of the agreement.
The respondents appeared before the
arbitrators and contested the claims on the merits. The arbitrators made an
award in favour of the appellants for Rs. 10,525, and that was filed under s.
14(2) of the Indian arbitration Act in the High Court of Calcutta on its
original side and notice was issued to the respondents. Thereupon they filed an
application presumably under s. 33 of the Arbitration Act 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
the award based thereon was a nullity. 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 the judgment and the order, the
respondents preferred appeals to a Division Bench of the High Court, appeals
Nos. 148 & 141 of 1957. They were heard by Chakravartti, C. J., and Lahiri,
J., who held that the contract dated September 7, 1955, was illegal, as it fell
within the prohibition contained in a notification of the Central Government
dated October 29, 1953, and accordingly allowed the appeals and set aside the
award. The appellants then applied for a certificate under Art. 133(3) of the
Constitution but the same was refused. Thereafter they applied to this Court
for leave under 213 Art. 136 of the Constitution and that was granted. This is
how these appeals come before us.
In Civil Appeals Nos. 391 and 392 of 1960 the
facts are similar. The appellants who are a company carrying on business in the
manufacture of jute entered into a contract with the respondents on October 17,
1955, for the purchase of 500 bales of into cuttings at Rs. 87-8-0 per bale of
400 lbs., to be delivered in equal installment of 250 bales in November and in
December 1955. Clause 14 of the agreement provides that all differences arising
out of or concerning the contract should be referred to the Bengal Chamber of
Commerce for arbitration. The respondent made default in the delivery of the,
goods and thereupon the appellants moved the Chamber of Commerce for
arbitration under cl. 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. 17,500, and that was filed in the High
Court of Calcutta on it original side and notice under s. 14(2) of the
Arbitration Act was served on the respondents. Thereupon they filed an
application in the High Court of Calcutta, presumably under s. 33 of the
Arbitration Act for a declaration that the contract dated October 17, 1955, was
in contravention of the notification of the Central Government dated October
29, 1953, and was therefore illegal and that the arbitration proceedings
pursuant thereto and the award passed therein were all void. The learned single
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 the above judgment and order the
respondents preferred appeals to a Division Bench of the High Court, Appeals
Nos. 142 and 143 of They were heard by Chakravarti, C.J., and Lahiri, J., 214
who hold that the contract dated October 17, 1955, was illegal, as it fell
within the prohibition contained in the notification of the Central Government
dated October 29, 1953, and accordingly allowed the appeals and set aside the
awards. The appellant thereafter applied under Art.
133(1)(c) for a certificate and that having
been refused they obtained from this Court leave under Art. 136 of the
Constitution and that is how these appeals come before us.
The points for decision in all these appeals
are the same and this Judgment will govern all of them.
The following contentions have been urged in
support of these appeals:
(1) The Forward Contracts (Regulation) Act,
1952, is ultra vires and the notification date d October 29, 1953, is in
consequence Bull and void.
(2)On the terms of the arbitration clause the
question whether the contracts dated September 7, 1955, and October 17, 1955,
are illegal is one for the arbitrators to decide and that it was not open to
respondents to raise the same in applications under s. 33 of the Arbitration
(3) The respondents submitted to the
jurisdiction of the arbitrators and that amounts to fresh agreement for
arbitration and the award is accordingly valid and binding on them.
(4) The contracts dated September 7, 1955,
and October, 17, 1955 are non-transferable specific delivery contracts and they
are not hit by the notification dated October 29, 1953, 215 (1)The first
question relates to the vires of Forward Contracts (Regulation) Act, 1952 (Act
74 of 1952), hereinafter referred to as the Act'. This statute was enacted by
Parliament and received the assent of the President on December 26, 1952. Its
validity is attacked on two grounds; that Parliament had no competence to enact
it, and that the provisions of the Act are repugnant to Art. 14 and Art.
19(1)(g) of the Constitution and therefore void.
If this contention is well founded, then the
notification dated October 29, 1953, which was issued by the Central Government
in exercise of the powers conferred by s. 17 of the Act would be null and void.
