Fort Gloster Industries Ltd. Vs.
Sethia Mercantile (P) Ltd. [1968] INSC 70 (19 March 1968)
19/03/1968 SHAH, J.C.
SHAH, J.C.
RAMASWAMI, V.
MITTER, G.K.
CITATION: 1968 AIR 1308 1968 SCR (3) 450
ACT:
Forward Contract--Discrepancy between bought
and sold notes--Contract whether binding--Other evidence whether may be looked
into--Forward Contracts (Regulation) Act 74 of 1952, s. 11--Bye-laws framed
under--Effect of bye-laws 7(c) and 8(b) on construction of contract,
HEADNOTE:
The appellant and the respondent wore both
members of the East India Jute and Hessian Exchange Ltd., *ad were bound by its
rules -and regulations framed under s. 11 of the Forward Contracts (Regulation)
Act 74 of 1952 for regulating and controlling forward contracts in the jute trade.
The appellant in August 1960 agreed to purchase and the respondent to sell 750
bales of Pakistan raw jute for delivery during October and/or November, 1960.
According to the custom of the trade which was recognised by the byelaws, the
brokers sent a sold note on behalf of the respondent to the appellant, and
issued a bought note on behalf of the appellant which was sent to the
respondent.
Differences arose between the parties in
respect of the execution of the contract and the appellant referred a claim
against the respondent to the Tribunal of Arbitration of the Bengal Chamber of
Commerce and Industry. The respondent thereupon moved on the original side of
the Calcutta High Court, a petition under s. 33 of the Arbitration Act, 1940
challenging the existence and validity of the alleged arbitration agreement
between the parties. The principal ground in 'support of the petition was that
the terms of the bought and sold notes in respect of payment and otherwise did
not tally, and on that account there was no concluded contract. In the
affidavit filed by the appellant the genuineness of the sold note set up by the
respondent was questioned. The High Court decided in favour of the respondent and
the appellant by special leave came to this Court.
HELD : (i) The term as to payment is an
important term of a written contract. The bought and the sold notes have the
bye-laws to be in writing and in the prescribed form and if there be any
discrepancy between the two i.e. the terms as to payment are specified in one
note and not in the other, prima facie, there is no concluded contract. 1455
B-C] (ii) In view of the bye-laws of the Association which make it obligatory
on the parties that the terms of the contract shall be in writing and that they
shall be in the form prescribed, it could not be held that, apart from the
terms of the bought and the sold notes which by custom of the market are
issued, evidence may be led toprove that the parties had agreed to certain
terms not set out in the bought and sold notes. [456 El (iii) The bought note
did not comply with bye law 7(c) in so far as the latter required a letter of
authority to import Pakistan jute. In bye-law 8(b) two alternative methods of
payment were provided the bought note mentioned one of them, while , the sold
note mentioned neither. In these circumstances, even if bye-laws 7(c) and 8(b)
were read into the contract it could not be said that there was no discrepancy
between the bought and the sold notes, The bought and sold notes as produced in
Court could not be regarded as creating a binding contract.
[457 F-458 C] 451 (iv) The question whether
the sold note produced in Court Was genuine must 'be decided by the trial court
after taking fresh evidence. (Case remanded to trial court for this purpose .)
[458 D] Cowie & Ors. v. William Remfry and others, 3 M.I.A. 448, Durga
Prosad Sureka & Ors. v. Bhaian Lall & Ors. L.R. 31 I.A. 122 and
Radhakrishna Sivadutta Rai & Ors. v. Tayeballi Dawoodbhai, [1962] Supp. I
S.C.R. 81. referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 573 , of 1965.
Appeal by special leave from the judgment and
order dated July 26, 1962 of the Calcutta High Court in Award No. 181 of 1961.
S. T. Desai, S. Tibriwala, Sobhag Mat Jain
and B. P. Maheshwari, for the appellants.
S. V. Gupte, C. M. kohli and G. R. Chopra,
for the respondent.
The Judgment of the Court was. delivered by
Shah, J. The East India Jute & Hessain Exchange Ltd.' hereinafter called
"the Association%-is recognized for the purpose of the Forward Contracts
(Regulation) Act 74 of 1952 as an association concerned with the regulation and
control of forward contracts in jute and jute goods. The Association has, under
S. 11 of the Forward Contracts (Regulation) Act, with the previous approval of
the Central Government, made bye-laws to regulate and control forward contracts
in jute and jute goods, and for trading in Transferable Specific Delivery
Contracts in raw jute and jute goods. Clause I (a) in Ch. V of the bye-laws
provides that no trading in Transferable Specific Delivery Contract in any
delivery or deliveries in raw jute and/or jute goods shall be effected
otherwise than between members or through or with any member, or where the
services of a broker, who is not a member, are employed by a member, otherwise
than through a licensed broker. Clause l(b) provides that all Transferable
Specific Delivery Contracts shall be in writing in the prescribed forms.
