# Ktiithaiyalal v. Dr. D. R. Banafi and Others

- **Citation:** [1959] 1 S.C.R. 346
- **Court:** Supreme Court of India
- **Decided:** 1956-03-19
- **Bench:** BHAGWA'rI, J. L. Kapur, Gajendragadkar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/ktiithaiyalal-v-dr-d-r-banafi-and-others-1637
- **Pages:** 22

## Headnote

Cotton, Contracts-Cotton Association-Statute providing for
cotton contracts to be in accordance with the by-la121s of the Association
-By-laws prescribing Forms of Contract-Substantial compliance
with Form-V aUdity of the contracts-Bombay Cotton Contracts Act,
x932 (Bom. IV of I932), s. 8(I).
·
Sub-section~r) of s. 8 of the Bombay Cotton Contracts Act,
r932. provides: "Save as hereinafter provided in this Act, any
contract .... which is entered into after the date on which this
Act comes into operation and which is.. not in accordance with the
by-laws of any recognized cotton association shall be void".
In respect of the transactions in cotton entered into bet\veen
the parties, the appellants had to pay the respondents a sum of
money for failure to gi\'e delivery of the cotto~1 bales under the
•
r
.,
S.C.R.
SUPREME COURT REPORTS
347
contracts, but the payment was made without prejudice to the
rights and contentions of the parties. Subsequently, the appellants sued the respondents for recovery of the amount on the
footing that the contracts were void under s. S(r) of the Bombay
Cotton Contracts Act, r932, as· being not in accordance with the
by-laws of the East India Cotton Association Ltd., of which both
the parties were members, inasmuch as the contract notes did not
comply with the terms contained in the official contract form pro-
"ided by the by-laws of Association, by reason of the omission
to fill in the blanks relating to measurements and difference above
or below the settlem~nt r!lte. ·The respondents contended that
the relevant provisions contained in the official contract form had
either become obsolete or were suspended at all material times.
The evidence showed that according to the practice of the trade the
parties to the contract were not tied down to a literal compliance
with the terms contained in the official contract form but were
required to act according to the position as it then obtained and
that it was sufficient if they substantially complied with the
requiJ"ements of the contract form :
Held, that in the circumstances of the case the official contract form had to be filled in so far as it was practicable and that
the omission to fill in the blanks in the contract notes did not
spell any departure from an essential or a characteristic part of
the contract form ; consequently, the legal effect of the contracts
was not in any manner changed so as to render the contracts
void as not being in accordance with the by-laws of the Association, within the meaning of s. 8 of the Bombay Cotton Contracts
Act, r932.
•
Radhakisson Gopikisson v. Balmukund Ramchandra, (r932)
L. R. 60 I. A. 63, relied on.
CIVIL APPELLATE .JURISDICTION: Civil Appeal No.
398of1956.
Appeal from the judgment and order dated March
19, 1956, of the Bombay High Court in Appeal No. 45
of 1955, arising out of the judgment and order dated
March 23, 1955, of the said High Court in its Ordinary
Original Civil Jurisdiction in Suit No. 468of1951.
M. C. Setalvad, Attorney-General for. India, N. P.
Nathwani, J.B. Dadachanji, S. N. Andley and Rameshwar Nath, for the a pp~llants.
Purshottam Tricumdas, K. K. Desai and J. N. Shroff,
for the respondents.
1958. March 31.
The Judgment of the Court was
delivered by .
...
Gordhandas
Purshottamdas
Sonawala
v.
Eastern Colton
Company
Gordhanlas
Purshqttamd~s
~f!n.a.t:al!i
v.
E~~!~r.n · Cott<?n
<:;9~~tiny
Bho.gwati ].
348
SUPREME COURT REPORTS
[1959]
BHAGWATI J.-This appeal with a certificate of
fitness is directed against the· judgment and decree
passed by the High Court of Judicature at Bombay in
appeal from its ordinary Original Civil .Jurisdiction
confirming, though on different grounds, the judgment
and decree passed by a single Judge of that High
Court in Suit No. 468 of 1951 instituted by the appellants (Original Plaintiffs) to recover from the respon'.
dents (Original Defendants) a smp of Rs. 1,80,099-8-0
with interest and costs.
'
Since the year 1932 the first appellant has been a
member of the East India

## Text

_Characters 0–39,553 of 49,364. This is a partial read: ask again with offset=39553 for what follows._

Ktiithaiyalal
v.
Dr. D. R. Banafi
and Others
Sinha ].
346
SUPREM.E COURT REPORTS
[1959]
of infringing the souml principle discussed above. But
the absence of the leave of the Court and of the
necessary notice to the Receiver, makes all the
difference between a valid and an illegal sale. The
High Conrt has also relied upon the well-known rule of
natural justice-audi alteram, parteni-as another
reason for holding the sale to be illegal. It is not
necessary for the purposes of this case to pronounCJ)
upon the difficult question of how far a principle of
natural justice can override the ~pecific provisions of a.
statute .
