Basant Lal Banarsi Lal vs Bansi Lal Dagdulal

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 264 of 1956

Decision Date: 30 November 1960

Coram: A.K. Sarkar, P.B. Gajendragadkar, K.N. Wanchoo, J.R. Mudholkar

In this matter, the Supreme Court recorded that the parties, Messrs Basant Lal Banarsi Lal and Bansi Lal Dagdulal, were involved in a series of contracts for the sale of goods executed in Bombay, each contract containing a clause for arbitration. When disputes arose in March 1952 concerning those contracts, the parties referred the matters to arbitration, resulting in a composite award dated 7 October 1952 that was made against the respondent. One of the disputes concerned a forward contract for groundnuts. The respondent sought to have the award set aside on the ground that the forward contract was illegal because it was prohibited by the Oilseeds (Forward Contract Prohibition) Order 1943, issued under the Essential Supplies (Temporary Powers) Act 1946, a Central legislation. The appellant argued that the Essential Supplies (Temporary Powers) Act 1946 conflicted with the Bombay Forward Contracts Control Act 1947, a Provincial law that had received the Governor‑General’s assent, and therefore, under section 107(2) of the Government of India Act 1935, the Bombay Act prevailed in the territory of Bombay and made the forward contract valid. The High Court accepted the respondent’s contention and set aside the award. Section 8 of the Bombay Act was quoted as providing that “Every forward contract for the sale or purchase of, or relating to, any goods specified in the notification under sub‑section (3) of section 1 which is entered into, made or to be performed in any notified area shall be illegal if it is not entered into, made or to be performed” in accordance with the manner and persons prescribed, and that a person making a contract declared illegal would be punishable. Section 3 of the Central Act was also cited, stating that “The Central Government may by notified order provide for prohibiting trade and commerce” in any essential commodity, under which the Oilseeds (Forward Contract Prohibition) Order was issued to forbid forward contracts in groundnuts, an essential commodity under that Act.

The Court concluded that the Bombay Forward Contracts Control Act did not render any forward contract legal; its sole function was to declare certain forward contracts illegal unless they complied with the statutory conditions it prescribed. Conversely, the Essential Supplies (Temporary Powers) Act, by virtue of the Central order, directly prohibited forward contracts in groundnuts, thereby making such contracts illegal. Accordingly, there was no conflict of repugnancy between the two statutes, as both applied to Bombay and both declared the forward contract illegal. The Court further held that a composite award covering multiple, inseparable disputes must be set aside in its entirety if any one of the disputes was referred to arbitration in contravention of the law, because the illegality of a single dispute invalidates the whole award. This reasoning formed the basis for the Court’s direction to overturn the award and to sustain the High Court’s decision to set it aside.

In this matter the Court observed that there was a conflict between the Bombay Forward Contracts Control Act, 1947 (referred to as the Bombay Act) and the Central Essential Supplies (Temporary Powers) Act, 1946, and that both statutes were applicable to the territory of Bombay. Article 372 of the Constitution was held to have continued the operation of both statutes, and consequently the Constitution contained no provision by which either statute could be said to exclude the other. The Court further stated that when a composite award is made covering more than one dispute that is not capable of being separated, the entire award must be set aside if any of the disputes included in it were referred to arbitration illegally.

The appeal arose under civil appellate jurisdiction as Civil Appeal No. 264 of 1956. It was filed by special leave against the judgment and order dated 29 June 1954 of the Bombay High Court in Appeal No. 127 of 1953. Counsel for the appellant comprised senior legal representatives, while counsel for the respondent likewise appeared on behalf of that side. The judgment was delivered on 30 November 1960 by Justice Sarkar.

The appellant was described as a commission agent and pucca aratiya who had been engaged by the respondent since 7 November 1951, during which period a series of contracts were executed between them in Greater Bombay. By 26 February 1952 two contracts remained outstanding, one of which concerned groundnuts and was a forward contract. In March 1952 disputes arose between the parties regarding whether the contracts had been completed, each party asserting claims against the other based on its own interpretation. On 18 March 1952 the appellant elected to refer the disputes to arbitration in accordance with the arbitration clause contained in the contracts.

