# MEGNA MILLS CO. LTD v. ASHOKA MARKETING CO

- **Citation:** [1971] 2 S.C.R. 751
- **Court:** Supreme Court of India
- **Decided:** 1970-11-06
- **Case number:** Civil Appeals Nos. 2012 .and 2013 of 1966
- **Bench:** J. C. Shah, K. S. Hegde, A. N. GRO'iER
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/megna-mills-co-ltd-v-ashoka-marketing-co-5116
- **Pages:** 7

## Headnote

Forward Contracts (Regulation) Act, 1952, ss. 113 (aa), 15(3A)-
Bye-laws made under Act-Working Manual Chapter V, Bye-Laws 1, 15
and 17-'-Contract. providing for arbitration -Not executed in prescribed
form-Contract is not enforceable -Bye-law l(b) when read with Bye-
/aws 15 and 17 is mandatory.
The appellant was a member of the East India Jute and Hessian Exchange Limited, the only association recognised under the provisions of
the Forward Contracts (Regulation) Act 1952. The respondent was not
a member of the association. On December 21, 1962 a transaction was
entered into between the parties by means of a letter written by the respondent to the appellant. It was agreed between the parties that apart from
the terms mentioned in the letter all other terms and conditions of the East
India and Hessian Exchange standard contract would be applicable to the
contract. The standard contract forms and the rules and bye-laws of the
Exchange inter alia, provided for· arbitratfon of the Bengal Chamber :>f
Commerce and Indusrry .. On disputes arising between the parties the
appellant referred its claim to the arbitration of the Bepgal Chamber of
Commerce and Indu<try.
When the Chamber proceeded with the arbitration pursuant to the reference the respondent filed a petition before the
Calcutta High Court under s. 33 of the Indian Arbitration Act, 1940. The
High Court came to the conclusion that the contracts in question violated
bye-laws 1 (b) and 15 in Ch. V df the Working Manual, and the contra·
vention of these bye-laws rendered the contracts illegal under the provi·
sions of bye-law 17 of the same Chapter. In particular. the High Court
noticed the absence of any term in the contr~ts similar to cl. (2) ln the
prescribed form in Appendix II which read : "Buyers to give ... , .. clear
working days notice to place goods "alongside." Appeal against the judgment of the High Court was filed by special leave.
HELD : The High Court :was right in holding. that the contracts in
question were not in the prescribed form and thus t.liey did not comply
with the requirement of bye-law 1 of Ch. V.
There can be no mannei:
of ·doubt that that bye-law is mandatory when read with bye-laws 15 and
17. [756 G]
Under bye-law 15 no member shall enter into any transferable specific
delivery contract otherwise than on terms and conditions prescribed under
the bye-laws and under bye-law 17 if there is a contravention, inter alia
of bye-law 15 the contract shall be rendered illegal by virtue of ~be provision contained in s. 15(3A) of the Forward Contracts (Regulation) Act.
Section 11 ( 3) ( aa) specifically empowers the Exchange to make bye-laws
the contravention of any of which shall make a forward contract entered
mto otherwise than in accordance with such ~ye-laws illepl. If, therefore the contracts in question did not comply with the reqwrement of byelaw '1 (b) of Ch. V they would be rendered illegal and void. [756 H, 757 A]
There was non-compliance with condition No. 2 despite the fact that in
the letters evidencing the contracts it was mentioned that all other terms
752
SUPREME COURT REP.ORTS
[1971] 2 S.C.R.
and condition of the standard contracts of the Exchange would be appli·
A
cable.
Even if it was not necessary to use the same language the number
of clear working d.ys had to be specified which was not done in the contracts in dispute.
Condition No. 2 cannot be said to be inconsequential
because it must be stipulated how many working days notice has to be
given by the buyers 10 ·place goods alongside ··export vcsst:I in the Port of
Calcutta." (757 C-DJ
In the rescilt the appeal must fail.
R:1dhakisso11 Gopikisson v. Babnukand Ran1cha11t!ra, 60 LA. 63.
re~
ferred to.

## Text

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751
MEGNA MILLS CO. LTD.
v.