.E'or the reasons given above, we agree with the High
Court in its conclusion that the auction-sale impugned
in this · case, was illegal, and that the suit was not
barred'by the provisions of the Code.
The appeal is,
accordingly, dismissed with costs to the ReceiYer who
alone has contested the appeal.
•
Appeal dismissed.
, 958
G<'.>RDHANDAS PURSHOTTAMDAS SONAVVALA
lvlarclt 31.
AND ANOTHER
v.
THE EASTERN COTTON COMPANY
(BHAGWA'rI, J. L. KAPUR and GAJENDRAGADKAR JJ.)
Cotton, Contracts-Cotton Association-Statute providing for
cotton contracts to be in accordance with the by-la121s of the Association
-By-laws prescribing Forms of Contract-Substantial compliance
with Form-V aUdity of the contracts-Bombay Cotton Contracts Act,
x932 (Bom. IV of I932), s. 8(I).
·
Sub-section~r) of s. 8 of the Bombay Cotton Contracts Act,
r932. provides: "Save as hereinafter provided in this Act, any
contract .... which is entered into after the date on which this
Act comes into operation and which is.. not in accordance with the
by-laws of any recognized cotton association shall be void".
In respect of the transactions in cotton entered into bet\veen
the parties, the appellants had to pay the respondents a sum of
money for failure to gi\'e delivery of the cotto~1 bales under the
•
r
.,
S.C.R.
SUPREME COURT REPORTS
347
contracts, but the payment was made without prejudice to the
rights and contentions of the parties. Subsequently, the appellants sued the respondents for recovery of the amount on the
footing that the contracts were void under s. S(r) of the Bombay
Cotton Contracts Act, r932, as· being not in accordance with the
by-laws of the East India Cotton Association Ltd., of which both
the parties were members, inasmuch as the contract notes did not
comply with the terms contained in the official contract form pro-
"ided by the by-laws of Association, by reason of the omission
to fill in the blanks relating to measurements and difference above
or below the settlem~nt r!lte. ·The respondents contended that
the relevant provisions contained in the official contract form had
either become obsolete or were suspended at all material times.
The evidence showed that according to the practice of the trade the
parties to the contract were not tied down to a literal compliance
with the terms contained in the official contract form but were
required to act according to the position as it then obtained and
that it was sufficient if they substantially complied with the
requiJ"ements of the contract form :
Held, that in the circumstances of the case the official contract form had to be filled in so far as it was practicable and that
the omission to fill in the blanks in the contract notes did not
spell any departure from an essential or a characteristic part of
the contract form ; consequently, the legal effect of the contracts
was not in any manner changed so as to render the contracts
void as not being in accordance with the by-laws of the Association, within the meaning of s. 8 of the Bombay Cotton Contracts
Act, r932.
•
Radhakisson Gopikisson v. Balmukund Ramchandra, (r932)
L. R. 60 I. A. 63, relied on.
CIVIL APPELLATE .JURISDICTION: Civil Appeal No.
398of1956.
Appeal from the judgment and order dated March
19, 1956, of the Bombay High Court in Appeal No. 45
of 1955, arising out of the judgment and order dated
March 23, 1955, of the said High Court in its Ordinary
Original Civil Jurisdiction in Suit No. 468of1951.
M. C. Setalvad, Attorney-General for. India, N. P.
Nathwani, J.B. Dadachanji, S. N. Andley and Rameshwar Nath, for the a pp~llants.
Purshottam Tricumdas, K. K. Desai and J. N. Shroff,
for the respondents.
1958. March 31.
The Judgment of the Court was
delivered by .
...
Gordhandas
Purshottamdas
Sonawala
v.
Eastern Colton
Company
Gordhanlas
Purshqttamd~s
~f!n.a.t:al!i
v.
E~~!~r.n · Cott<?n
<:;9~~tiny
Bho.gwati ].
348
SUPREME COURT REPORTS
[1959]
BHAGWATI J.-This appeal with a certificate of
fitness is directed against the· judgment and decree
passed by the High Court of Judicature at Bombay in
appeal from its ordinary Original Civil .Jurisdiction
confirming, though on different grounds, the judgment
and decree passed by a single Judge of that High
Court in Suit No. 468 of 1951 instituted by the appellants (Original Plaintiffs) to recover from the respon'.
dents (Original Defendants) a smp of Rs. 1,80,099-8-0
with interest and costs.
'
Since the year 1932 the first appellant has been a
member of the East India Cotton Association Ltd.,
{hereinafter referred to as" the Association ")as the sole
proprietor of the firm of Messrs. N arrondass Manordass
(hereinafter referred to as "the member firm"). The first
appellant along with other partners carried on busUiess
in partnership in Bombay inter alia as Cotton Merchants and Commission Agents in the name and style of
Messrs. Narrondass Manordas", the ·2nd appellant
(hereinafter referred to as " the partnership firm").