Dealing first with the question as to the
competence of Parliament to enact the impugned law, it will be convenient to
set out the entries in the Legislative Lists in Seventh Schedule of the
Constitution bearing on this question.
List I-Entry 48-Stock Exchanges and Futures
List II-Entry 26--Trade and commerce within
the State subject to the provisions of entry 33 of List III.
Entry 27-Production, supply and distribution
of goods subject to the provisions of entry 33 of List III.
List III-Entry 7-Contracts, including
partnership, agency, contracts of carriage, and other special forms of
contracts, but not including contracts relating to agricultural land.
Now the contention of the appellants is that
the subjectmatter of the impugned legislation is either Trade and Commerce or
Production, supply and distribution of goods, within entries 6 or 27 in List II
of the Seventh Schedule, and that it is within the exclusive domain of the
216 The contention of the respondents, and of
the Union which has intervened, is that the impugned Act is legislation on
'Futures Markets' falling under entry 48 in List I and that it is Parliament
which has the exclusive competence over it, and in the alternative it is one on
contracts, and that is covered by entry 7 in List III in the Seventh Schedule and
is intra vires. To decide this question, it is necessary to ascertain the true
nature and scope of the legislation, its pith and substance. 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 the matters connected therewith".
The statute make,; a distinction between
"ready delivery contracts" and "forward contracts." When a
contract provides for the delivery of goods and payment of price therefor
either immediately or within a period not exceeding eleven days it is a ready
delivery contract. All other contracts are forward contracts. Forward contracts
are again divided into two categories 'specific delivery contracts' and 'nontransferable
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 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 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 non-transferable specific delivery
contracts from the operation of these 217 sections. Thus the law is what it
purports to be, a law regulating Forward Contracts.
That being the scope of the enactment, the
point debated before us is whether it is a law on Trade and Commerce or
Production, supply and' distribution of goods within entries 26 or 27 in List
II or on Futures Markets within entry 48 in List I. ,It would be noticed that
both the entries 26 and 27 in List II are subject to entry 33 in List Ill.
Entry 33 as it now stands is: "Trade and commerce in, and the Production,
supply distribution of...... (e) raw jute". The impugned Act in so far as
it relates to raw jute-and that is what we are concerned with, in these
appeals-will clearly be intra vires if it fell under this entry. But it should
be mentioned that el. (e) in entry 33 was inserted by the Constitution. Third
Amendment) Act, 1954 an d as the impugned Act was passed in 1952, its validity
must be determined on the provisions of the Constitution as they stood prior to
the Amendment Act in 1954 and entry 33 in List III therefore must be excluded
Now turning to the question whether the
impugned Act is legislation on Futures Markets or on Trade and commerce, the
contention of the appellants is that a law with respect to Forward Contracts,
is not a law with respect to Futures Markets, because the ordinary and accepted
meaning of 'Market' is that it is a place where business in the sale and
purchase of goods is carried on, In support of this contention we are referred
to the Dictionary meaning of the word 'Market' and the decisions of the Madras
High Court reported in Public Prosecutor v. Cheru Kutti (1) and Commissioner,
Coimbatore Municipality v. Chettimar Vinayagar Temple Committee(2). According
to the Concise Oxford Dictionary the word 'market' mean,; gathering of people
for purchase & sale of provisions. livestock, etc.-, open space or covered
building in (1) A.I.R. 1925 Mad. 1095.
(2)  2 M.L.J. 563.
218 which cattle etc. are exposed for sale".
In Public Prosecutor v. Cheru Kutti (1) the facts were that the accused was
charged under s. 170 of the Madras Local Boards Act, 1920 for keeping open a
new private market without a licence. His defence was that the place where the
sales were held was not truly a market, and that was accepted. In that context,
discussing the meaning of the word market', the Court observed that it meant
"a place set apart for the meeting of the general public of buyers and
sellers, freely open to any such to assemble together, where any seller may
expose his goods for sale and any buyer may purchase". In Commissioner,
Coimbatore Municipality v. Chettimar Vinayagar Temple Committee (1), the
question arose this time with reference to the provision in Madras District Municipalities
Act, 1920, requiring a place used as an open market under the Act to be
licensed. The Court held that the ordinary meaning of market was place where
the public could go during particular times for purpose of buying and selling
and that on the facts the place in question was market. It is contended on the
strength of the above rulings that as the impugned Act is not one with
reference to building where business is being transacted it is not a law with
reference to markets.
