# · 1[1961] THE BULLION AND GRAIN EXCHANGE LTD. AND OTHERS v. THE STATE OF PUNJAB

- **Citation:** [1961] 1 S.C.R. 668
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Case number:** Writ Petition No. 116 of 1951
- **Bench:** S. K. Das, M. Hidayatl'Llah, K. c. DAS GUP'rA, J. C. Shaii, N. Rajaoopala Ayyanoar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1-1961-the-bullion-and-grain-exchange-ltd-and-others-v-the-state-of-punjab-2208
- **Pages:** 9

## Headnote

For;;•ard Contracts Tax-Validity of maclmtnl · -Legislative
compciencc--Sercrability of rnlid portio'1-· P"njab Forward Contracts Tax Ari, r95r (P11nj. 7 of r95r), .<. 2-Co11slil11lion of India,
Seirnth Sclzcdu/c, List I I. Entry 62.
The appellants, who were carrying on the business of commission agents in forwarrl contracts, filed a petition before the
High Court of Punjab under Art. 226 of the Constitution of
I 11dia challenging the validity of the Punjab Forward Contracts
Tax Act, I<J5I, on the ground that it was ultra vires the powers
conferred upon the State Legislature.
The Art provided for
the levy of a tax on forward contracts which were definer!, by
s. 2, as agreements, oral or written, for sale of goods on a future
date but on the basis of which actual delivery of goods was not
made or taken but only the difference between the price of the
goods agreed upon and that prevailing on the date mentioned
in the agreement or any other date was paid or received by the
parties. The High Court took the view that the Act was one to
tax S("culation in futures and fell within Entry 62 of the State
List as an Act to impose taxes on betting and gambling.
Held, that as the definition of the cxpressio~ "forward
contract" in the Punjab Forward Contracts Tax Act, 1951, does
not set out all the clements which are necessary to render a
contract a wagering contract the lrgislature could not be considc'.red to have contcmplatrd \\·agering contracts in defining
"forward contracts" in the wa1• it did.
The Act therefore docs
not fall within Entry 62, List fl, Seventh Schedule of the Constitution, and is beyond the legislative competercc of the State
Legislature.
lle/d, further, that even if the definition could .he considered to be v.:ide enough to include certain contracts \\'hich may he
wagering contracts because of the fact that the parties to the
contract had no intention to deliver the goods, the portion of
the Act which would then be valid is so thin and truncated
that the entire Act should be held invalid.
R. M. D. Chamarba11g;cala v. The U11ion of India, [1957]
S. C. H. 930, relied on.
C1v1L
APPELLATE
JuRISDICTION:
Civil Appeal
No. 123/55
/
)
1 S.C.R. SUPREME COURT REPORTS
669
z960
Appeal by special leave from the judgment and
order dated November 12, 1951, of the Punjab High The Bullion and
Court in Writ Petition No. 116 of 1951.
Grain Exchange
N. C. Chatterjee, S. N. Andley, J.B. Dadachanji and
Ltd., & Others
Rameshwar Nath, for the appellants.
, ..
The Sta-te of
S. M. Sikri, Advocate-General for the State of Punjab,
Punjab
N. S. Bindra and D._Gupta, 'for the respondent.
1960. September 13. The Judgment of the Court
was delivered by
DAS GUPTA J.-This appeal is against the judgment of the High Court of Punjab rfjecting the appellant's application under Art. 226 of the Constitution.
In this application the appellants who had been
carrying on the business of oommission agents in
Forward Contracts at Ludhiana alleged that the Punjab Forward Contracts Tax Act, 1951 (Punjab Act
No. VII of 1951), was ultra vires the powers conferred
upon the State Legislature and prayed for a declaration that the Act and the notification made and the
.rules promulgated thereunder by the respondent,
State of Punjab, were void. There was a further
prayer for directing the State of Punjab by a writ of
mandamus ·or other appropriate writ to allow the
petitioners to carry on the business of Forward Contracts or as commission agents in Forward Contracts
unrestricted by the provisions of the above-mentioned
Act and the rules thereunder and not to enforce the
Act.