The arbitrators rendered a single composite award on 7 October 1952, directing the respondent to pay the sum of Rs. 22,529‑15‑9 in relation to the disputes. It was not entirely clear from the record whether the award also addressed other disputes. The award was subsequently filed in the Bombay City Civil Court under the Arbitration Act, 1940, seeking a judgment enforcing the award.

On 17 July 1953 the respondent filed an application before the Bombay City Civil Court seeking to set aside the award. The respondent contended that forward contracts in groundnuts were illegal because their execution was prohibited by the Oilseeds (Forward Contract Prohibition) Order, 1943, which had been issued under the Essential Supplies (Temporary Powers) Act, 1946. Accordingly, the respondent argued that the arbitration clause contained in the groundnut forward contract was void, rendering the award a nullity.

The appellant responded that the Essential Supplies (Temporary Powers) Act did not extend to Greater Bombay, where forward contracts were regulated by the Bombay Forward Contracts Control Act, 1947. The appellant asserted that the groundnut contract had been entered into under the Bombay Act, making it lawful, and therefore the arbitration clause and the resulting award were valid and enforceable.

The learned Principal Judge of the Bombay City Civil Court considered the submissions of both parties, taking into account the statutory framework, the constitutional continuation of the statutes, and the principle that an illegal referral of any dispute within a composite award necessitates the setting aside of the entire award. The judgment of that Court formed the factual and procedural backdrop for the present appeal.

The City Civil Court of Bombay accepted the respondent’s claim that the arbitration award should be set aside, and consequently ordered that the award be nullified. The appellant challenged that decision by filing an appeal before the High Court of Bombay, but the High Court rejected the appeal and affirmed the lower court’s ruling. Thereafter, the appellant brought the matter before this Court by filing a further appeal. The sole issue remaining for determination is whether the Essential Supplies (Temporary Powers) Act of 1946, enacted by the Central Legislature, was applicable to the territory of Bombay. If the Act were applicable, then the Oilseeds (Forward Contract Prohibition) Order of 1943—hereafter referred to as the Oilseeds Order—issued under the authority of that Act would render the forward contract for groundnuts illegal, and consequently no award could be issued under the arbitration clause contained in that contract. The illegality of the contract under the Oilseeds Order is not contested. The Oilseeds Order itself was originally promulgated in 1943 pursuant to rule 83 of the Defence of India Rules. Those Defence of India Rules ceased to have effect on 30 September 1946. Nevertheless, because the post‑war situation had not yet returned to normal, the British Parliament enacted the India (Central Government and Legislature) Act of 1946 (9 & 10 Geo. VI, Chapter 39), commonly called the British Act, on 26 March 1946. Section 2 of that Act declared that the Central Legislature of India possessed the power to make laws on a specified list of matters notwithstanding any provision of the Government of India Act, 1935, and that such power could be exercised during the period described in section 4 of the British Act, with any laws made under that power ceasing to operate when that period expired.

The Governor‑General, exercising the powers reserved in section 4, and later the Constituent Assembly of India, exercising the powers conferred by the Indian Independence Act of 1947, repeatedly extended the period mentioned in section 4 of the British Act, ultimately prolonging it until 31 March 1951. The specific statutory instruments and orders through which these extensions were effected are not reproduced here, as the existence of those extensions is not in dispute. Acting under the authority granted by the British Act, the Governor‑General issued the Essential Supplies (Temporary Powers) Ordinance of 1946, which came into force on 1 October 1946. Subsequently, on 19 November 1946, the Central Legislature, using the same delegated authority, passed the Essential Supplies (Temporary Powers) Act of 1946—hereafter referred to as the Central Act—thereby repealing the earlier Ordinance and incorporating most of its provisions. The Central Act originally stipulated that it would cease to operate at the expiration of the period defined in section 4 of the British Act. As the life of the British Act was periodically extended, corresponding amendments were made to the Central Act to extend its duration as well. When the Constitution of India came into force on 26 January 1950, article 372 provided that the Central Act would continue to be in force as an existing law. Finally, on 16 August 1950, under the powers conferred by article 369 of the Constitution, Parliament enacted the Essential Supplies (Temporary Powers) Amendment Act of 1950 (Act LII of 1950), thereby amending the Central Act in several respects and extending its life further.

