# fl Vishwanitlhiin v. Rukn·ul-mulk Sy1d Abdul Wajiit Hidaya/ullah J

- **Citation:** [1963] 3 S.C.R. 183
- **Court:** Supreme Court of India
- **Decided:** 1963
- **Bench:** B. P. Sinha, K. SuBBA RAo, N. Rajagopala Ayyangar, J.R. MunHOLKAR, T. L. Venkatarama Aiyar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/fl-vishwanitlhiin-v-rukn-ul-mulk-sy1d-abdul-wajiit-hidaya-ullah-j-2589
- **Pages:** 26

## Headnote

Forward Contract-Contract for Bale ·of goods-Government notification forbidding forward contracts other than nontransferable specific delivery contracts-Validity of the contractClause 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 resp@ndents
in equal instalments every month in October, November anc;I
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 arbitratiou
of the Bengal Chamber of Commerce.
As the respondents
failed to deliver the goods as agreed the appellants applied to
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
poμrt of Calcutta under. s. 33 · of the Arbitration Act, 1940,
1962
fl.. Vishwanitlhiin
v.
Rukn·ul-mulk Sy1d
Abdul Wajiit
Hidaya/ullah J,
1962
May4 •
1962
Khariah ClfTIP••J
Lid
••
ltaP,in "' c ..
(Tndi•} Pfl1. ltd,.
184.
SUPREME COURT REPORTS [1963J
challenging the validity of the award on the ground that the
contract dated September 7, 1955, was illegal as it was in
contravfntion of the notification of the Central Government
dated October 29, 1953, issue.cl under s. 17 of the Forward
Contracts lRegulation) Act, 1952, which declared that no
persOn '.'shall enter ihto 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
(I) 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 r_aise the same in proceedings under
s. 33 of the Arbitration Act; (2) that the respondents were
estopped froin 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-trans_fcrablc
specific delivery contract within s.
1 (f) of the
Forward
Contracts (Regulation) Act and was not hit by the notification dated October 29, 1953.
'
Held, that : (I) 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 Act.
(
~.
l When an agreement is invalid every part of it including
the clause as to arbitration contained therein must also bC
invalid.
Leyman v. Darwins Lid., [1942] A. C. 356 Union of
India v. Kishorilal Gupta una Brothers, [1960] 1' S. C.R.
493,
Tnlaram
v. Birla Jute Manufacturiug Company Ltd
I.,L. R. [1948] 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 co~struction of the
co~tract dated Septem.ber 7, 1955, read ·with the terms of the import licence iri
favour of the appellan[, the agreement between the parties
was that the contract was not to "be transferred. ·
·
In. construing a contract it would be legitimate to take
i~t_o~~cCO~n~_surroundirig CircumstanceS and, thf'refore, on the
'Juestton ~hcthc;r there w'.'8, ail agreement between th

## Text

_Characters 0–39,938 of 49,555. This is a partial read: ask again with offset=39938 for what follows._

a s.e.R.
SUPREME COURT REPORTS
-....,1
183
•
remaining appeals and passed appropriate orders
therein; but this is unnecessary as my brethren take
a different view in the two ma:in appeals.
BY CouRT: In view of the majority Judgment,
there will be decree in terms as stated in ·the
'>' -<
Judgment of the majority.
KHARDAH COMPANY LTD.
v.
.,,-:
RAYMON & CO. (INDIA) PRIVATE LTD.
(B. P. SINHA, C. J., K. SuBBA RAo, N. RAJAGOPALA
AYYANGAR, J.R. MunHOLKAR and T. L.
VENKATARAMA AIYAR, JJ.)
Forward Contract-Contract for Bale ·of goods-Government notification forbidding forward contracts other than nontransferable specific delivery contracts-Validity of the contractClause 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 resp@ndents
in equal instalments every month in October, November anc;I
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 arbitratiou
of the Bengal Chamber of Commerce.
As the respondents
failed to deliver the goods as agreed the appellants applied to
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
poμrt of Calcutta under. s. 33 · of the Arbitration Act, 1940,
1962
fl.. Vishwanitlhiin
v.
Rukn·ul-mulk Sy1d
Abdul Wajiit
Hidaya/ullah J,
1962
May4 •
1962
Khariah ClfTIP••J
Lid
••
ltaP,in "' c ..
