# MODI & CO v. UNION OF INDIA

- **Citation:** [1968] 2 S.C.R. 565
- **Court:** Supreme Court of India
- **Decided:** 1967-12-01
- **Bench:** J. C. Shah, V. R.Amaswami, V. Bhargava
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/modi-co-v-union-of-india-4237
- **Pages:** 7

## Headnote

565
Forward Contract (Regu/aJion) Act 74 of 1952, ss. 2(/) and 15(1)-
C on tract for sale of Twills providing for delivery on specified date-if ~
'non-transferable specific delivery contact tvitltin s. 2(/l-Principles for
determinin1:.
The appellant entered into a contract in September 1960 With the respondent through the Director-General. Supplies and Disposals, whereby
® agreed to sell 500 bales Twills on terms and conditions contained in
an exchange of letters.
'file date of delivery , .. ·as fixed as November 30,
1960 and after the contract was entered into, the appellant depositecl with
the Resen·e Bank of India an amount by way of security deposit in accordance with the terms of the contract.
On November 30, the appellant
informed the respondent t:hat the contract was void and illegal being in
violation of the provisions of the:Forward Contract (Regulation) Act 74
of 1952 and that the security deposit should therefore be refunded.
The
respondent however took the position that the contract was legal
~nd
bincling and as the appellant had .failed to deliver the goods as stipulated,
it would purchase the goods elsewhere at the risk of the appellant. The
respondent thereafter incurred an extra expenditure of about Rs. 76,000
and after giving credit to the app.ellant for the amount of security deposit
claimed the balance amount of about R,. 56.000 from the appellant. Upon
the latter's failure to pay, the respondent took recourse to the arbitration
clause of th~ contract and appointed an arbitratr1r to determine the dispute.
Before the arbitrator could give his award. the appellant filed an application before the High Court under s. 33 of the Arbitration Act, praying
for a declaration that the arbitration clause was illegal and, void and fo1
an injunction restraining the respondent from prosecuting
the arbitratiOn
proceedings.
The High Court dismissed the application holding that the
contract \Vas a "non-transferable specific delivery contract'' ri.nJ. was not
hit by the provisions of the Act.
On appeal to this Court,
HELD : (dismissing the appeal)
The questioo as to
whether the
coo.tract was a transferable or non-transferable specific delivery contract
is a question \vhich ultimately depends on a reasonable construction of the
contract.
On a proper construction of the terms of the contract and
hB.ving regard to the surrounding circumstances, there was an implied
agreement between the parties that the rights and liabilities under the
cont'ract were not to be transfeFrc<l and the bill of lading relating to the
contract was also not to be transferred.
It follows therefore that the
contract in question was a non-transferable specific delivery contract within the meaning of s. 2(f) of the Act and was not hit by the notifieation
iSllUed on March 29, 1958 issued by the Central Government under s. 15
( l) of the Act relating to jute/goods. [569 E; 571 C-E]
Khardoh Company Ltd. v. Raymon & Co. (India) Private Ltd. (1963)
3 S.C.R. 183. referred to.
566
SUPRH!E COURT REPORTS
[1968] 2 S.C.R.
Civ11. APPELLATE JURISDICTION: Civil Appeal No. 395 of
A
1965.
Appeal by special leave from the judgment and order dated
September 18. 1963 of the Calcutta }iigh Court in Matter No. 97
of 1963.
A. K. Sen and D. N. Mukherjee, for the appellant.
B. R. L. l,vengar and R. N. Sachthey, for the respondent.

## Text

A
B
c
D
E
F
G
H
MODI & CO.
v.
UNION OF INDIA
December 1, 1967
(J. C. SHAH, V. R.AMASWAMI AND V. BHARGAVA, JJ.)
565
Forward Contract (Regu/aJion) Act 74 of 1952, ss. 2(/) and 15(1)-
C on tract for sale of Twills providing for delivery on specified date-if ~
'non-transferable specific delivery contact tvitltin s. 2(/l-Principles for
determinin1:.
The appellant entered into a contract in September 1960 With the respondent through the Director-General. Supplies and Disposals, whereby
® agreed to sell 500 bales Twills on terms and conditions contained in
an exchange of letters.
'file date of delivery , .. ·as fixed as November 30,
1960 and after the contract was entered into, the appellant depositecl with
the Resen·e Bank of India an amount by way of security deposit in accordance with the terms of the contract.
On November 30, the appellant
informed the respondent t:hat the contract was void and illegal being in
violation of the provisions of the:Forward Contract (Regulation) Act 74
of 1952 and that the security deposit should therefore be refunded.