Parliament, exercising the authority granted by article 369 of the Constitution, enacted the Essential Supplies (Temporary Powers) Amendment Act, 1950, identified as Act LII of 1950. That amendment altered various provisions of the Central Essential Supplies (Temporary Powers) Act and prolonged the existence of that Act until the last day of December 1952. Subsequently, a further amendment was introduced through Act LXV of 1952, which extended the life span of the Central Act to 26 January 1955. Section 3(1) of the Central Act declares that the Central Government may, whenever it deems necessary or convenient for the purpose of maintaining or increasing the supplies of any essential commodity, or for ensuring the equitable distribution and availability of such commodity at fair prices, issue a notified order that may regulate or prohibit the production, supply, distribution, trade, or commerce of that commodity. Section 2 of the same Act defines “foodstuffs” as an essential commodity and expressly includes edible oilseeds within that definition. The Court previously observed that the Oilseeds Order had originally been promulgated under the Defence of India Rules, which ceased to be effective on 30 September 1946. Nevertheless, the Ordinance of 1946 remained in force, and any order issued under the Defence of India Rules that was compatible with the Ordinance was treated as an order made under the Ordinance. Moreover, section 17(2) of the Central Act stipulates that any order considered to have been made under the Ordinance and that was operative immediately before the commencement of the Central Act would continue to be effective and would be deemed an order made under the Central Act. Consequently, because of the succession of the Ordinance by the Central Act and the successive extensions of the latter’s duration, the Oilseeds Order, insofar as it pertained to edible oilseeds such as groundnuts, remained in force after the expiry of the Defence of India Rules until 26 January 1955. That continued Order expressly prohibited the execution of forward contracts—agreements that provided for delivery of the commodity at a future date—concerning certain specified oilseeds, including groundnuts.

The respondent argued that, on the basis of the Oilseeds Order read together with the Central Act, the forward contract for groundnuts entered into by the parties was illegal, and therefore the arbitral award that relied on the arbitration clause contained in that contract was void. To assess that contention, the Court examined the constitutional framework governing the relationship between central and provincial legislation. The British Act, under which the Central Act was enacted, contains a provision in subsection (4) of section 2 stating that subsection (2) of section 107 and subsection (2) of section 126 of the Government of India Act, 1935, shall apply to any law made pursuant to that section with respect to any matter over which a Province has the power to legislate, as if that matter were specified in Part XI of the Concurrent Legislative List. Section 107(2) of the Government of India Act, 1935, provides that when a provincial law dealing with a matter listed in the Concurrent Legislative List contains a provision that is repugnant to an earlier federal law, the provincial provision shall prevail in that province, provided the provincial law has been reserved for the Governor‑General’s consideration and has received his assent. This constitutional scheme implies that, where a provincial act that has been duly assented to contains provisions inconsistent with a central act enacted under the powers of the British Act, the provincial act will govern within the province, displacing the central act. The respondent therefore relied on this principle to contend that the Bombay Provincial Act of 1947, which had become operative in 1948, was repugnant to the Central Essential Supplies Act, and consequently the prohibition on forward contracts in groundnuts contained in the Oilseeds Order could not be enforced against the parties.