(Tndi•} Pfl1. ltd,.
184.
SUPREME COURT REPORTS [1963J
challenging the validity of the award on the ground that the
contract dated September 7, 1955, was illegal as it was in
contravfntion of the notification of the Central Government
dated October 29, 1953, issue.cl under s. 17 of the Forward
Contracts lRegulation) Act, 1952, which declared that no
persOn '.'shall enter ihto 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
(I) 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 r_aise the same in proceedings under
s. 33 of the Arbitration Act; (2) that the respondents were
estopped froin 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-trans_fcrablc
specific delivery contract within s.
1 (f) of the
Forward
Contracts (Regulation) Act and was not hit by the notification dated October 29, 1953.
'
Held, that : (I) 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 Act.
(
~.
l When an agreement is invalid every part of it including
the clause as to arbitration contained therein must also bC
invalid.
Leyman v. Darwins Lid., [1942] A. C. 356 Union of
India v. Kishorilal Gupta una Brothers, [1960] 1' S. C.R.
493,
Tnlaram
v. Birla Jute Manufacturiug Company Ltd
I.,L. R. [1948] 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 co~struction of the
co~tract dated Septem.ber 7, 1955, read ·with the terms of the import licence iri
favour of the appellan[, the agreement between the parties
was that the contract was not to "be transferred. ·
·
In. construing a contract it would be legitimate to take
i~t_o~~cCO~n~_surroundirig CircumstanceS and, thf'refore, on the
'Juestton ~hcthc;r there w'.'8, ail agreement between the partii;J
~
·--___.r'
,
;
3 s.c.R.
SUPREME COU.RT REPORTS
185
that the contract was to be non-transferable, the absence of
a specific clause forbidding transfer was not conclusive.
Virjee Daya & Go. v. Ramak!-ishna Rice & Oit Mills,
A. I. R. 1956 Mad.110, approved.
British Waggon Go. v. Lea, (1880) 5 Q. B. D. 149, distinguished.
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 HJ60,
•
I
Appeal from the judgment and order dated
April 16, i958, 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
lndin, JYl. G. Poddar. and D. N, Mukherjee, for the
appellant.
0. B. Aggarwala and S, N. Mukherjee, for the
resopondent,
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 t0 tpay 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 Jut~.
On September 7, 1955, they entered into a contract
"'ith t.he rts:pondents who are doing husineBS 8.!'I
1H2
Kh<Jrdah Com/Jany
Utl.
v.
Raym .. d4 <Jo.
(India) Pol. Lid.
Aiyar J,
1962
EhardoA Company
Ltd.
v.
Raymon <h Co.
(lndia) Pvt. Ltd.
Ai70r J.
186
SUPREME COURT REPORTS [1963]
dealers in jute, for the purchase of 7 50 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 bales 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 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. 41,25(} 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 thereunder before the Chamber of
Commerce and the award in which they resulted
were all void. The learned Judge on the origiaal
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
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 held
that the contract dated September 7, 1955, was
illegal as it fell within the prohibition of the
notification aforesaid and accordingly allowed the
l ppea~ ~4 .set ae}de the a.ward. The appellaμt~
I
)
I
'
3 S.C.R.
SUPREME COURT REPORTS
187
then applied for a oertifi.ca.te 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 appelll\.nts urged the following
contentions :-
(1) On the terms of the arbitration clause the
question whether the contract dated September 7,
1955, is illegal 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
arbitrators,
(3) The agreement dated September 7, 1955,
is a non-transferable specific delivery contract
within s, 2(f) of the Aot and it is not hit by the
notification dated October 29, 1953We now proceed to discuss these questions
seriatim :
( 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 contra.ct 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 bas been termipated or ,vur}:lorted to be ter:piinated or oo~-
Khardah Ce111;any
Lkl.
v.
Raym011 d: Co.
(India) Pot. Ltd.
Aiyar J.
1661
---
Khori•h Company
LIN.
v.
Ra;ymon-aJ Co.
(India) Pvt. Ltd, ·
d.ijar J.