ASHOKA MARKETING CO.
November 6, 1970
[J. C. SHAH, K. S. HEGDE AND A. N. GRO'iER, JJ.]
Forward Contracts (Regulation) Act, 1952, ss. 113 (aa), 15(3A)-
Bye-laws made under Act-Working Manual Chapter V, Bye-Laws 1, 15
and 17-'-Contract. providing for arbitration -Not executed in prescribed
form-Contract is not enforceable -Bye-law l(b) when read with Bye-
/aws 15 and 17 is mandatory.
The appellant was a member of the East India Jute and Hessian Exchange Limited, the only association recognised under the provisions of
the Forward Contracts (Regulation) Act 1952. The respondent was not
a member of the association. On December 21, 1962 a transaction was
entered into between the parties by means of a letter written by the respondent to the appellant. It was agreed between the parties that apart from
the terms mentioned in the letter all other terms and conditions of the East
India and Hessian Exchange standard contract would be applicable to the
contract. The standard contract forms and the rules and bye-laws of the
Exchange inter alia, provided for· arbitratfon of the Bengal Chamber :>f
Commerce and Indusrry .. On disputes arising between the parties the
appellant referred its claim to the arbitration of the Bepgal Chamber of
Commerce and Indu<try.
When the Chamber proceeded with the arbitration pursuant to the reference the respondent filed a petition before the
Calcutta High Court under s. 33 of the Indian Arbitration Act, 1940. The
High Court came to the conclusion that the contracts in question violated
bye-laws 1 (b) and 15 in Ch. V df the Working Manual, and the contra·
vention of these bye-laws rendered the contracts illegal under the provi·
sions of bye-law 17 of the same Chapter. In particular. the High Court
noticed the absence of any term in the contr~ts similar to cl. (2) ln the
prescribed form in Appendix II which read : "Buyers to give ... , .. clear
working days notice to place goods "alongside." Appeal against the judgment of the High Court was filed by special leave.
HELD : The High Court :was right in holding. that the contracts in
question were not in the prescribed form and thus t.liey did not comply
with the requirement of bye-law 1 of Ch. V.
There can be no mannei:
of ·doubt that that bye-law is mandatory when read with bye-laws 15 and
17. [756 G]
Under bye-law 15 no member shall enter into any transferable specific
delivery contract otherwise than on terms and conditions prescribed under
the bye-laws and under bye-law 17 if there is a contravention, inter alia
of bye-law 15 the contract shall be rendered illegal by virtue of ~be provision contained in s. 15(3A) of the Forward Contracts (Regulation) Act.
Section 11 ( 3) ( aa) specifically empowers the Exchange to make bye-laws
the contravention of any of which shall make a forward contract entered
mto otherwise than in accordance with such ~ye-laws illepl. If, therefore the contracts in question did not comply with the reqwrement of byelaw '1 (b) of Ch. V they would be rendered illegal and void. [756 H, 757 A]
There was non-compliance with condition No. 2 despite the fact that in
the letters evidencing the contracts it was mentioned that all other terms
752
SUPREME COURT REP.ORTS
[1971] 2 S.C.R.
and condition of the standard contracts of the Exchange would be appli·
A
cable.
Even if it was not necessary to use the same language the number
of clear working d.ys had to be specified which was not done in the contracts in dispute.
Condition No. 2 cannot be said to be inconsequential
because it must be stipulated how many working days notice has to be
given by the buyers 10 ·place goods alongside ··export vcsst:I in the Port of
Calcutta." (757 C-DJ
In the rescilt the appeal must fail.
R:1dhakisso11 Gopikisson v. Babnukand Ran1cha11t!ra, 60 LA. 63.
re~
ferred to.
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 2012
.and 2013 of 1966.
Appeals by special leave from the judgments and orders dated
April 4, 1966 of the Calcutta High Court in Matters Nos. 26 and
27 of 1966.
A. K. Sen, 0. P. Khaitan and D. N. Gupta, for the appellant
(in C.A. No. 2012 of 1966).
