PETITIONER: WAVERLY JUTE MILLS CO. LTD. Vs. RESPONDENT: RAYMON & CO. (INDIA) PRIVATE LTD.(And connected appeals) DATE OF JUDGMENT: 04/05/1964 BENCH: AIYYAR, T.L. VENKATARAMA BENCH: AIYYAR, T.L. VENKATARAMA SINHA, BHUVNESHWAR P.(CJ) SUBBARAO, K. AYYANGAR, N. RAJAGOPALA MUDHOLKAR, J.R. CITATION: 1963 AIR 90 1962 SCR (3) 209 CITATOR INFO : RF 1969 SC 504 (6) R 1973 SC2479 (13) R 1974 SC1579 (6) D 1985 SC1156 (24,49,53) R 1989 SC 839 (15) F 1990 SC 85 (24) RF 1990 SC 781 (13) ACT: Forward Contract--Legislative validity of enactment-- Constitutional validity--Notification prohibiting forward contracts other than non-transferable specific delivery contract--Contract for sale of goods--Validity--Clause providing for arbitration--Parties appearing before arbitration--Effect--Forward Contracts (Regulation) Act, 1952 (74 of 1952), ss.2(f), 17, 18--Constitution of India, Art. 14, Sch. 7, List I, Entry 48, List II, Entries 26, 27, List III, Entry 7. HEADNOTE: The appellant company entered into a contract with the respondents on September 7, 1955, for the purchase of certain bales of jute cuttings to be delivered by the respondents ill equal instalments every month in October, November, and December, 1955. Under cl. 14 all disputes arising out of or concerning the contract should be referred to the arbitration of the Bengal Chamber of Commerce. As the respondents failed to deliver the goods its agreed, an application was made by the appellant for the arbitration as provided in cl. 14. The respondents appeared before the arbitrators and contested the claim, but an award was made in favour of the appellant. Thereupon the respondents filed an application in the High Court of Calcutta under s. 33 of the Arbitration Act challenging the validity of the award on the ground that the contract dated September 7, 1955, was illegal as it was in contravention of the notification of the Central Government dated October 29, 1953, issued under s. 17 of the Forward Contracts (Regulation) Act, 1952, by which no person "shall enter into any forward contract other than a non-transferable specific delivery contract for the sale or purchase of raw jute in any form.....". The appellant pleaded (1) that the Forward Contracts, (Regulation) Act, 1952, was invalid and ultra vires because (a) Parliament had no competence to enact it, and (b) the provisions of the Act were repugnant to Art 14 of the Constitution of India, and, therefore, the notification dated October 29, 1953, was null and void; (2) that on the terms of the arbitration clause the question whether the contract dated 210 September 7, 1955, was illegal was one for the arbitrators to decide and that it was not open to the respondents to raise the same in an application under s. 33 of the Arbitration; (3) that the respondents submitted to the jurisdiction of the arbitrators and that amounted to a fresh agreement for arbitration and therefore, the award was valid and binding on them; and (4) that, in any case, the contract dated September 7, 1955, was a non-transferable specific delivery contract and, therefore, was not hit by the notification dated October 29, 1953. Held, that: (1) a legislation on Forward Contracts would be a legislation on Futures Markets and, therefore, the Forward Contracts (Regulation) Act, 1952, fell within the exclusive competence of Parliament under entry 28 List I of Sch. 7 of the Constitution of India, accordingly, the Act could not be challenged on the ground of legislative incompetence. Duni Chand Rateria v. Dhuwalka Brothers Ltd., [1955] 1 S.C.R. 1071, followed. (2) the Act did not infringe Art. 14 of the Constitution. M/s. Baghubar Dyal Jai Prakash v. The Union of India. [1962] 3 S. C. R. 547, followed, (3) if a contract was illegal and void, an arbitration clause which was one of the terms thereof must perish along with it, and a dispute relating to the validity of a contract was, in such cases, for the court and not the arbitrators to decide. Khardah Company Ltd. v. Raymon & Co. (India) Private Ltd., [1963] 3 S.C.R. 183, followed. (4) the respondents were not precluded by what they did before the arbitrators from agitating the question of the validity of the contract in the present proceedings before the High Court. Shiva Jute Baling Ltd. v. Hindley and Company Ltd.' [1960] 1 S.C.R. 569 and East India Trading Co. v. Badat and Co., I. L R. [1959] Bom. 1004, considered. (5) the contract dated September 7, 1955, was a non- transferable specific delivery contract as defined in s.2(f) of the Act and, therefore, was not hit by the notification dated October 29, 1953. Khardah Company Ltd. v. Raymon & Co. (India) private Ltd., [1963] 3 S.C.R. 183, followed. 211 JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 389 to
392 of 1960.
