# The MrmbeT, Board of Revenue v. Arthur Paul Bwthall Bhagwati ]

- **Citation:** [1955] 2 S.C.R. 857
- **Court:** Supreme Court of India
- **Decided:** 1955
- **Bench:** Bhagwati, Venkatarama Ayyar, B. P. Sinha
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-mrmbet-board-of-revenue-v-arthur-paul-bwthall-bhagwati-1519
- **Pages:** 10

## Headnote

Bombay Securities Contracts Control Act, 1925 (Bombay Act
Vil/ of 1925)-Ss. 3( 4) and 6-Sale and purchase of securities by
appellant on behalf of resffondent-Dispute between the parties whether
appellant was acting within his authority wl1en he purchased the
shares-Relationship between the patties that of principal and agent
and, not that of seller and purchaser-Whether falls within purview of
s. 6-Contract notes sent by brokers to their constituent-Mere intimations by brnkers to constituent-That contract had been entered into
-Arbitration agreement-Essentials thereof-Rules framed by Native
Share and Stock Brokers' Association-Complete code by themselvesRule 167-Whether contract notes void thereunder.
The appellant-a share-broker carrying on business in the City
of Bombay ar.d a member of the Native Share and Stock Brokers'
17-84 S. C. lndia/59
1955
The MrmbeT,
Board of Revenue
v.
Arthur Paul
Bwthall
Bhagwati ].
1955
Octobtr 4.
1955
Jugal Kishore
Rameshwardas
v.
lt.1rs. G··olbai
Hormusji
858
SUPREME COURT REP9RTS
[1955]
·Association-was employed by the respondent for effecting sales and
purchases of shares on her behalf.
The appellant effected purchases
of 25 shares of Tata Deferred and 350 shares of Swadeshi Mills to
square the outstanding sales of the same number of shares standing
in her name and sent the relative contract notes therefor to her. She
repudiated the contracts on the grqund that the appellant had not
been authorised to close the transactions on the date mentioned by
him and asked him to square them at a later date.
The appellant
maintained that the transactions had been closed in accordance with
her instructions.
The appellant referred the dispute for arbitration
to the Native Share and Stock Brokers' Association in pursuance of
an arbitration clause in the contract notes.
The respondent refused
to submit to arbitration of the association on the ground that the
contract notes were void and therefore no arbitration proceedings
could be taken thereunder. The arbitrators made an award in favour
of the appellant in the absence of the respondent who declined to take
part in the proceedings .. 'fhe respondent filed an application for
setting aside the award. T.he Bombay High Court held that the con·
tracts in question were not ready delivery contracts as defined in s.
3( 4) of the Bombay Securities Contracts Control Act VIII of 1925
and that they were accordingly void under s. 6 of the Act and there·
fore the arbitration clause and the proceeding taken thereunder cul·
n1inating in the a\vard were also void.
Held that apart from the question whether the contracts in
question were for ready delivery or not, they were outside ~he pur·
view of s. 6 of Bombay Act Vlll of 1925 because they were not
contracts for sale and purchase of securities.
The dispute between
the parties was as to whether the appellant was acting \vithin the
scope of his authority when he purchased the shares.
If he was
.acting within his authority, the respondent was liable to him.
If
those purchases were
unauthorised~ the appellant was liable to the
respondent for damages. In either case the dispute was one which
arose out of the contract of employment of the appellant by the
respondent as a broker and not out of any contract of sale or pur·
chase of securities.
The relationship between the respondent a.nd
the appellant was that of principal and agent, and not that of seller
and purchaser.
The contract notes sent by brokers to their constituents arc not
themselves contracts for sale or purchase of securities within s. 6 of
the Bombay Act VIII of 1925 but only intimations by the broker to
the constituent that such contracts had been entered into on his
behalf.
It is settled law that to constitute an arbitration agreement ill
writing it is not necessary that it should be signed by the parties,
and that it is sufficient if the terms are reduced to writing and the
.agreement of the parties thereto is establishe~.
