# Ra~huhar Daynl Jai Prakash v. Thi l:'niori of India

- **Citation:** [1962] 3 S.C.R. 547
- **Court:** Supreme Court of India
- **Decided:** 1959-02-11
- **Bench:** P. B. Gajendragadkar, A. K. Sarkar, K. N. Wanohoo, K. C. DAs GUPTA, N. Rajagopala Ayyangar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/ra-huhar-daynl-jai-prakash-v-thi-l-niori-of-india-2459
- **Pages:** 34

## Headnote

547
Forward Contracts-Law to regulate such contracta-Ruognition of G!&Ociations-Constitutional validity of enactm~nt
Forward Contract• (Regulation) Act, 1952 (74 of 1952), sa.2(j),
5, 6, 10, 15, 16, 17, 20, 2I(e) & (f)-Con,,titution of India, Arl1
14, 19(1)(!), 19(1)(g), 19(5), 19(6).
Tradt"rs like the petitioner combined to,gether to form an
association the objects of \Vhich were to regulate forward
transactions in the sale and purchase of gur and other commo--
~ dities entered into between the n1embers -of the association, as
also to declare the rates at which the contracts vvere to be
settled on the dates fixed for delivery.
The petitioner had
entered into forward contracts of purchase . of gur at certain
rates and had also deposited as the buyer the amount as well a1
the special margin required to be deposited under the bye-laws
of the association. Contracts entered into by him were outstand·
ing on February 11, 1959, when on that date the Central
Government isliued a notification under s.15 of the Forward
Contracts (Regulation) Act, 1952, under which every forward
contract for the sale of purchase of any goods specified in the
~ notification which vvas entered into in the area specified therein
otherwi5c than betv\.'een members of a recognised association
or through or with any such member, shall be illegal. The
association in question of which the petitioner was a me111ber,
was not on the date of the notification dated February 11, 1959
recoKnised by the Central Governn1ent under s. 6 of the ~A.ct, as
a result of which the forwar.::1 contracts entered into by him
'
became illrgal and void.
The further consequence of the
.).- notification was that under s. 16 the transactions entered into
by the petitionrr and others situated similarly like him which
remained to be performed after the said date were to be
deemed to be clo~ed out on that date and the differences arising
out of the contract \\'ere to be payable not at the rate originally
stipulated by the contracting parties but at the rates specified
in the notification. The petitioner challenged the validity of
the provi•ions of the Act on the grounds inter alia (I) that
ss. 5 and 6 relating to the recognition of associations by the
)
Central Government and s. l 0 which enabled it to direct rules
to be made and, in case the recognised
as~ociation failed to
\;\ke li\Ction, to them•clve• make the rules, infringed the frecdolll
1961
Stptembar 12.
1961
Ra~huhar Daynl
Jai Prakash
v.
Thi l:'niori of India
548
SUPREME COURT REPORTS
[1962]
guaranteed by Art. 19(1)(c) of the Constitution of India, f'
(2) thats. 15 infringed Arts. 14, 19(1)(f) and 19(l)(g), and
(3) that s.16 in so far as it enabled the Government to fix the
ratr:; at which thr. differences payable by or.e party to the other,
without giving any indication of the principles underlying the
fixation of the price, conferred an unguided power and offended
Art. 14.
Held:
(I) that ss. 5, 6 and 10 and other provisions in
Ch. III of the Forwards Contracts (Regulation) Act, 1%2,
proceeded on the basis that or_ganisations of tradesmen might
be ~ntrusted with the task of regulating these tran'.liactions, so
that while legitimate trade might be furthered the evil consequence< of undesirable speculation might be a\·oided, and they
were enacted with the object of ensuring effective control over
the mechanism of forward trading. 1\ccordingly, thi: provisions
in Ch. III of the Act do not contravene Art. 19(1)'.r) of the
Constitution.
(2) that on a proper comtruction of s.15 the recognition
of an association under the provisions of the Act \vas not an
e!~ential pre.requisite before a notification could be issued under
the section, and that the issue of such a notification \\·as not
an unreasonable restriction on the right of the petitioners to
carry on business within the meaning of Art. I 9(G) of the
Con~tinttion of In<lia.
(3) that the selection of the commodity for the regulation of forward trading in it or of prohibition of <uch

## Text

_Characters 0–39,867 of 69,479. This is a partial read: ask again with offset=39867 for what follows._

-
"'!
3 S.C.R.
SUPREME OOURT REPORTS
RAGHUBAR DAYAL JAI PRAKASH
1'.
THE UNION OF INDIA AND OTHERS
(P. B. GAJENDRAGADKAR, A. K. SARKAR,
K. N. WANOHOO, K. C. DAs GUPTA and
N. RAJAGOPALA AYYANGAR, JJ.)
547
Forward Contracts-Law to regulate such contracta-Ruognition of G!&Ociations-Constitutional validity of enactm~nt
Forward Contract• (Regulation) Act, 1952 (74 of 1952), sa.2(j),
5, 6, 10, 15, 16, 17, 20, 2I(e) & (f)-Con,,titution of India, Arl1
14, 19(1)(!), 19(1)(g), 19(5), 19(6).