188
SUPREME COURT REPORTS [1963)
· 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 accord·
ing .to snob 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 c.ontention 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 respon
dents is to agitate this question before the arbitrators and if the award goes agafost them to move
the Court either to modify it under s. 15 of the
' Arbitration Act or to remit it under s. J 6 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 cl. 14 are of sufficient
amplitude to take in a dispute as to the validity
of the a,greement dated September 7, 1955
Vide
Ruby General Insurance Go. Ltd. v.
Pearey Lal
.Kumar ( 1). But the question is not whether cl. 14
is all comprehensive but whether it could be enforped when the argeement 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 llad, any portion of it can
held to be good.
When the whole perishes, ite
parts also must perish. 'Ex nihilo nil fit'. On
principle therefore it must be ~eld that w~el\ ~
·
pl 11952) s.c.R. SOf: ·
... ~/
3 S.C.R.
SUPREME COURT REPORTS
189
argeement is invalid every pa.rt of it including the
clause as to arbitration contained therein must
also be invalid.
That indeed is what haR 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. Daowins 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 Jn the subject Viscount Simon, L. C.
observed: "If the dispute is whether the contract
which .contains the clause has ever
bee1a entered
into at all, that issue cannot go to aribitration
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 bindinll 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 to1'
or "under" the contract, and an arbitration clause
which uses these, or similar, expressions should be
construed accordingly."
( 1) (1942) A.C. 356.
IHI
Khardah CMlll•ii.11
1:,,,,
v.
Raym,on • c.,
(In,ia) Pt11. Lt~.
Aiyar J.
·1P6S
Khard•h· Company
Ltd.
••
Ro )'llUn d: Oe.
(I1dia) P,t. _Ltd.
..4{1a1 J.
190
. Str:PltEME COURT REPoRTS (1963]
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 cover·
ed by an arbitration clause in the challenged con·
tract. 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 thJ 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 dependll
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 oUI 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,
..
I
-
~ S.C.R.
SUPREME COURT REPORTS
191
or whether the .alleged contract is binding on them.
I see no reason why they 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 col lateral 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 it is possible that both
these agreements might be
contained in one
document.
lflJB
Khardah aom;a11y
Lid..
"'·
Roym•n th Oo,
(India) hi. LU.
.A~ar J.
lt·~_ardah C1m;11n:;
Lid.
v.
r a;·~on "' c •.
(/n¢i&j Pvt. li!g·
Aiyar J.
192
SUPREME COURT REPORTS [1963]
The law is thus summarised in Halsburys
Laws of England, Third Edition, Vol. 2, p. 24, para .
56: The matter in question in the legal proceed·
ings 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
cont11ining the clause was ever entered into at a.ll,
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 inthe Union of India v. Kisharilal Gupta and'13rothers(1)
where on an examination of the authorities; including Heyman v. Darwins LU.(') this Court held
that an arbitration clause embodied in an agreement
is an integral part thereof and that if that agreement is non est either because it waB .never legally
in existence or because it was void ab initio, then
the arbitration clause would also
perish witJ;i. it.
Similar decisions had beeμ given in Tolaram Nathmull v. Birla Jute Mfg. Company Ltd.(3 ) and Hussain
Kasam
Dada
v. . Vijayanagaram
Oommercfal
· .Association (•).
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. (').
The scop1 of s. 33 came up for consideration before
this Court in Shiva Jute Baling LU. v. Hindky &
Oo. Ltd. ( •). .There a petition had been filed under
that section praying inter alia for a declaration that
the cohtraot between the parties containing an
1
(1) [1960] l S.C.R. 493.
(2) l.L.R. [1948] 2 Cal. 171.
(9) A.l.R.19.45 Mad.528. 5Sl.
(4) [1960] l S.C.li. .589.
(5) (1881) !IO Law.j. Rep. (N.S.) Bantr.10.
r
s s.c.R.
SUPREME COURT REPORTS
193
arbitrathn 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
thef'\e were questions for
decision by Courts and
not by arbitrators.
We are accordingly of the
opinion that the dispute that the contract dated
Septem her 7, 1!:155, is illegal and void is not one
which the arbitrators are competent to decide
under cl. 14 and that in ronsequonce the respondents
are entitled to maintain the present application
under s. 33 of the Arbitration Act.
(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
them.