The Rules framed by the Native Shares

## Text

2 S.C.R.
SUPREME COURT REPORTS
857
into individual acts which the donor is capable of performing and which he appoints his attorney to <lo for
him and in his name and on his behalf. It is within
the very nature of the general power of attorney that
all the distinct acts which the donor is capable of performing are comprised in the one instrument which is
executed by him, and if that is the position, it is but
logical that whatever acts the donor is capable of performing whether in his individual capacity or in his
representative capacity as
trustee or
as
executor or
administrator
are also comprised within the instrument and are not distinct matters to be dealt with as
such so as to attract the operation of section 5.
I am therefore of the opinion that the conclusion
reached by the majority Judges in the High Court of
Judioture at Calcutta was correct and would accordingly dismiss this Appeal with costs.
BY THE CouRT.--In accordance with the opinion of
the majority the Appeal
is
allowed with costs
here
and in the Court below.
JUGAL KISHORE RAMESHW ARDAS
v.
MRS. GOOLBAI HORMUSJI
[BHAGWATI, VENKATARAMA AYYAR and B. P.
SINHA JJ.)
Bombay Securities Contracts Control Act, 1925 (Bombay Act
Vil/ of 1925)-Ss. 3( 4) and 6-Sale and purchase of securities by
appellant on behalf of resffondent-Dispute between the parties whether
appellant was acting within his authority wl1en he purchased the
shares-Relationship between the patties that of principal and agent
and, not that of seller and purchaser-Whether falls within purview of
s. 6-Contract notes sent by brokers to their constituent-Mere intimations by brnkers to constituent-That contract had been entered into
-Arbitration agreement-Essentials thereof-Rules framed by Native
Share and Stock Brokers' Association-Complete code by themselvesRule 167-Whether contract notes void thereunder.
The appellant-a share-broker carrying on business in the City
of Bombay ar.d a member of the Native Share and Stock Brokers'
17-84 S. C. lndia/59
1955
The MrmbeT,
Board of Revenue
v.
Arthur Paul
Bwthall
Bhagwati ].
1955
Octobtr 4.
1955
Jugal Kishore
Rameshwardas
v.
lt.1rs. G··olbai
Hormusji
858
SUPREME COURT REP9RTS
[1955]
·Association-was employed by the respondent for effecting sales and
purchases of shares on her behalf.
The appellant effected purchases
of 25 shares of Tata Deferred and 350 shares of Swadeshi Mills to
square the outstanding sales of the same number of shares standing
in her name and sent the relative contract notes therefor to her. She
repudiated the contracts on the grqund that the appellant had not
been authorised to close the transactions on the date mentioned by
him and asked him to square them at a later date.
The appellant
maintained that the transactions had been closed in accordance with
her instructions.
The appellant referred the dispute for arbitration
to the Native Share and Stock Brokers' Association in pursuance of
an arbitration clause in the contract notes.
The respondent refused
to submit to arbitration of the association on the ground that the
contract notes were void and therefore no arbitration proceedings
could be taken thereunder. The arbitrators made an award in favour
of the appellant in the absence of the respondent who declined to take
part in the proceedings .. 'fhe respondent filed an application for
setting aside the award. T.he Bombay High Court held that the con·
tracts in question were not ready delivery contracts as defined in s.
3( 4) of the Bombay Securities Contracts Control Act VIII of 1925
and that they were accordingly void under s. 6 of the Act and there·
fore the arbitration clause and the proceeding taken thereunder cul·
n1inating in the a\vard were also void.
Held that apart from the question whether the contracts in
question were for ready delivery or not, they were outside ~he pur·
view of s. 6 of Bombay Act Vlll of 1925 because they were not
contracts for sale and purchase of securities.
The dispute between
the parties was as to whether the appellant was acting \vithin the
scope of his authority when he purchased the shares.
If he was
.acting within his authority, the respondent was liable to him.
If
those purchases were
unauthorised~ the appellant was liable to the
respondent for damages. In either case the dispute was one which
arose out of the contract of employment of the appellant by the
respondent as a broker and not out of any contract of sale or pur·
chase of securities.
The relationship between the respondent a.nd
the appellant was that of principal and agent, and not that of seller
and purchaser.
