# STATE OF GUJARAT v. MA.NILAL JOITARAM & CO

- **Citation:** [1968] 2 S.C.R. 177
- **Court:** Supreme Court of India
- **Decided:** 1967-11-08
- **Case number:** Criminal Appeal No. 250 of 1964
- **Bench:** M. HlDAYATULLAH, V. Bhargava, C. A. Vaidialingam
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-gujarat-v-ma-nilal-joitaram-co-4305
- **Pages:** 9

## Headnote

Forward Contracts (ReK1tlatio11s) Act, 1952,
s.\·,
18 and 20-Nontransferable specific delivery
contracts-No actual deliver,Y-Whether
prohibited.
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The members of a Ghee and T·ol Brokers Association, used to enter
ieto contracts for the sale and purchase of groundnut oil.
Week after
week contracts were cancelled by cross-transactions and there was no
deliv~ry.
Instead of payment of price losses resulting from the crosstransactions y,•ere deposited by the operators in loss with the Association.
On the due date also there was no delivery but adjustment of al! con·
tracts of sales against all contracts of purchase betwezn the same parties
and delivery was of the outstanding balance.
Even this delivery y,·as
.often avoided by entering into fresh contract at the rate prevailing on the
du~ date. as part of the transactions in the next period.
The Sessions
Judge convict·zd the respondents-the Association's. ·Preside'11t, Secretary
and Directors. holding that these were forward contracts
prohibited
und·zr the Forward Contracts (Regulation) Act and the Association was
not f'Zcognised.
The High Court set aside the convictions.
In appeal.
this Court :
HELD : Section 18(1) of the Act speaks of true
non-transferable
specific delivery contracts but the proviso at the same time makes
it
illegal for an unrecognised assOC'iation to so arrange matters that nontranst:zrable specific delivery contracts will be worked out without actual
delivery.
Such conduct is prohibited by the proviso and directly punishable under s. 20(1)(b). An offence under that clause of s. 20(1) and
also under cl. (c) of that section read w;th s. 15 was made out. There
\Vas no question of considering the matter first under the main part of thz
first sub-section and then to put the
proviso out of the way because the
first sub-s·zction did not apply.
The Legislz.ture
contemplates that the
first sub-section of s. 18 might be complied with in the documents evid.zncing the contract but in actuality .the contrc:ct might be differently periormed and has, therefore. provided for the identical situatioq· which
arose in this case. [182F-H, D]

## Text

A
STATE OF GUJARAT
v.
MA.NILAL JOITARAM & CO.
November 8, 1967
8
[M. HlDAYATULLAH, V. BHARGAVA AND C. A. VAIDIALINGAM, JJ.]
Forward Contracts (ReK1tlatio11s) Act, 1952,
s.\·,
18 and 20-Nontransferable specific delivery
contracts-No actual deliver,Y-Whether
prohibited.
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G
H
The members of a Ghee and T·ol Brokers Association, used to enter
ieto contracts for the sale and purchase of groundnut oil.
Week after
week contracts were cancelled by cross-transactions and there was no
deliv~ry.
Instead of payment of price losses resulting from the crosstransactions y,•ere deposited by the operators in loss with the Association.
On the due date also there was no delivery but adjustment of al! con·
tracts of sales against all contracts of purchase betwezn the same parties
and delivery was of the outstanding balance.
Even this delivery y,·as
.often avoided by entering into fresh contract at the rate prevailing on the
du~ date. as part of the transactions in the next period.
The Sessions
Judge convict·zd the respondents-the Association's. ·Preside'11t, Secretary
and Directors. holding that these were forward contracts
prohibited
und·zr the Forward Contracts (Regulation) Act and the Association was
not f'Zcognised.
The High Court set aside the convictions.
In appeal.
this Court :
HELD : Section 18(1) of the Act speaks of true
non-transferable
specific delivery contracts but the proviso at the same time makes
it
illegal for an unrecognised assOC'iation to so arrange matters that nontranst:zrable specific delivery contracts will be worked out without actual
delivery.
Such conduct is prohibited by the proviso and directly punishable under s. 20(1)(b). An offence under that clause of s. 20(1) and
also under cl. (c) of that section read w;th s. 15 was made out. There
\Vas no question of considering the matter first under the main part of thz
first sub-section and then to put the
proviso out of the way because the
first sub-s·zction did not apply.
The Legislz.ture
contemplates that the
first sub-section of s. 18 might be complied with in the documents evid.zncing the contract but in actuality .the contrc:ct might be differently periormed and has, therefore. provided for the identical situatioq· which
arose in this case. [182F-H, D]
CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No.