Tradt"rs like the petitioner combined to,gether to form an
association the objects of \Vhich were to regulate forward
transactions in the sale and purchase of gur and other commo--
~ dities entered into between the n1embers -of the association, as
also to declare the rates at which the contracts vvere to be
settled on the dates fixed for delivery.
The petitioner had
entered into forward contracts of purchase . of gur at certain
rates and had also deposited as the buyer the amount as well a1
the special margin required to be deposited under the bye-laws
of the association. Contracts entered into by him were outstand·
ing on February 11, 1959, when on that date the Central
Government isliued a notification under s.15 of the Forward
Contracts (Regulation) Act, 1952, under which every forward
contract for the sale of purchase of any goods specified in the
~ notification which vvas entered into in the area specified therein
otherwi5c than betv\.'een members of a recognised association
or through or with any such member, shall be illegal. The
association in question of which the petitioner was a me111ber,
was not on the date of the notification dated February 11, 1959
recoKnised by the Central Governn1ent under s. 6 of the ~A.ct, as
a result of which the forwar.::1 contracts entered into by him
'
became illrgal and void.
The further consequence of the
.).- notification was that under s. 16 the transactions entered into
by the petitionrr and others situated similarly like him which
remained to be performed after the said date were to be
deemed to be clo~ed out on that date and the differences arising
out of the contract \\'ere to be payable not at the rate originally
stipulated by the contracting parties but at the rates specified
in the notification. The petitioner challenged the validity of
the provi•ions of the Act on the grounds inter alia (I) that
ss. 5 and 6 relating to the recognition of associations by the
)
Central Government and s. l 0 which enabled it to direct rules
to be made and, in case the recognised
as~ociation failed to
\;\ke li\Ction, to them•clve• make the rules, infringed the frecdolll
1961
Stptembar 12.
1961
Ra~huhar Daynl
Jai Prakash
v.
Thi l:'niori of India
548
SUPREME COURT REPORTS
[1962]
guaranteed by Art. 19(1)(c) of the Constitution of India, f'
(2) thats. 15 infringed Arts. 14, 19(1)(f) and 19(l)(g), and
(3) that s.16 in so far as it enabled the Government to fix the
ratr:; at which thr. differences payable by or.e party to the other,
without giving any indication of the principles underlying the
fixation of the price, conferred an unguided power and offended
Art. 14.
Held:
(I) that ss. 5, 6 and 10 and other provisions in
Ch. III of the Forwards Contracts (Regulation) Act, 1%2,
proceeded on the basis that or_ganisations of tradesmen might
be ~ntrusted with the task of regulating these tran'.liactions, so
that while legitimate trade might be furthered the evil consequence< of undesirable speculation might be a\·oided, and they
were enacted with the object of ensuring effective control over
the mechanism of forward trading. 1\ccordingly, thi: provisions
in Ch. III of the Act do not contravene Art. 19(1)'.r) of the
Constitution.
(2) that on a proper comtruction of s.15 the recognition
of an association under the provisions of the Act \vas not an
e!~ential pre.requisite before a notification could be issued under
the section, and that the issue of such a notification \\·as not
an unreasonable restriction on the right of the petitioners to
carry on business within the meaning of Art. I 9(G) of the
Con~tinttion of In<lia.
(3) that the selection of the commodity for the regulation of forward trading in it or of prohibition of <uch trading
could only be left to the Government and the purposes for
\\·hich the pow("r 'vas to be used and the machinery created for
the investigation furnished sufficient guidance; consequently,
s.15 did not confer an unguided anci arbitrary po,,·er and did
not infringe Art. 14.
(4)
that the rc<trictions impo<ed by s.15 of the Act were
reasonable within Art. 19(5) and (6) and did not contravene
Art. 19(1)(£) and (g).
(5)
that s.16 of the Act could noL be challenged as
eith("r a piece of exccssh·e delegation or offended Art. 14.
0HJGIXAL .TvRTSDICTIOX : Petitions Nos.
22
to '.!G and 42 of Ul50 ..
Petitions under Art. 32 of the Con~titution of
Inrli<i for the enforcement of fun<lamentnl rights.
Jf. K. Nmnbza.r, E. Udnyamthnmn, Rwnesh1cm
Nath and S. S. Slmk/11,
for the petitioners (In
Petn. ~Oil. 22 and 23 of 50).
S. C. Chatterjee, R. C. G11pta, E. Udr,yurathnmn
ancl S. S. Sh1tkfo, for the pctitionerB (In Petn.
Nos. 24 and 25 of 50).
R. Udayamthna.m and S. S. Sh1ikla, for the
petitioners (In Pctn. No. 26 of 50).
....
(
'
-..
3 S.C.R.
SUPREME COURT REPORTS
549
-.
S. T. Desai and S. S. Sh,uklc!, for the peti-
•
tioners (In Petn. No. 42 of 59).
G. ]{, Daphtary,
Solicitor-General of I ndili,
B. Sen, R. H. Dhebar and T . .irl. Sen, for the
respondent No. 1 (In all the petitions).
B. P. Jffa}ieshwari, for respondent No. 2 (In
Petn. Nos. 22 and 25 of 1959) .