It was explained that when a law passed by a Provincial legislature was reserved for the consideration of the Governor‑General and subsequently received the Governor‑General’s assent, that Provincial law would prevail within the province over a Central law that conflicted with it. Consequently, if a Provincial Act that had obtained the Governor‑General’s assent contained any provision that was repugnant to a Central Act enacted under the powers given by the British Act, the Provincial Act would be the applicable law in that province, displacing the Central Act. The Bombay Act, which had been passed by the Provincial Legislature of Bombay in 1947 and came into operation in 1948, was such a Provincial law. The Bombay Legislature possessed the authority to enact the Act and the Act had indeed received the Governor‑General’s assent. At the same time, the Central Act, deriving its force from the British Act, was already in force. Therefore, if the Bombay Act conflicted with the Central Act, the Bombay Act would govern in Bombay and the Central Act would not apply there. This point was not contested. The appellant argued that the Bombay Act was so repugnant to the Central Act that the Central Act could not declare a forward contract in groundnuts made in Greater Bombay to be illegal and void. The Court’s task was thus to determine whether any provision of the Bombay Act was repugnant to the Central Act. The preamble of the Bombay Act declared that it was enacted because it was considered expedient to regulate and control forward contracts and for certain other matters. Section 1 of the Act came into force immediately and authorized the Government to bring the remaining sections of the Act into operation by notification, either throughout the whole Province of Bombay or in specified parts, on such dates and with respect to such goods as might be specified. Under this authority, the Government of Bombay issued notifications on 19 December 1950, bringing the remaining provisions of the Act into force in the area known as Greater Bombay, covering all varieties of oilseeds from that date. Section 8 of the Bombay Act then provided that every forward contract for the sale, purchase, or any relation to any goods specified in the notification under sub‑section (3) of section 1, which was entered into, made, or to be performed in any notified area, would be illegal unless it was entered into, made, or performed (a) in accordance with bye‑laws made under section 6 or section 7 relating to the making or performance of such contracts, as may be specified in those bye‑laws, or (b) between members of a recognised association, or through a member of such an association, or with a member of such an association, provided that the member had previously obtained the written authority or consent—written if required by the bye‑laws—of the person entering into or making the contract, and that no claim of any description in respect of such a contract could be entertained in any civil court. Sub‑section 2 further stipulated that any person who entered into or made such an illegal contract would, upon conviction, …

A person who entered into an illegal forward contract under section 8 of the Bombay Act shall be liable to imprisonment for a term which may extend to six months, or to a fine, or to both. The term “recognised association” is defined in the Bombay Act as an association that has been recognised by the Provincial Government. On 19 December 1950, the Government of Bombay recognised the Bombay Oilseeds Exchange Limited as such an association. The appellant is a member of this recognised association, and all contracts between the parties were expressly subject to the rules and regulations of that association. The proceedings before this Court have been based on the premise that the disputed groundnut contract was executed in compliance with the requirements of section 8, and the lower courts have made no finding to the contrary. Accordingly, this Court must continue on that basis. The appellant argues that section 8 of the Bombay Act and section 3 of the Central Act are mutually repugnant. It should be noted that section 8 of the Bombay Act does not claim to make any contract lawful; its sole effect is to render forward contracts in every variety of oilseed illegal unless they are made in conformity with its stipulated procedure. Counsel for the appellant contended that the effect of section 8 was to render forward contracts in oilseeds legal when made under its provisions, thereby creating a conflict with the Oilseeds Order issued under the Central Act, which declares forward contracts in edible oilseeds illegal. Counsel further referred to various other provisions of the Bombay Act and to the bye‑laws of the recognised association, arguing that the Bombay Act was intended to cover the entire field of forward contracts for all oilseed varieties and to displace the operation of the Central Act in Greater Bombay with respect to those contracts. The Court finds that reference to those other provisions or to the bye‑laws is irrelevant for deciding the present question. If section 8 does not render forward contracts made under it lawful, then no question of repugnancy with the Central Act can arise, irrespective of the breadth of the Bombay Act or its bye‑law provisions. Consequently, the essential issue is whether section 8, by its own language, makes any forward contract lawful. Section 3 of the Central Act, as previously noted, empowers the Central Government to prohibit trade and commerce in oilseeds, thereby enabling the Government to make forward contracts in essential commodities, as defined by that Act, illegal. The Central Government exercised this power through the Oilseeds Order concerning edible oilseeds. The Court finds no language in section 8 that indicates it renders any contract lawful; its only intention and effect is to declare certain forward contracts illegal.