250 of 1964.
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Appeal from the judgment and order dated March 14, 1963
of the Gujarat High Court in Criminal Revision Application No.
124 of 1961.
R. Ganapathy Iyer and S. P. Nayar, for the appellant.
M. V. Goswami and C. C. Patel, for the respondent.
The Judgment of the Court was delivered by
Hidayatnllah, J.
In this
appeal by certificate
under Art.
134(1) (c) of the Constitution the State of Gujarat appeals against
178
SUPREME COURT REPORTS
(1968] 2 S.C.R.
the judgment, March 14, 1963, of the High Court of the State
acquitting the respondents of diverse offences under the Forward
Contracts (Regulation) Act, 1952.
Originally 31 persons were
charged before the Judicial Magistrate, Ahmedabad, who acquitted
14 and convicted the rest. The present respondents, who arc 11
in number (accused 1 to 9, II and 12), were convicted under
s. 20(1 )(c) of the Act and fined Rs. 51/-
( 15 days' S.l. in
default).
They were also convicted under s. 21 (b) of the Act
but no separate sentence was imposed.
Nine of them (accused
1 to 9) were further convicted under s. 21 (c) of the Act and
fined Rs. 25/- (one week's
S.I. in default).
The rem.ainirlg
accused were convicted under s. 21 (b).
All appealed to
the
Court of Se.<>Sions Judge.
The conviction of accused 1 to 9, 11
and 12 was maintained but conviction under s. 20 ( 1 )(b) was
substituted for that under s. 20(1 )(c). The other accused were
convicted of all the charges.
The High Court was then moved
in revision.
All the accused were acquitted of all the char~.
The State Government now appeals.
All respondents are members of the Ghee and Tel Brokers
Association Ltd., Ahmedabad.
Nine of them ·are Directors and
two of these are President and Secretary of the Association. The
accused, who are not before us, were brokers and servants of the
Association or of the brokers.
The prosecution case is this : The
Association has an office where the members and brokers used
to enter into contracts for the sale and purchase of groundnut oil.
These contracts were largely speculative. A large number of contracts used to be entered into but were not performc.:1 by actual
delivery and payment of price. They were adjusted on a due date
after the expiry of a fixed period. This period was generally from
the 5th of one calendar month to the 25th of the following month
and the latter was the due date.
On each Saturday during the
period the Association exhibited the prevailing rate and according
to that rate cross transactions entered earlier were adjusted and
the persons in loss deposited money representing their particular
losses with the Association.
On the due date all outstanding transactions were finally adjusted by cancelling sales against purchases
and delivery used to be ordered in respect of the balance which
had to be completed by the end of the month of the due date.
During the stated period extensive trading through sales and purchases took place without any delivery. Each member could enter
into as many transactions of either kind as he liked provided that
each transaction was in multiple of 50 Bengali Maunds.
Between March 5 and April 25, 1957 the total transactions put
through totalled 4,33,600 Bengali Maunds but the actual delivery
on the due date was about 5,500 Bengali Maunds only, that is to
say, just over Ii per cent. The share of the several operators in
these deliveries was insignificant and the deals were really forward
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GUJARAT v. MANUAL k co. (Hidayatu/lah, J.)
17'~
transactions in which there was no intention to take or jl;i:ve ~eli
. very.
The prosecution, tjrerefore, submitted that these wer~ forward contracts prohibited under the Act and as the Association
was not recognised the offences charged were committed.
The
High Court having acquitted all the accused the State contends
now that the acquittal recorded by the High Court is wrong and
proceeds on a misapprehension of the provisions of the Act a11d of
the facts on which the charges rested.
To consider the submissions of the parties the relevant provisions of the Act, which has been passed, among other things, to
regulate forward contracts, will have to be seen.
Before we· do so
we may first glance at some definitions leaving out those attributes
of the terms defined in which we are not interested.
"Forward
contract" under the Act means a contract which is not a ready
delivery contract but a contract for future delivery (s. 2(c) ).
A
"ready delivery contract" is one in which there is delivery and
payment of price either immediately or within a period which is
not to exceed 11 days even by consent of parties or otherwise
(s. 2(i) ). The expressions "transferable specific delivery contract" and "non-transferable specific delivery contract" are defined
with reference to the latter expression which means a specific delivery. contract. the rights or liabilities under which are not transferable (s. 2(f) ) and "specific delivery contract' means a forward
delivery contract which provides for actual delivery of specific
qualities or types of goods either immediately or during a period
not exceeding l 1 days at a price fixed thereby or to be fixed in the
manner thereby agreed and in which the names of both the buyers
and sellers are mentioned ( s. 2 ( m) ) .
