Pratapray Manmohandas vs Bombay Bullion Association Ltd

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 437/60

Decision Date: 2 March, 1962

Coram: J.L. Kapur, K.C. Das Gupta, Raghubar Dayal

In this matter the Supreme Court of India rendered its judgment on 2 March 1962. The opinion was authored by Justice J L Kapur and the bench was composed of Justice J L Kapur, Justice K C Das Gupta and Justice Raghubar Dayal. The petitioner was Pratapray Manmohandas and the respondent was Bombay Bullion Association Ltd. The decision is reported in the 1963 All India Reports at page 462 and also appears in the 1962 Supplement 3 of the Supreme Court Reports at page 541. The factual backdrop involved the petitioner, who was a member of the Bombay Bullion Association Ltd., entering into several forward transactions with other parties. Under the association’s bye‑laws each member was required to file a balance sheet and to produce kapli—vouchers—covering any amounts claimable by a creditor. The petitioner failed to include the amounts due to him in the balance sheet and also refused to tender the kapli, insisting that the transactions were fictitious and illegal. On the designated settlement day the Clearing House Committee summoned the petitioner to appear before it. During the hearing the petitioner contended that the Committee lacked jurisdiction to proceed because he sought adjudication through arbitration. Despite this objection the Committee adopted a resolution that declared him a defaulter. In response the petitioner instituted a suit challenging the Committee’s resolution, arguing that, according to bye‑law 155(4), the Committee was obliged to give him a further opportunity to submit the kapli before it could lawfully label him as a defaulter.

The Court examined the language of bye‑law 155(4), which states: “If any member does not submit a kapli in the prescribed form in respect of the amount found claimable from him to his party (creditor), the Clearing House committee shall call him and demand an explanation from him and can thereafter, if such a kapli is not submitted, declare him a defaulter.” The Court held that the resolution declaring the petitioner a defaulter was valid because the provision first requires the Committee to call the member and demand an explanation; only after that step, if the member still fails to produce the kapli, may the Committee deem him a defaulter. The bye‑law does not prescribe a fixed period within which the member must furnish the kapli, nor does it command the Committee to issue any specific form of notice such as a telephone call or a written letter. The appropriate time for compliance is to be determined on the facts of each case. In the present case the petitioner had expressly informed the Committee that he would not make the payment, rendering any additional time unnecessary. Consequently the Court concluded that the Committee acted within its statutory authority and that the resolution was lawful, without requiring any particular mode of communication to the defaulting member.

The appeal was filed under Civil Appeal No 437/60 by special leave from the judgment and decree dated 12 July 1957 of the Bombay High Court in Appeal No 71 of 1956. Counsel for the appellant included the Solicitor General of India, C K Daphtary, together with G Patwardhan and Naunit Lal. Counsel for respondent No 1 comprised A V Viswanatha Sastri, N P Nathwani and K L Hathi. The judgment of the Supreme Court was delivered on 2 March 1962 by Justice Kapur. This appeal challenged the decision of the High Court of Bombay which had affirmed the decree passed by that court in its original jurisdiction.

The appellant had been the plaintiff in the original suit and conducted his business under the name Messrs Pratapray Manmohandas as a bullion merchant and trader in Bombay. He was a member of the Bombay Bullion Association Ltd., which was identified as defendant No 1 in the suit and became respondent No 1 in the present appeal. Respondents 2 to 7 were members of the Clearing House Committee that had been constituted under the bye‑laws of the first respondent. At the material time the appellant had also joined the suit as parties defendants 8 to 12, but those names were later struck out of the trial count and they no longer remained parties.

During the period from 30 May 1949 to 30 June 1949 the appellant entered into several forward transactions with defendants 8 to 12. On 13 June the Hawala rate applicable to those transactions was fixed, and on 14 June 1949 the appellant admitted a clearance sheet pursuant to bye‑law 131 of the first respondent’s bye‑laws. That clearance sheet recorded the outstanding transactions for the settlement day, including the ones entered into with defendants 8 to 12. The following day all the transactions were tallied. According to the bye‑laws of the association, a balance sheet had to be submitted and money vouchers (kaplis) were required to be issued. In the balance sheet that the appellant submitted he omitted the amounts due to defendants 8 to 12, contending that those transactions were fictitious and illegal and therefore disputable.

On 21 June 1949, which was the settlement day (referred to as “Valan day”), the appellant invoked arbitration regarding those disputed items under bye‑law 38. On that same day defendants 8 to 12 lodged a complaint with the Bombay Bullion Association, alleging that the appellant had failed to issue the required vouchers. At 3 p.m. on that day the appellant received a notice from the Clearing House Committee, made up of respondents 2 to 7, summoning him to appear before the Committee. He attended the hearing accompanied by his solicitor and counsel. The appellant’s contention before the Committee was that the Committee lacked jurisdiction to proceed because the dispute with defendants 8 to 12 was already referred to arbitration and therefore should be resolved by the arbitrators. The Committee heard the appellant’s explanation and thereafter proceeded to consider the matter.