The
respondent however took the position that the contract was legal
~nd
bincling and as the appellant had .failed to deliver the goods as stipulated,
it would purchase the goods elsewhere at the risk of the appellant. The
respondent thereafter incurred an extra expenditure of about Rs. 76,000
and after giving credit to the app.ellant for the amount of security deposit
claimed the balance amount of about R,. 56.000 from the appellant. Upon
the latter's failure to pay, the respondent took recourse to the arbitration
clause of th~ contract and appointed an arbitratr1r to determine the dispute.
Before the arbitrator could give his award. the appellant filed an application before the High Court under s. 33 of the Arbitration Act, praying
for a declaration that the arbitration clause was illegal and, void and fo1
an injunction restraining the respondent from prosecuting
the arbitratiOn
proceedings.
The High Court dismissed the application holding that the
contract \Vas a "non-transferable specific delivery contract'' ri.nJ. was not
hit by the provisions of the Act.
On appeal to this Court,
HELD : (dismissing the appeal)
The questioo as to
whether the
coo.tract was a transferable or non-transferable specific delivery contract
is a question \vhich ultimately depends on a reasonable construction of the
contract.
On a proper construction of the terms of the contract and
hB.ving regard to the surrounding circumstances, there was an implied
agreement between the parties that the rights and liabilities under the
cont'ract were not to be transfeFrc<l and the bill of lading relating to the
contract was also not to be transferred.
It follows therefore that the
contract in question was a non-transferable specific delivery contract within the meaning of s. 2(f) of the Act and was not hit by the notifieation
iSllUed on March 29, 1958 issued by the Central Government under s. 15
( l) of the Act relating to jute/goods. [569 E; 571 C-E]
Khardoh Company Ltd. v. Raymon & Co. (India) Private Ltd. (1963)
3 S.C.R. 183. referred to.
566
SUPRH!E COURT REPORTS
[1968] 2 S.C.R.
Civ11. APPELLATE JURISDICTION: Civil Appeal No. 395 of
A
1965.
Appeal by special leave from the judgment and order dated
September 18. 1963 of the Calcutta }iigh Court in Matter No. 97
of 1963.
A. K. Sen and D. N. Mukherjee, for the appellant.
B. R. L. l,vengar and R. N. Sachthey, for the respondent.
The Judgment of the Court was delivered by
Ramaswami, J.
This appeal is brought, by special
leave,
from the judgment of the Calcutta High Court dated September
18, 1963 dismissing an application under s. 33 of the Arbitra'
tion Act.
By its letter dated September 14, 1960, the appellant made
an offer for sale to the respondent of 500 Bales (1,50,000 bags)
'B' Twills on the terms and conditions mentioned in the said
letter.
The offer was accepted by the Director-General. Supplie;;
& Disposals on behalf of the respondent by his letter No. CAL/
DL·l/5750-L/ll/Modi/158 dated September 16, 1960.
The
appellant depositc<l with the Reserve Bank of India the sum of
Rs. 20, 182.50 P. towarc.s security deposit on
September 22.
1960 as required by the acceptance letter.
The date of delivery
fixed under the contract was November 30, 1960 and the ~
pondent sent the appellant despatch instructions dated November 21. 1960, through the Director of Supplies & Disposals. On
November 30, 1960 the appellant, however, intimated to the
respondent that the contract was void and illegal and requested
that the security deposit should be refunded.
The case of the
appellant was that the contract was in violation of the provisions
of the Forward Contract (Reglllation) Act, 1952 (Act 74 of
1952). hereinafter called the 'Act'.
Ry his letter dated December 1. 1960 the Director of Supplies wrote on behalf of the respondent that the contract was legal and binding and as the
appellant had failed to deliver the goods as provided in the
agreement the respondent would purchase the goods at the risk
of the appellant.
The respondent ~ncurred extra expepd.iturc
amounting to about Rs. 76,410 and after giving credit to the
appellant for the amount of Security Deposit, a sum of Rs. 56,000
still remained due to be paid by the appellant to the respondent.
As the appellant failed to pay, the respondent took recourse to
the arbitration cl. 21 of the contract and appointed an Arbitra·
tor to determine the dispute between the parties regarding the
agreement.
Before the Arbitrator could give his award, the
appellant filed an application before the High Court under s. 33
of the Arbitration Act praying for a declaration that the arbitration clause was illegal and void and for an injunction restraining
B
c
D
E
F
G
H
A
B
c
D
E
F
G
H
MODI & co. v. UNION (Ramaswami, J.)
567
the responder.t from prosecuting the arbitration proceedings. By
its judgment dated November 19, 1963, the High Court held
that the contract was a "non-transferable specific delivery contract"
and was not hit by the provisions of the Act and accordingly
dismissed the application of the appellant.
The question presented for determination in this appeal is
whether the contract in question is a transferable or non-transferable specific delivery contract within the meaning of the Act.