The purpose and effect of section 8 of the Bombay Act, as the Court observed, is to declare certain forward contracts illegal. The Court agreed completely with the observation made by the learned Chief Justice of the High Court, who said that section 8 merely declares forward contracts unlawful unless the procedures specified in that section are followed; it does not transform an illegal contract into a legal one. The Court noted that section 8 makes no attempt to state that forward contracts which have been rendered illegal by the Central legislation become lawful simply by satisfying the technical requirements of section 8. The underlying assumption, according to the Court, is that the legislature deals with forward contracts that are initially legal, but it declares them illegal unless they are performed, made or entered into in the manner prescribed by section 8. The Court fully concurred with these observations. Regarding the argument that section 8 of the Bombay Act necessarily implies that contracts made under it would be legal, the Court found no such implication in the statutory language. The Act, as interpreted, seeks only to create illegality: it takes a contract that is lawful and imposes conditions on it, making the contract illegal if those conditions are not met, as the learned Chief Justice explained. If a contract is already illegal, the Bombay Act cannot be applied to it. Moreover, the Bombay Act applies to all kinds of goods; under subsection (4) of section 2, “goods” are defined as any movable property, including securities, but excluding money or actionable claims. In contrast, the Central Act applies only to essential commodities as defined therein. Consequently, many contracts that fall outside the scope of the Central Act could still be rendered illegal by the Bombay Act if they contravene the conditions laid down in section 8. The Court therefore concluded that there is no repugnancy between the Bombay Act and the Central Act, and consequently there is no basis for invoking the provisions of section 107(2) of the Government of India Act, 1935. This was the position in 1948, when the Bombay Act came into force while the Central Act was already in existence; both statutes applied to Greater Bombay without any inconsistency. Article 372 of the Constitution, which preserved existing laws after the Constitution came into force, did not give priority to either of the two statutes, and therefore, even in 1951 or 1952, both Acts continued to operate concurrently.

The Court observed that the groundnut contract, which was undisputedly a forward contract, fell within the definition of a forward contract under both the Central Act and the Bombay Act; consequently, both statutes were applicable to the contract, and the Constitution had not altered that application. Accordingly, the Court held that the groundnut contract was illegal under the Central Act, which expressly prohibited its formation, and noted that the Bombay Act could not render the contract legal because it was not intended to confer legality on any contract. The Court further concluded that the arbitration clause contained in the contract was therefore ineffective, rendering the arbitration award a nullity that had been correctly set aside. It was pointed out that, although the award addressed disputes arising under several contracts, one of those contracts had been declared void; nevertheless, because the award constituted a single, indivisible entity and could not be severed with respect to the various disputes—some of which might have been validly referred—the entire award was properly rescinded. As a result, the appeal was dismissed with costs, and the Court recorded an order of dismissal of the appeal.

Subsequently, the Court turned to the provisions of the Bihar Preservation and Improvement of Animals Rules, 1960, which were challenged by the petitioners in an amendment petition. The Court reproduced Rule 3 for consideration, stating that Rule 3(1) designates the Veterinary Officer and the Chairman or Chief Officer, as appropriate, as the prescribed authority under section 3 of the Act, with the provision that where no Chairman or Chief Officer exists for a particular area, the Veterinary Officer shall act as the sole prescribed authority. Rule 3(2) mandates that if the authority named in sub‑rule (1) or sub‑rule (5) refuses to issue a certificate under the proviso to section 3, it must record the reasons for refusal and may not refuse unless the applicant has been given a reasonable opportunity to be heard. Rule 3(4) requires that a bull, bullock, or she‑buffalo for which a certificate under section 3 has been issued may be slaughtered only at the location specified in the certificate and must be slaughtered within twenty days of the certificate’s receipt by the person in whose favour it was issued. Rule 3(5) provides that in the event of a disagreement between the Veterinary Officer and the Chairman or Chief Officer, the matter shall be referred to the Sub‑divisional Animal Husbandry Officer or the District Animal Husbandry Officer, as the case may be, and the certificate shall be issued or refused according to the decision of that officer. Finally, Rule 3(6)(a) allows any person aggrieved by an order refusing to grant a certificate under the proviso to section 3 to file an appeal within fifteen days of the communication of the order.

The judgment explained that once the order has been communicated to the person against whom it is made, that person is entitled to prefer an appeal. Specifically, where the order has been passed by the District Animal Husbandry Officer pursuant to sub‑rule (5), the appeal must be made to the Deputy Director of Animal Husbandry. The Court clarified that the communication of the order to the affected individual is a prerequisite before an appeal can be entertained, and that the proper appellate authority in the circumstances described is the Deputy Director of Animal Husbandry.