• G. C. "lfothur,
for respondent No. 2 (In
Pet11 Nos. 26 and 42of1959).
R. L. Agwwala and P. G. Agarwala, for the
Intervcners.
1961. September 12.
The Judgment of the
Court was delivered by
AYYANGAR, J.-These
six
petitions
filed
under Art. 32
of the Constitution raise for
consideration three points: ( l) the constitutional
validity of the operative provisions of the Forward
Contracts (Regulation) Act (Act LXXIV of 1952) (to
be referred to hereafter as the Act), (2) the validity
of a notification dated February 11, 1959, issued
under s. 15 of the Act by which gur was brought
within the purview of the
enactment
with
immediate el'tect, and (3) the validity of another
notification of the Central Government issued
simultaneously fi:idng the price at which Forward
Contracts subsisting on February 11, 1959, was
directed to be settled. For the purpose of understanding the points raised and the effect of the impugned
notifications on the rights of the petitioners it
is sufficient to refer to the facts of Petition No. 23
).
of 1959 which is typical of the eases before us.
The petitioner-Raghubar Dayal Jai Prakash
is a firm carrying on the business of purchase and
sale of gur and other. commodities inter alia at
l\Ieerut. Traders like the petitioner had combined
togNher to form a company regi8tered under the
Indian Companies Act under the name 'Kaisergunj
Beopar Co. (P) Ltd'., Meerut. The function of this
\
incorporated
b~dy ~vas, inter alia, to regulate
-- forward transact10ns m the sale and purchase of gur
and other commodities entered into between the
members of the Society, as also to dec]<J,re the rates
at which the contracts were to be settled on the
1§61
Ra,ghubar DaJ'lrl
Jai Prakash
v,
·The Union of lniia
Ayyangar ].
1161
Rathubm Dnyai
Jai Pr•ka.Jh
V.
Tiu UniMi of India
A)yan.~a1 ].
t
oliO
SUPREME COURT REPORTS
[1962]
dates fixed
for
deliverv.
This incorporated f"
company has
Leen
impleadccl as a second
respondent to the petition. This association or
company, howe\'er,
was not,
on the date of the
impugned notification, "recognised"' by the Central
Government under the provisions of the Act to
which we shall presently ad\'ert.,
in
respect of
de·dings in gur with which alone· thcso petitions arc
oo!lccrned. The petitioner had entered into forward
contracts of purchase of gur at crrtain rates and
he had also deposited n.s the Luyor the amount as
well as the specin.I
margin required to be deposited
under the Lyo-laws of this association. Contracts
entered into by him wJ.iC'h were <'ntatanding on
February II, 1959.
were in rcln.tion to 29,600
maunds. While
so,
Government published
a
notification under e. I ii of the Act on February 11,
1959, applying th" provisionR of that section to gur
118 a result of which the forward contracts entered
into in gur by the petitioner
became illegal and
void.
The further l\'gal consequence o! the
notification
was that tho transactions entered into
by the petitioner and othern situated similarly like
him were
to be docmcd to be elost'd out on
February I I, I 95!l-tho dato of tho notification
and tho differences arising out of the contract woro
to be payable not at tho rat(\ origi1mlly stipulated
by tho contracting parties but at the rates specified
in tho notification. If the petitionn had to settle
..
hia outstanding contracts at the rnte determined bv
the Contra! Government ho
would suffer a loss of .,,;.
Re. 48,000. Ho therefore challen11es in this petition
the validity of the provisions of the Act which enabled the notifications to be
issued as also tho
notifications themselves on ground• to th<l detail• of
which we shall advert later.
Before setting out thcso details, it would be
eonvenient and tend to tho proμor appreciation of I
the problems im·olverl, if we briefly indicate the ·
economic
implications of forward
trading in
commodities, the nood for tho regulatio11 of such
,
-
) ..
3 S.d.R. SUPREM:E COURT REPORTS
551
irt.ding; as well as the history of the measures
it.ken from time to
time to exercise control on
forward trading in gur prior to the issue of the
impugned notifications in Febru!lry 19.39.
The expert committee to which the Bill which
beet.me· the Act (Act 74 of 1952) was referred,
explained in their report the function of forward
tr&ding in these terms:
"Forwa.rd trading involves specula.tion
&bout the future, but not all forms of forward
trading could be considered as either unnecesEary or undesirable for the efficient functioning
of anything but the most primitive economy ...
............ To the extent to which forward trading enableg producer•, manufacturers and
traders to protect themselveR against the
uncertainties of the future, and enables all th~
relevant f'tctors, whether actual or anticipated,
local or
international, to exercise their due
influence on prices, it confers a. definite boon
on the community, because, to that extent, it
minimises the riFks of production and distribution and makes for greater stability of prices
and supplies. It thus plays a useful role in
modern business. At the same time, it must
be admitted that this is an activity in which a
great many individuals with small means and
inadequate knowledge of the market often
participate, in the hope of quick or easy gains
t.nd consequently,
forward trading often
assumes
unhealthy
dimensions,
thereby
increasing, instead of minimising, the risks of
business. There are forms of forward trading
for
example,
options,
which facilitate
participation by persons with small mean• and
inadequate knowledge ............ It is, therefore,
necessary to eliminate certain forms of
forward trading, and permit others under
carefully regulated conditions,
in o.rder to
ensure that, while producers, manufactwrera
1H1
Ra_;huhar Dayal
]tJi l'rak.ash
v.