Section 2(i) of the Act defines a "ready delivery contract"
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 ........ ". A "forward contract" is defined under
s. 2(c) as meaning "a contract for the delivery or goods at a
future date and which is not a ready delivery contract".
Section
2(m) defines a "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 a "non-transferable specific delivery contra~!" as meaning.I "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".
Finally, s. 2(n)
defines a "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 Central Government to prohibit certain classes of forward
contracts. Section 15 ( 1) of the Act states as follows :
"15. ( 1) The Central Government may by notification in the Official Gazette, declare this section to
apply to such goods or class of goods and in such areas
as may be specified in the notification, and thereupon,
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 therein otherwise than between members
of a recognised association or through or with any such
member shall be illegal."
Section 17 provides :
"17. (1) The Central Government. may, by notification in the Official Gazette, declare that no person
shall, save with the permission of the Central Govern-
568
SUPREME COURT REPORTS
[1968] 2 S.C.R ·
mcnt, enter into any forward contract for the sale or
purchase of any goods or class of good<; specified in the
notification and to which the provisions of section 1:
have not bee!' made applicable, except to the extent and
in the inanner, if any, as may be specified in the notification.
(2) All forward contracts in contravention of the
provision<; of sub-section (I) entered into after the date
of publication of the notification thereunder shall be
illegal.
( 3) Where a notification has been issued under
sub-section ( I), the provisions of section 16 shall, in
the absence of anything to the contrary in the not ification, apply to all forward contracts for the sale or purchase of any goods spccitied 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 contrdcts for the sale or purch"se of any
goods spccifieJ in the notification under section 15."
Section 18 ( 1 ) stales that these provisions will not apply 10 nontransferable specific delivery contracts for the sale or pur-:!1asc
of any goods.
According to the scheme of the Act therefore contracts of
sale of goods arc divided into two categories. 'ready delivery contract.; and "forwarJ contracts".
Forward Contracts are da;sified into those which are "spccifieJ delivery contracts" and those
which are not.
Then again. 'specific delivery contract:>' are
divided into 'transferable specific delivery contracts' and 'nontransferable specific Jclivcry contracts'.
Section 18( 1) cxcn1pts
from the operation of the Act non-transferable specific delivery
contracts.
The net result of these statutory provisions is :hat
all foiward contracts except those which are
non-tr~nsfcrable
specific delivery contracts, -can be declared illegal by a notification issued under the Act.
Such a notification was issued in this case by the Central
Go\·ernmcnt on March 29, 1958 which is to the following effect :
"In exercise of the powers conferred by sub-sc.:-
tion ( 1) of section 15 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) the Central Govern.
ment hereby declares that the said Section shall apply
to Jute/goo<ls (Hessian cloth made of jute or bags
made 0£ such Hessian cloth and sacking cloth made of
jute or bags made of such Sacking cloth) in the City
of Calcutta.
A
B
c
E
F
G
H
MODI & co. v. UNION (Ramaswami, J.)
569
A
Explanatior. :-"The expression 'City of Calcutta'
means
(1) Calcutta as defined in clause ( 11) of Section 5
of the Calcutta Municipal Act, l95 l, (West Bengal Act
No. 33 of 1951), together with part of the Hastings
B
North or South edge of Clyde Row and Strand Road
to the river bank and the areas which were previously
under the new defunct Tollygunge Municipality;
c
D
E
F
G
H
(2) The Port of Calcutta; and
(3) The Districts of 24 Parganas, Nadia, Howrah
and Hooghly".
It was argued on behalf of the appellant that the contract in
question was a fi:i.rward contract within the meaning of the Act
and was prohibited by the Government notification and therefcre
no right or liability accrued to the parties 011 the basis of the
contract.
The contention of the appellant was that the ~ontract
was not a non-transferable specific delivery contract as defined
ins. 2(0 of the Act and.as such it was illegal and void and the
arbitration clause contained therein was of no effect and could
not be availed of by either of the parties.
We are unable to
accept the argument put forward· on behalf of the appellant as
valid.
The question as to whether the contract was a transferable
or non-transferable specific delivery contract is a question which
ultima1ely depends on a reasonable construction1 of the contract.
On behalf of the appellant it was pointed out that there was no
s::iecific clause in the contract which prohibited the tr;insfer of
the rights and liabilities or which prohibited transfer of the bill
of lading.
But the absence of such a specific clause is no> conclusive as to the intention of the parties. It is true that when a
contract is reduced to writing we must look only to that writing
for ascertaining the terms of the agreement between the parties
but it does not follow from this that it is only what is set out
expressly and in so many words in the document that can constitute a term of the contract between the parties.
If upon a
reading of the document as a whole, it can fairly be deduced from
the words actually used therein that the parties had agreed on
a particular term. there is nothing in law which prevents them
from setting up that tem1.