0. P. Khaitan and D. N. Gupta, for the appellant (in C.A.
No. 2013 of 1966).
S. T. Desai, H. K. Puri and K. K. Jain, for th~ respondent (in
C.A. No. 2012 of 1966).
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H. K. Puri and K. K. Jain, for the respondent (in C.A. No.
E
.2013 of 1966).
The Judgment of the Court was delivered· byGrover, J,
These two appeals by special leave are from a
jud6ment of the Calcutta High Court holding that the disputes
.between. the parties could not be referred to arbitration.
F
It is necessary to state the facts only in Civil Appeal No.
2012/66. The appellant was and still is a member of the East
India Jute & Hessian Exchange Limited, hereinafter called the
"Exchange", which is the only association recognised i:nder the
provisions of the Forward Contract~ (Regulation) Act 1952, hereG
inafter called .the "Act". The respondent is not a member of the
said association. On December 21, 1962 a transactions was entered into between the panies by means of a letter written by the
respondent to the appellant.
This letter was in the following
;terms :
"We have today bought from you the following goods :
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Description : Jute Carpet Backing cloth bound of card·
board cores 152" wide.
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MEGNA MILLS co. v. ASHOKA MARKETING co. (Grover, J.) 753
Weig1J.t : 9 oz on 36".
Wrap Ends: Per Inch 15.
Weft Ends: Per Lnch 13.
Oil contents ; Upto 2 %
Quantity-:· 5,000 Rolls, each roll having continuous
length of 300 yards approximately.
Rate : Rs. 4,000 per ton.
Delivery : 500 Rolls monthly; March' 1963 to December
1963.
All other terms and conditions of the East India and Hessian
C
E~ change standard contract will be applicable to this contract.
Plea'Se sign your acceptance on the duplicate copy of this letter."'
The appellant from time to time delivered certain Rolls of
Jute Carpet Backing cloth under the aforesaid contract, the price
D of which was paid by the respondent. As regards the balance
number of Rolls deliverable under the contract the appellant purchased back and the respondent resold the balance qu~tities of
goods by a contract dated December 9, 1963 which transaction
was emOOdied in a Jetter of the appellant to the respondent dated
December 9, 1963 and which was countel'lligned by the respcnE Jent. · Acqordi11_$ to the allpellant it was agreed or under~tood
between the parties that deliveries under the two contracts of De-
'cmber 21, 1962 and December 9, 1963 would be set off against
each other.
As rega1·ds 1,000 Rolls deliverable for the xnonths
of August and September 1963 11.Ilder the contract dated December 21, 1962 the appellant is stated to have received from the
respondent difference in the price of goods but in respect of the
F balance of 1500 Rolls the respondent did not pay the dift'erence.
TI1e appellant demanded the difference payable by the respondent
under the said contracts. .Disputes and differences having arisen
between the parties in the matt!lr the appellant referred its claim
to the arbitration of Bengal Chamber of Commerce and Industry.
This was purported to have been done on the footing that the conG tracts provided that all terms and conditions thereof would be
governed by the bye-laws of the Exchange for trading in transferable specific delivery contracts. The standard contract fotms and
the rules and bye-laws of the Exchange, inter alia, . provided for
arbitra,ion of the Bengal Chamber o( Commerce and Industry.
When the Chamber proceeded with the arbitration putsuant to the
H reference the respondent filed a petition before the Calcutta High
Court on February 19, 1966 under s. 33 of the Indian Arbitration
Act 1940. It was prayed that the extent and validity of the arbitration agreement contained .in the contracts be determined ::nd
l-L694Sup.Cl/7i
754
SUPREME COURT REPORTS
[1971) 2 S.C.R.
it be declared that there was no valid arbitration agreement betA
ween the parties in respect of the contracts dated December 21,
1962 and December 9, 1963. The main point raised in the respondent's petition was that the contracts were not in accordance
with the provisions of the Act or the bye-laws of the Exchange
and were not in the forms prescribed and were, therefore, void
and illegal. This petition was heard by A. N. S~n, J., who allowB
ed the petition and held that the contracts· were illegal and there
was no valid arbitration agreement between the parties.
