Jute and Gunny Brokers Ltd vs M/S. New Central Jute Mills Co., Ltd on 20 January, 1959

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 92 of 1954

Decision Date: 20 January 1959

Coram: S.K. Das, P.B. Gajendragadkar, K.N. Wanchoo, M. Hidayatullah

Jute and Gunny Brokers Ltd filed a petition before the Supreme Court of India against M/s. New Central Jute Mills Co., Ltd. The judgment was delivered on 20 January 1959. The bench that heard the matter consisted of Chief Justice S.K. Das, Justice P.B. Gajendragadkar, Justice K.N. Wanchoo and Justice M. Hidayatullah. The petitioner was identified as Jute and Gunny Brokers Ltd and the respondent as M/s. New Central Jute Mills Co., Ltd. The case is reported in 1959 AIR 569 and in the Supplement to the Supreme Court Reports (2) at page 79. The legal issues involved the validity of a contract under the provisions of the Raw Jute (Central Jute Board and Miscellaneous Provisions) Ordinance, 1950 and the Raw Jute (Central Jute Board and Miscellaneous Provisions) Act, 1951, particularly sections 5, 6 and 7 of each enactment and the deeming provision contained in section 16 of the 1951 Act. The Court noted that the Ordinance of 1950 was promulgated on 14 December 1950 by the Government of West Bengal for better regulation of the jute trade and that a notification issued on 29 December 1950 specified 30 December 1950 as the appointed day for the operation of sections 5, 6 and 7 of the Ordinance. The Ordinance was later replaced by the 1951 Act, which, by section 16, provided that any notification issued under the Ordinance would be deemed to have been issued under the Act as if the Act had commenced on 14 December 1950.

The dispute arose from a contract entered into on 6 April 1951, which contained an arbitration clause referring the matter to the Bengal Chamber of Commerce. An arbitral award dated 29 February 1952 allowed the claim of the appellant. The respondent sought to set aside that award before the Calcutta High Court, arguing that the contract was void because it had not been executed in compliance with the manner prescribed in sections 5, 6 and 7 of the 1951 Act. The appellant contended that the December 29, 1950, notification could not be interpreted as bringing sections 5, 6 and 7 of the Act into force, since the wording of the notification referred expressly to the Ordinance and not to the Act. Consequently, the appellant argued that those sections of the Act had never been operative, the contract remained valid, and the arbitral award was binding and enforceable. The Court held that, in order to give full effect to the two legal fictions created in section 16 of the Act, the notification issued under the Ordinance must be read as if it were issued under the Act, thereby making sections 5, 6 and 7 of the Act applicable to the contract in question.

The Court explained that, under the statutory scheme, the Act was to be treated as having commenced on 14 December 1950, and that the notification issued under the earlier Ordinance was to be regarded as issued under the Act. Applying the principle of mutatis mutandis, the Court substituted the word “Act” for the word “Ordinance” wherever the notification dated 29 December 1950 used the latter term. Consequently, the provisions of sections 5, 6 and 7 of the Act were held to be applicable to the contract that was the subject of the present dispute. The judgment concerned a civil appeal, numbered 92 of 1954, lodged in the Civil Appellate Jurisdiction. It was an appeal from the judgment and order dated 28 January 1953 of the Calcutta High Court in Award Case No. 105 of 1952. The appellant was represented by counsel including the Attorney‑General for India, M. C. Setalvad, together with B. Sen, P. D. Himatsinghka and B. P. Maheshwari, while the respondent was represented by N. C. Chatterjee, M. O. Poddar and Ganpat Rai. The judgment was delivered on 20 January 1959 by Chief Justice Das. The appeal originated from a certificate of fitness granted by the Calcutta High Court and challenged the High Court’s decision of 23 January 1953, which had declared null and void award No. 209 of 1952 made by the Bengal Chamber of Commerce in case No. 855 of 1951. That award had ordered the respondent company to pay the appellant company a sum of Rs 1,95,000 together with interest and costs. The factual background of the appeal was straightforward. On 6 April 1951 the appellant entered into a contract with the respondent for the supply of 5,000 maunds of Nikhli and/or Ashuganj jute at specified prices according to quality, with a guaranteed shipment during July or August 1951. The contract was executed by the exchange of “bought and sold” notes through brokers and incorporated a broad arbitration clause. When the appellant’s bankers presented the shipping documents to the respondent, the latter refused to honour them, alleging that the documents were not in order and consequently failed to take delivery of the goods. The last presentation of such documents occurred on 17 September 1951. On 26 September 1951 the appellant, through its solicitors, warned the respondent that it had exercised its right to cancel the contract and demanded payment of Rs 1,95,000 as damages, calculated on the basis of the difference between the contract price and the market price of the goods as of 17 September 1951. The respondent replied on 25 October 1951, denying any liability to pay any amount. Accordingly, on 2 November 1951 the appellant referred the dispute to arbitration before the Bengal Chamber of Commerce, as provided for in the contract’s arbitration clause. The respondent accepted the jurisdiction of the arbitral tribunal, appeared before it and produced evidence. On 29 February 1952 the arbitrators rendered their award.