The terms of the contract can be
expressed or there can be a necessary implication of a term from
what has been expressed in the contract. The question thereforeresolves in the ultimate analysis upon the construction of theterms of the contract between the parties.
In this connection
it is. well-established that in construing such a contract it is legitimate to take into account .the surrounding circumstances for·
570
SUPREME COURT REPORTS
(1968] 2 S.C.R.
Jsccrtaining the intention of the parties. As was pointed out by
this Court in Khardah Company Lrd. v. Raymon & Co. (India)
Privare Lrd., ( 1), the absence of a specific clause prohibiting
lransfer is not conclusive one way or the other on the que;tion
whether there was an agreement betWeen the parties that the contract was to be non-transferable. What has to be seen is whether
it could be held on a reasonable interpretation of the contract,
aided by such considerations as can legitimately be taken into
account that the agreement between the parties was that it was
not to be transferred.
In the present case, it should be noticed
that the contract cannot be sublet or assigned by the selier under
condition IO read with para 3(b) of the "Conditions of Contract
contained in Form D.G.S. & D. 68 governing contracts placed
by the Central ' Purchase Organisation of the Government of
India. 1959 edition". Para 3(b) states:
" ( b) Subletting of Contract.-The Contractor ~i1ali
not subject, transfer or assign the contract or any part
thereof without the written permission of the Purchaser.
In the event of the Contractor contravening this condition the Purchaser shall be entitled to place the con·
tract elsewhere on the Contractor\ account and at hi>
risk and the Contractor shall be liable for any loss or
damage which the.Purchaser may sustain in consequence
or arising out of S.Uch replacing of the contract."
So far as the buyer is concerned, the contract itself shows that
the jute bags were intended for "packing foodgrains which were
arriving in bulk'" at an lndian port.
The last paragraph 0f the
letter of acceptance dated September 16, 1960 states that "the
guunies are very urgently. required at the destination fo: packing
imported foodgrains whi~h arc arriving in bulk". and "it was
therefore of utmost impol1ance that shipment of the total quantity ordered shall be made in the vessels nominated by chc purchaser."
There is also a specific provision in the contract that
the "stores shall be inspected prior to shipment by the i\.T.l.G.S.,
East fndia, Hastings, Calcutta, or his representative."
There is
also a further stipulation that after the goods are inspected
arrangements should be made to ship the stores in acc0r<lan.:c
with the instructions contained in the· contract and that goods
which arc not accepted in inspection should not be shipped. The
name of the consignee is given in the contract as Asst. Director
(Storage), Ministry of Food & Agriculture, Transit Shed No. 4,
Visakhapatnam Port, Visakhapatnam and payment is to be made
according to the procedure specified in the contract an·J the cost
w::3 dcbitable to the Pay & Accounts Officer, Ministry ol Food
& Agriculture, Bombay or New Delhi as the case may be under
(I) l1963J 3 s.c.R. 183.
A
B
c
D
E
F
G
H
B
c
D
E
IF
MODI & co. v. pNION (Ra~ami, /.)
571
Head of Account "87-Capital Outlay on the Schemes of Govt.
Trading-Schemes for purchases of Foodgrains A.I. (3) (I)
expenditure in India Section IV Special Purclttses both for Civil
& Defence requirements-other Purchases-Purchase of gunni~
for imported food grains". In view of all these circ.umstances we
an: of opinion that it was not contemplated by the parties that
the rights under the contract should be transferred either by the
buyers or by the sellers.
It was pointed out for Lhe appellant
that normally the Bill of Lading partakes of the nature of a negotiable instrument and by endorsing it the holder of the l:iill of
Lading can transfer ihe property in the goods to which the Bill
of Lading relates and by parting with it the holder parts uot only
with the property· in the goods but also with :heir possession.
The proposition contended for by Counsel for the appellant is no
doubt correct, but the question in this case is not the ab&tract
question as to what the purchaser could or might haye done but
what was in fact contemplated by the parties who were entering
into the contract.
For the reasons already given, we hold that
on a proper construction of the terms of the contract and having
regard to the surrounding circumstances there was an implied
agreement between the parties that the rights and liabilities under
the contract were not to be transferred and the Bill of Lading
relating to the contract was also not to be transferred. Jt follows
therefore that the contract in question was a non-transferable
specific delivery contract within the meaning of. s .. 2(t) of the Act
and the contract was .11ot hit by the notification dated March 29,
1958 issued by the Central Government under s. 15(1) of the
Act.
For the reasons expressed we hold that the decfaion of the
C~lcutta High Court dated September 18, 1963 is correct and
this appeal must be dismissed with costs.
R.K.P.S.
Appeal dismissed.