1. Dispute over liability for groundnut transactions — alleged violation of prohibition on forward contracts under the Saurashtra Groundnut and Groundnut Products (Forward Contract Prohibition) Order, 1949. (Para 1 , 3 )
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1963 Supreme(SC) 96
SUPREME COURT OF INDIA
29th March, 1963
B.P. SINHA, C.J.I., J.C. SHAH AND N. RAJAGOPALA AYYANGAR, JJ.
Thakkar Hemraj Keshavji, Appellant
Versus
Shah Haridas Jethabhai, Respondent.
Civil appeal No 164 of 1961.
Advocates appeared
M/s. B. R. L. Jyengar Atiqur Rehman, J. L. Doshi and K. L. Hathi, Advocates, for Appellant; Mr. Purshottam Trikamdas, Senior Advocate, (M/s. J. B. Dadachanji, O. C. Mathur and Ravinder Narain, Advocates of M/s. J. B. Dadachanji and Co. with him), for Respondent.
Non-transferability of a contract, required for exemption from "forward contract" prohibitions, need not be expressly stated. It can be implied from the contract's language and surrounding circumstances; silence on transferability does not automatically imply that a contract is transferable.
Headnote:(A) Administrative Law - Government Order prohibiting forward contracts - Definition of "forward contract" - Exemption for specific delivery contracts that are non-transferable - Whether silence in a contract regarding transferability implies that the contract is transferable - Held: Absence of a specific clause prohibiting transfer is not conclusive; non-transferability can be inferred from the contract's language and surrounding circumstances. (Paras 5, 8)
(B) Contract Law - Implied terms - Interpretation of contracts - Terms of a contract can be express or implied from what has been expressed; reasonable interpretation aided by legitimate considerations can establish the understanding of the parties. (Para 8)
Facts of the case:
The appellant filed a suit for recovery of money, alleging that certain groundnut transactions were illegal forward contracts prohibited by a government order and thus created no liability. The respondent contended that the transactions were ready delivery contracts for specific quality and price, and therefore exempt from the prohibition. The dispute centered on whether the contracts were transferable to third parties, as the governing order exempted non-transferable specific delivery contracts from the definition of prohibited forward contracts.
Findings of Court:
The court found that the contracts were subject to the rules of a trade association which imposed specific obligations on the buyer, such as supplying empty bags and receiving delivery at a specific godown. These obligations, along with the nature of the delivery process, indicated that the transactions were intended to be carried out between the original parties and could not be assigned without the seller's consent. Consequently, the contracts were held to be non-transferable.
Issues: Whether contracts for delivery of goods at a future date, which were silent on the issue of transferability, constituted prohibited "forward contracts" or exempt non-transferable specific delivery contracts.
Ratio Decidendi: The court ruled that for a contract to be exempt from the definition of a forward contract, it is not necessary that the prohibition of transfer be expressly recorded in the document. Non-transferability can be deduced from the nature of the obligations imposed by the governing rules and the surrounding circumstances. Silence in the contract does not justify an inference of transferability.
Result: Appeal dismissed.
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2. Whether contracts for future delivery are prohibited forward contracts if they are silent on transferability or if non-transferability must be expressly stipulated to be exempt. (Para 3 , 7 )
3. Non-transferability of a contract can be implied from the language and surrounding circumstances, including association rules, rather than requiring an express prohibition clause. (Para 8 , 9 , 10 , 11 )
4. A contract for future delivery is not a prohibited forward contract if it is for specific quality and price and is non-transferable, whether expressly or impliedly. (Para 8 , 12 )
5. Appeal dismissed; High Court decree upholding the dismissal of the suit maintained. (Para 13 )
6. Does a contract for future delivery necessarily constitute a prohibited forward contract?
No. A contract for delivery at a future date is excluded from the definition of a forward contract if it is for specific qualities or types, for specific delivery at a specific price, and is not transferable to third parties. (Para 5 , 12 )
7. Must a contract expressly state that it is non-transferable to be exempt from the prohibition on forward contracts?
No. The absence of an express clause prohibiting transfer does not automatically make a contract transferable. Non-transferability can be deduced from a reasonable interpretation of the contract aided by surrounding circumstances. (Para 8 )
8. How can non-transferability be implied in a contract subject to trade association rules?
It can be implied if the rules impose diverse obligations, such as supplying bags or specific delivery locations, that cannot be assigned without the other party's consent, making the contract's performance personal to the parties. (Para 10 )
Judgement
SHAH, J. : The appellant instituted Suit No. 250 of 1950 in the Court of the Civil Judge (Senior Division), Junagadh for a decree for Rs. 72,693/11/- alleging that the appellant had a personal account with the respondent in respect of drafts, cheques, hundis and cash, and at the foot of that account Rs. 58,000/- as principal amount and Rs. 5,793/12/- as interest remained due and payable by the respondents, that beside the amount due on the said personal account an amount of Rs. 8,899/15/3 was due to him in respect of a transaction of sale of 1300 bags of groundnut sent by him between January 16 to January 28, 1950 and the price of gunny bags and groundnut oil-cakes delivered to the respondent. Appellant further alleged that forward contracts were prohibited with effect from November 19, 1949 by the Saurashtra Groundnut and Groundnut Products (Forward Contracts Prohibition) Order and that the said contracts being illegal the appellant was not subject to any liability arising from adjustment of credits and debits or differences in rates relating to forward contracts and the respondent was not entitled nor authorised to make credit and debit entries in the appellant s account and that nothing was due by him in respect thereof. The respondent by his written statement contended that in the appellant s personal account an amount of Rs. 1,58,000 stood initially credited but at the foot of the account only a sum of Rs. 18,000/- was due and this sum was credited in the current account of the appellant in the name of Hemraj Keshavji Oil Mills and Ginning Factory and therefore nothing was due in the personal account, that the transactions effected by the appellant through the commission agency of the respondent in groundnut seed of December-January (Samvat 2006) settlement did not contravene the order dated November 19, 1949 of the United States of Saurashtra and that the respondent has not committed any breach of the order, that all the transactions for the December-January settlement were in ready goods of specific quality and that there was a condition relating to giving and taking of delivery on fixed dates and the same were all effected at the direction of the appellant and that the appellant was legally responsible for all payments made in respect of those transactions by the respondent as the appellant s pucca adatia. He then contended that in samvat year 2006 the appellant had sold 9000 bags of groundnut through the agency of the respondent and had purchased 2300 bags through him, that the appellant thereafter gave delivery of only 2000 bags of groundnut and did not deliver the balance and on that the account there resulted a loss of Rs. 9,221/7/9 which the appellant was bound to reimburse. The respondent admitted that the appellant had sent 1300 bags of groundnut but these bags were delivered towards the sale of 2000 bags of December-January settlement and the price thereof and of the balance of 700 bags was credited in the account of the appellant, and that the appellant was not entitled to decree for any amount except the amount found due at the foot of the account.
2. The Trial Court decreed the claim by awarding Rs. 30,589/3/- and interest. Against the decree of the Trial Court the respondent as well as the appellant appealed to the High Court of Saurashtra. The appeals were transferred for trial under the States Reorganization Act to the High Court of Judicature of Bombay at Rajkot. The High Court allowed the appeal of the respondent and dismissed the appeal of the appellant. The appellant has, with certificate issued by the High Court, appealed to this Court against the decree passed by the High Court.
3. The appeal raises a dispute about the liability of the appellant for transactions in groundnut seed effected through the agency of the respondent after November 19, 1949 for December 1949 and January 1950 settlement. The appellant says these were forward transactions in groundnut and were prohibited under the Sau