The appellant and the respondent are members
of the Association. On August I 1, 1960, the appellant agreed to purchase and
the respondent agreed to sell 750 bales of Pakistan raw jute at the rate of Rs.103
per bale of 400 lbs. net ex-Narayanganj and/or Daulatpur and/or Khulna for
delivery during October and/or November 1960. In the transaction W. Haworth
& Co. (P) Ltd. acted as brokers for both the parties. According to the
custom of the trade which is recognized by the bye-laws, the brokers sent a
sold note on behalf of the respondent to the appellant, and issued a bought
note on behalf of the appellant which 452 was sent to the respondent. The goods
contracted to be purchased by the appellant were to be imported from Pakistan.
The appellant was in terms of the sold note
to furnish to the respondent import licence and a letter of authority issued by
the proper officer authorising the respondent or his nominee to import the
requisite quantity of jute from Pakistan for delivery to the appellant. For
importing jute from Pakistan, a letter of credit had, under the terms of the
contract, to be opened by the respondent.
Differences arose between the parties in
respect of the execution of the contract and on January 11, 1961, the appellant
referred its claim for Rs. 1,17,750/against the respondent to the Tribunal of
Arbitration of the Bengal Chamber of Commerce and Industry, on the plea that
the respondent had failed to open a letter of credit for importing the
stipulated 750 bales of "jute cuttings" from Pakistan according to
the terms of the contract.
On June 26, 1961, the respondent moved,
before the High Court of Judicature at Calcutta on its original side, a
petition under s. 33 of the Arbitration Act, 1940, inter alia, for the
Following orders :
(a) that the existence or validity or
otherwise of the alleged arbitration agreement dated August 11, 1960, between
the appellant and the respondent be adjudicated upon and determined by the High
Court; and (b) that it be declared that the alleged arbitration agreement is
void, illegal and ineffective and of no effect and such arbitration agreement
to be set aside.
The principal ground in support of the
petition was that the terms of the bought and sold notes did not tally, and on that
account there was no concluded contract.
In support of the petition one Sohanlal
Sethia a director of the respondent affirmed an affidavit. The appellant filed
its affidavit in reply contending, inter alia, that the sold note set up by the
respondent in support of its petition under s. 33 of the Arbitration Act was
not the sold note issued by the brokers at the time when the contract was
entered into. An order was passed by the High Court under the proviso to s. 35
of the Arbitration Act directing that the petition be set down for hearing on
evidence on the following issues :
"1. (a) Do the Bought and Sold Notes vary
in material particulars as alleged in paragraph 2 of the petition ? (b) If so,
what is the effect thereof?
2. (a) Is the Sold Note which has been
produced in 453 .lm15 Court by the seller the original Sold Note ? (b) If so,
what is the effect thereof?
3. Is there a subsisting arbitration
agreement between the parties ?" One Jitendra Nath Basu, Manager of the
respondent, and one Sudhir Kumar De, Head Clerk of W. Haworth & Co. (P)
Ltd., were examined in support of the case of the respondent. On behalf of the
appellant Shib Narayan Mundhra, an employee of the appellant, was examined. A.
N. Ray, J., declared that there was no concluded arbitration agreement dated
August 11, 1960, between the parties. Against that order, this appeal has been
preferred with special leave.
Two questions arise in this appeal:
(1) Whether there was a lawful contract for
sale and purchase of jute cuttings between the appellant and the respondent;
and (2) Whether the sold note set up by the respondent was a fabricated
document set up in collusion with W. Haworth & Co. (P) Ltd.
The High Court has answered both the
questions in the negative.
The form of contract prescribed by the
Bye-laws of the Transferable Specific Delivery reads as follows :
"The East India Jute & Hessian Exchange
Ltd., Calcutta APPENDIX IV Calcutta........ 19.....
Transferable Specific Delivery' Contract for
Raw Jute.
No...................
To Messrs Dear Sirs,....................
We have, subject to the terms and conditions
hereinafter referred to, this day, bought from/sold to............ by/your
order and on your account, the following goods which are *Pakistan Jute/Jute:----------------------------------------------------------Crop
19....19....maunds/kilograms, bales Of jute/mesta/Bimli/cuttings, of the mark,
assortment and quality as per margin and in sound, dry storing condition at the
rate of Rupees Rupees Rupees *Score out if not applicable.
454 free to buyers' mill, siding and/or ghat.
Weight guaranteed at buyers' mill.