Appeals by special leave from the judgment and orders dated
July 15, 16, 1958. of the Calcutta High Court in Appeals
from Original Orders and Decrees Nos. 140 to 143 of 1957
respectively.
B. Das and Ghosh, for the appellant (in C. A. Nos. 389 and
390 of 1960).
B. Sen, Shankar Ghosh and B. N. Ghosh, for the appellant
(in C. A. Nos. 391 and 392 of 1960).
C. B. Aggarwala and S. N. Mukherjee, for the respondents.
C. K. Daphtary, Solicitor-General of India, Daulat Ram Prem
and P. D. Menon, for the Attorney-General of India,
(Intervener).
1962. May 4. The Judgment of the Court was delivered by
VENKATARAMA AIYAR, J.-These are appeals by special leave
against judgments of High Court of Calcutta setting aside
awards which directed the respondents to pay compensation to
the appellants for Breach of contracts, on the ground that
they were in contravention of a notification of the Central
Government dated October 29, 1.953, and were in consequence
illegal and void. These appeals were heard along with Civil
Appeals Nos. 98 & 99 of 1960 as there were common questions
of law to be decided in all.
In Civil Appeals Nos. 389 & 390 of 1960 the facts are that
on September 7, 1955, the appellants who are a company
owning a Jute Mill at Calcutta entered into an agreement
with the respondents who are also a Company doing business
as dealers in jute, for the purchase of 2,250 bales of the
jute
212
cuttings at Rs. 80 per bale of 400 lbs. to be delivered 750
bales every month in October, November and December, 1955.
Clause 14 of the agreement provides that all disputes
arising out of or concerning the contract should be referred
to the arbitration of the Bengal Chamber of Commerce. The
respondents delivered, pursuant to the contract, in all 2000
bales and made default in the delivery of the balance. The
appellants then applied to the Bengal Chamber of Commerce
for arbitration in accordance with cl. 14 of the agreement.
The respondents appeared before the arbitrators and
contested the claims on the merits. The arbitrators made an
award in favour of the appellants for Rs. 10,525, and that
was filed under s. 14(2) of the Indian arbitration Act in
the High Court of Calcutta on its original side and notice
was issued to the respondents. Thereupon they filed an
application presumably under s. 33 of the Arbitration Act
for a declaration that the contract dated September 7, 1955,
was illegal as it was in contravention of the notification
of the Central Government dated October 29, 1953, and that
the award based thereon was a nullity. The learned Judge on
the original side before whom the application came up for
hearing dismissed it, and passed a decree in terms of the
award. Against both the judgment and the order, the
respondents preferred appeals to a Division Bench of the
High Court, appeals Nos. 148 & 141 of 1957. They were heard
by Chakravartti, C. J., and Lahiri, J., who held that the
contract dated September 7, 1955, was illegal, as it fell
within the prohibition contained in a notification of the
Central Government dated October 29, 1953, and accordingly
allowed the appeals and set aside the award. The appellants
then applied for a certificate under Art. 133(3) of the
Constitution but the same was refused. Thereafter they
applied to this Court for leave under
213
Art. 136 of the Constitution and that was granted. This is
how these appeals come before us.