The effect of these definitions is clearly to distinguish, firstly,
forward contracts from ready delivery contracts by limiting the
time in which ready delivery contracts must be completed by delivery and payment of price; secondly, to distinguish between transferable and non-transferable specific delivery contracts; and finally
to uistinguish forward contracts in which there is either no provision for actual delivery or the parties are not named, from a
specific delivery contract.
The Act then proceeds to lay down in Chapter III the conditions of recognition of Associations.
Since this Association was
admittedly not recognised it is unnecessary to review the provisions
of that Chapter.
Chapter IV then makes certain provisions regarding forward contracts and option ill. goods. Chapter V then
provides for penalties. The relevant provisions of these two Chapters need to be carefully considered.
Section
15 ( 1)
declares
illegal forward contracts in notified goods and on th~ notification
so issuing every forward contract in notified goods otherwise than
.between members of a recognised association or through or with
.180
SUPREME COURT REPORTS
[ 1968) 2 S.CR .
any such member, becomes illegal, and the contract itself become>
void, except in .the cas.e _of a person who has no knowledge that
the transaclton is prob1b1tcd.
We are not concerned with ss. 16
and 17 and may
omit them from consideration.
Then comes
s. I 8, suh-section (I) whereof provides :
··I 8. Special provisions respecti;1g certain kinds of
forward contracts.-
( I) Nothing contained in Chapter III or Chapter IV
shall apply to non-transferable specific delivery
contracts for the sale or purchase of any goods :
Provided that
no pe~on shall organise or
assist in organising or be a member of any association in any area to which the provisions of
section 15 have been made applicable
(other
than a recognised association) which
provides
facilities
for the performance
of
any
nontransferable specific delivery contracts
hy any
party
thereto without
having to make or to
receive actual delivery to or from the other party
to the contract or to or from any other party
named in the contr:~t.''
This sub-section read with ss. 20 and 21 is at the foundati0n of
the charge and as s. 19 is irrelevant here, we may proceed to
read them at once. We arc concerned only with els. (b) and (c)
of sub-s. (I ) of s. 20 and ( b) and ( c) of s. 21 and wilt. therefore.
<omit the other clauses :
"20. Penalty for contravention of certain provisions
of Chapter JV.-
(1) Any person who-
(a)
<b) orgamscs, or assists in organising, or is a member of, any association in contravention of the
provisions contained in the proviso to sub-section
(I) of section 18; or
( c) enters into any forward contract or any option in
goods in contravention of any of the provisions
contained in sub-section (I) of section 15, section 17 or section 19,
sball, on conviction, be punishable with impriA
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sonment for a term which may extend to one
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GUJARAT "· MANILAL & co. (Hidayatu//ah, !.)
181
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"21. Penalty for owning or keeping place used for
entering into forward contracts in goods.-Any person
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(a)
(b)
(c)
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without the permission of the Central Government, organises, or assists in organising, or becomes a member of, any association, other than
a recognised association,
for the purpose
of
assisting in, 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
manages, controls or assists in keeping any place·
other than that of a recognised association, which
is used for the purpose of 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 at which such
forward contracts are recorded or adjusted, or
rights or liabilities arising out of such forward
contracts are adjusted, regulated or enforced in
any manner whatsoever, or
shall, on contravention, be punishable with imprisonment which may extend to two years, or
with fine, or with both."
The respondents were charged under ss. 20 ( l ) ( b), 20(1 )( c) and
2l(a), (b), (c) and (f).
As the State does not press its case
under s. 21 (a) and (f) they have been left out. Before we analyse the penalty sections it is necessary to see whether the case
falls within s. 18 (1) of the Act.
It is established in the case that
the Association was unregistered.
ft is also clear that the contracts, although they appeared
to be non-transferable
specific
delivery contracts were not intended to be comple'ted by delivery
immediately or within a period of 11 days from the date of the
contract
In fact week after week contracts were cancelled by
cross-transactions and there was no delivery. Instead of payment
of price losses resulting from the cross-transactions were deposited
by the operators in loss with the Association.
Further, on the
due date also, there was no delivery but adjustm'ent of all contracts of sales against all contracts of purchase between the same·
parties and delivery was of the outstanding balance.
Even this·
delivery was often avoided by entering into fresh contract at the:
182
SUPREME COURT REPORTS
[1968) 2 SC.R
Yale prevailing on the due date, as part of the transactions in the
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next period.· · There is evidence also to establish this.
ln other
words, the transactions on paper did seem to comply with
the
regulations hut in point of fact they did not and the A;sociation
arranged for settlement of the entire transactions
(barring
an
insignificant portion if at all) without delivery.