The Union:oJ India
AyJ""l" ].
J9{jJ
Ra1luJJar Dayal
Joi Pralc4.Jh
v.
Tiu Union of l ntlia
552
SUPREME COURT REPORTS
[1962] •
and traders will ha.,•c the facilities they need
for the sa.tisfaetory condud of their business
the wider intcreRts of t.hc community, and
particularly, the interests of consumers, will
be adequately safeguarded against any abuse
of such facilities by 'Jthers.
The
Essential
Supplios
(Temporary
Powers) Act, I !J-Hl, docs not.
empower the
Central Govcmmcnt to regulate forward trading in any commodity other than an 'essential
commodity' within the meaning of that Act.
Action may be needed not only for prohibiting
forward trading in commodities in which it is
still taking place, but also for reopening forward trading under regulated conditions and if
circumstances are favourable to such a course,
in commodities in which it is now prohibited.
The arrangements must be such as will
enable speedy and effective action to ho taken
in emergencies, and mnst at the same timo
provide sufficient sa.foguards against arbitrary
or ill-informed action."
•
It 1vas with these objects and with provisions
calculated to carry out these suggostions that tho
Act was enacted.
And now a short resume of the
history of tho provisions relating to forwa.rd trading
in gur which preceded the impugnecl notifications:
-~
After the end of the war, a ban on forward
tradinμ in gur was imposed by the Sugar & Cur
(Future Trading) Prohibition Order, Hl51, issued
under the E8Scntial Supplies (Temporary Powers)
Act, 1!)46.
This ban was however removed by a
notification dated January i, l!J;>4.
The Forward
Contracts (Regulation) Act, Hlii2, was nut applied
to gur with the result that from January, 1951, all
c011tracts in relation to gur remained free and outside the regulatory provisions of the Act. The Forward Markets Cmnmission took up the consideration
of the question regarding the advisability of imposing regulations on
forward
trading
in
this
..
3B.C.R.
·SU.EREME,COURT ,REP.,QRTS
. 553
commodity. The Commission considered, first, the
question whether gur wa~ a suitable commodity for
forward trading and whether there was a.ny need of
bringing forward trading, which was still then free
in that commodity, within the regulatory provisions
of the Act. 'l heir conclusion was that gur was a
commodity in respect of which the production was
large enough for not being cornered by any group
of traders;
and that the forces of supply and
demand in respect of the commodity were uncertain
ao as to require a continuous assessment of their
changing relationships through the medium of a
futures market. They also were of the opinion that
the fluctuations in the price of gur were wide
enough to a.ttract speculators and to ensure holders
of ready stocks against risks arising from the
fluctuations consequent upon speculation it was
necessary to bring trade in the commodity within
the scope of the Act. In these circumstances by
their report which was submitted to the Government
in May, 1957, they recommended (l} that Government might accord recognition to certa.in associations after the necessary formalities had been
completed, and ( i) to issue simultaneously a
notification under s. 15 of the Act illegalising forward trading in the commodity except through the
associations or through the mem hers of such
associations,
as set out in ·S. 15 of the Act.
The
Government however by their resolution dated
January 17, 1958, recorded:
"The main
recommendations of the
Commission arc that the regulatory provisions
of the Forward Contracts (Regulation) Act,
1952, be applied to gur and that forward trading be conducted through associatione to be
recognized under the said Act.
The Government ofTndia have carefullv
considered the recommendations made by the
Commission .and have come to the conclusion
that there is. no strong justification .or special
1961
RaghubiJ.r ·v11yal
Jai Prakash
·'·
The Union of India
Ayyangar J.
1161
Ra1_J.uha1 DtJ;al
Jai fraktJJh
••
Tlw Union •f India
Ay;·cniar ].
SUPREME COURT REPORTS
[1962)
need for the time bcin!( to bring gur under the
purview of the Forward Contracta (Regulation)
Act, 19.52."
Subsequently however by a notifiPation daud
February I 1,
I !l5fl,
the C<·ntral
Governm~nt
declared that s. 15 of the Act shall apply to the
whole of the territories to which the Act exte1:ds.
The circumstances which led to this thange in the
view of Government is thus expressed in !!8. l 05 to
l 97 of the Annual Report of the Forward l\farkets
Commission
for the year W59.
ft is there statod:
•
") 95. The Commission in its Report on
the Recognition of Associations in respect of
Forward Contracts in Gur submitted in llfay
, 4
1957 had recommended that Gur be brought
under the regu!at0ry provisions of the Forward Contract3 (Regulation} Act, W52, and
that recognised futures markets be established
at Hapur, Meerut, Agra, Muzalfarnagar and
Delhi for the purpose. The Government of
India, however, ?ecidcd not to bring gur
under the purvicw of the Forward Contracts
(Regulation) Act, Hl52 for the time being,
a1
a result, forward trading in gur, continued to
be unregulated. The prico situation in gur
markets at the end of 1958, however, took a
very serious turn on account of hectic speculative activity in these markets. For example,
the gur prices, at Ha.pur, rose during tho three
months from the middle of November to the
middle of February
1959, by 37 per cent as
oompe.rcd to the rise of 0.15 per cent in sugar
-& controlled commodity-and 1.5 per cent in
khe.ndsari, forward trading in which had been
br.nncd.