The respondents are a partnership firm and also a
member of the Association.
Between September 23, 1947, and December 10,
19lt7, the member firm sold to the respondents 2,300
bales of Broach Vijay Fine 3/4"Navsari and/or Bardoli
7 /8" Cotton for March/April 1948 Delivery. Out of
.these 2,300 bales, 1,100 bales were disposed of by
means of " Ha valas " and in respect of 500, out of the
remaining 1,200 bales, there were cross-contracts. In
the result when the time for "Delivery" arrived, sales
in. respect of 700 bales remained outstanding and the
member firm was liable to give delivery of 700 bales to
the respondents. As however, the member firm failed
to give delivery of the said 700 bales to the respondents, under the relevant by-laws of the Association,
the respondents " Invoiced Back " these 700 bales to
the member firm on May 3, 1948, and as a result of
this " Invoicing Back" a sum of Rs. 1,07,530-8-0 became due and payable by the member firm tg the
respondents and with regard to the transactions of all
the 2,300 bales taken together an aggregate sum of
Rs. 1,79,749-8-0 became due and p'ayable by the
•
-
'
I
S.C.R.
SUPREME COURT REPORTS
349
member firm to the respondents. In respect of this
sum of Rs. 1,79,749-8-0, the respondents sent to the
member firm eight separate " Debit Notes" in respect
of yarying amounts and finally a consolidated debit
note for Rs.1,79,749-8-0.
It appears that the contract notes in respect of these
transactions had been signed by one Ramanlal Nagindas who had been employed as a salesman in the
Ready Cotton Department of the partnership firm.
The appellants contended that the said Ramanlal
Nagindas had no authority to enter into the said transactions or to sign, contract notes in respect thereof on
behalf of the appellants and also that the said contracts
were not in accordance with the by-laws of the Association and they therefore denied their liability in
respect of the said transactions. The partnership firm,
however, as the beneficiary under the said contracts
decided to pay the amounts claimed by the respondents without prejudice to the rights and contentions
of both the parties. On May 7, 1948, the said sum of
Rs. 1,79,748-8-0 was paid by the partnership firm and
was received by the respondents in terms of the letter
addressed by the respondents on the said date :-
' .
" The payment is made by you and accepted
0by
us without prejudice to the rights and contentions of
both the parties in respect thereof. "
A further sum of Rs. 350 being the amount of penalty
for the alleged failure to tender the aforesaid 700 bales
of the said contracts of Broach/Vijay March/April
1948 Delivery, was also paid by the partnership firm
to the respondents on June 6, 1948, without prejudice
to their aforesaid contentions.
The said Ramanlal Nagindas had entered into
similar transactions with several other merchants and
so.me of them claimed arbitration unde:tt by-law 38-A
of the Association. Petitions were thereupon filed by
,the member firm in the High Court at Bombay being
Petitions Nos. A/51, A/52, A/55 and A/56 of 1949
uncle; s. 33 of the Indian Arbitration Act inter alia for
a declaration that there existed no valid and enforceable arbitration agreement between the parties. Mr.
Justtce Shah delivered ju?gment in the said petiti~ns
-
z958
Gordhandas
Purshottamdas
Sonawala
v.
Eastt·rn Cot,on
Company
Bhagwati ].
Gordhandas
Purshottaindas
Sonawala
v.
Eastern Cotton
Company
Bhagwati .T.
350
SUPREME COUR.T REPORTS
[1959]
on August 20, 1950, holding inter alia that the said
contracts were void as being not in accordance with
the by-laws of the Association and allowed those
petitions. The respondents to the petitions thereupon
filed petitions under Art. 1:36 of the Constitution for
special leave to appeal to this Court against the said
judgment of Mr. Justice Shah. 'rhesc petitions were,
however, dismissed by this Court on or about April 6,
1951.
•
The appellants thereafter by their attorney's letter
dated May 2, 1951, called upon the respondents to
return the said sum o± Rs. 1,80,099-8-0 (being the
aggregate of the said two sums of Rs. 1, 79,749-8-0 and
Rs. 350) with interest thereon a.t the rate of 6 per cent.
per annum. The respondents failed and neglected to
pay to the appellants the said sum or any part thereof
with the result that on May 7, 1951, the appellants
filed the suit against the respondents for repayment to
them of the said sum with interest and costs.
In the plaint as filed the appellants averred that the ·
said contracts were void under the Bombay Cotton
Contracts Act, 1932, as being not in accordance with
the by-laws of the Association inter alia in the following respects: (1) The contract notes produced by the
respondents omitted to state the difference of Rs ........ .
above or below the settlement rate of hedge contracts
for the purpose of periodical settlements as required
by by-laws 139 and 141; and (2) no provision was
made in any of the aforesaid contract notes with
regard to the measurement of bales as required by the
official form for delivery contracts prescribed in bylaw 80 .