The Act provides for regulations of certain matters relating
to forward contracts, the prohibitio°' of options in goods and for
m~tters connected therewith including the setting up of a Forward
Markets Commission, recognition of assodation for the purpose
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of the Act, for issuing notifications for regulating or prohibiting
forward contracts and option in goods etc.
Section 11 empowers
a recognised association to make bye-laws for the regulation a,id
control of forward contracts subject to previou~ approval of the
Central Government.
Sub-section (3) of s; 11 is as f_olows :--
( 3) "The bye-laws under this section may-
( a) specify the bye-laws the contravention of any of
which shall make a contract entered into otherwise than
in accordance with the bye-laws void under sub-section
(2) of section 15;
( aa) specify the bye-laws the contravention of any
of wbich shall make a forward contract entered into
otherwise than in accordance with the bye-laws illegal
under sub-section (3A) of section 15.
(b) .................. "
Under s; 15(1) the Central Government may by notification decD
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lare the circumstances in which the forward contracts in notified
goods would be void and illegal.
Su])-section (2) of s. 15 provides that any forward contract in goods entered into in pursuanc~
of sub-s. ( 1) which is in contrav.ention of any of the bye-laws
specified in this behalf under cl. {a) of sub-s. (3) of s. 11 shall
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be void.
Sub-section ( 3A) makes any forward contract in goods
entered into in pursuance of sub-s. ( 1) which at the date of the
contract is in contravention of any of the bye-laws specified in
this behalf under cl. (aa) of sub-s. (3) of s. 11 illegal.
By means of a notification dated March 29, 1958, the Central
Government declared as follows :-
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"In exercise of the powers conferred by sub-s. ( 1) of
section 15 of the Forward Contracts (Regulation) Act,
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MEGNA MILLS co. v. ASHOKA MARKETING co. (Grover, J.) 755·
1952 (74 .of 1952) the Central Government hereby declares that the said section shall apply to jute goods (hessian cloth made of jute or bags of such hesisan cloth and
sacking cloth) in the City of Calcutta."
Pursuant to the provisions of s. 11 of the Act and the Exchange
B made bye-laws for trading in trainsferable specific delivery contracts
in jute goods.
These bye-laws and the fonns of the contract
prescribed are contained in Working Manual Volume ill. Chapter V of the Bye-laws contains the genaral trading provisions. According . to bye-law ( 1) (b) al! Transferable Specific Delivery
Contracts shall be in writing in the prescribedJonns (Appendix
II for jute goods and Appendix IV for raw jute), Clause (g)
C of the aforesaid bye-laws ( 1) laid down that all transferable specific delivery contracts shall be subject to the provisions of the bye.
laws.
Bye-laws 15 and 17 may be reproduced:
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15. "No member shall enter into a transferable specific delivery contract in raw jute and/ or jute goods
otherwise than on the tenns and conditions prescribed
under these Bye-laws."
17. "Any transferable specific delivery contract entered into a raw jute and/or jute goods which at the date
of the contract is in contravention of the provisions of
any of the Bye-laws l(c), 13, 14, 15 and 16 of-Chapter V shall be illegal under the provisions of Section
15(3A) of the Forward Contracts (Regulation) Act,
1952."
The main controversy has centered Qn the question whether
the contracts out of which the disputes arose were in the form set
F out in Appendix II in the Working Manual. It was maintained
by the appellant that although the contracts out of which the
disputes arose did not strictly conform to the ptescribed form but
they were substantially in the same tenns as were contained in the
form.
As only substantial compliance was necessary the appellant could not be denied the benefit of bye-laws contained in
G Chapter X of the Working Manual relating to arbitration.