The arbitrators rendered an award whereby they granted the appellant company the entire amount claimed, together with interest and costs. That award was subsequently filed in the Calcutta High Court on 23 April 1952. In response, the respondent company filed an application before the same Court on 9 June 1952, praying, inter alia, that the award be declared null and void and that it be set aside. The principal ground advanced in the application was the contention that the award should be treated as a nullity because the contract containing the arbitration clause was, according to the respondent, void under the provisions of the Raw Jute (Central Jute Board and Miscellaneous Provisions) Act, 1951 (West Bengal Gazette Notification VI of 1951), which was then in force. To understand the issues raised before the High Court and now before this Court, it is necessary to refer to the statutory provisions that bear upon the question. The West Bengal Legislature had enacted the West Bengal Jute (Control of Prices) Act, 1950 (West Bengal Gazette Notification VI of 1950) in order to regulate the prices of jute and to empower the Government to fix maximum prices; that Act became effective on 15 March 1950. Subsequently, on 14 December 1950, the Government of West Bengal promulgated an Ordinance titled the Raw Jute (Central Jute Board and Miscellaneous Provisions) Ordinance, 1950 (Ordinance XVII of 1950) for the better regulation of the jute trade. The preamble to that Ordinance explained that the owners of jute mills were unable to secure adequate supplies of raw jute at the maximum prices fixed under the 1950 Control of Prices Act, and therefore it had become expedient to establish a Central Jute Board in West Bengal to ensure an equitable supply of raw jute to mill owners. The Ordinance comprised only fifteen sections. Section 4 of the Ordinance dealt with the constitution of the Central Jute Board. Section 5 was expressed in the following terms: (1) No person shall sell or agree to sell raw jute to the owner of a jute‑mill, and no owner of a jute‑mill shall buy or agree to buy raw jute, except in pursuance of a contract for the sale or supply of raw jute entered into in the manner prescribed by section 6; (2) Any contract entered into for the sale or supply of raw jute with the owner of a jute‑mill, save and except in the manner provided in section 6, shall be void and of no effect; (3) Any person contravening the provisions of sub‑section (1) shall be guilty of an offence under this Ordinance and shall be punishable with imprisonment which may extend to six months, or with fine, or with both. Section 6 laid down the specific procedure by which all contracts for the sale or supply of raw jute with the owners of jute mills were to be entered into. Section 7 ran as follows: (1) No person shall deliver or cause to be delivered to the

The Court explained that the Ordinance prohibited any owner of a jute‑mill from accepting or causing to be accepted any raw jute unless such acceptance occurred pursuant to a contract for the sale or supply of raw jute that had been entered into in the manner prescribed by section 6. The Ordinance further provided that any person who violated the relevant sub‑section would be guilty of an offence punishable by imprisonment of up to six months, by a fine, or by both. Section 7(3) declared that the provisions of sections 5, 6 and 7 would take effect from the “appointed day”. The Court noted that “appointed day” was defined in section 2(1) of the Ordinance as the date fixed by the State Government by notification in the Official Gazette for the purposes of the Ordinance. By a notification dated 29 December 1950, published in an extraordinary issue of the Calcutta Gazette, the Government specified 30 December 1950 as the appointed day for the operation of sections 5, 6 and 7 of the Ordinance. The Court then observed that the Ordinance was later superseded by the Raw Jute (Central Jute Board and Miscellaneous Provisions) Act, W. Ben. Act VI of 1951, hereinafter referred to as “the Act”, which came into force on 21 March 1951. The first fifteen sections of the Act were essentially verbatim reproductions of the fifteen sections of the Ordinance, and the only addition was section 16, which provided that any rule, notification, licence, direction, contract, minimum price, or any other act made or taken under the Ordinance would, upon the cessation of the Ordinance, be deemed to have been made under the Act as if the Act had commenced on 14 December 1950. The Court pointed out that the Act remained in force for all periods material to the present proceedings, although it was later repealed on 5 August 1952. The Court further recorded that, both while the Ordinance was in force and after the Act commenced, the Central Jute Board issued a series of circulars authorising owners of jute mills to purchase raw jute up to their allotted quotas through “normal trade channels”, on the condition that the mills furnished particulars of the contracts and deliveries to the Board. The contract that gave rise to the dispute was entered into through such normal trade channels and not in the manner prescribed by the Act or the rules framed thereunder. Moreover, the Court noted that the appellant had not made any application to the Board under section 6(1) of the Act, that the Board had not selected any jute mills as buyers under section 6(2), that the respondent had not indicated in writing its intention to purchase the raw jute, that the Board had not fixed a date for the contract, and that the delivery period stipulated in the contract violated the provisions of the Act and its rules, rendering the contract void under section 5(2) if sections 5, 6 and 7 were in force at the date of the contract.