In Civil Appeals Nos. 391 and 392 of 1960 the facts are
similar. The appellants who are a company carrying on
business in the manufacture of jute entered into a contract
with the respondents on October 17, 1955, for the purchase
of 500 bales of into cuttings at Rs. 87-8-0 per bale of 400
lbs., to be delivered in equal instalment of 250 bales in
November and in December 1955. Clause 14 of the agreement
provides that all differences arising out of or concerning
the contract should be referred to the Bengal Chamber of
Commerce for arbitration. The respondent made default in the
delivery of the, goods and thereupon the appellants moved
the Chamber of Commerce for arbitration under cl. 14 of the
agreement. The respondents appeared before the arbitrators
and contested the claim on the merits. The arbitrators made
an award in favour of the appellants for Rs. 17,500, and
that was filed in the High Court of Calcutta on it original
side and notice under s. 14(2) of the Arbitration Act was
served on the respondents. Thereupon they filed an
application in the High Court of Calcutta, presumably under
s. 33 of the Arbitration Act for a declaration that the con-
tract dated October 17, 1955, was in contravention of the
notification of the Central Government dated October 29,
1953, and was therefore illegal and that the arbitration
proceedings pursuant thereto and the award passed therein
were all void. The learned single Judge on the original
side before whom the application came up for hearing dis-
missed it and passed a decree in terms of the award.
Against the above judgment and order the respondents
preferred appeals to a Division Bench of the High Court,
Appeals Nos. 142 and 143 of They were heard by Chakravarti,
C.J., and Lahiri, J.,
214
who hold that the contract dated October 17, 1955, was
illegal, as it fell within the prohibition contained in the
notification of the Central Government dated October 29,
1953, and accordingly allowed the appeals and set aside the
awards. The appellant thereafter applied under Art.
133(1)(c) for a certificate and that having been refused
they obtained from this Court leave under Art. 136 of the
Constitution and that is how these appeals come before us.
The points for decision in all these appeals are the same
and this Judgment will govern all of them.
The following contentions have been urged in support of
these appeals:
(1) The Forward Contracts (Regulation) Act,
1952, is ultra vires and the notification date
d
October 29, 1953, is in consequence Bull and
void.
(2)On the terms of the arbitration clause the
question whether the contracts dated September
7, 1955, and October 17, 1955, are illegal is
one for the arbitrators to decide and that
it was not open to respondents to raise the
same in applications under s. 33 of the
Arbitration Act.
(3) The respondents submitted to the
jurisdiction of the arbitrators and that
amounts to fresh agreement for arbitration and
the award is accordingly valid and binding on
them.
(4) The contracts dated September 7, 1955, and
October, 17, 1955 are non-transferable
specific delivery contracts and they are not
hit by the notification dated October 29,
1953,
215
(1)The first question relates to the vires of Forward
Contracts (Regulation) Act, 1952 (Act 74 of 1952),
hereinafter referred to as the Act’. This statute was
enacted by Parliament and received the assent of the
President on December 26, 1952. Its validity is attacked on
two grounds; that Parliament had no competence to enact it,
and that the provisions of the Act are repugnant to Art. 14
and Art. 19(1)(g) of the Constitution and therefore void.
If this contention is well founded, then the notification
dated October 29, 1953, which was issued by the Central
Government in exercise of the powers conferred by s. 17 of
the Act would be null and void.
Dealing first with the question as to the competence of
Parliament to enact the impugned law, it will be convenient
to set out the entries in the Legislative Lists in Seventh
Schedule of the Constitution bearing on this question.
List I-Entry 48-Stock Exchanges and Futures
Markets.
List II-Entry 26–Trade and commerce within
the State subject to the provisions of entry
33 of List III.
Entry 27-Production, supply and distribution
of goods subject to the provisions of entry 33
of List III.
List III-Entry 7-Contracts, including
partnership, agency, contracts of carriage,
and other special forms of contracts, but not
including contracts relating to agricultural
land.
Now the contention of the appellants is that the subject-
matter of the impugned legislation is either Trade and
Commerce or Production, supply and distribution of goods,
within entries 6 or 27 in List II of the Seventh Schedule,
and that it is within the exclusive domain of the State
Legislature.
216
The contention of the respondents, and of the Union which
has intervened, is that the impugned Act is legislation on
‘Futures Markets’ falling under entry 48 in List I and that
it is Parliament which has the exclusive competence over it,
and in the alternative it is one on contracts, and that is
covered by entry 7 in List III in the Seventh Schedule and
is intra vires. To decide this question, it is necessary to
ascertain the true nature and scope of the legislation, its
pith and substance. The object of the Act as stated in the
preamble is “to provide for the regulation of certain
matters relating to forward contracts, the prohibition of
options in goods and for the matters connected therewith”.