The contract notes sent by brokers to their constituents arc not
themselves contracts for sale or purchase of securities within s. 6 of
the Bombay Act VIII of 1925 but only intimations by the broker to
the constituent that such contracts had been entered into on his
behalf.
It is settled law that to constitute an arbitration agreement ill
writing it is not necessary that it should be signed by the parties,
and that it is sufficient if the terms are reduced to writing and the
.agreement of the parties thereto is establishe~.
The Rules framed by the Native Shares and Stock Brokers'
Association, Bombay form a code complete in itself and any question
'
2 S.C.R.
SUPREME COURT REPORTS
859
arising with reference to those Rules must be determined on their
construction and it would be a mistake to read into them the statutory provisions enacted in the Bombay Act VIII of 1925 and therefore the contract notes cannot be held to be void under Rule 167.
G1v1L
APPELLATE
JumsmcTION :
Civil
Appeal
No. 95 of 1953.
On appeal from the Judgment and decree
dated
the 29th day of June 1951 of the Bombay High Court
in Appeal No. 93 of 1949 arising out of the order
dated the 16th September 1949 of the Court of Bombay City Civil Court at Bombay in Award No. 45 of
1949.
M. C. Setalvad, Attorney-General of India (H. /.
Umrigar, Sri Narain
Andley, Rameshwar Nath and
Rajinder Narain, with him), for the appellant.
H. R. Mehervaid and
R. N. Sachthey, for
the
respondent.
1955.
October
4.
The
Judgment of
the Court
was delivered by
VENKATARAMA AYYAR J.-The appellant is a share
broker carrying on business in the City of Bombay,
and a member of the Native Share and Stock Brokers'
Association,
Bombay. The respondent,
Mrs. Goolbai
Hormusji, employed
him
for
effecting
sales
and
purchases of shares on her behalf, and on 6-8-1947
there was due from her to the appellant on account
of these dealings a sum
of Rs. 6,321-12-0.
On that
date, the respondent
had
outstanding
for the next
clearance, sales of 25 shares of Tata Deferred and 350
shares of Swadesh Mills. On 11-8-1947, the appellant
effected purchases of 25 shares of Tata Deferred and
350 shares of Swadeshi Mills to square the outstanding sales of the respondent, and sent the relative contract notes therefor Nos. 2438 and 2439
(Exhibit A)
to her. She sent a reply repudiating the contracts on
the ground that the appellant had not been authorised
to close the transactions on 11-8-1947, and instructed
him to
square
them
on
14-8-1947.
The appellant,
however,
declined
to
do so,
maintammg that
t lie:
tra11sactions had bem closed on 11--8-1947 under
he
1955
Jugal Kishore
Rameshwardar
v.
Mrs. Goolhai
1/ormusji
1955
Jug al K ishore
Rameshwardas
v.
Mrs. CnJolbai
Hormusji
Venkatarama
Ayyar J.
860
SUPREME COURT REPORTS
[1955)
instructions of the respondent.
After some correspondence which it is needless to
refer to,
the appellant applied on 21-8-1947 to the
Native Share and Stock Brokers' Association, Bombay
for arbitration in pursuance of a clause in the contract notes, which runs as follows :
"In event of any dispute arising between you
and me/us of this
transaction the matter shall be
referred to arbitration as provided by the Rules and
Regulations of the Native Share and Stock Brokers'
Association".
The Association gave notice of arbitration
to the
respondent, and
called upon her to nominate her
arbitrator,
to
which she replied
that
the
contract
notes were void, and that in conseguence, no arbitration
proceedings
could
be
taken
thereunder.
The
arbitrators, however, fixed a day for the hearing of
the dispute, and gave notice thereof to her, but she
declined to take
any part in
the proceedings. On
10-10-1947 they made an award in which, on the basis
of the purchases made by the appellant on 11-8-1947
which were accepted by them, they gave credit to the
respondent for Rs. 1,847, and directed her to pay him
the balance of Rs. 4,474-12-0.
The respondent then filed the application out of
which the present appeal arises, for setting aside the
award on the ground, inter alia, that the contracts in
question were forward contracts
which
were
void
under section 6 of the Bombay
Securities
Contracts
Control Act VIII of 1925, that consequently the arbitration clause was also void and inoperative, and that
the proceedings
before the arbitrators
were
accordingly without
jurisdiction and the award a nullity.