The respondent's case as made in para. 5 of its
written-statement was that " the impugned Act is not
ultra vires the State Legislature. It is a law with
respect to the matters enumerated in Entry 62 of the
State List read with Entry No. 7 of the Concurrent
List of the 7th Schedule."
The High Court held that :-
"The impugned Act, is an Act to tax speculation
in futures, at least so far as uealers such as

## Text

Srptem~er 13.
\
668
SUPREME COURT REPORTS
·
1[1961]
THE BULLION AND GRAIN EXCHANGE
LTD. AND OTHERS
v.
THE STATE OF PUNJAB
(S. K. DAS, M. HIDAYATL'LLAH, K. c. DAS GUP'rA,
J. C. SHAII and N. RAJAOOPALA AYYANOAR, ,JJ.)
For;;•ard Contracts Tax-Validity of maclmtnl · -Legislative
compciencc--Sercrability of rnlid portio'1-· P"njab Forward Contracts Tax Ari, r95r (P11nj. 7 of r95r), .<. 2-Co11slil11lion of India,
Seirnth Sclzcdu/c, List I I. Entry 62.
The appellants, who were carrying on the business of commission agents in forwarrl contracts, filed a petition before the
High Court of Punjab under Art. 226 of the Constitution of
I 11dia challenging the validity of the Punjab Forward Contracts
Tax Act, I<J5I, on the ground that it was ultra vires the powers
conferred upon the State Legislature.
The Art provided for
the levy of a tax on forward contracts which were definer!, by
s. 2, as agreements, oral or written, for sale of goods on a future
date but on the basis of which actual delivery of goods was not
made or taken but only the difference between the price of the
goods agreed upon and that prevailing on the date mentioned
in the agreement or any other date was paid or received by the
parties. The High Court took the view that the Act was one to
tax S("culation in futures and fell within Entry 62 of the State
List as an Act to impose taxes on betting and gambling.
Held, that as the definition of the cxpressio~ "forward
contract" in the Punjab Forward Contracts Tax Act, 1951, does
not set out all the clements which are necessary to render a
contract a wagering contract the lrgislature could not be considc'.red to have contcmplatrd \\·agering contracts in defining
"forward contracts" in the wa1• it did.
The Act therefore docs
not fall within Entry 62, List fl, Seventh Schedule of the Constitution, and is beyond the legislative competercc of the State
Legislature.
lle/d, further, that even if the definition could .he considered to be v.:ide enough to include certain contracts \\'hich may he
wagering contracts because of the fact that the parties to the
contract had no intention to deliver the goods, the portion of
the Act which would then be valid is so thin and truncated
that the entire Act should be held invalid.
R. M. D. Chamarba11g;cala v. The U11ion of India, [1957]
S. C. H. 930, relied on.
C1v1L
APPELLATE
JuRISDICTION:
Civil Appeal
No. 123/55
/
)
1 S.C.R. SUPREME COURT REPORTS
669
z960
Appeal by special leave from the judgment and
order dated November 12, 1951, of the Punjab High The Bullion and
Court in Writ Petition No. 116 of 1951.
Grain Exchange
N. C. Chatterjee, S. N. Andley, J.B. Dadachanji and
Ltd., & Others
Rameshwar Nath, for the appellants.
, ..
The Sta-te of
S. M. Sikri, Advocate-General for the State of Punjab,
Punjab
N. S. Bindra and D._Gupta, 'for the respondent.
1960. September 13. The Judgment of the Court
was delivered by
DAS GUPTA J.-This appeal is against the judgment of the High Court of Punjab rfjecting the appellant's application under Art. 226 of the Constitution.