The statute make,; a distinction between “ready delivery
contracts” and “forward contracts.” When a contract provides
for the delivery of goods and payment of price therefor
either immediately or within a period not exceeding eleven
days it is a ready delivery contract. All other contracts
are forward contracts. Forward contracts are again divided
into two categories ‘specific delivery contracts’ and ‘non-
transferable specific delivery contracts’, ‘Specific
delivery contracts’ mean forward contracts which provide for
actual delivery of specific goods at the price fixed during
specified future , period. ‘Non-transferable specific deli-
very contracts’ are specific delivery contracts the rights
or liabilities under which are not transferable. Section 15
confers power on the Government to issue notifications
declaring illegal forward contracts with reference to such
goods or class of goods and in such areas as may be
specified. Section 17 authorises the Government to prohibit
by notification any forward contract for the sale or
purchase of any goods or class of goods to which the
provisions of s.15 have not been made applicable. Section
18 exempts non-transferable specific delivery contracts from
the operation of these
217
sections. Thus the law is what it purports to be, a law
regulating Forward Contracts.
That being the scope of the enactment, the point debated
before us is whether it is a law on Trade and Commerce or
Production, supply and’ distribution of goods within entries
26 or 27 in List II or on Futures Markets within entry 48 in
List I. ,It would be noticed that both the entries 26 and 27
in List II are subject to entry 33 in List Ill. Entry 33 as
it now stands is: “Trade and commerce in, and the
Production, supply distribution of…… (e) raw jute”. The
impugned Act in so far as it relates to raw jute-and that is
what we are concerned with, in these appeals-will clearly be
intra vires if it fell under this entry. But it should be
mentioned that el. (e) in entry 33 was inserted by the
Constitution. Third Amendment) Act, 1954 an d as the
impugned Act was passed in 1952, its validity must be
determined on the provisions of the Constitution as they
stood prior to the Amendment Act in 1954 and entry 33 in
List III therefore must be excluded from consideration.
Now turning to the question whether the impugned Act is
legislation on Futures Markets or on Trade and commerce, the
contention of the appellants is that a law with respect to
Forward Contracts, is not a law with respect to Futures
Markets, because the ordinary and accepted meaning of
‘Market’ is that it is a place where business in the sale
and purchase of goods is carried on, In support of this
contention we are referred to the Dictionary meaning of the
word ‘Market’ and the decisions of the Madras High Court
reported in Public Prosecutor v. Cheru Kutti (1) and
Commissioner, Coimbatore Municipality v. Chettimar Vinayagar
Temple Committee(2). According to the Concise Oxford
Dictionary the word ‘market’ mean,; gathering of people for
purchase & sale of provisions. livestock, etc.-, open space
or covered building in
(1) A.I.R. 1925 Mad. 1095.
(2) [1956] 2 M.L.J. 563.
218
which cattle etc. are exposed for sale”. In Public
Prosecutor v. Cheru Kutti (1) the facts were that the
accused was charged under s. 170 of the Madras Local Boards
Act, 1920 for keeping open a new private market without a
licence. His defence was that the place where the sales
were held was not truly a market, and that was accepted. In
that context, discussing the meaning of the word market’,
the Court observed that it meant “a place set apart for the
meeting of the general public of buyers and sellers, freely
open to any such to assemble together, where any seller may
expose his goods for sale and any buyer may purchase”. In
Commissioner, Coimbatore Municipality v. Chettimar Vinayagar
Temple Committee (1), the question arose this time with
reference to the provision in Madras District Municipalities
Act, 1920, requiring a place used as an open market under
the Act to be licensed. The Court held that the ordinary
meaning of market was place where the public could go during
particular times for purpose of buying and selling and that
on the facts the place in question was market. It is
contended on the strength of the above rulings that as the
impugned Act is not one with reference to building where
business is being transacted it is not a law with reference
to markets.