196. These developments neoeasitatcd a
reconsideration ol tho earlier decision to keep
j
the commodity out of tho purview of the Act
and
tho Government of India, on the advice
of the Commission, applied aection 15 of tho
-
a s.c.R.
SUPREME COURT REPOR1;S
555
Forward Contracts (Regulation) Act, 195.2, to
gur, all over the country on the 11th Feb1uary
l!J59.
197. The application of section 15 of the
Aot also necessitated fixation of the rate under
section
16 at which all forward contracts outstanding as on
that day, could be closed out.
The Government of India, after taking into
account all the relevant factors closed the out-
'1tanding contracts at the average of the closing rates during the preceding three months."
The notifications which brought this about read:
"In exercise of the powers conferred by
cl&use
(a) of section 16 of the said Act the
average of the closing rates prevailing in the
respective forward markets during the period
of thrco months immediately preceding the
date of this notification, as the rate at which
any forward contract for the sale or purchase
of gur entered into on or before the said date
and remaining to be performed after the said
date shall be deemed to be closed."
No associations had been granted recognition before
the date of this notification dated February 11,
1959, but on the same date another notification was
itsued by the Govern~ent reading:
"They have al8o decided that regulated
futures markets in respect of gur should be
established in due course &t Hapur, Meerut,
Agra,
Muzzafarnagar and Delhi, ·and that
recognition should be granted under section 6
of the s11id Act.................. "
In accordance with what was stated here exi8ting
associations in the places mentioned were irooorded
recognition after an enquiry as to whether 'they
conformed to the requirements of the Act.
Likewise other associations which were formed subsequently were also recognised after similar enquiries.
The petitivners before us are members of these
1961
Raghubar Dayal
J ai Pr al.ash
v.
The Union of lndi~
-
Ayyanza.r J.
lMI
Rag~~·;no.>:nl
Jai PraJ.:41.Ji
v.
TM li1:W11 of Indio
AJ_J,;,;g;,7 J.
556
SUPREJl.lE C0URT REPORTS
(1962)
associations- those in Petitions 22, 23 and 25 b<·ing
mcmhern rcspt•ctively of tho three asHO<:iations
named in the notification extrn<-tcd above and the
pctiti"m·rs in Pctitio11s 24, 26 am! 42 of <1,suciations
subsequently brought into cxi,tene"· The formalities preceding the recognition, however, took some
little time and recognition to all thc8C associations
wa.s granted iu June 105\l or then·abouts.
In oder to appreciate the submissions made
to us, it is necessary tu set out briefly tho provi-
. sions of tho Act whose validity is challcngod.
Tho
preamble to tho Act reads that it is an Act to provide for tho n•gulation of certain mattPrS relating
to forward contracts, the prohibition of options in
goods and for other matters connected therewith.
\Ve are not now concerned with the second part
of the objeoti,·c, viz., the prohibition of options in
goods, but only with those provisions which deal
with the regulation of matters relating to forward
contracts. Section 2 which contains the statutory
definitions defines "an association" as "a body of
individuals, whothPr ineorported or' not, constituted
for tho purpose of regulating and controlling tho
busiw,ss of tho sale or purchase of any goods"
while sub-cl. (j) defines "<1 rocognised association"
as meaning "an association which is for tho time
being recognised by the Central Government under s. ()". Chapter II is entitled "The Forward
Marketa Oo=ission" and makes provision, in
tho two sections which constitut-0 the Chapter, first
for the establishment and constitution of a Forward
Markets Commission which iti a body of independent exports (s. 3), the other (s. 4) detailing tho
functions of tho Commission which include the
ta.ak of "advising tho Central .Government in respect of the .recognition -0f 8ll8ociations", And "in
respect of any other matter arising out of the admini~tration of tho Act", "to keep forward markets
under observ<1tion" and inform Government of developments taking place .in it and finally t-0 make
rccvmmcndations with a view to improving ·the
organisation and working of forward markets.
-·
~
-
•
•
3 S.C.R.
SUPREME-COURT'REPOR'l'S
557
.
.
Chnpter III which is headed "Recognised asso-
<'iations" contains some of the sections which validity was challenged in th·e petitions before us. Bafore an association could be recognised, s. 5 requires
the body to make an application to the Central Government furnishing the details and partiCulars
~pecified in s. 5(2).
The Government might make
such enquiry as might be necessary and after obtaining such further information as may be required were empowered to grant recognition to associations under s.6 and such recognition was to specify tho goods or classes of goods with respect to
which forward contracts may be entered into between members of such associations or through or
with any such member. Section 6(2) contaimi conditions which ought to be complied with by associations before recognition was granted amd 'provision was made in s. 6(3) for the rules of the associ·
ation not being amended except with the approval
of the Central Government. Complementary to this
was the provision contained in s. 10 which empowers the Central Government to direct rules to be
made, with power in case the recognised association
fails to take action to comply with the order of the
Government, to themselves make the rules in the
forms specified by that order.