We are unable to agree with this contention.
Market no doubt ordinarily means a place where business is being transacted.
That was probably all that it meant at a time when trade was not developed and
when transactions took place at specified places. But with the development of
commerce, bargains came to be concluded more often than not through
correspondence and the connotation of the word 'market' underwent a
corresponding expansion. In modern parlance the word 'market' has come to mean
business as well as the place where business is carried on. Labour Market for
example, is not a place where labourers are recruited but the conditions of the
business of (1)  2 M.L.J. 563.
219 labour. The word ,market' being thus
capable of signifying both business and the place where the business is carried
on, the question in what sense it is used in a particular statute must be
decided on a consideration of the context of that statute. Thus in Public
Prosecutor v. Cheru Kutti (1) and Commissioner, Coimbator Municipality v.
Chettimar Vinayagar Temple Committee (2), the question arose with reference to
provisions as to licensing by local authorities, and for that purpose market
was interpreted as meaning a place. So we must examine what the word market
means 'in entry 48 ,Futures Markets" in List I. The word 'Futures' is thus
defined in Encyclopaedia Britannioa "contracts which consist of a promise
to deliver specified qualities of some commodity at a specified future time.
The obligation is for a single quantity in a given month......
Futures are thus a form of security,
analogous to a bond or promissory note". In this sense a market can have
reference only to business and not to any location. In our opinion a
legislation on Forward Contracts would be a legislation on Futures Markets.
It is next argued for the appellants that
even if a law on Forward Contracts can be said to be a law on. Futures Markets,
it must be held to be legislation falling under entry 26 in List IT, and not
entry 48 in list 1, because Forward Contracts form a major sector of modern
trade, and constitute its very core, and to exclude them from the ambit of
entry 26 in List II, would be to rob it of much of its contents. Reliance was
placed in support of this contention, on the rule of construction that the
entries in the Lists should be construed liberally and on the decision in
Bhuwalka Brothers Ltd. v. Dunichand Rateria (3), which, on this point was
affirmed by this Court in Duni Chand Rateria v. Bhuwalka Brothers Ltd. (4). The
rule of construction is undoubtedly well established that the (1) A.I.R. 1925
Mad. 1095. (2)  2 M.L.J. 563.
(3) A.I.R. 1952 cal. 740. (4)  1 S.C.R.
220 entries in the Lists should be construed
broadly and not in a narrow or pedantic sense. But there is no need for the
appellants to call this rule in aid of their contention, as trade and commerce
would, in their ordinary and accepted sense. include forward contracts, That
was the view which was adopted in Bhuwalka Brothers Ltd. case(1) and which
commended itself to this Court in Duni Chand Rateria's case (2). Therefore, if
the question were simply whether a law on Forward Contracts would be a law with
respect to Trade and commerce, there should be no difficulty in answering it in
the affirmative, But the point which we have got to decide is as to the scope
of the entry 'Trade and commerce' read in juxtaposition with entry 48 of List
I. As the two entries relate to the powers mutually exclusive of two different
legislatures, the question is how these two are to be reconciled. Now it is a
rule of construction as well established as that on which the appellants rely,
that the entries in the Lists should be so construed as to give effect to all
of them and that a construction which will result in any of them being rendered
futile or otiose must ,be avoided. It follows from this that where there are
two entries, one general in its character and the other specific, the former
must be construed as excluding the latter. This is only an application of the
general maxim that Generalia specialibus non derogant. It is obvious that if
entry 26 is to be construed as comprehending Forward Contracts, then
"Futures Markets" in entry 48 will be rendered useless. We are
therefore of opinion that legislation on Forward Contracts must be held to fall
within the exclusive competence of the Union under entry 48 in List I.
It now remains to deal with the decisions on
which the appellants rely in support of their contention that the legislation
is really one on Trade (1) A.I.R. 1952 Cal. 740.