Turning now to the provisions of sub-s. (I) of the 18th section it is clear that the provisions of Chapters III and IV would
not have applied to the respondents if their transactions were true
non-transferable specific delivery contracts.
They would
have
been so if the nature of the transaction, not on paper, but in
actuality was such
as the Act contemplates.
This is why
the
proviso to s. 18 has been added to prohibit certain things. The
proviso enacts that no person shall organise or assist in organisin.''.
or be a member of an association (except a recognised association) which provides facilities for the performance of any specific
delivery contract without having to make or to receive
actual
delivery.
The Legislature contemplates that the first sub-section
of s. 18 might he complied with in the documents
evidencing
the contract but in actuality the contract might be differently performetl and has, therefore, providetl for the identical
situation
which arises in this case.
Now the difference bctwecr the Magistrate and the Sessions
Judge arose on the application of the first sub-section of s. 18 with
its proviso.
The Magistrate felt that the transactions were
not
non-transferable specific delivery contracts and the matter fell
within the proviso.
Having found this, it is not a liule surprising
that he did not apply s. 20(1) (b), which was clearly attracted.
His reasoning on this point is difficult to appreciate.
He seems
to think' that as the first sub-section of the eighteenth section dealt
with non-transferable specific delivery contracts, it had no application here. Therefore, the charge of heing members of an association in contravention of the proviso thereto did not survive and
hence no offence under s. 20 (I )( b) was disclosed.
In this the
Magistrate was clearly in error.
Section 18 (i) speaks of true
non-transferable specific delivery contract< but the proviso at the
same time makes it illegal for an unrecognised association to so
arrange matters that non-transferable specific delivery contracts
will be worked out without
actual delivery.
The Magistrate
should have seen that the conduct of the members of this unrecognised association was precisely this and was, therefore, prohibited
by the proviso and directly punishable under s. 20(1 )(b).
An
offence under that clause of s. 20 (I ) and also under cl. ( c) of
that section read with s. 15 was made out. There was no question
of considerin!! the matter first under the main part of the first subsection and then to put the proviso out of the way because the
first sub-section did not apply.
The Magistrate, however, conB
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GUJARAT v. MANILAL & co. (Hidayatu//ah, !.)
183
victed the members under s. 21 (b) for organising an unrecognised
association for the purpose of assisting in or entering into or making
or perfonning, whether wholly or in part, any forward contracts
in contravention of the provisions of the Act and further under
s. 21 ( c) for managing, controlling or assisting in keeping a place
other than that of a recognised association where forward contracts
in contravention of the Act or at 'Which forward contracts are
recorded or adjusted or rights or liabilities arising out of such forward contracts are ad.justed, regulated or enforced in any manner
whatsoever.
When the respondents appealed to the Sessions Judge,
the
conviction under s. 21(b) and (c) was confinned and the other
conviction wa$ altered from s. 20(l)(c) to s. 20(1)(b).
The
Sessions Judge rightly pointed out that the so-called non-transferable specific delivery contracts were so arranged that they could
be resolved after the period of eleven days and without actual
delivery.
The Sessions Judge was of the opinion that the respondents had acted in breach of the proviso to s. 18(1) and were
clearly guilty of the offence. In a precise and clear judgment the
Additional Sessions Judge explained the pertinent sections and
rightly held the proviso to s. 18(1) ands. 20(1)(b) applicable.
The High Court then in revision held that it was not open to
the Sessions Judge to alter the conviction from s. 20 (1 )( c)
to
s. 20 ( 1 ) ( b) as the acquittal under the latter section by the Magistrate was not appealed against and in an appeal from a conviction
there could be no change of finding to convert an acquittal into
conviction.
The High Court also held that no offence under s.
21(b) or (c) was made out.
In a fairly long judgment the High
Court pointed out that the decision of this Court in The State of
Andhra Pradesh v. Thadi Narayana(') prohibited the alteration
of the finding.
The High Court then went further to hold that
there could not be a conviction under s. 20 ( 1) ( c) as the Sessions
Judge had acquitted the appellants and there was again no appeal
against that acquittal. The High Court also set aside the conviction under s. 21(b) and (c). The High Court reached its conclusion on the basis of the finding of the Sessions Judge that the
contracts entered into were non-transferable specific delivery contracts and the appellants were, therefore, not guilty of the offence
under s. 20 (I )( c) of the Act. The High Court then proceeded
to reason that as no part of the Act prohibited performance of
non-transferable specific delivery contracts otherwise tlrnn by making or receiving actual delivery, the acts of the appellants were
not offences under the Act.