We are unable to agree with this contention. Market no
doubt ordinarily means a place where business is being
transacted. That was probably all that it meant at a time
when trade was not developed and when transactions took
place at specified places. But with the development of com-
merce, bargains came to be concluded more often than not
through correspondence and the connotation of the word
‘market’ underwent a corresponding expansion. In modern
parlance the word ‘market’ has come to mean business as well
as the place where business is carried on. Labour Market
for example, is not a place where labourers are recruited
but the conditions of the business of
(1) [1956] 2 M.L.J. 563.
219
labour. The word ,market’ being thus capable of signifying
both business and the place where the business is carried
on, the question in what sense it is used in a particular
statute must be decided on a consideration of the context of
that statute. Thus in Public Prosecutor v. Cheru Kutti (1)
and Commissioner, Coimbator Municipality v. Chettimar
Vinayagar Temple Committee (2), the question arose with
reference to provisions as to licensing by local
authorities, and for that purpose market was interpreted as
meaning a place. So we must examine what the word market
means ‘in entry 48 ,Futures Markets” in List I. The word
‘Futures’ is thus defined in Encyclopaedia Britannioa
“contracts which consist of a promise to deliver specified
qualities of some commodity at a specified future time. The
obligation is for a single quantity in a given month……
Futures are thus a form of security, analogous to a bond or
promissory note”. In this sense a market can have reference
only to business and not to any location. In our opinion a
legislation on Forward Contracts would be a legislation on
Futures Markets.
It is next argued for the appellants that even if a law on
Forward Contracts can be said to be a law on. Futures
Markets, it must be held to be legislation falling under
entry 26 in List IT, and not entry 48 in list 1, because
Forward Contracts form a major sector of modern trade, and
constitute its very core, and to exclude them from the ambit
of entry 26 in List II, would be to rob it of much of its
contents. Reliance was placed in support of this
contention, on the rule of construction that the entries in
the Lists should be construed liberally and on the decision
in Bhuwalka Brothers Ltd. v. Dunichand Rateria (3), which,
on this point was affirmed by this Court in Duni Chand
Rateria v. Bhuwalka Brothers Ltd. (4). The rule of cons-
truction is undoubtedly well established that the
(1) A.I.R. 1925 Mad. 1095. (2) [1956] 2 M.L.J. 563.
(3) A.I.R. 1952 cal. 740. (4) [1955] 1 S.C.R. 1071.
220
entries in the Lists should be construed broadly and not in
a narrow or pedantic sense. But there is no need for the
appellants to call this rule in aid of their contention, as
trade and commerce would, in their ordinary and accepted
sense. include forward contracts, That was the view which
was adopted in Bhuwalka Brothers Ltd. case(1) and which
commended itself to this Court in Duni Chand Rateria’s case
(2). Therefore, if the question were simply whether a law
on Forward Contracts would be a law with respect to Trade
and commerce, there should be no difficulty in answering it
in the affirmative, But the point which we have got to
decide is as to the scope of the entry ‘Trade and commerce’
read in juxtaposition with entry 48 of List I. As the two
entries relate to the powers mutually exclusive of two
different legislatures, the question is how these two are to
be reconciled. Now it is a rule of construction as well
established as that on which the appellants rely, that the
entries in the Lists should be so construed as to give
effect to all of them and that a construction which will
result in any of them being rendered futile or otiose must
,be avoided. It follows from this that where there are two
entries, one general in its character and the other
specific, the former must be construed as excluding the
latter. This is only an application of the general maxim
that Generalia specialibus non derogant. It is obvious that
if entry 26 is to be construed as comprehending Forward
Contracts, then “Futures Markets” in entry 48 will be
rendered useless. We are therefore of opinion that legisla-
tion on Forward Contracts must be held to fall within the
exclusive competence of the Union under entry 48 in List I.
It now remains to deal with the decisions on which the
appellants rely in support of their contention that the
legislation is really one on Trade
(1) A.I.R. 1952 Cal. 740.