The recognition
had to be published in the· Gazette of India and
in the r ,fficial G:ozette of the State in which the
principal office of the association is situated s.G (4).
Sections 6 and 10 were the principal subject of attack among tho fasciculus of sections relating to
"recognised associations" in Ch. III, but we shall
revert to the grounds of att,-ick after setting out
the other provisions of the Act whose validity
was also the subject of challenge.
They were
ss.15 ·~nd 16 under which the notifications now impu·
gned were made. They run in these terms :
"15. Forward contract8 in noti-Jied goods
illegal or mid .in certain circumstances.
( 1) The Centra:l GovernmQnt may, by
notification in the Official Gazette declare
IJ61
R• ~hubar D{zy4f
Jai Prakash
v ..
Thl Unior1 ~!India
A_YyaltgaT J.
Jiil
Ratf.uhar Dt1yal
J gi Pralca.slt
v.
T_Ju Union of bub'a
.4yy~«r ~'.
658
SUPREME COURT REPORTS
this section to apply to such goods or claM
of goods and in such areas as may be speci.
lied 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 notificl\.
tion which is entered into the area specified
therein otherwise than between mem-bers of
a recognised association or through or with
e.ny such member, shall be illegal.
(2) Any forward contract in goods entered into pursuance of sub.section (I) which
is in contrnvention of any of the bye.Jaws
specified in this behalf under clause (a) of
111b-section (3) of section II shall be void:-
( i) &8 respects the rights of any
member of the recogniser! association
who has entered into such contract in
contravention of :my such bye-law, and
&llO
(ii) &&
reBpcct1 the rights of any
other person who has knowingly participated in the transaction entailing such
-..
contravention.
*
(3) NQthing.in sub-section (2) shall affect
the right of any pors•m other th1m a mcm bt'r
of a. recognised association to enforce any
euch contract or to recovl•r any sum uncfor or
in respect of such contract :
Provided that such person hid no knowledge that 1uch transaction was in contravention of any of the bye-laws specified undn
cl&use (a) or Hub-section (3) of section I I.
(4') No member of a r1>cogniscd nss~cia.
tion ghall, in respect or any goods specified
in the notification under sub-section (!),
enter into any contract on his own account
with any perscn other than a member of the
recogniwed association, unless he had secured
•
......
i
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l
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3 S.C.R.
SUPREME COURT REPORTS
559
the consent or authority of such person arid
discloses in the note, memorandum or agreement of sale or purchase that he has bought
or sold the goods, as the case may be, in his
own acceunt :
Provided that where the member has
secured the consent or authority of such person
otherwise than in writing he shall secure n
written confirmation by such person of such
consent or authority within three days from
the date of such contract :
Provided further thflt in respect of ~ny
outstanding
contract
entered
into by a
member with a person other than a member
of the recognised association. no consent or
authority of such person shall be necessary
for closing out in accordance with the bye.
laws the outstanding contract, if the member
discloses in the note, memorandum or agreement of sale or purchase in respect of such
closing out that he has bought or sold the
goods, as the case may be, on his own account.
16. Consequences of not!fication
under
3ection 15.-Where a notification has been
issued under section 15, then notwithstanding
anything contained in any other law for the
time being in force or in any custom, usage
or practice of the trade or the terms of any
contract or the bye-laws of any association
concerned relating to any contract-
( a) every forward contract for the
sale or purchase of any goods specified
in the notification, entered into before
the date of the notification and remaining to be performed after the mid date
· and which is not in conformity with the
provisions of section 15, shall be deemed
to be closed out at such rate as the
· Central Government may fix in this
1961
Raghubar Dayal
Jai Prakash
v.
The Union of Indi•
Ayyangar ].
! l
. I
! I l
' ! ..
1961
lf.a~h.ubar Dayal ·
Jai Prakash
v.
.
....
/
·,
560
SUPRE\TE COURT REPORTS
[1962)
behalf; and different rates may ·be fixed
for different classes of such contracts ;
Tht linion of~~~~'!____ .
(b) all differences 'arising. out of
any contract so deemed· to be closed
out shall be payable on the basis of
the rate fixed nnder clause (a) and the ,
.{vyangar J. -'.
------
'·
seller shall not l:ie bound to give and
tho buyer shall not be · bound to take
delivery of the goods."
· In cases where mere regulation of the trade
was not considered sufficient Government were
empowered to prohibit for\vard trading and s. 17
of ;the Act enacted.
..
-
-
. "17. Power to prohibit forward contracts in
certain cases.-( 1) The Central Government may,
by· notification in the Official Gazette, declare
that no person shall, save with the permission
of thci Central Government, enter into any.
forward contract for the sale or purchase of
any goods . or class of goods specified in the
notificatfon.and to which the provisions of
section· 15 have not .been wade applicable,
expect' to the extent and in tho manner, if
any, as may be specified in the notification.
(2) All forward contracts in contravaticn
of tho provisions of sub-section (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 Bale or purchase
of any goods specified· in the notification
entered into 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 any
goods specified : in the notification under
section 15."
,~
\
..