The decision in Exp. 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 agretiment 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 in~o the arbitration. ln rejecting this contention the Court observed that under
the law the agreement was binding on J1r. 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 be 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 hear the
dispute was complet", rnd that was not affected by
the failure of the a sig11ee to obtain the requisite
( 1) (1861) SO Law J. . e l'o (N.S.) Banke. 10.
196B
Khardah Company
Ltd.
...
Raymon &: Co.
(India) Pot. Ltd.
. ' 1961
K'hqrikJh Cmnpany
Ltd.
v.
, Raymon &t
•
\India) Pvt.Ltd,
194
SUPREME COURT REPORTS [1063)
leave because that was a matter between him and ·v
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 agrnement apart from and
independent of cl. 14 of the contract dated Sep-
>-"'
tember 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 responjents acquiesced in the ,
proceedings. But what confers jurisdiction on the
arbitrators to hear and decide a dispute is an arbi-
~
tration 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 0) has been
understood ~s 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 ths relevant statutory provisions
bearing on -this question. Section 2( i) of .the Forward
Contracts
(H.egulation)
Act, 1952, (Act 74 of
1952)
hereinafter
referred to as
'th~
Aot'
(I) (1861) sOLawJ.Rcf. (N,S.) Bankf, .Io •
--·
~ s.c.it.
SUPREME OOURT REPORTS
195
defines
'ready
delivery Mntract' as meaning
"a contract which provides for the delivery
of goods
and the payment of .a price therefor, 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-transfe:able 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 non-transferable specific delivery
contract".
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:
' 115(1) The Central Government may by
notification in the Official Gazette, declare
thia section to apply to such goods or class
of goods and in such areas as may be specified in the notification, and thereupo.n, 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
Khardah Com;any
Lid.
v.
flaymott & Co.
(India) Pvt. Lrd.
..iiJi•r J.
196B
Khardah Company
Lid.
i'
v.
:Raymon & Co.
Hndia) Pvt •. Ltd.
A!,var .J.
i96
SUPREMECOlJRT REPORTS [1963] .
th(lrein 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
s. 15( 1) it is provided in s. 16 tha,t all forward con·
tracts falling within the notification shall be deemed
to be closed out and thri t "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:-
" 17(1 ).
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,
e:x:cept to the e:x:tent and in the manner, if
any, as may be specified in the notification.
( ") All
forward contracts in · contravention of the
provisions of sub-sectidi;i
(1) entered into after the
date of publication of the notification thereunder shall
be illegal.
.
(3) Where a notification has been issued
under sub-section (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 ariy
goods specified in the notification under section 15."
-
'
-
3 S.C.R.
SUPREME COURT REPORTS
197
Section 18(1) provides that these provisions shall
.not apply to non-transferable Epecific delivery
contracts for the sale or purchase of any goods.
To analyse the scheme of the Act; it divides
~ontracts 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
divi«;Ied into 'transferable specific delivery contracts'
and 'non-transferable specific delivery contracts.'
Section 18( l) 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 issu~d under the Act.
Such a notification was issued by the Central
Government in cxerci~e of the powers conferred by
s. 17 of the Act, on October ·29, 1953. It is as
follows:-
•
f
"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 declarrs 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
non-transferable specific delivery contracts
for the sale or purchase of raw jute entered
into before the date of this notification and
remaining tc l:e rnfcimtd after the said date
1962
Khatdah Company
Lid.
v.
Raymon & Co.
(India\ Pvt. Ltd.
1962
Kliertiala Company
Ltd . ..
Raym1n t6 CfJ.
( India) Z'vt. Ltd.
Aiyar J.
198
SUPREME COUR.T REPORTS [1963)
shaU be deemed to be 'closed out at the rate
prevailin~ at the time at which the Forward
Market closed on the saiil 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 (I) 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
1tppeals was entered ·into on September 7, 1955,
when the uotification aforesaid was in force, and
so it would be hit by it, unless it is a non-transfer·
able 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. isfixed. What is in controversy is whether
it is transferable or non-transferable.
There was
considerable argument before us on the question as
to assignability 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
obligation8 thereunder .. But there is a well·re'cognised 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
rea\ly a novation resulting in substitution of liabilities. On the other hand rights under a contract
"re 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
partje1J1
·
' '
' · · ' · ·
.... .,.