. // The respondents in their written statement contendl'ed that there was no by-law which required any person
to agree upo11 any difference above or below ·the
settlement rate of hedge contracts for the purpose of
periodical settlements and to $tate the same. They
further contended that the relative provisions contained in the official contract form had become ohllolete
as at all material times there were no hedge contracts
bearing different numbers and in pr.actice the said
co.ntracts were not put thr01;igh periodical settlements .
.
-
\
S.C.R.
SUPREME COURT REPORTS
351
They also contended that at all material times there
was no by-law which required any person to agree
upon any specific measurements in respect of the bales
agreed to be purchased inasmuch as the operation of
by,law 101 in regard thereto had been suspended by
the Board since November 30, 1942.
After the suit/ reached hearing the appellants
a.mended the plaibt by averring that by reason of the
said payments having been made by them and accepted by the respondents.without prejudice to the rights
and contentions of both the parties there was an
implied agreement between them that in the event of
t;i.e appellant's establishing that they were not bound
to pay the said sums to the respondents and that the
respondents were not entitled to the payment thereof
the. respondents would repay or return the same to the
appellants. This plea was traversed by the respondents in the supplemental written statement which
they filed.
·
The learned trial Judge followed the judgment of
Mr. Justice Shah and held that the omission of the
clause regarding measurement · in the contract notes
did / not alter the character or legal effect of the
contracts. He similarly held that the omission of apy
reference in tlie contracts to the amount of difference
above or below the settlement rate of hedge contracts
in the last term of the contract notes rendered the
contracts void.
He however was of the opinion that
there was no implied agreement between the parties of
the nature alleged by the appellants and that the payment made by appellants to tne respondents was
voluntary and therefore dismissed the appellants' sttit
with costs.
The appellants preferred an appeal against . this
decision and the appellate Court dismissed the appeal
and confirmed the decree passed by th~ learned trial
Judge, though on different grounds. The appellate
Court agreed with th~ learned trial Judge that / the
omission of the term regarding, measurement ii{ the
contra.ct notes did not affect the character or legal
effect of the contracts. In regard to the omission to
fill-up the differ.ence above or belo'Y the settlement rate
•
-
Gordhandas
Pitr shottamdas
Sonawala
v.
Eastern Cotton
Compmiy
Bhagwati J.
Gordhandas
Pttrshottamdas
Sonawala
v.
Eastern Cotton
Contpany
Bhti.gwati ].
352
SUPREME COURT REPORTS
[1959]
fixed for the hedge contracts in the last clause of the
contract notes, however, the appellate Court was of
the opinion that there was no obligation on the parties
to agree to add or deduct the difference above or below
the settlement rate as contended by the appellants.
If the parties did agree then the contract form provided that the agreement should be set out therein.
If, however, they did not agree then the first part of
cl. (2) of by-law 141 would come into play and the
settlement of the delivery contract would' go through
on the basis of the settlement rate elf the hedge
contract. The omission to fill-up the· difference was
thus of no consequence and did not invalidate tlte
contracts. The appellate Court also differed from the
trial Judge on the question of the implied agreement
and held that if the appellants succeeded in establishing that the respondents were not entitled to rooeive
the payments the respondents were bound to repay the
sums paid by the appellants to them. In view, however, of the conclusion reached that the contracts
were not void, the appellate Court dismissed the
appeal.
The provisions of the Bombay Cotton Contracts
AQt, 1932 (Bom. IV ofl932) and the by-laws of the
Association which fall to be considered by us may now
be referred to :-
Section 8(1) (Bombay Cotton Contracts Act, 1932):
"Save as hereinafter provided in this Act, any
· contract (whether' either party thereto is a member of
, a recognized cotton.association or not) which is entered
into after the date on which this Act comes into
operation and which is not in accordance with the
by-laws of any recognized cotton association shall be
void."
By-law 80 of the Association:-·
"Forward, contracts between rnernbers how made :
Delivery Contracts between members shall be made on
the official form given in the A.ppendix. Hedge contracts between members may be verbal or in writing
and when in writting shall be in one or other Qf the
forms given in the Appendix.
Whether verbal or
written all contracts shall be subject to the by-laws,
•
-
•
S.C.R.
SUPREME COURT REPORTS
353
provided that in the case of Delivery Contracts
By-laws 149 to lti3 inclusive shall not apply.
The specimen of the official contracts form in triplicate
as used in 1947-48 (Vide Exhibit" D ") contained the
following terms amongst others :-
No. Contract Note
No.
Contract Note
JJ:rom
Brokers ]from
Brokers
To Messrs..................
To Messrs .................... .
We have
this !lay
We have this day sold
bought by your order by your order and for your
and for your account subaccount subject to the Byject to the By-laws of the laws of the East India
East India Cotton AssoCotton Association Ltd.
ciation, Ltd., ]'rom Messrs. To Messrs ... ( ... ) bales of ...