(2) [1955] 1 S.C.R. 1071
221
and commerce falling within entry 26. In Bhuwalka Brothers
Ltd. case (1) the question was with reference’ to the
validity of the West Bengal Jute Goods Futures Ordinance,
1949. That Ordinance had been promulgated by the Governor
without obtaining the consent of the Governor-General and
the contention was that the legislation fell within entry 7
‘Contracts’ in List III and as the consent of the Governor-
General had not been obtained it was invalid. As against
this it was contended that the legislation was with respect
to Trade and commerce which fell within List II and that
therefore the consent of the Governor-General was not
necessary. ID accepting the latter contention the Court
observed : “In pith and substance the legislation was one on
trade and commerce and not on contracts and that therefore
it was within the powers of the provincial legislature”.
There was an appeal taken against this decision to this
Court and there the correctness of this view was accepted.
Vide Duni Chand Rateria’s case(2). Now the contention
before us is that on this authority it should be held that
the legislation was one on Trade and commerce falling within
entry 26.
We are unable to accept this contention. The validity of
the West Bengal Jute Goods Futures Ordinance, 1949, has to
be judged in accordance with the provisions of the
Government of India Act, 1935, which was the Constitution
Act then in force. In that Act there was no specific entry
relating to ‘Futures Markets’. Such an entry was in.
troduced for the first time in the present Constitution in
1952. The contest in Bhuwalka Brothers Ltd. case(1)
therefore was not between a general entry on trade and
commerce and a specific entry on the futures markets, as in
the present case, but between Trade and commerce in List II
and Contracts in List
(1) A.I.R.1952 Cal. 740. (2) [1955] 1 S.C.R. 1071.
222
Ill. In the absence of a specific entry like the one
contained in entry 48 in List I, the decision in Bhuwalka
Brothers Ltd. case (1) would be correct but it is no longer
law in view of the change in the Constitution.
In the present case the question was also raised whether the
impugned legislation would fall under entry 7 of List Ill.
While the respondents insisted that it fell under entry 48
in List I, they were also prepared, in case that contention
failed, to fall back on entry 7 in List III as a second line
of defence. Entry 7 is general in its terms and cannot
prevail as against specific entry such as entry 48 in List I
or 26 in List II. On this point, we are in agreement with
the decision in Bhuwalka Brothers Ltd. case(1). In the
result we must hold that the attack on the impugned Act on
the ground of legislative incompetence must fail.
The second ground of attack on the vires of the Act is that
it is repugnant to Art. 14 and to Art. 19(1)(g) of the
Constitution and is, therefore, void. So far as Art. 14 is
concerned, the question is now concluded by the decision of
this Court in M/s. Raghubar Dayal Jai Prakash v. The Union
of India (2) where it has been held that the impugned Act
does not infringe that Article and is valid. This point is
therefore no longer open to debate and indeed the appellants
addressed no arguments on it.
Then as regards the attack based on Art. 19(1)(g) the
position is that though the appellants raised this
contention in the pleadings they did not press it before the
learned Judges in the Court below because there was a
decision of the Bench of the Calcutta High Court which had
decided the point against the appellants. The point,
however was taken in the grounds of appeal to this Court,
(1) A.I.R. 1952 Cal. 740.
(2) [1962] 3 S.C.R. 547.
223
and has been sought to be pressed before us. The
respondents complain and rightly that a point like this
should not be allowed to be taken at this stage as a
decision thereon will turn on investigation of facts which
has not been made. It is also contended that there being a
strong presumption in favour of the constitutionality of a
legislation the appellants must fail as they have not placed
any materials before the Court to rebut that presumption.
The answer of the appellants to this contention is that as
the Act is on the face of it violative of the fundamental
rights under Art. 19(1)(g), it was for the other side to
place materials for showing that it was protected by Art. 19
(6) as one which is reasonable and made in the interests of
the general public, and not for them to show negatively that
it was not and reliance was placed on the observations of
this Court in Saghir Ahmed v. The State of Uttar Pradesh and
Others (1). We are of opinion that those observations cannot
be read as negativing the presumption as to the
constitutionality of a statute. But it is unnecessary to
say more about it, as the appellants abandoned this point
after some argument. This contention also must therefore be
found against the appellants.