Delivery to :Shipment or despatch during:Payment:Arbitration
:Re-weighment The foregoing terms and -,conditions as well as other terms and
conditions applicable to this contract are as per the terms and conditions of
the Transferable Specific Delivery Contract for raw jute of the East India Jute
& Hessian Exchange Lid., Calcutta, and are subject to the bye laws of that
Exchange for trading in Transferable Specific Delivery Contracts for raw jute
in force for the time being.
Brokerage at .... per cent.
Yours faithfully, Member/Licensed Broker.
The East India Jute & Hessian Exchange
Ltd.
---------------------------(CONFIRMATION
SLIP) Received from Shri/Messrs..............his/their Contract No....dt...and
I/we confirm having bought from/sold to through him/them .........." The
respondent claimed that the terms of the bought and the sold notes issued by
the brokers did not tally and there was ,on that account no contract between
the parties. They claimed -that whereas in the bought note under the heading "payment"
it was recited: "Cash on presentation in Calcutta a fun set of shipping
documents and insurance cover", in the sold note tendered in evidence by
the respondent no entry was made under that heading. In both the notes there
was, a note to, the following -effect "Buyers to provide import licence,
during the shipment period serially to their purchase of Pakistan cuttings. In
case of non availability of licence in full or part thereof, the quantity thus
remained will be treated as cancelled without any difference to either
parties." At the foot of the bought note it was recorded -Sellers to open
Letter of Credit", but no such recital was found in the sold note. Again
at the foot of the bought note the rate of brokerage was 455 not incorporated,
whereas in the sold note it was stated that the rate of brokerage was 1 per
cent. Ray, J., observed that the bought and the sold notes differed and on that
account there was no contract between the parties. The learned Judge did not
set out in detail what in his opinion were the differences between the two
notes. But it is clear that he relied upon the discrepancy in the recital under
the heading "payment". The term as to payment is an important term of
a written contract. The bought and the sold notes have by the bye-laws to be in
writing and in the prescribed form, and if there be any discrepancy between the
two, i.e., the terms as to payment are specified in one note and not in the
other, prima facie, there is no concluded contract. In Cowie and others v.
William Remfry and others(') the bought and the sold notes in respect of a
contract for the purchase and sale of indigo differed in certain material
terms. In an action brought by the sellers against the purchaser for
nonperformance of the contract contained in the sold note, the Judicial
Committee held that the transaction was one by bought and the sold notes, and
that the circumstances attending the purchaser's alteration of the sold note
and affixing his initials, were not sufficient to make that note, alone, a
binding contract, and that there being a material variation in the terms of the
bought note with the sold note, they together did not constitute a binding contract.
Counsel for the appellant urged that a
discrepancy between the terms of the bought and the sold notes may be explained
by extraneous evidence, and that Cowie's case (1) merely lays down a
presumption and not an absolute rule. Counsel relied upon the observations in
Remfry's Sale of Goods in British India-Tagore Law Lectures 1910 at p. 69, and
upon the opinion expressed in Woodroffe & Ameer Ali's Law of Evidence, 11th
Edn., at p. 1533, that the rule laid down by the Judicial Committee raises
merely a presumption which may be rebutted by evidence. Counsel also relied
upon the observations of the Judicial Committee in Durga Prosad Sureka and
others V. Bhajan Lall and others (2) that "In India a contract of sale can
be roved by parol been falsified, the aggrieved purchaser was entitled to
disregard them and prove his contract by other and antecedent material.
This he has done conclusively by the evidence
of the broker and by the telegram.
But in Durga Prosad's case(2) it was
established that the notes had been falsified; there was also evidence to show
that the real contract was, and effect was given to that contract. In Cowie's
(1) 3 M.I.A. 448. (2) L.R. 31 I.A. 122.
456 case('), apart from the bought and sold
notes there was no evidence of the terms of the contract, and since the terms
of the bought and sold notes differed, the parties were not ad idem. In Durga
Prosad's case(-') there was evidence, of a parol contract and the bought and
sold notes did not, because of fraud, correctly record the terms of that
contract. Again in neither of these cases, the contract was required by law to
be in writing and in a form statutory prescribed. But the transaction between
the parties in the case in hand is governed by special rules of the Association
which make it obligatory that the contract shall be in a particular form and in
Writing Durga'Prosad's case (2) can, therefore, have no application in the
present case.
In Radhakrishna Sivadutta Rai and others v.
Tayeballi Dowoodbhai(3) this Court cited Cowie's case(') with apparent
approval. In that case the contract was by the boughtand sold notes.
Gajendragadkar, J., speaking for the Court proceeded to consider the effect of
the bought and sold notes according to the established custom of the mercantile
world and accepted the contention for counsel for the respondent that according
to the established commercial usage if there is any variation or disparity
between the bought and sold notes, 'the consequence follows, from all legal
principles, that no binding contract has resulted.