......... ( ...... )bales of...... Cotton ... at Rs ... per candy,
Cotten at Rs ... per candy, delivered in Bombay in
delivered in Bombay in full pressed bales.1l:leasurefull pressed bales.
J.feament...ton:S/per 100 bales.
surement ...... tons/per 100
bales.
. .
.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............. " ...........
~ ......... .
(For delivery contracts
(For delivery contracts
only). For the purpose of only).
For the purpose ·Of
periodical settlement of this periodical settlement of this
contract we agree to a contmct we agree to a differdiff erence of Rs ...... above/
ence of Rs ... above/below the
below the settlement rate of settlement rate of hedge conhedge contract No.
tract No.
Remarks ... Bombay ... 194 Remarks ... Bombay ... 194 .
The contract notes which are rendered between t.b.e
member firm and the respondents, however, contained
no term as to measurement and so far as the last clause
was concerned.the blanks in regard to the difference
of Rs ......... above or below the settleJpent rate of
hedge contract No ............ were not filled in.
The relevant by-laws in connection with these two
terms contained in the official contract form were hylaw 101, and by-laws 139 and 141 :-
•
By-law: 101.
Claims for excess measurement.
In respect cJf all Forward Contracts, meaaureme~t
45
•
-
Gordhandas
Purshottamdas
Sonawala
v.
Eastern Cotton
Company
Bilagwati ].
Gordhandas
Purshottarndas
Sonawala
v.
Eastern Cotton
Co>npany
Bhagwati ].
354
SUPREME COURT REPORTS
[1959]
shall approximate 13! tons per 50 bales provided that
in respect of Forward Contracts, other than Hedge
Contracts, the parties may agree upon any other
measurement. In all Forward Contracts, for any port
the rate or rates of freight for any excess measurement
over 13! tons per 50 bales shall be fixed by the Board
from time to time and unless otherwise fixed the rate
for such excess for all ports shall be Rs. 15 per ton rn
respect of each lot of 50 bales measuring more than
13! tons but not more than 14! 'tons and in respect of
each lot of 50 bales measuring more than 14! tons
Rs. 35 per ton for any excess over 13! tons.
No allowance for excess measurement shall be
payable by the seller:-
(a) unless the buyer has given to the seller
reasonable notice fixing an appointment for measurement, or
'
(b) unless the buyer submits a claim to the seller
within 6 weeks after the complete lot has been weighed
over.
The Board shall have power from time to time
and at any time to suspend the operation of this Bylaw as regards measurements.
By-l,aw: 139.
" Settlement Days. All Delivery Contracts other
than those excepted under By-laws 136 and Hedge
Contracts shall be subject to periodical settlements
through the Clearing House and in every case the
parties to the contract must be members of the Association. Settlements of differences due on open contracts
and of other liabilities to be settled through the Clearing House shall be made once weekly on days which
shall be fixed by the Board and notified in a calendar
to be published annually.
.
The day 011 which Balance Sheets are required to be
submitted to the Clearing House shall be known as
Settlement Day."
By-l,aw: :t41.
Settlement rates.-(1) For the purpose of these settlements, settlement prices for all positions of the Hedge
Contract shall be fixed by the Board on or about the
third working day immediately preceding Settlement
'
•
-
..
S.C.R.
SUPREME COURT REPORTS
355
Day. The prices so fixed shall be 1 P. M. prices on the
day of fixation.
(2) In the case of Delivery Contracts, the settlement price of the Hedge Contract shall be the basis for
the periodical settlement. Such allowances as shall be
agreed upon by the parties in their contract to cover
any difference, between the cotton contracted for and
the cotton which is the basis of the Hedge Contract
shall be added to or deducted from the said settlement
price. In the case oicontracts for descriptions which
are not tenderable against the Hedge Contract the
parties may either agree in their contract upon an
allowance above or below the Hedge Contract for the
purpose of their periodical settlement or may apply to
the Board to fix settlement rates.
Tlie only question for our determination in this
appeal is whether the contracts between the parties
were not in accordance with the by-laws of the
Association and therefore void. There is no doubt that
all the contracts were subject to the by-laws of the
Association. The question still remains whether they
were in accordance with the by-laws because if they
were not in accordance with those by-laws they would
be void. The expression " not in accordance with "
has been the subject of judicial interpretation in
Radhakisson Gopikisson v. Balmukund Ramchandra (1).
Their Lordships of the Privy Council there held that
the form prescribed was not a stereotyped one and
that literal compliance with it was not essential. The
only thing required was that the contract notes mu.st
contain all the terms and conditions set out in the
form in order to comply with it. Their Lordships were
of the opinion that substantial compliance with the
form would be enough and if such suffi.cient compli1tnce with the by-laws was found in a particular case
that would save the contracts from being declared
void as not being in acoordance with the by-laws.
It was, however, urged on behalf of the appellants
that by-law 80 prescribes the form in which the con-
.tracts were to be entered into and all the terms and
(1) (1932) L.R. 6o I.A. 63.