Byelaw ( 1) of that Chapter provides that arbitration of any claims
and disputes whether admitted or not arising out of or in relation
to all transferable specific delivery contracts in raw jute and/or
jute goods between members or between members and non-members under the provisions of the bye-laws shall be referred to the
JI Tribunal of Arbitration either of the Bengal Chamber of Commerc.:: and Industry or of the Indian Chamber of Commerce,
Calcutta, as is agreed in the contract in accordance with the rules
framed by the said Chamber for the purpose of arbitration by
756
SUPREME COURT REPORTS
[1971] 2 S.C.R.
jts tribunal from time to time provided where in a T.S.D. contract A
the i:ame of the Tribu:nal of Arbitration of either of the aforesaid
two Chambers is omitted, such roference sliall be made to the
Tribunal of Arbitration of the Bengal Chamber of Commerce and
Industry. The case of the respondent, however. was that the CC¥Itracts were not in the form contained in Appendix II ijll the Working Manual which was the prescribed form under the Lye-laws ~d
therefore the bye-laws including the one relating to arbitration in
Chapter X could not be made applicable for the purpose of referring the disputes to the Tribunal of Arbitration whlch, in the
present case, was thr. Bengal Chamber of commerce and Industry,
Calcutta.
The High Court came to the conclusion that the contracts in questi011 violated bye-laws '1 (b) and 15 in Chapter V
of the Working Manual.
The contravention of these bye-laws
rendered the contracts illegal under the provisions of bye-law 17
·Of the same Chapter.
The learned J ud,ge noticed in particular
the absence of any term in the contracts similar to clause (2) in
the prescribed form in ·Appendix !I which is as follows :
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"Buyers tc give ...... ., •.... :clear working days
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notice to place goods alongside:'
Now in the contracts no such term appeared that the buyers would
give clear notice to place goods alongside, of the number ·of working days specified. It has been contended before us on behalf of
the appellant that the mere absence of this condition or term in E
the contracts was not sufficient to take them outside the prescribed
form which had only to be substantially complied with ·and it was
not necessary that blanks in each and every condition in the form
should have been filled up.
It has further been urged that byelaw 1 (b) of Chapter V could not be regarded as mandatory requiring the details in the form in Appendix II to be completed
in all cases.
Even with reforence to condition (2) in the ptesF
cribed form it has been submitted that if the number of days was
not specified a reasonable time should have been read into that
condition.
In other words the buyers were to give notice to place
goods along side within a reasonable time.
In our opinion, the High Court was right in holding that the
contracts in question were not in the prescribed form and thus they
did not comply with the requirement of bye-law 1 (b) of Chapter
V.
There can be no manner of doubt that that bye-law is mandatory when read with bye-laws 15 and 17. It must be remembered that under bye-law 1 ~ no member shall enter into any transferable specific delivery contract otherwise than on terms .and
conditions prescribed under the bye-laws and under bye-law 17 if
there is a contravention, inter.alia, of bye-law 15 the contract.shali
be rendered illegal by virtue of the provisions contains in s. 15
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MEGNA MILLS co. v. ASHOKA MARKETING co. (Grover, I.) 757
(3A) Jf the Act.
Section 11(3)(aa) specifically empowers the
Exchange to make bye-Jaws the contravention of any of which
shalJ make a forward contract entered into otherwise than in accordance with such bye-laws illegal.
If, therefore, the contracts in
question di not comply with the requirement of bye-law
I ( b)
o.f Chapter V th~y would be rendered illegal and •1oid.
It is true that in the letters evidencing th~ contracts it was
mentioned "all other terms and conditions of the East India and
Hessian Ex~hange standard contract will be applicable", which
may be taken to import conditions 1 to 7 given in the penultimate
column of the prescribed form. . There would still be non-compliance with condition No. 2 reproduced before.
Even if it was
not necessary to use the same language the number of clear work -
ing days had to be specified which was not done in the contracts
\n dispute.
Condition No. 2 cannot be· regarded as inconsequential because it must be stipulated how many working days notice
has to be given by the buyers to place goods alongside "export
vessel in the Port of Calcutta". Literal compliance with the prescribed form may not be essential but if the co.ntract does not contain
all the terms and conditions set out in the form the contract will
be void under the provisions set out before; (See the ratio of thf;
decision in Radhakrisson Gopikisson v. Balaniukand Ramchandra.
For the reasons given above the appeals must fail and they
are dismissed with costs.
One !!earing fee.
G.C.
Appeals dismissed.