..
'
-
'
3 S.C.R.
SUPREME COURT REPORTS
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 get 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 wer~ examined
by
this Court quite
recently ia Daya v. Joint Controller of Imports and
Exports (1) and it is unnPcessary to repeat them. It
is sufficient for the presPnt purpose to st\tte that
the issue of import lirJences 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 ,,f jute occupies the pride of place
among the industries of West Bengal.
Raw jute
required for the business is largely imported from
Ea.st 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 w'hich 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 062290/52 which is in the standard
(I) (I 963) 2 S.C.R. 7a.
196:.
Khardah Company
Ltd.
v.
Raymon dt Co;
(India) Pvt. Ltd.
Aiyar J.
. 1.962
Khardalf€ump&ny
Lli.
v.
Ra,mn II Co.
(I nlilo) ~ol: Lt«.
200
SUPREME COUR;t' REPORTS [1963]
form is, so far as it is material for the present discus.sion, as follows :-
"Import Trade Control.
Office of the Joint Chief Controller of
Imports, Calciutta.
Licence No. A 062290/52/A.U./C.C.I/C.
For Exchange Control purposes only.·
'> •
Class of Importer.
Actual User or Contract.
(Valid at any Ii°tdian Port).
(Not transferable except under a Jetter of
authority from the authority who issued the
licences' ,or from any Import Trade Controller). Messrs .. Khardah Co. Ltd. of 7, Wellesle~ Place, Calcutta are hereby authorised to
import the good8 of which particulars are
given below :-.
I. Country from which consig: .
ed
· ·
Pakistan ·
\... -
2.
Country of origin
,,
3.
Description of goods
.... Raw Jute
4.
Serial No. and part of the
I.T.C. Schedule
... 174-IV
5.
Quantity
50,000Mds.
(Fifty thousant
maunds 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 holder's factory and that no por-
'y r'
0 tioμ t1ierrof 'IVill bl' rnld to an! partr."
•
. "
3 S.C.R.
SUPREME COURT REPORTS
201
It will be n~ticed 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
aesignment of the contract by the buyers. That is
not disputed.
Turni~g 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 surrounrling circumstances, and especially of
the import licenc~, and that if that is done, the proper 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 iR
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 f!ought to be de1foced from
cl. 12 of the C')ntract.
That clause providPs that if
either or both the parties to the contract are members of the Indian Jnte Mills Association and if
either of them is placed in the disapproved list of
Association then the contract shall be deemed to
1962
Khardah Oompany
Lid.
v.
Raymon& Co.
(India) Pol. Ltd.
1961
Ehardah Campany
Ltd. .. .
Raymon &: Co.
(Inda) Pvt . .Gld.
A{varJ.
202
SUPREME COURT REPORTS [1963)
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 l 4, 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 i~ settled law that an
arbitration clause doe9 not take away the right of
·a party to a contract to assign it if it is otherwise
assignable. Vide Slwyler v. Woolf (1) and Russel on
Arbitation, 16th Edition, p. 65.
It is also argued that the rights conferred on
the sellers under cl. 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 noes not conclude the question. There is in .
law a clear distinction bepween 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. Tile letter is a mere
claim for damages which cannot be assigned in law,
the former js a benefit under an agreement, which
is capable of assignment. The fact therefore that
the rights under cl. 8 are incapable of assignment
does not stand in the way of the respondents assigning their rights to receive the {!rice after they 4aq
performed their obligations.
'
p> p946) ~ Alj, ,.,.. ~· 5t·
-
•
3 S.C.R.
SUPREME COURT REPORTS
203
That brings us on to cl. 3 on which the appellants mainly. 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 Eeller 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 he 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 thP decision
British W aggon
Go. 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 contra.ct.
In 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 Oo. v . .Leg( 1), the faots
(I) (1880) 5 Q,B.D. 1491 JSt.
1962
Khardah Oompa•.1
Ltd • ..
Raymon & Ca.
(India) Pvt. Ltd.
Aiyr.rJ,
•
1962
Khardah Compciny
Ltd.
i
v.
Rnymon c6 Co.
(Jndio) Pvt. Ltd.
Af)'ar J,
•
204
SUPREME COURT REPORTS [1963]
.