•
-
r958
Gordhandas
Purshotta>ndas
Sonawala
v.
Eastern Colton
Company
Bhagwali ].
Gordhandas
Purshottamdas
Sonawala
v.
Eastern Cotton
Coinpany
Bhagwati ].
356
SUPREME COUR,'l' REPORTS
[1959]
conditions incorporated in the official contract form
had to be strictly complied with, that the omission of
the term as to measurement as also the omission to
fill in the blanks in regard to difference of Rs ...... above
or below the settlement rate of hedge contract No.
.. ......... · ....... were such departures from the form
prescribed as would render the contracts void because
it could not be then said that there was sufficient com~
pliance with the statutory form.
Reliance was placed
in support of this contention tm Burchell v. Thompson (1 ), Ex parte Stanford, In re Barber (2), Thomas v.
Kelly (3) and Parsons v. Brand & Gauls v. Dickson(').
The principle emerging from these decisionR was
enunciated to be that if the document executed by and
between the parties departed from a characteristic
part of the form prescribed or made a difference in the
legal effect of the instrument, it would not be in accordance with the form and would therefore be void. It
would all depend upon the materiality of the particular term which is incorporated in the form. If the
non-compliance with the requirements of the form
were such as to make the document something else by
reason of a characteristic part of the form not being
followed or the document would lose some legal effect
which it would have had if the proper words had been
inserted therein, it cannot be said that there is substantial compliance with the statutory form.
Considering the term as to measurement in this
light, it appears that the same had its basis in the
requirements of the trade in regard to the pressing of
the bales.
The bales which were the subject-matter
o!these forward delivery contracts were either meant
for transport within the country or export outside the
country. The bales were to be fully pressed so as to
occupy the minimum space either in transport by rail
or by steamei· and initially they were bound with
hoops.
The baling hoops were however difficult to
obtain from Japan and therefore the bales came to be
bound with ropes made of cotton, jute coir and hemp.
The bales thus bound otherwise than with hoops
(1) (1920] 2 K.B. 80.
(3) (1888) 13 App. Cas. 506.
(') (1886) 17 Q.B.D. '59·
(4) (1890) 2j 'i).B.D. IIU, -
(
•
,
...
)
S.C.R.
SUPREME COURT REPORTS
357
occupied more space and difficulties were encountered
by the merchants because of their being obliged to pay
extra insurance and freight charges in respect of such
bales. Not only did the railways charge more for the
transport , of such. bales, the shipping companies also
did so and the insurance companies charged higher
rates for insurance because the bales were not pressed
in a manner which would minimise the risks of
insurance.
All these factors brought about a situation
creating difficulties b"etween the purchasers and the
sellers of cotton and. these difficulties had to be resolved by the Association.
By-law 101 had proceeded on
the basis of cotton bales being bound with hoops, the
approximate measurement in tons as agreed and
understood in the trade being, 13! tons per 50 bales.
That was the standard measurement. It was open
however to the parties to agree upon any other
measurement. If anv measurement other than the
standard measurement was agreed to, an adjustment
had to be made by reason of such difference in
measurement and by-law 101 provided that certain
amount therein specified had got to be paid by the
seller to the purchaser as and by way of allowance for
such excess measurement.
•
Towards October, 1942, the situation in regard to
the baling hoops deteriorated so much that it was
thought desirable that bales bound with ropes should
be permitted to be tendered under the by-laws of the
Association and that the operation of by-law 101 as
regards measurements should be suspended. There
were heavy fluctuations in the prices of the rnateri"'ls
permitted to be used, and it was therefore thought
advisable to fix certain allowances from time to time or
before the beginning of the delivery periods taking into
consideration the extra insurance and fr~ight charges,
if any, in respect of such bales.
A sub-committee
appointed by the Association ma_de a report in this
behalf on October 29, !942, and on November 20, 1942,
the Board of Directors of the Association passed a
resollltion approving the recommendations of the subcommittee with this modification that the allowance
to be prescribed in the price of bales bound with ropes
•
-
Gordhandas
Purslwttamdas
Sonawala
v.
Eastern Colton
Company
Bhagwati ].
•
Gordhandas
Purshofta1ndas
Sonawala
v.
Eastern Cotton
Conzpany
Bhagwati ].
358
SUPREME COURT REPORTS
[1959]
as against the price of bales bound with hoops as provided in by-laws 96 and 119, be fixed before the commencement of the season and not be altered from time
to time. The Board of Directors issued a notice on
November 30, 1942, suspending the operation of bylaw 101 as regards the measurement until further
notice.
The position as it obtained at the time when the suit
contracts were entered into was that by-law 101 as
regards measurement had been suspended and there was
no necessity so far as the by-laws went to make any
mention in the contracts in regard to the same. If
the claim for excess measurement had not to be entertained, it was not at all necessary to mention the
measurement in the contract forms and there would be
substantial compliance with the contract form, even
though no measurement was mentioned therein; the
very basis for the mention of such measurement having
disappeared.