Section 6 of the Act is as follows :
"Every contract for the purchase or sale of securities,
oth~r than a ready delivery contract, entered
• ruo after a date to be notified in this behalf by the
Provincial Government shall be void, unless the same
is made subject to and in accordance with the rules
duly sanctioned under section 5 and every such contract shall be void unless the same is made between
members or through a member of a recognised stock-
2 s.C.R.
SUPREME COURT REPORTS
861
exchange; and no claim shall be allowed in any Civil
Court for the recovery of any commission, brokerage,
fee or reward in respect of any such contract".
Section 3(1) defines 'securities' as including shares,
and therefore, contracts for the sale or purchase of
shares would be void under section 6, unless they
were made in accordance with the rules sanctioned by
the Provincial Government under section 5. The appellant sought to avoid the application of section 6
on the ground that the contracts in question were
'ready delivery contracts', and fell outside the operation of that section.
Section 3( 4) of Act VIII of 1925
defines 'ready delivery contract'
as meaning "a contract for the purchase or sale of securities for performance of which no time is specified and which is to be
performed immediately or within a reasonable time",
and there is an Explanation that "the question what
ts a reasonable time is in each particular case a question of fact".
The contention of
the
appellant was
that contracts Nos. 2438 and 2439 were ready delivery
contracts as defined in section 3(4), as no time was
specified therein for performance.
The learned City Civil Judge, who heard the application agreed with this contention, and holding that
the contracts were not void under section 6 of Act VIII
of 1925, dismissed the application.
The respondent
took the matter in appeal to the High Court of Bombay, and that was heard by Chagla, C.J. and Tendolkar, J. They were of the opinion that the contracts
in question were not ready delivery contracts as defined in section 3( 4) of the Act, because though no
time for performance was specified therein, they had
to be performed within the period specified in the
Rules and Regulations of the Association, which were
incorporated therein by reference, and not "immediately or within a reasonable time" as provided in section 3( 4), that they were accordingly void under section 6, and that consequently, the arbitration clause
and the proceedings taken thereunder culminating in
the award were also void. They accordingly set aside
the· award as invalid and without jurisdiction. Against
tl'ri.<i jutigment, the appellant has preferred this appeal
1955
Jug al K ishore
Rameshwardas
v.
Mrs. Goolbai
Horncusji
V enkatarama
Ayyar J.
1955
Jugal Kishore
Rameshwardas
v.
Mrs. Gvolbai
Hormusji
V tnkatarama
A.var J,
862
SUPREME COURT REPORTS
[19551
on a certificate under article 133 ( 1) ( c).
It was argued by the learned Attorney-General in
support of the appeal that even apart from the question whether the contracts in question were for ready
delivery or not, they would be outside the purview of
section 6, because
they were not contracts for sale
and purchase of securities. This contention was not
raised in the courts below, and learned counsel for the
respondent objects to . its being entertained for
the
first time in this Court, as that would involve investigation of facts, which has not been made. But in
view of the terms of the contract notes and the admission of tbe respondent in ber petition, we are of
opinion that the point is open to the appellant, and
having heard counsel on both sides, we think that the
appeal should succeed on that point.
The dispute between the parties is as to whether
the appellant was acting within the scope of his authority when he purchased 25 shares of Tata Deferred
and 350 shares of Swadeshi Mills on 11-8-1947. If he
was acting within his authority, then the respondent
was entitled only to a credit of Rs. 1,847 on the basis
of the said purchases.
But if these purchases
were
unauthorised, the appellant was liable to the respondent in damages. In either case, the dispute was one
which arose out of the contract of employment of the
appellant by the respondent as broker and not out of
any contract of sale or purchase of secunt1es.
The
question of ;ale or purchase would arise between the
respondent and the seller
or
purchaser, as the case
may be, with reference to the contract brought about
by the appellant.