The learned Judge while
dealin~
with s. 18 (!) proviso observed :
(!) [1962] 2 S.C.R. 9J4.
184
SUPREME COURT REPORTS
[1968] 2 S.C.R.
"The performance
of a non-transferable
specific
delivery contract by a mode other than giving and taking of actual delivery would be <:ontrary to law only
if there
is
some provision of law which prohibits it.
But unfortunately for the prosecution,
the Legislature
has not chosen to enact any such provision. The only
nearest approximation I could fi_nd was the proviso to
sub-section (I) of section 18. but that proviso does not
prescribe that a non-transferable specific dclivp1·y contract shall be perfonned by making and receiving actual
delivery and that the parties to such a contract shall not
perform it otherwise than by making and receiving actual
delivery.
All that
it
enacts is that no person shall
organise or assist in organising or be a member of any
association in any area to which the provisions of section 15 have been made applicable (other than a reco)!-
nised association) which provides facilities for the performance
of any
non-transferable specific
delivery
contract by any party thereto without having to make or
receive actual delivery to or from the other party to the
contract or to or from any other party named in th~
contract. What this proviso seeks to achieve is to secure
that no Association other than a recognized Association
shall provide facilities for pcrfom1ancc of a non-transferable specific delivery contract by the parties thereto
without h<1ving to make or receive actual delivery. But
it is a long step in the argument to conclude fron\ (he
proviso that performance of a non-transferable specific
delivery contract otherwise than by making and receiving actual delivery is prohibited.
The langua~e of the
proviso cannot bear any such extended artificial construction ........ "
The learned Judge was clearly in error anJ
misunJerstou<l
the
connection between the first sub-section and i1' proviso. Distinction is made in the proviso between recognised anJ unrecognised
associ"'tions.
Persons can organise and assist in organising or be
member of an association which is recognised even if the association provides for perfomiance of non-transferable specific delivery
contracts without actual delivery.
The prohihition is against persons arranging for avoidance of Jelivcry 1hrou.ch an unrecognised
association and read with the pcnaltv sections. it is clear that such
acts arc rendered illegal. If the act~ arc illegal then non-transferable specific delivery contracts hy members of unrccogniscu associations become illegal also.
They arc forward
rnntracts and
being entered into otherwise than between members of a recognised association or through or with any such member nrc rendered illegal by s. 15.
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GUJARAT \', MAN!LAL & co. (Hidayat11//ah, J.)
185
Thus there is no doubt whatever in the case that offences under
s. 21 ( b) and ( c) were committed.
It is enough to read these
clauses to see that they fit the acts of nine respondents (accused
1-9) and their position vis-a-l'is the unrecognised association of
"hich they were directors makes them liable to penalty under
s. 21 (b) and ( c) but the remaining two respondents (accused 11
and 12) being only members are liable to penalty under s. 2l(b)
only.
As regards the other offences under s. 20(1) (b) and (c)
we are clear that these offences were also committed. But as the
Sessions Judge acquitted them under cl. ( c) and there was no
appeal to the High Court we say nothing about it.
As regards the
offence under s. 20(1 )(b) the Magistrate did not clearly record
a finding of acquittal.
However. his reasoning seems to be in
favour of holding that the clause did not cover the case as the
contracts were not non-transferable specific delivery
contracts.
His finding was the reverse of the finding of the Sessions Judge.
The question thus remains whether the Sessions Judge could alter
the finding in an appeal from a conviction (and the High Court
too if it so chose) when it was a question of choosing between
two clauses of a penalty section depending on whether the true
nature of the contracts was as held by the Magistrate. The ruling
of this Court cited earlier was invoked to suggest
that such a
course was not possible for the Sessions Judge or the High Court.
We do not pause to consider whether the ruling prohibits such a
course and if it does whether it does not seek to go beyond the
words and intendment of s. 423( l) (b) of the Code of Criminal
Procedme.
This is hardly a case in which to consider such an
important point.
We, therefore, express no opinion upon it..
It
is sufficient to express our dissent from the High Court on the
interpretation of the Act and hold the respondents guilty of infractions where the ruling does not stand in the way.
We.accordingly set aside the acquittal of the respondent μnder
els. ( b) and ( c) of s. 21 and restore their conviction under those
clauses as confirmed by the Sessions Judge.
We sentence all the
respondents to a fine of Rs. 25 (or one week's simple· imprisonment in default)
under s. 21 (b).
No separate sentence under
s. 21 (c) is imposed on the respondents who were original accused
Nos. 1-9. The app~al shall be allowed to the .~xtent indicated in
this paragraph.
Y.P.
Appeal al/01red in part.