In this application the appellants who had been
carrying on the business of oommission agents in
Forward Contracts at Ludhiana alleged that the Punjab Forward Contracts Tax Act, 1951 (Punjab Act
No. VII of 1951), was ultra vires the powers conferred
upon the State Legislature and prayed for a declaration that the Act and the notification made and the
.rules promulgated thereunder by the respondent,
State of Punjab, were void. There was a further
prayer for directing the State of Punjab by a writ of
mandamus ·or other appropriate writ to allow the
petitioners to carry on the business of Forward Contracts or as commission agents in Forward Contracts
unrestricted by the provisions of the above-mentioned
Act and the rules thereunder and not to enforce the
Act.
The respondent's case as made in para. 5 of its
written-statement was that " the impugned Act is not
ultra vires the State Legislature. It is a law with
respect to the matters enumerated in Entry 62 of the
State List read with Entry No. 7 of the Concurrent
List of the 7th Schedule."
The High Court held that :-
"The impugned Act, is an Act to tax speculation
in futures, at least so far as uealers such as the present applicants are cou-cerned, falls within Item 62
of the State List as an Act to impose taxes on betting
and gambling, and to that extent at least is valid."
I
Das Gupta ].
670
SUPREME COURT REPORTS
[1961]
1960
In this view the High Court rejected the application.
·Tiu lil<lli"" a"d
~he ?nly question for our decision is as regards the
Grarn F."h"""' lcg1slat1ve competence of the State Legislature of
1.1d., c;. Otlur: Punjab to enact this statute. Though a reference
"·
under Entry 7 of the Concurrent List of the 7th
He Stat< of
Schedule of the Constitution was made in the respouf'""i""
dent's writtlln statement no reliance appears to have
00, Gupta J. been placed on this entry in tho High Court nor hiis
it been relied on before us by the learned counsel appearing 011 behalf of the respondent and it is quite
clear that the impugned Act cannot fall within Item
7 of the Concurrent List which is in these terms :-
"Contracts, including partnership, agency, contracts
of carriage, a.ud other special forms of contracts, but
not including contra.ct,ii relating to agricultuml land".
lt. is common ground before us that the Act must be
held to be within the legislative competence of the
l'unjab State Legislature only if in pith and su b~ta.nce
it fell within Item 62 of the State List and if it did
not so fall it must be held to be beyond the State
Legislature's competence.
Item 62 mentions " taxes
on luxuries, including taxes on entertainment, amusements, betting and gambling."
If the impugned Act provides for a ta~ on betting
and gambling then and then only it can come within
Item 62.
The Act provides for the levy of a. tax on
forward contracts and it has defined "forward contract" in s. 2 in these words: " Forward contract"
means an agreement, ora~ or written, for sale of goods
on a future date but on the basis of which actual
delivery of goods is not ma.de or ta.ken but only the
difference between the price of the goods a.greed upon
and that prevailing on the date mentioned in the
agreement or any other date is paid or received by the
parties ". " Dealer " is defined · iu the same section to
mean" any person, firm, Hindu Joint family or limited concern, including an a.rhti or " cha.mbor" or
.association formed for the purpose of conducting business in forward contracts, who conducts such busines~
in the course of trade in the State either on his own
behalf or on behalf of any other person, a.rhti, "chamber" or association ''. "Sa.le " is defined to mean
'
/'
1 S.C.R. SUPREME COURT REPORTS
671
" the final settlement in respect of an agreement to
sell goods mentioned in a forward contract, and it
shall be deemed to have been_ completed on the
date originally fixed in the forward contract for this
purpose or any other date on which the final settlement is made". Section 4 is the charging section and
provides· for a levy on the business in forward contracts of a dealer a ta:t at such rates as the Government may by notification direct. Section 5 lays down
that every dealer shall be liable to pay tax under
this Act as long as he continues his business in for.
ward contracts. Section 6 prohibits any dealer from
carrying on business in forward contracts unless he
has been registered and possesses a registration certificate. Section 7 deals with the mode of payment of
the tax and for submission of returns while s. 8 provides for assessment of the tax.