It was, however, urged on behalf of the appellants
that measurement was an essential part of the description of the goods sold and the suspension of by-law 101
made it all the more necessary that the measurement
sh~uld be specified in the contract form itself. The
standard measurement which had been mentioned in
by-law 101 had disappeared and it would therefore be
necessary to mention in the contract form what was
the measurement on the basis of which the price of the
contract had been fixed by and between the parties. If
the bales actually tendered measured more in weight
thlj<n what was actually agreed upon, the purchaser
would be entitled to obtain from the seller an allowance for such excess measurement and that was the
reason why it was necessary after the suspension of
by-law 101 to •. mention the agreed measurement between the parties.
This argument however ignores the fact that
simultaneously with the suspension of the operation of
the by-law 101, by-laws 96 and 119 which referred to
forward and hedge contracts respectively were altered
and provision was made therein to incorporate measures
consequent upon the tender of bales bound with ropes
·-
-·
(
S.C.R.
SUPREME COURT REPORTS
359
in place of bales bound with hoops. The consequences
of such tenders were worked out in the by-laws as thus
amended and allowances in the price of bales bound
with ropes as against the price of bales bound with
hoops were also provided for.
These allowances were
in accordance with the resolution of the Board dated
November 20, 1942, to be fixed before the commencement of the season and if such allowances were provided for there was nothing further to be done in regard
to the difference in measurement, if any. If the situation which obtained after November 20, 1942, provided
for a tender of bales bound with ropes instead of bales
bound with hoops in fulfilment of the contracts entered
into between the parties, that was well known to all
the members of the Association and it was open to
them while fixing the prices themselves to take count
of the extra charges for insurance and freight which
would be payable by the purchaser in the event of
bales bound with ropes being tendered instead of bales
bound with hoops. It, therefore, follows that the omis- ·
sion to mention the measurements in the contract notes
did not render the contracts not in accordance with the
by-laws. There was no such by-law in operation at the
time and even otherwise there was no need whatever
to incorporate in the contract notes any term as to
measurement. It could not therefore be said that
there was any departure from an essential or a characteristic part of the contract form or that the legal
effect of the contracts was changed so as to invalidate
the same.
•
When we come to the term in regard to the differences of Rs ............... above or below the settlement
rate of hedge contract No ............... we find that that
had reference to periodical settlements of contracts
through the clearing house. In accordance with bylaw 139 all delivery contracts other than those excepted under by-law 136 and hedge contracts were subject
to periodical settlements through the Clearing House
which settlements had to be made once weekly on days
fixed·by the Board. If the contracts had got to go
through the clearing house jn this manner it was
necessary also that settlement rates should be fixed
•
-
Gordhandas
l'urshottamdas
Sonawala
v.
Eastern Cotton
Company
Bhagwati ].
Gordhandas
Purshottanidas
Sonawala
v.
Eastern Cotton
Compa1iy
Bhagwati ].
360
SUPREME COURT REPORTS
[1959]
and by-law 141(1) provided that settlement prices for
all positions of the hedge contract should be fixed by
the Board. The settlement prices thus fixed were to
be taken as the basis for the periodical settlement of
delivery contracts and it was further provided in bylaw 141(2) that such allowance as shall be agreed upon
by the parties in their contracts to cover any difference
between the cotton contracted for and the cotton which
was the basis of the hedge contract shall be added to
or deducted from the said settle11ient prices. This was
the basis of the provision contained in the relevant
term of the contract form. In the case of contracts
for descriptions not tenderable against the hedge
contract it was open to the parties either to agree upon
an allowance above or below the hedge contract or
they would make an application to the Board to fix the
settlement rates. W'henever there was an agreement
in this behalf the parties were to mention the difference
thus agreed into the contract form and the periodical
settlements of delivery contracts were to be effected
on that basis.
The question arises as to whether the parties were
hound to enter into any such agreement at the time
th"'Y entered into the contracts. It was contended
on behalf of the appellants that such an agreement
was necessary because it would otherwise involve the
parties into payment of large sums of money on the
settlement day next after the day of the contract. The
hedge contracts appertained to cotton of the lowest
average and if the quality of cotton which was the subject-matter of the contract between the parties was, as
was usual, of a higher variety, it would involve the
payment of large amounts by way of differences on the
next settlement day, which certainly would not he
within the contemplation of the contracting parties.
If that was so; the parties would agree to a difference
between the rates of the cotton contracted for and the
cotton which was the basis of the hedge contract and
this difference above or below would serve to minimize
the incidence of such payment on the next settlement
day. It was, therefore, submitted that it was incumbent on the parties when entering into. a contract to
•
-
r-
'
(
•
8.0.R.
SUPREME COURT REPORTS
361
fill-in this ·term as to differences. If they agreed upon
such
differences the blank had to be filled-in
accordingly ; but even though they did not agree upon
any such differences, it was necessary for them to
mention in the contract form that the difference above
or below the rate of the hedge contract agreed upon
by them was nil.