But the relationship
between
the
respondent and the appellant was one of principal and
agent and not that of seller and purchaser. The contract of employment is no doubt connected; and intimately, With sales and purchases of securities; but
it is not itself a contract of-sale or purchase. It is collateral to it, and does not become ipso facto void, even if
the contract of purchase and sale with which it is connected is void.
Vide the
decision of this Court in
Kishati Lal and another v· Bhantoat Lal('). The legis-
(•l) [J955Jl s.a.R. 439,
2 s.c.R.
SUPREME COURT REPORTS
863
lature might, of course, enact that not merely
the
contract of sale or purchase but even contracts collateral thereto shall be void, in which case the contracts of employment witf,t
reference to
those contracts would also be void. But that is not what Act
VIII of 1925 has done.
Section 6 expressly provides
that no claim shall be maintained in a civil court for
the recovery of any
comm1ss1on,
brokerage, fee
or
reward in respect of any contract for the purchase or
sale of securities. That is to say, the bar is to the
broker claiming remuneration in any form for having
brought about the contract.
But the contract of employment is not itself declared void, and a claim for
indemnity will not be within the prohibition. The
question whether contract notes sent
by brokers
to
their constituents are contrar:ts for
the sale and purchase of securities within section 6 of Act VIII of
1925, came up for consideration before the Bombay
High Court in Promatha Nath v. Batliwalla & Karani(1)
and it was held therein that they were not themselves
contracts for sale or purchase but only intimations by
the broker to the constituent that such contracts had
been entered into on his behalf. We agree with this
decision.
It may be argued that if the contract note is only
intimation of a sale or purchase on behalf of the constituent, then it is not a contract of employment,
and that in consequence, there is no agreement in
writing for arbitration as required by the Arbitration
Act. But it is settied law that to constitute an arbitration agreement in writing it is not necessary that it
should be signed by the parties, and that it is sufficient if the terms are reduced to writing and the agreement of the
partie~ thereto
is
established.
Though
the respondent alleged in her petition that she had
not accepted the contract notes, Exhibit A, she raised
no contention based thereon either before the City
Civil Judge or before the High Court, and even in
this Court the position taken up by her counsel was
that Exhibit A constituted the sole repository of the
contracts. and as they were void, there was no arbi-
(1) I.LR. [19.J.2] Hom. 655; A.I.R.194! Dom. 2:'4.
1955
Jugal Kis/wre
Ramuhwardas
v.
Mrs. (;oo/hai
Hormwji
Venkatarama
.4y)llT ).
1955
Jugal Kis!wr1
Rameshwardas
v.
Mrs. Goolbai
Hmnusji
V e11katarama ·
Ayyar ].
864
SUPREME COURT REPORTS
[1955]
tration clause in force between the parties. We accordingly hold that the contract notes contained an agreement in writing to refer disputes
arising out of the
employment of the appellant as broker to arbitration,
and that they fell outside the scope of section 6 of
Act VIII of 1925, that the arbitration proceedings are
accordingly competent,
and
that
the award
made
therein is not open to objection on the ground that
Exhibit A is void.
It was next contended for the respondent that the
contract notes were void under Rule 167 of the Native
Share ·and Stock Brokers' Association,
and
that on
that ground also, the arbitration proceedings and the
award were void. Rule 167 so far as it is material is
as follows:
"167.
(a)
Members shall
render contract notes
to non-Members in respect of every bargain made for
such
non-Member's
account,
stating the
price
at
which the bargain has
been
made.
Such contract
notes shall contain a charge for brokerage at ratts
not less than the scale prescribed in Appendix G annexed to these Rules, or as modified by the provisions
of rules 168 and 170(b ). Such contract notes shall
show brokerage separately and shall be irr Form A
prescribed in Appendix H annexed to these Rules.
( c) No contract note not in one of the printed
Forms in Appendix H shall be deemed to be valid.
(g) A contract note referred to in this rule or anv
other rule for the time being in force shall be deemed
to mean and include a contract and shall have the
same significance as a contract".