As the term " forward contract " has been defined
in the statute itself we have to forget for the purpose
of deciding the present question any other notion
about what a "forward contract" means. For the
purpose of this statute every agreement for sale of
goods on a future date is not a "forward contract".
It has to be an agreement for the sale of goods on a
future date and has to satisfy two other conditions,
viz., (1) actual delivery of the goods is not made.on
the basis of the agreement and (2) the difference between the price of the goods agreed upon and that
prevailing on the date mentioned in the agreement or
any other date is paid by the buyer or received by
the seller. The test of a forward contract under this
definition is that delivery of goods is not made or
taken but only the difference between the price of thii
goods as agreed upon and that prevailing on some
other date ·is pa.id. Is such a contract necessarily
a wagering contract and therefore gambling ?
.
When two parties enter into a formal contract for
the sale and purchase of goods at a given price, and
for their delivery at a given time it may be that they
never intended an actual transfer of goods at all, but
they intended only to pa.y or receive the difference
according as ~he market price should · vary from the
86
Tiie Bullion &
Grain E%ehange
Ltd., & Othtrs .
v.
The St.ite of
Punjab ·
Das Gupta ].
The IJ1tfliot1 0Graiu Exclia'1t,'c
Ltd. 0
Othtr.~
v.
The Statt of
PHnjab
Das Gupta j.
672
S"CPREME COURT REPORTS
[1961]
contra.ct price. When such is the intention it has been
held that that is not a commercial transaction but a
wager on the rise or fall of the market, which comes
within the connotation bf" gambling". It is the fact
that though in form an agreement for sale purports to
contemplate delivery of the goods and the payment
of the price, neither delivery nor payment of the price
is contemplated by the parties an<l what is contemplated is merely the receipt and payment of the difference between the contra.ct price and the price on a
later day that makes the contract a wagering contract. In the definition of " forward contract" in tho
impugned Act there is no reference, directly or indirectly, to such an intention. It is only by reading
for the words "actual delivery of goods is not made
or taken " the words " actual delivery of goods is not
to be made or taken" and· by substituting for the
words "is paid or received by the parties" the words
"is to be paid or received by the parties" and also by
omitting the words "on the basis of which " that th<l
word " forward contract" as defined in the sect ion
can be held to refer to a wagering contract. This
however we are not entitled to do.
The reason whv
the Legislature did not use the words "to be maue c;r
taken " or " to be paid or rccei vc<l " in the definition
clause is not far to seek.
An agreement oral or writt~n which in terms providP.s that actual delivery is
not to be made or taken and that the entir<' price of
the goods is not to be pair! nnrl only tho difference
betwetm the price of the good~ agreed upon and that
prevailing on some other date would be pa.id would be
hit by s. 30 of the Contract Act and would not be enforceable.
Parties to a written agreement for sale of
goods would therefore take good ca.re to see that the
terms do not provide that delivery should not be made
but only the difference is to be paid. There might be
an oral understanding between the parties that no
delivery should be demanded or made, but that only
difference should be paid. But it will be next. to impossible for a tax being imposed on the proof of such
intention, not expressed in the written contract. When
the agre~ment for sale uf good" is oral, but the parties
1 S.C.R. SUPREME COURT REPORTS
673
agreo as between themselves that no delivery would
r9_6o
be made, but difference in price would be paid, it Th B w
.s.
would be equally impossible for a taxing authority to Gra:n ~.:~.:,.8,
discover in w hieh of the contracts such an agreement Ltd . .s. ot11m
has been made. The dispute whether a particular
v.
contract is a wagering contract or not arises in civil
Th• Stat• of
courts generally when the contract of sale is sought to
Punjab
be enforced and one of the parties tries to avoid the
Das Gupta J.
contract by recourse to s. 30 of the Contract Act.