·It was contended on the other hand on behalf of the
respondent that there was no obligation on the parties
entering into the contract to fill in that term. If they
agreed upon the difference all well and good but if
they did not agree upon the difference, the firsv part
of by-law 141(2) stepped in and the consequences had
to be worked out as if there was no agreement and the
differences had to be paid on the settlement day next
ensuing on the basis of the differeiice between the
contract rates and rates of hedge contract, even though
it may involve a payment of a substantial amount all
at once. According to this submission, in the case of
contracts for descriptions tenderable againt the hedge
contract two positions arose: viz., (1) parties to the
contract may not agree to any qifference in which case
it would not be necessary to fill in that term in the
contract note or (2) they may agree to the difference
in which event the difference would be mentioned in
the contract note. In the case of contracts for descrip-·
tions which were not tenderable against the hedge
contract three positions would arise, viz., (1) the parties
may not agree upon any difference in which event it
would not be necessary to fill in the term as to difference in the contract notes; (2) the parties may agr~e
upon such difference and that would have to be
mentioned in the cont)'act notes or (3) the pal'ties could
apply to the Board to fix the settlement rates.
It appears that the contention urged on.behalf of the
appellants would be more in consonance with business
ideas because no business man would think of immediately forking out a large sum of money on the next
ensuing settlement day. It would be tantamount to
paying the price of the goods or a substantial part
thereof long before the due date of delivery ever
•
-
Go1dhandas
J>urshottamda5
Sonawata
v.
Easlcnz Cot!on
Co;nfany
Blz:tgwati j.
Gordhandas
Pursholfan1das
Sona;.uafa
v.
Eastern C~/1011
Company
Bhagwati J.
362
SUPREME COURT REPORTS
[1959]
arrived. While recognizing the necessity of arriving at
an agreement in this manner we are, however, not impressed with the argument that in the event of no such
agreement as to the difference having been reached it
would even so be necessary to mention in the contract
note that the difference agreed upon was nil.
'Vhen
the parties entered into the transactions all the terms
and conditions of the contract would certainly J.e
negotiated and agreed upon between them. It would
be open to them, in view of the•by-laws above referred
to, to agree upon the difference above or below the
settlement rate .of hedge contracts for the purpose of
facilitating the .settlements through the clearing house.
But if no such difference above or below the settlement
rate of hedge contracts were agreed upon between the
parties, it would not necessarily follow that the word
. nil had got to be mentioned in the contract notes: The
very fact that no difference above or below the settlement rate of hedge contracts was agreed upon in the
manner contemplated would be enough to spell out an
agreement that no such difference was to be computed
in arriving at the settlement rates in respect of these
contracts. If that was the true position it would be
sRperfluous to write the word "nil" as contended for
by the appellants and .the consequences, of such nonmention would be the same as if the difference agreed
upon was nil. By-law 141 (2) could then be worked out
without any difficulty and the settlement rates in the
case of delivery contracts would be fixed on the basis
of the settlement price of the hedge contracts taking
into account the facts that there was either no
difference which was agreed upon or that the difference
agreed upon was a specific one which was mentioned
in the contract notes.
·
It was however pointed out on behalf of the respondents that the official contract form contained the
expression "above/below the settlement rate of hedge
contract.No ...... ". Even thoRgh this may have been
in consonance with the position as it obtained when
the hedge contracts of five different varieties were in
vogue, involving the ~pecification of hedge contracts
as Nos. 1 to 5, that position substantially changNL
•
-
•
•
...
S.C.R.
SUPREME COURT REPORTS
363
when hedge contracts of these 5 varieties were abolished and in their place and stead was substituted
a hedge contract called the I. C. C.
The five varieties
of hedge contracts were also for different deliveries
which did not necesRarily coincide one with the other
and these contracts were not on the market all at one
time, with the result that it would be necessary if the
r~quirements of the contract form had to be complied
with to fill in the blank not only by describing the
hedge contract number, whether it was one or the
other of the numbers 1 to 5 but also the particular
hedge contract of a particular delivery. Even if it
may be assumed that the blank to be filled in in this
behalf required a mention not only of the hedge
contract No ......... but also of a particular delivery
thereof, all that went by the board when the I. C. C.
was "substituted in place of the hedge contract Nos. 1
to 5. The old contract form which had been prescribed
by by-law 80 was continued without any change being
effected therein by virtue of such substitution and if
at all the parties to a contract were to fulfill the
requirements of the contract form, it would be necessary for them to strike out the words " hedge contract
No ...... " and put in their place and stead the word
"I. C. C." Even there the I. C. C. appertained to
different deliveries which were not on the market all
at one time. The months of delivery were nowhere
required to be filled in in the contract form, whether
the contract form required the parties to have regard
to the hedge contract No ...... or the I. C.