Form A in Appendix H referred to in Rule 167(a)
contains two columns, one showing the rate at which
the securities are purchased or sold and the othc:r, the
brokerage. The contract notes sent to the respondent
are not in this form. They are in accordance with
Form A in Appendix A, and show the r:ites at which
the securities are sold or purchased, the brokerage not
being seoarately shown. At the foot of the document,
there is the following note :
•·
•I
2 S.C.R.
SUPREME COURT REPORTS
865
"This is net contract.
Brokerage is included
in
1955
the price".
The contention of the respondent is that the contract
notes are not in accordance with Form A in Appendix
H, as
the price and brokerage are not separately
shown, and that therefore they are void under Rule
167(c). Now, Rule 167 applies only to forward contracts, and the basis of the contention of the responde; t is that inasmuch as the contract notes, Exhibit
A, have been held by the learned Judges of the High
Court not to be ready delivery contracts but forward
contracts, they would be void under Rule 167(c), even
if they were not hit by section 6 of Act VIII of 1925.
The
assumption
underlying this
argument is
that
what is not a ready delivery contract under the defmition in section 3 ( 4) of Act VIII of 1925 must necessarily be a forward contract for purposes of Rule 167.
But that is not correct. The definition of a ready
delivery contract in section 3( 4) is only for the purpose of the Act, and will apply only when the question is whether the contract is void under section 6 of
that Act. But when the question is whether the contract is void under Rule 167, what has to be seen is
whether it is a forward contract as defi-ned or contemplated by the Rule5. The definition in section 3(4)
of Act VIII of 1925 would be wholly irrelevant for
determining whether the contract is a forward contract for purposes of Rule 167, the decision of which
question must depend entirely on the construction of
the Rub.
The relevant Rub are Nos. 359 to 363. Rule 359
provides
that
"contract5
other
than
ready
delivery
contract5 shall not be made or transacted within or
without the ring". Rule
361
confers on the Board
power to specifv which securities shall be settled by
the system of Clearance Sheets
and which,
by
the
proce~s of Tickets.
Rules 362 and 363 prescribe the
mod us
a,~erandi to be followed in effecting the settlement. It was with reference to these rules which under
the contract notes were to be read as part of the contract. that the learned Judgts held that the contract:
were
not
ready
delivery contracts as defined in secJugal Kishore
Rameshwardas
".
Mrs, Goolbai
Hormusji
Vmkatarama
,foar ].
1935
Jugal Kishore
Rames/iwartJrjs
v.
Mrs. Goolbai
Hormusji
Ve11kaltJTama
A»"'].
866
SUPREME COURT REPORTS
f 19551
tion 3 ( 4) of Act VIU of
1925.
But reading the
above Rules with Rule 359, there can be no doubt
that the contract notes, Exhibit A, would for the purpose of the Rules be ready delivery contracts. Indeed,
the form of the contract note>:, Exhibit A, is the one
provided under the Rules for ready delivery contracts,
whereas Form A in Appendix H is, as already stated,
for forward contracts. Thus, contracts which are regulated by Rules 359 to 363 cannot be forward contracts
contemplated by Rule 167, and they cannot be held to
be void under that Rule. The error in the argument of
the respondent is in mixing up two different provisions· enacted by two different authorities and reading
the one into the other. The rules framed
by
the
Association form a code complete in itself, and any
question arising with reference to those rules must be
determined on their construction, and it would be a
mistake to read into them
the statutory provisions
enacted in
Act VIII of 1925.
In this view, the contract notes; Exhibit A, cannot be held
to be
void
under rule 167. In the result, we must hold, differing
from the learned Judges of the court below, that the
arbitration proceedings are not incompetent and that
the award made therein is not void on the ground that
the contracts containing the agreement are void.
The respondent contested the validity of the award
on several other grounds. They were rejected hy the
City Civil Judge and in the view taken by the learned
Judges of the High Court that the contract notes were
void under section 6 of Act VIII of 1925, they did
not deal with them. Now that we have held that
the contracts are not void, it is necessary that
the
appeal should be heard on those points.
We accordingly set aside the order of the court
below, and direct that the· appeal he .reheard .in the
light of the observations
contained
herein.
As
the
appeal
succeeds on a point not taken in the courts
below, the parties will bear their own costs throughout.
The costs of the further hearing after remand
will be dealt with by the High C9urt.