•
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-
3 S.C.R.
SUPREME COURT REPORTS
561
'
There a.re two more sections to which reference
might be
made and
they are s. 20-which
imposes penalties for contravention of certain pro·
visions of Ch. IV-ands. 2l(e) & (f) which run in
these terms :
"21. Penalty for owning or keeping
place used for entering into forward contract•
)
in goods.-Any person who
(e) not being a member of recognised
association or his agent authorised as
such under the rules or bye-laws of such
associa.tion; canvasses, advertises or touts
in any manner, either for himself or on
behalf of any other person, for auy business connected with forward contractil
in contravention of any of the provision•
of this Act, or
(f) joins, gathers, or assists in gathering at any place, other than the place
of business specified in the bye-laws of
a recognised asaociation, any pernon or
persons for making hidH or offers or for
entering into or making or performing,
whether wholly or in part, any forward
contracts in contravention of any of the
provisions of this Act, or".
It would be noticed that the two latter are
intended to carry out tho object nnrt purposes of
the Act and make effective the powers vested under
the other provisions to which refrrence has bet·n
made.
We shall now proeeed to consider the ground8
of attack upon each of these provisions and
examine the correctness of the contentions urged
by learned Counsel :
Section.• 5, 6 and 10 :
It wa8 urged by Mr. Nambiar, and in this he was
supported by the other learned Counsel appearing
11~1 -
Rathu.iar Dt'.l't1.1
Jai Praka.·h
v.
The Union o} !11dia
1961
Raghuimr J)aJ"Gl
Jai p,aJ:.,uh
v.
Tht CJnio11 of India
562
SUPREME COURT REPORTS
(196~]
in' the case, particularly by llfr. ·- S. T. Desai, '
that these sections infringod the freedom guaranteed by sub· cl. ( c) of cl. (1) of Art. 19 of the Constitution. Sub-clauso (c) of cl. (1) of Art. 19 runs
in these terms :
"!!). (I) All
citizens shall have the
rights-
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............................ .
(c) to form associations or unions;"
The freedom, however, is subject to tho provisions
of cl. ( 4) of Art. 19 reading :
"19. (4).
Nothing in sub.clause (c) of
the said ela.uso shall affect the operation of -'.;
any existing law in so far as it imposes, or
prevent the State from making any law
imposing, in the interests of public order or
morality,
reasonahlo
restrictions on
tho
exercise of the right conferred by the said
sub·clause."
Briefly stated, the argument regarding these
pro\·isions infringing the freedom to "form associ·
ations" was as follows: Tho Constitution gull.ran-
•
toes to ey!'ry citizen the right to
form
an
association. The only limitation which might
legally be imposed on this right to form an
usociation is that set out in cl. (4) of Art. 19, viz.,
bye-laws which phce restrictions based on public
order or morality. \Vhere the object of the
:issociation is lawful, the citizen, through that
"-
as.q"ciation, anrl the association itself are entitled,
by virtue of the guarantocd right, to freedom from
legi~lative interference in tho achievement of its
object except on grounds germane to public order
or
morality. In
other
words,
the
freedom
guaranteed should be read aa extending not meroly
to tho formation of the association as such, but to
the effective functioning of the association so as t
to enable it to achieve its lawful objects. Unless
eub·cl. (cl of cl. (1) of Art. 19 were so read the
-
-
-
-·
3 S.C.R. SUPREi\fE COURT REPORTS
freedom guaranteed would be illusory and the
.Court should, in construing a freedom guaranteed
to the citizen, so read it, as to give him an effective
right which could be used for the purpose for
which
the
Constitution.framers intended. The
fort.her submission, which was in the nature of a
corollary from tho above was that the freedom
gm1ranteed by sub-cl.
(c} of cl. (1) of Art. 19
carried with
it a
right
in
the association
to
determine
its
internal
arrangements in
the matter of selecting the personnel who shall
manage it, the framing of the bye-laws and regulations which shall govern the relationship between
the association and its members as also between
its members without any interference by the State
unless the law providing for such interference were
grounded on morality or public order. In effect
the submission was that the right guaranteed under
sub-cl. (c) of cl. (1) of Art. 19 was not merely, as
its text would indicate, the right to form an
association but would incfode the functioning of
the association without any restraints not _dictated
by the need for preserving order or the interests
of morality. On these premises it was urged that
while the Constitution had guaranteed the freedom
to form an association-including inter alia one
for fostering or regulating forward trading, still
the Central Government had taken upon themselves the right to determine the rules and byelaws under which the association could function
and had, by the provisions in Ch. III of the Act,
in every way interfered in the matter of internal
ma.nagement 1md it was urged that this was
violative of the right guaranteed by sub-cl. (o} of
cl. ( 1) of Art. 19 since the restrictions in Ch. III
_of the Act could not be held to have been dictated
on grounds of public order or morality.
~
We consider this argument iH without force .
. In the first place, the restriction imposed by s. 6
of the Act is for the purpose of recognition and no
19~1
Raghubar Day(ll
Jai Prakarh
v.
The Union of India
Ay;•an:•r J.
•
•
1961
__ ,
Raghubar Dayal
Jai Prakash
v.
The Union of India
A;v)'angar J.