(2) It is next contended for the appellants that the
question as to the validity of the contracts between the
parties was one for the arbitrators to decide and that in
consequence it was not open to the respondents to raise it
in an independent application under a. 33 of the Arbitration
Act. This question has been considered by us in Khardah
Company Ltd. v. Raymon & Company (India) (P) Ltd. (2) with
which these appeals were heard and therein we have held that
it a contract is illegal and void, an arbitration clause
which is one of the terms thereof, must also perish along
(1) [1955] 1 S.C.R. 707, 726.
(2) (1963) 3 S.C.R. 183.
224
with it and that a dispute relating to the validity of a
contract is in such case, for the Court and not for the
arbitrators to decide. Following that decision we must
overrule this contention.
(3) The appellants next contend that even if the arbitration
clause in the original agreement between the parties should
be held to be inoperative by reason of the validity of the
contract itself being in question, when the respondents
subsequently appeared before the arbitrators and filed
statements in support of their defence, that must be held to
amount to a new agreement by them for arbitration, on which
the arbitrators would be entitled to act and that in
consequence the award could not be attacked on the ground of
want of jurisdiction. This the respondents dispute. They
contend that mere participation in the arbitration
proceedings cannot be held to be a new agreement for
arbitration, and that the jurisdiction of the arbitrators
must be decided solely with reference to cl. 14 of the
agreement. The point for decision is as to the true effect
of what happened before the arbitrators on their
jurisdiction to hear the dispute. The principles applicable
in the determination of this question are well settled. A
dispute as to the validity of a contract could be the
subjectmatter of an agreement of arbitration in the same
manner as a dispute relating to a claim made under the
coatract. But such an agreement would be effective and
operative only when it is separate from and independent of
the contract which is impugned as illegal. Where, however,
it is a term of the very contract whose validity is in
question, it has, as hold by us in Khardah Co. Ltd. case
(1), no existence apart from the impugned contract and must
perish with it.
(1) (1963) 3 S.C.R.183
225
We shall now refer to the decisions cited before us, bearing
on this distinction between the two categories of
agreements. In Shiva Jute Baling Ltd. v. Hindley and
Company Ltd., (1) the difference between these two classes
of agreements was noticed, though in a somewhat different
context. A decision directly bearing on this distinction is
the one in East India Trading Company v. Badat and Co. (2).
There the facts were that there was a .general agreement
between the parties as to the terms on which they should do
business and it was provided therein that all disputes
arising out of the contract should be settled by
orbitration. Subsequent thereto the parties entered into
several contracts and then a dispute arose with reference to
one of them. One of the parties denied the contracts and
the question was whether an award passed by the arbitrators
with reference to that dispute was without jurisdiction. In
holding that the arbitrators had jurisdiction to decide the
matter by virtue of the agreement antecedent to the disputed
one, the Court observed : “Now, the principle of the matter
is this that when a party denies the arbitration agreement,
the very basis on which the arbitrator can acts is
challenged and therefore the Courts have taken the view that
in such a case the arbitrator has no jurisdiction to decide
whether he himself has jurisdiction to adjudicate upon the
dispute…………………… If the arbitration agreement
is part and parcel of the contract itself, by denying the
factum of the contract the party is denying the submission
clause and denying the jurisdiction of the arbitrators. But
in this case the position is different. We have an
independent agreement by which the parties agreed to refer
the disputes to arbitration. Pursuant to this agreement,
contracts were entered into and when the plaintiffs made a
claim against the defendants, the defendants denied their
liability.
(1) [1960] 1 S.C.R. 569.
(2) [1959] I.L.R. Bom. 1004 1018,1019.
226
Therefore, what was denied was not the jurisdiction of the
arbitrators, not the submission clause, but business done
pursuant to the submission clause and to which the
submission clause applied”. That in our judgment is a
correct statement of the true legal position.
The point then for decision is whether there is in this case
an agreement for reference to arbitration apart from el. 14
of the contract. It is not contended for the appellants
that there was any express agreement between the parties for
referring the disputes under the contract dated September 7,
1955, to arbitrators. All that is said is that the
respondent filed statements before the arbitrators setting
out their defence on the merits, and that must be construed
as an independent agreement for arbitration. and the
decisions in National Fire and General Insurance Co. Ltd. v.