When such a dispute comes before , the Court, it
becomes necessary to consider all the ·circumstances
to see whether they warrant the legal inference that
the parties never intended any actual delivery but
intended only to pay or receive the difference according as the market price should vary from the contract
price. It is therefore well nigh impossible for any
t.axing authority to brand a particular forward contract as a wagering eontract; nor is it to be expected
that any party on whom the tax is sought to be levied, will voluntarily disclose that in the particular contract or in .a number of contracts, the -intention was
not to deliver the goods but only to pay or receive
the difference in price. A ware of these difficulties in
the practical application of a law to levy tax on
wagering contracts, the legislature decided to levy
tax on contracts for sale of goods in which actual
delivery iB 011ot factually made or taken, whatever be
the intention a:t<,the time when the· agreement was
made.
·
·
It appears clear therefore that the words "forward
contract" as defined in the Act do not set out all the
elements which are _necessary to render a contract a
)Vagedng contract and so the impugned logislation to
tax forward contracts as defined does not come within
Entry 62.
The learned Advocato-Geueral for the State of Pun.
jab tried to convince us that even though tire words
used in defining forward contract may include con.
tracts which do not amount to wagering contracts,,
they are wide enough to· include certain ,contracts,
which may be wagering contracts because of the fact
that the parties to the contract had no intention to
674
SUPREME COURT REPOHTS
[ 1961]
19()0
The Bullitni 6deliver the goods. If the definition is wide enough to
include contracts which are watz<"ring contracts, ho
contend~, the statute should not be struck down as a
whole but should be held to be valid in respect only of
such wagering contracts. On behalf of the appellants
Mr. ~. C. Chatterjee has drawn our atte11tion to the
prodsions of registration of " dPalers " in s. 6 and has
Grain
/:·~;change
/.td. 6- Others
v.
The Stal~ vf
Das Gupt<1 f. argued that the very fact that the Legislature was
calling upon persons dealing in "forward contracts" to
register themselves and to prohibit dealing in forward
contracts by non.registered dealers, justifies the conclusion that the LPgisla.ture wa.H not thinking of wagering
contracts at a.II. As against thi~ it is proper to note
that the Constitution itself contemplated taxation on
"gambling" hy State Legislatures. It is however one
thing to tax gambling, and quite another thing for a
Legislature to encourag" gambling by asking persons
to rPgister themsclvPs for this purpose. The definition
of a. "dealer" it has to ho noticed includes "a limited
concern, including, a Arhti, Chamber or aHMociation
formed for the purpuse of conducting business in forward contracts".
\Vhilo it might bA.ppen in fact that. a.n association
would be formed for the purpose of conducting bnsim:ss in wagering contract, it is hardly likely that the
L<'gislature would take upon itself the task of openly
permitting and recognizing such associa.t ions.
These,
in our opinion, are good masons for thinking th1il the
Legislature di<l noL contemplate wagoring contract A at
a.II in defining" forward contract" in the way it did.
Assuming however that tho definition is wide
enough to include wagering contracts, the question
arises whctlwr the portion of the Act which would
then be valid is HcveraLlc from the portion which
would remain invalid. Ono of tho rules approved by
this Court in R. lrl. D. Chamarbaugwala v. The Union
of India('), for deciding this question was laid down
in these words :-
"In determining whether the valid parts of a
statute a.re separable from the invalid parts thereof, it
(1) [•9J7) S.C.R. 930.
1 S.C.R. SUPREME COURT REPORTS
675
. is the intention of the legislature that is the determinI960
ing factor .. Th.e test to be applied is whet.he.r the The Bullion.,,
legislature would have enacted the valid part if 1t had Grain Exchange
known that the rest of the statute is invalid."
Ltd . .;;, Others
A second rule was that if
"the valid and invalid parts of a statut.e are
independent and do not form part of a scheme but
v.