(2)  1 S.C.R. 1071 221 and commerce
falling within entry 26. In Bhuwalka Brothers Ltd. case (1) the question was
with reference' to the validity of the West Bengal Jute Goods Futures
Ordinance, 1949. That Ordinance had been promulgated by the Governor without obtaining
the consent of the Governor-General and the contention was that the legislation
fell within entry 7 'Contracts' in List III and as the consent of the GovernorGeneral
had not been obtained it was invalid. As against this it was contended that the
legislation was with respect to Trade and commerce which fell within List II
and that therefore the consent of the Governor-General was not necessary. ID
accepting the latter contention the Court observed : "In pith and
substance the legislation was one on trade and commerce and not on contracts
and that therefore it was within the powers of the provincial
There was an appeal taken against this
decision to this Court and there the correctness of this view was accepted.
Vide Duni Chand Rateria's case(2). Now the
contention before us is that on this authority it should be held that the
legislation was one on Trade and commerce falling within entry 26.
We are unable to accept this contention. The
validity of the West Bengal Jute Goods Futures Ordinance, 1949, has to be
judged in accordance with the provisions of the Government of India Act, 1935,
which was the Constitution Act then in force. In that Act there was no specific
entry relating to 'Futures Markets'. Such an entry was in.
troduced for the first time in the present
Constitution in 1952. The contest in Bhuwalka Brothers Ltd. case(1) therefore
was not between a general entry on trade and commerce and a specific entry on
the futures markets, as in the present case, but between Trade and commerce in
List II and Contracts in List (1) A.I.R.1952 Cal. 740. (2)  1 S.C.R.
222 Ill. In the absence of a specific entry
like the one contained in entry 48 in List I, the decision in Bhuwalka Brothers
Ltd. case (1) would be correct but it is no longer law in view of the change in
In the present case the question was also
raised whether the impugned legislation would fall under entry 7 of List Ill.
While the respondents insisted that it fell
under entry 48 in List I, they were also prepared, in case that contention
failed, to fall back on entry 7 in List III as a second line of defence. Entry
7 is general in its terms and cannot prevail as against specific entry such as
entry 48 in List I or 26 in List II. On this point, we are in agreement with
the decision in Bhuwalka Brothers Ltd. case(1). In the result we must hold that
the attack on the impugned Act on the ground of legislative incompetence must
The second ground of attack on the vires of
the Act is that it is repugnant to Art. 14 and to Art. 19(1)(g) of the
Constitution and is, therefore, void. So far as Art. 14 is concerned, the
question is now concluded by the decision of this Court in M/s. Raghubar Dayal
Jai Prakash v. The Union of India (2) where it has been held that the impugned
Act does not infringe that Article and is valid. This point is therefore no
longer open to debate and indeed the appellants addressed no arguments on it.
Then as regards the attack based on Art.
19(1)(g) the position is that though the appellants raised this contention in
the pleadings they did not press it before the learned Judges in the Court
below because there was a decision of the Bench of the Calcutta High Court
which had decided the point against the appellants. The point, however was
taken in the grounds of appeal to this Court, (1) A.I.R. 1952 Cal. 740.
(2)  3 S.C.R. 547.
223 and has been sought to be pressed before
us. The respondents complain and rightly that a point like this should not be
allowed to be taken at this stage as a decision thereon will turn on
investigation of facts which has not been made. It is also contended that there
being a strong presumption in favour of the constitutionality of a legislation
the appellants must fail as they have not placed any materials before the Court
to rebut that presumption.
The answer of the appellants to this
contention is that as the Act is on the face of it violative of the fundamental
rights under Art. 19(1)(g), it was for the other side to place materials for
showing that it was protected by Art. 19 (6) as one which is reasonable and
made in the interests of the general public, and not for them to show
negatively that it was not and reliance was placed on the observations of this
Court in Saghir Ahmed v. The State of Uttar Pradesh and Others (1). We are of
opinion that those observations cannot be read as negativing the presumption as
to the constitutionality of a statute. But it is unnecessary to say more about
it, as the appellants abandoned this point after some argument. This contention
also must therefore be found against the appellants.