564SUPREME COURT REPORTS
[1962]
association is compelled to apply to the Govern· ~
ment for recognitivn ~mder that Act.
An applicat~on for "t1w reCOg!J.ition of the· association for the
purpose of functioning imdeF the enactment is a,
voluntary act on the part of the association and
if the. statute imposes conditions suoject to which
alone rcicognition could be accorded or continued,
it is a little difficult to see how the freedom to
-{
form the association is affected unless, of course,
that freedom
implies or involves a guaranteed
right to recognition afao,
Could _it be contended
that there iR a right in the a~sociation guaranteed
by the Constitution to obtain recognition? It
was not disputed before us -that forward trading
might sobrntimes assume undesirable forms and s·
b.ecome akin to gambling which might have
deleterious consequences on lawful trade and on
the general public by caus"ing violent fluctuations
in prices. It would folfow that the control of
forwar<!- tradfog is a legitimate subject of legislative interforcnce and regulati.on And we
might
add 1 hat this "'a,s not disputed .before us.
The
manner in which this regulation is effected and
the machinery employed for achieving it are r::
matters of legislll.tive policy which could be determined 011ly by taking in to account tlre organisation
of the market, the manner of trading ana other
relevant factors.
The impugned
enactment in
its Ch. III proceeds on the basis that organisations -
of tradesmen might be entrusted with the task of
.
regulating tbese transactions, so that while legiti- -4'
mate trade would be furthered, the evil consequences of undesirable· speculation might be avoided.
It was, theri:fore, necessary that the instrument
chosen should be subj9ct to control so as effectively
to further tho policy of the scheme of regulation
and that fo tlie ratio underlying the provisions in
s. 6 of the Act and those which follow it in Ch, III./,,
In this connection it is necessary to add that the.c
restrictions whiqh are impugned :ts unconstitutional
~re· imposed
only on "recognised" aasooiatiQll.S,
'
'
1
l
i
~
...
> -
-
3 S.C.R. SUPREME OOURT REPORTS
565
)
Parliament could well have chosen to effect the
regulation
directly through an official agency
instead of through th0 medium of a vohmta1·y
association. In such an event, neither the traders
nor
their associations could complain of any
violation of the law.
The mere fact therefore
that Parliament choHe to utilise the machinery of
voluntary trades associations for the purpose of
enforcing regulatory control could not invalidate
the provision of laws which are designed to ensure
effective control over tho mechanism of forward
trading.
So far we have dealt with the argument about
eub-cl. ( c) of cl. ( 1) of Art. 19 in relation to the
trades associations under the Act. As regards the
wider question argued before us regarding the scope
of sub-cl. (c) of cl. (1) of Art. 19, this Court has, in
All India ft:ink Employees' Association v. National
Industrial Tribunal (1), examined
the ccntent
of this "freedom of association" in the light of the
other freedoms guaranteed by the other sub-clauses
of cl. (1) of Art. 19, in which judgment has been
rendered recently and it is therefore unnecessary to
go over the ground again.
We have no hesitation in rejecting the argument that the provisions in Ch. III of the impugned
Act, and in particular those which we have set out
above, infringe, in any manner, the freedom
guaranteed by sub-cl. (c) of cl. (1) of Art. 19.
The next provision of the Act whose validity
was challenged was s. 15 but before stating the
grounds upon which this challenge was made it
would be convenient to dispose of a contention
raised by Mr. Chatterjee-learned Counsel for the
petitioners in Writ Petitions 24 and 25 turning on
the construction of the section. His submission
was thats. 15 proceeded on the basis of there bein[(
"a recognised association" through which trading
in the notified commodity could be conducted
(1)(1962] 3 S.C.R. 269,
1961
R.aghubar Dayal
]ai Prakash
v
The Union of India
A;:yangar J.
Ra1huhor Tlaya/
Jci Pr.;kash
v.
Tlv Union of India
AXf""l"' J.
506
SUPREME COURT REPORTS
f 1962)
before the ban under a. 15( l) could be imposed. The (
argument was based upon the words "otherwiso
than between members of a recognised association
or through or with any such member" occurring
towards the last portion of s.15(1). It was urged
that under the scheme of the Act the Central
Government had first to recognise an association of
traders in the commodity, fonvard trading in which
i
waa to be regulated, and that it was only after the
recognition of such an assoeialion under s. (j that
they could under s. Hi( l) prohibit trading otherwise
than through such an association or its members.
It WB.11 pointed out that the expert commit.tee on gur
had itself indicated that such a procedure should be
_.
followed and that m the easo of cert.ain othor
~
oommodities liko poppor and castorseed which were
notified under s.15 the recognition of associations
through which forward trading was permitted to be
conducted either prec~docl or was RimuTtancous with
the notification.
Learned Counsel is, no doubt, right in the
aubmission regarding the recommendation of the
Forward Markets Commission in its report on gur,
as also in the other instances rc·forn·d to by him,
but the question still for consideration is w'hcthcr
on a proper construction of the relevant provisions
of Ch. III read in conjunction with s. 15 the existence of a recognised association
1s a lPgal prerequisite for the issue of a notification unrlor s.15(1).
It need hardly be pointed out and it was not the
argument of learned CounRel that s.