The State of
1.)unjab
what is left afte.r omitting the invalid portion is so
Das Gupta J.
thin and truncated as to be in substance different from
what it was when it emerged out of the legislature,
then also it will be rejected in its entirety."
Applying either of these rules, we are bound to hold
that the entire Act should in the present case be held
invalid. It seems to us clear that if the Legislature
had been conscious that taxation on all forward contracts was' not within its legislative competence it
would have at once seen that because of the difficulty
of finding out which among the contracts for sale of
goods on a future date are wagering contracts, it
would not be worthwhile to enact any law for taxing
wagering contracts only. It is equally clear that once
the law is held to be invalid as regards forward contrac~ other than wagering contracts, what is left is
"so thin and truncated as to be in substance different
from what it was when it emerged out of the legislature". The respondent's contention that the statute
should be held to be valid in respect of wagering contracts even though invalid as regards other forward
contracts must therefore also be rejected.
Our conclusion therefore is that the impugned statute does not fall within Item 62 of the State List and
that it is beyond the legislative competence of, the
State Legislature.
The appellants were therefore
entitled to appropriate reliefs as prayed for in their
petition under Art. 226 of the Constitution.
We therefore ·allow this appeal, set aside the order
of the High Court· and direct that the petition under
Art. 226 of the Constitution be allowed and declare
that the Punjab Forward Contracts Tax Act No.VII
of 1951 is void and unconstitutional as it is ultra vires
the powers of the State Legislature, that the notification made under the rules promulgated by the
Tlie 8111Jio11 6G,oit1 Exclso11g1
Ltd, ~ Otlit's
••
The State nf
l'uttjab
Das Gupta ].
Stpltmbtr 14.
676
SCPTIE~IE COU!tT REPORTS
[1961]
respondent undur thiR Act a.rn also void and unconstitu.
tiuna.l, a.nd that & mandamus do issue directing the
respondent to a.How the petitioners to carry on the
bu8ine8s of forward rontre.ots or a.s oommis~ion a.gents
for forwa.rd oontra.ots unrrstricled by the provisions
of the sa.id Punjab Forward Contra.ots Ta.x Act No. VII
of I !J51 a.ml the ruleH thereunder and not to enforce
the provisions of thiH Act and the rules.
The a.ppella.nts will get t,heir costs in this Court as
also in the court below.
Ap11eul allowed.
NAHAIN DAS
v.
THE STATE OF UTTAR PRADESH
(JAFER lMA)I, A. K. SARKAR a.nd Il.AOHUBAR
DAYAL, JJ,)
Affeul-l'orum-Single ]11d~c of llig/1 Courl ·cxmisi11~ cfril
jurisdtclion refusing to file rnn1ple1i11t --Appeal, if lio tu Supreme
Court-Code of Crimi11al Procedure, 1898 (V of 1898). ss. 195 1111d
476-B.
During the pendency of a.civil writ petition in the Al!ali<tbad High Court one N moved an application under s. 476, Code
of Criminal Procedure, for making a complaint under s. 193,
Indian Penal Code, against T. A single Judge who was seized of
the case rejected the application. Thereupon N presented an
appeal against the order ol. rejection of his application before
the Supreme Court under s. 4j6·B, Code of Criminal Procedure.
Held, that the appeal did 110'. lie to the Supreme Court but
that it lay to the Appellate Bench of the High Court.
The
tltcrees of a single Judge of the High Court exercising civil
jurisdiction were ordinarily appcalable to the lligh Colli t under
cl. 10 of the Letters Patent of the Allahabad High Court read
with cl. 13 of the l'. P. High Courts (Amalgamation) Order,
1948, and as such the Court constituted by the single Judge
was a court subordinate to the Appellate Bench of the High
Court within the meaning of s. 195(3) of the Code.
M. S. Sl1crij} v. Tile Sl<1lc of Madras, [1954] S.C.l<. 1 q4.
<listing uished.