(2) It is next contended for the appellants
that the question as to the validity of the contracts between the parties was
one for the arbitrators to decide and that in consequence it was not open to
the respondents to raise it in an independent application under a. 33 of the
Arbitration Act. This question has been considered by us in Khardah Company
Ltd. v. Raymon & Company (India) (P) Ltd. (2) with which these appeals were
heard and therein we have held that it a contract is illegal and void, an
arbitration clause which is one of the terms thereof, must also perish along
(1)  1 S.C.R. 707, 726.
(2) (1963) 3 S.C.R. 183.
224 with it and that a dispute relating to
the validity of a contract is in such case, for the Court and not for the
arbitrators to decide. Following that decision we must overrule this
(3) The appellants next contend that even if
the arbitration clause in the original agreement between the parties should be
held to be inoperative by reason of the validity of the contract itself being
in question, when the respondents subsequently appeared before the arbitrators
and filed statements in support of their defence, that must be held to amount
to a new agreement by them for arbitration, on which the arbitrators would be
entitled to act and that in consequence the award could not be attacked on the
ground of want of jurisdiction. This the respondents dispute. They contend that
mere participation in the arbitration proceedings cannot be held to be a new
agreement for arbitration, and that the jurisdiction of the arbitrators must be
decided solely with reference to cl. 14 of the agreement. The point for
decision is as to the true effect of what happened before the arbitrators on
their jurisdiction to hear the dispute. The principles applicable in the
determination of this question are well settled. A dispute as to the validity
of a contract could be the subjectmatter of an agreement of arbitration in the
same manner as a dispute relating to a claim made under the coatract. But such
an agreement would be effective and operative only when it is separate from and
independent of the contract which is impugned as illegal. Where, however, it is
a term of the very contract whose validity is in question, it has, as hold by
us in Khardah Co. Ltd. case (1), no existence apart from the impugned contract
and must perish with it.
(1) (1963) 3 S.C.R.183 225 We shall now refer
to the decisions cited before us, bearing on this distinction between the two
categories of agreements. In Shiva Jute Baling Ltd. v. Hindley and Company
Ltd., (1) the difference between these two classes of agreements was noticed,
though in a somewhat different context. A decision directly bearing on this
distinction is the one in East India Trading Company v. Badat and Co. (2).
There the facts were that there was a
.general agreement between the parties as to the terms on which they should do
business and it was provided therein that all disputes arising out of the
contract should be settled by orbitration. Subsequent thereto the parties
entered into several contracts and then a dispute arose with reference to one
of them. One of the parties denied the contracts and the question was whether
an award passed by the arbitrators with reference to that dispute was without
jurisdiction. In holding that the arbitrators had jurisdiction to decide the
matter by virtue of the agreement antecedent to the disputed one, the Court
observed : "Now, the principle of the matter is this that when a party
denies the arbitration agreement, the very basis on which the arbitrator can
acts is challenged and therefore the Courts have taken the view that in such a
case the arbitrator has no jurisdiction to decide whether he himself has
jurisdiction to adjudicate upon the dispute........................ If the
arbitration agreement is part and parcel of the contract itself, by denying the
factum of the contract the party is denying the submission clause and denying
the jurisdiction of the arbitrators. But in this case the position is
different. We have an independent agreement by which the parties agreed to
refer the disputes to arbitration. Pursuant to this agreement, contracts were
entered into and when the plaintiffs made a claim against the defendants, the
defendants denied their liability.
(1)  1 S.C.R. 569.
(2)  I.L.R. Bom. 1004 1018,1019.
226 Therefore, what was denied was not the
jurisdiction of the arbitrators, not the submission clause, but business done
pursuant to the submission clause and to which the submission clause
applied". That in our judgment is a correct statement of the true legal
The point then for decision is whether there
is in this case an agreement for reference to arbitration apart from el. 14 of
the contract. It is not contended for the appellants that there was any express
agreement between the parties for referring the disputes under the contract
dated September 7, 1955, to arbitrators. All that is said is that the
respondent filed statements before the arbitrators setting out their defence on
the merits, and that must be construed as an independent agreement for
arbitration. and the decisions in National Fire and General Insurance Co. Ltd.