Union of India (1) and Pratabmull Rameswar v. K. C. Sethia
Ltd. (2) are cited as authorities in support of this
contention.
Now an agreement for arbitration is the very foundation on
which the jurisdiction of the arbitrators to act rests, and
where that is not in existence, at the time when they enter
on their duties, the proceedings must be held to be wholly
without jurisdiction. And this defect is not cured by the
appearance of the parties in those proceedings, even if that
is without protest, because it is well settled that consent
cannot confer jurisdiction. But in such a case there is
nothing to prevent the parties from entering into a fresh
agreement to refer the dispute to arbitration while it is
pending adjudication before the arbitrators, ,and in that
event the proceedings thereafter before them might be upheld
as referrable to that agreement, and the award will not be
open to attack as without jurisdiction. But it will make
all the
(1) A.I.R. 156 Cal. I,
(2) (1959) 64 C.W.N. 616.
227
difference in the result whether the parties have entered
into an arbitration agreement as defined in W. a, 2(a) of
the Arbitration Act or have merely taken steps in the
conduct of proceedings assumed or believed to be valid. In
the former case the award will be valid; in the latter,
;nullity.
Now what are the facts in the present case 1 We have gone
through the statements filed by the respondents before the
arbitrators, and we do not find any thing therein out of
which a new agreement to refer the dispute to arbitration
could be spelt. The respondents merely contested the claim
on the merits, and then added : “The sellers submit that
this reference is improper, unwarranted, frivolous and
vaxatious and should be dismissed with cost.” It is
impossible to read this statement as meaning an agreement to
refer to arbitration.
The decisions in National Fire and General Insurauce Co.
Ltd’s. case (1) and Pratabmull Rameswar’s case (2) relied on
for the appellants are not really in point,. In both these
cases there was a valid submission on which the arbitrators
proceeded to act. Before them the parties filed statements
and therein they put forward a claim which was not actually
covered by the reference, and invited them to give their
decision thereon. The party against whom the award had gone
contended that the arbitrators had acted without
jurisdiction in deciding that claim. In overruling this
contention the Court held that it was open to the parties
to enlarge the scope of a reference by inclusion of a fresh
dispute. that they must be held to have done that when they
filed their statements putting forward claims not covered by
the original agreement, that these statements satisfied the
requirements of s. 2(a) of the Arbitration Act, and that it
was
(1) A I.R. 1956 Col. II.
(2) [1959] 64 C.W.N. 616.
228
competent to the arbitrators to decide the dispute. The
point to be noticed is that in both these cases there was no
want of initial jurisdiction, but a feeding of existing
jurisdiction by an enlargement of the scope of the reference
That this does not involve any question of jurisdiction of
the arbitrators will be clear from the scheme of the Act.
If an award deals with a matter not covered by the agreement
it could either be modified under s. 15(a) or remitted under
s. 16(1)(a).. And where such matter is dealt with on the
invitation of the parties contained in the statements, there
can be no difficulty in holding that the arbitrators actual
within jurisdiction. In the present case the arbitrators
had no jurisdiction when they entered on their duties, nor
is it established that there was any subsequent agreement
which could be held to be a submission of the question as to
the validity of the contracts. We are accordingly of the
opinion that the respondents are not precluded by what they
did before the arbitrators from agitating the question of
the validity of the contracts in the present proceedings.
(4) The last contention of the appellants is that the
contracts dated September 7, 1955, and October 17, 1955, are
non-transferable specific delivery contracts, as defined in
s. 2(f) of the Act and under s. 18 they are exempt from the
operation of s. 17, and that they are therefore not hit by
the notification dated October 29, 1953. The facts are
similar to those considered by this Court in Khardah Company
Ltd. case(1)with which these appeals were heard, and for the
reasons given by us in our Judgment in those appeals
delivered to-day, we accept the contention of the
appellants, and hold that the contracts in question are not
hit by the notification dated October 29, 1953.
(1) (1963) 3 S.C.R. 183.
229
In the result the appeals are allowed, with costs
throughout, one set in Civil Appeals Nos. 389 and 390 of
1960 and one in Appeals Nos.. 391 and 392 of 1960, and one
hearing fee.
Appeal allowed.