The respondent company contended that it had not submitted an application to the Board under section 6(1) of the Act, that under section 6(2) the Board had not selected any jute mills as purchasers of the goods, that the respondent had not in writing communicated its intention to buy the raw jute to the Board, that the Board had failed to fix a date by which the contract should be concluded, and that the delivery period stipulated in the contract violated the provisions of the Act and its rules. Consequently, the company argued that the contract was void under section 5(2) of the Act, assuming that sections 5, 6 and 7 were operative at the time the contract was made.

When the respondent’s application for setting aside the arbitral award was scheduled for hearing, the learned Single Judge of the Original Side, invoking rule 2 of chapter V of the Original Side Rules, referred the matter to the Chief Justice for the constitution of a larger Bench. The Chief Justice consequently constituted a Special Bench, and the application was heard before that Bench. Before the High Court, three points were raised: first, that the Act was beyond the legislative competence of the Bengal Legislature; second, that even if the Act were within legislative competence, sections 5, 6 and 7 had never been brought into force; and third, that a later independent agreement had provided for referring the disputes to the arbitration of the Bengal Chamber of Commerce. The High Court rejected every contention raised by the appellant company. In its judgment dated 23 January 1953, the Court allowed the application, declared the arbitral award null and void, and ordered each party to bear its own costs.

The present appeal, filed against the High Court’s judgment on a certificate of fitness granted by that Court, was supported by the learned Attorney‑General. The Attorney‑General limited his submissions to the second point previously raised before the High Court, namely that even if the Act were intra vires, sections 5, 6 and 7 had never been brought into operation; therefore the contract containing an arbitration clause was valid and the award binding and enforceable. He did not dispute that, by virtue of section 16 of the Act, the notification issued on 19 December 1950 under section 2(1) of the Ordinance must be deemed to have been issued under the Act. However, he argued that the later notification dated 29 December 1950 could not be interpreted as having brought sections 5, 6 and 7 of the Act into force, because that notification expressly specified 30 December 1950 as the appointed day “for the purposes of sections 5, 6 and 7 of the Ordinance.” He urged that this Court should accept the Ordinance notification as it stands and then, applying section 16, treat it as a notification made under the Act.

In this case, the Court examined the argument presented by the Attorney‑General that the statutory fiction created by section 16 of the Act terminated once the notification was deemed to have been made under the Act and did not extend beyond that point. The Attorney‑General relied on the decisions in Hamilton and Co. v. Mackie and Sons (1) and T. W. Thomas & Co. Limited v. Portsea Steamship Company Limited (2), contending that a plain reading of the notification, when treated as being made under the Act, was meaningless because the notification did not aim to bring any provision of the Act into force but expressly brought sections 5, 6 and 7 of the Ordinance into force. He further submitted that it was not the role of the Court to modify the wording of the notification in order to read it as a notification issued under the Act.

The Court rejected this line of argument. It held that the authorities cited by the Attorney‑General were inapplicable to the present dispute. In the earlier cases, there was no statutory mechanism that deemed a clause in a charter party, which referred all disputes to arbitration, to be an integral part of a bill of lading. Consequently, the proper approach in those cases was to extract the arbitration clause from the charter party and to read it directly into the bill of lading. The courts in those decisions found that, when read in that manner, the arbitration clause became nonsensical, because an arbitration clause referring all disputes arising out of a charter party had no logical place within a bill of lading.

A careful examination of section 16 of the Act, however, reveals that the provision creates two separate statutory fictions. The first fiction treats the Act as if it had commenced on 14 December 1950. The second fiction treats the notification that was issued under the Ordinance as if it had been issued under the Act. If the Act is deemed to have commenced on the earlier date, the Ordinance must be regarded as never having been promulgated, for the two instruments could not coexist. Moreover, the Act itself provides that the notification, identified as having been issued under the Ordinance, shall be deemed to have been made under the Act. To give full effect to both fictions, the Court concluded that the word “Ordinance” appearing in the notification must be interpreted mutatis mutandis as “Act”. Substituting “Act” for “Ordinance” in the notification allows the statutory fictions created by section 16 to operate as intended. The Court therefore found no merit in the Attorney‑General’s contention that the fiction ends with the issuance of the notification and does not extend to reading the notification as made under the Act.

In this case the Court examined the argument put forward by the Attorney General that the statutory fiction created by section 16 of the Act should be limited only to the simple act of issuing the notification. The Court observed that, after considering the language of the provision, the reach of the fictional device appears to extend beyond the mere issuance of the notification. It further requires that the notification be treated as if it had been issued under the Act itself. To give effect to that interpretation the Court found it necessary to read the word “Ordinance” that appears in the notification as the word “Act”. No other point was raised before the Court, and the arguments already set out in the judgment were deemed sufficient to decide the matter. Consequently, for the reasons explained above, the Court concluded that the appeal could not succeed and therefore must be dismissed. In view of the circumstances noted in the High Court’s judgment and reflected in the record, the Court decided that no order for costs should be made in respect of this appeal. Accordingly, the appeal was dismissed without any costs award.