In view of the bye-laws of the Association
which make it obligatory on the parties that the terms of the contract shall be
in writing and that they shall be in the form prescribed, we are unable to hold
that, apart from the terms of the bought and sold notes which by custom of the
market are issued, evidence may be led to prove that the parties had agreed to
certain terms not set out in the bought and sold notes.
in the bought note the price was made payable
in "Cash on presentation in Calcutta a full set of shipping documents and
insurance cover". There was no term in the sold note about the payment of
price. Counsel for the appellant, however, contended that under the prescribed
form the contract is made subject to the terms and conditions hereinafter
referred to and it is expressly recited that "the foregoing terms and
conditions as well as other terms and conditions applicable to this contract
are as per the terms and conditions of the Transferable Specific Delivery
Contract for raw jute of the East India Jute & Hessian Exchange Ltd.,
Calcutta, and are subject to the bye-laws of that Exchange for trading in
Transferable Specific Delivery Contracts for raw jute in force for the time
being". He submits that bye-laws 7(c) and 8(b) framed by the Association
being made part of the contract, there is in truth no discrepancy between the
bought and (1) 3 M.I.A. 448.
(2) L.R. 31 I.A. 122.
(3) [1962] Supp.1 S.C.R. 81.
457 sold notes. In Ch. IX, bye-law 7(c)
insofar as it is material, reads "In the case of Pakistan Jute, buyers to
deliver to sellers, or sellers' nominee, letter of authority to import the
Pakistan Jute or open confirmed, irrevocable Letter of Credit in terms of
paragraph 8(b)(ii) within 14 working days from the commencement of the delivery
period of the contract failing which there shall be free extension for delivery
equal to the period of delay occurring after the 14 working days, . . . . If
buyers do not deliver letter of authority or open confirmed irrevocable Letter
of Credit within one month from the commencement of the delivery period of the
contract, the sellers shall be entitled to exercise any one of the following
options Bye-law 8(b) which relates to payment or what is called
"reimbursement" states, insofar as it is material:
"In the case of Pakistan jute
reimbursement shall be either:(i) Cash on presentation in Calcutta of a full
set of shipping documents and insurance cover.........
(ii) By confirmed irrevocable Letter of
Credit for 100% of the value of goods, less transit insurance, Bengal Raw Jute
Tax (as applicable to West Bengal) and freight "to pay", if any, to be
opened by buyers with a scheduled Bank in Pakistan within 14 working days from
the commencement of the delivery period of the contract......" Bye-law 7
(c) contemplates two alternatives. Where there is a contract for the sale and
purchase of Pakistan Jute, the buyer has to deliver to the seller, or seller's
nominee, a letter of authority to import Pakistan Jute or to open confirmed,
irrevocable Letter of Credit in terms of paragraph 8(b)(ii). Bye-law 8(b) also
contemplates two alternatives : in the case of a contract for sale and purchase
of Pakistan Jute payment has to be made in cash on presentation in Calcutta of a full set of shipping documents and insurance cover or by confirmed
irrevocable Letter of Credit for 100% of the value of goods. In the bought note
in question it was recited that the buyer had to provide the import licence
during the shipping period. Nothing was stated about the Letter of authority to
import Pakistan Jute and the stipulation relating to the application to provide
the import licence cannot be equated with the issue of a letter of authority to
import Pakistan Jute. It is true that under bye-law 7(c) the buyer has to do
one of the two things-he has to issue a letter of authority to 458 import
Pakistan Jute or to open a Letter of Credit in terms of paragraph 8 (b) (ii)
and under bye-law 8 (b) payment may be either in cash on presentation of a full
set of shipping documents and insurance cover or by confirmed 'irrevocable
Letter of Credit When nothing was written in the sold note, under the head
"Payment", either of the two alternatives could be adopted. In the
endorsement at the foot of the note, it was recorded that the seller had to
open Letter of Credit, but this is not found in the sold note. This further
emphasizes that the two parties could not be said to have agreed on how the
payment was to be made. If the sold note produced in Court is genuine, we are
unable to agree with counsel for the appellant that the terms of the contract
were agreed upon between the parties. The bought and sold notes as produced in
Court cannot be regarded as constituting a binding contract.
But the question whether the; sold note
"was fabricated' still remains to be considered. Ray, J., observed, after
briefly summarising the evidence, that he was unable to act on the
"suggestion of suspicion" and he did not believe that there was any
foundation in the plea of fabrication of the document.
[Their Lordships remanded the case to the
High Court with appropriate directions].
G.C. Appeal remanded.
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