Union of India (1) and Pratabmull Rameswar v.
K. C. Sethia Ltd. (2) are cited as authorities in support of this contention.
Now an agreement for arbitration is the very
foundation on which the jurisdiction of the arbitrators to act rests, and where
that is not in existence, at the time when they enter on their duties, the
proceedings must be held to be wholly without jurisdiction. And this defect is
not cured by the appearance of the parties in those proceedings, even if that
is without protest, because it is well settled that consent cannot confer
jurisdiction. But in such a case there is nothing to prevent the parties from
entering into a fresh agreement to refer the dispute to arbitration while it is
pending adjudication before the arbitrators, ,and in that event the proceedings
thereafter before them might be upheld as referrable to that agreement, and the
award will not be open to attack as without jurisdiction. But it will make all
the (1) A.I.R. 156 Cal. I, (2) (1959) 64 C.W.N. 616.
227 difference in the result whether the
parties have entered into an arbitration agreement as defined in W. a, 2(a) of
the Arbitration Act or have merely taken steps in the conduct of proceedings
assumed or believed to be valid. In the former case the award will be valid; in
the latter, ;nullity.
Now what are the facts in the present case 1
We have gone through the statements filed by the respondents before the
arbitrators, and we do not find any thing therein out of which a new agreement
to refer the dispute to arbitration could be spelt. The respondents merely
contested the claim on the merits, and then added : "The sellers submit
that this reference is improper, unwarranted, frivolous and vaxatious and
should be dismissed with cost." It is impossible to read this statement as
meaning an agreement to refer to arbitration.
The decisions in National Fire and General
Ltd's. case (1) and Pratabmull Rameswar's
case (2) relied on for the appellants are not really in point,. In both these
cases there was a valid submission on which the arbitrators proceeded to act.
Before them the parties filed statements and therein they put forward a claim
which was not actually covered by the reference, and invited them to give their
decision thereon. The party against whom the award had gone contended that the arbitrators
had acted without jurisdiction in deciding that claim. In overruling this
contention the Court held that it was open to the parties to enlarge the scope
of a reference by inclusion of a fresh dispute. that they must be held to have
done that when they filed their statements putting forward claims not covered
by the original agreement, that these statements satisfied the requirements of
s. 2(a) of the Arbitration Act, and that it was (1) A I.R. 1956 Col. II.
(2)  64 C.W.N. 616.
228 competent to the arbitrators to decide
the dispute. The point to be noticed is that in both these cases there was no
want of initial jurisdiction, but a feeding of existing jurisdiction by an
enlargement of the scope of the reference That this does not involve any
question of jurisdiction of the arbitrators will be clear from the scheme of
If an award deals with a matter not covered
by the agreement it could either be modified under s. 15(a) or remitted under
s. 16(1)(a).. And where such matter is dealt with on the invitation of the
parties contained in the statements, there can be no difficulty in holding that
the arbitrators actual within jurisdiction. In the present case the arbitrators
had no jurisdiction when they entered on their duties, nor is it established
that there was any subsequent agreement which could be held to be a submission
of the question as to the validity of the contracts. We are accordingly of the
opinion that the respondents are not precluded by what they did before the
arbitrators from agitating the question of the validity of the contracts in the
(4) The last contention of the appellants is
that the contracts dated September 7, 1955, and October 17, 1955, are
non-transferable specific delivery contracts, as defined in s. 2(f) of the Act
and under s. 18 they are exempt from the operation of s. 17, and that they are
therefore not hit by the notification dated October 29, 1953. The facts are
similar to those considered by this Court in Khardah Company Ltd. case(1)with
which these appeals were heard, and for the reasons given by us in our Judgment
in those appeals delivered to-day, we accept the contention of the appellants,
and hold that the contracts in question are not hit by the notification dated
October 29, 1953.
(1) (1963) 3 S.C.R. 183.
229 In the result the appeals are allowed,
with costs throughout, one set in Civil Appeals Nos. 389 and 390 of 1960 and
one in Appeals Nos.. 391 and 392 of 1960, and one hearing fee.