In this case the Clearing House Committee passed a resolution under by‑law 155(4) that declared the plaintiff to be a defaulter, and that resolution formed the subject of the dispute between the parties. On 20 June 1952 the appellant instituted a suit seeking a declaration that the contested resolution dated 21 June 1949 was illegal, inoperative, ultra vires and therefore not binding on him. The suit also claimed damages from the respondents and asked for his reinstatement as a member of the respondent Association. The respondents contended that the transactions relied upon by the appellant were not fictitious or inoperative. They further asserted that at a meeting held on 21 June 1919 (the record indicating that this was the meeting in question), defendants 8 to 12 complained that sums of money were payable to them by the appellant. At that same meeting the appellant is said to have unmistakably refused to provide any kaplis (vouchers), an act which, according to the respondents, amounted to a default that authorized the Committee to declare him a defaulter under by‑law 155(4) of the Association. The matter was tried before Justice Tendolkar. Several points of law were raised, but the appellant offered no evidence in support of his case. The respondents, identified as respondents 1 to 8, examined Mr Trikamdas Dwarkadas, a solicitor of Bombay who had been present at the Clearing House Committee meeting on 21 June 1949. On 6 June 1956 the trial court dismissed the suit, an order that was affirmed by the Appeal Court, and the appellant subsequently obtained special leave to appeal. The trial court found that the appellant’s allegation—that after he and his counsel were heard they were expelled from the meeting and that the subsequent hearing proceeded in their absence—was not proved. The court also held that for by‑law 38, which deals with arbitration, to become operative a genuine dispute between the parties is required; merely having a dispute is insufficient to evade or postpone liability on the Valan Day. Moreover, when a defaulter appears before the Committee and denies liability on flimsy grounds, it becomes clear that he does not intend to furnish a kapli, and the opportunity to submit a kapli is only a formality; the failure to observe this formality does not render the Committee’s decision void. The testimony of Mr Dwarkadas made it evident that the appellant had no intention of admitting or discharging his liability. The court further observed that the plaintiff did not claim that, had he been given time, he would have produced the kaplis; consequently, assuming that time was necessary under by‑law 155(4) would have been futile, and the lack of such time does not invalidate the action taken by the Committee. The Appeal Court concurred with the trial court’s disposition and held that a proper construction of the by‑law supported the finding that the resolution declaring the appellant a defaulter was valid.

Section 155(4) of the bye‑law required the Clearing House Committee to give the member an opportunity to submit a kapli before it could declare the member a defaulter. The wording of the provision states that the Committee “can thereafter, if such a kapli is not submitted, … declare him a defaulter.” This language was interpreted to mean that the Committee must first provide the member with a chance to explain himself – a locus penitentiae – and that, after receiving an explanation, the member could still lodge a kapli and thus avoid the penalty of being labelled a defaulter.

From the conduct of the appellant and his counsel it became clear that the appellant deliberately challenged the jurisdiction of the Committee and asserted that the Committee could not proceed in the absence of a reference to arbitration. This conduct demonstrated that the appellant had no intention of providing the required kapli. The appeal raised two principal questions: first, the proper interpretation of the relevant bye‑law; and second, whether the appellant was denied an opportunity to submit a kapli after a decision had been made against him.

The respondents argued that the appellant had deliberately made a false allegation that, after making a submission, he was asked to leave the proceedings. According to the respondents, this allegation was intended to support the appellant’s claim that the matter had been decided in his absence. The lower court found that, irrespective of whether an opportunity had been given, the appellant showed no intention of submitting a kapli. Issue number five of the proceedings specifically examined whether the appellant and his legal advisers voluntarily left the meeting after indicating that the appellant would not submit a kapli. This issue was identified as the central question throughout the litigation.

Even in the appellant’s own statement, the question of whether he voluntarily left the meeting dated 21 June 1949 after expressing his unwillingness to submit a kapli was placed at the forefront of the matter for determination. Both the trial court and the appellate court concluded against the appellant on this point, a conclusion that the present Court found fully supported by the evidence on record.

The evidence demonstrated that the Association had fixed specific days for the settlement of all transactions entered into during that period. According to the settlement chart of the Bombay Bullion Exchange, payment of the monies was required by 3:30 p.m. on 21 June 1949. The appellant made it clear that he would not comply with the payment requirement for that day; instead, he asserted that he would pay only after an arbitration award was rendered. The respondents’ evidence showed unequivocally that the appellant’s position was that no action should be taken against him until the arbitration he had requested was concluded. After expressing this position, the appellant left the meeting, a fact recorded in the attendance book of Mr Trikamdas Dwarkadas, the solicitor. On the basis of these facts, the respondent Association was justified in taking the action it did.

The record of the Clearing House Committee meeting held on 21 June 1949 indicates that the appellant, together with his legal advisers, expressed a desire to refer the dispute to arbitration and asserted that no enforcement action should be taken against them until the arbitrators rendered their award. The minutes further record that the appellant acknowledged that the transactions which his solicitor described as fictitious had actually been entered in his books, had been tallied, and that the ledger displayed those transactions on the clearance sheet. This admission demonstrated that the arguments raised by the appellant were untrue and were advanced solely for the purpose of gaining time. In view of these facts, the Court found that the respondent Committee could not be said to have acted without due consideration of the matter or to have acted precipitously.

Bye‑law 155(4) provides that “If any member does not submit a kapli in the prescribed form in respect of the amount found claimable from him to his party (creditor), the Clearing House Committee shall call him and demand an explanation from him and can thereafter, if such a kapli is not submitted, the Clearing House Committee can declare him a defaulter.” Consequently, when a member fails to submit the required kapli, the Committee is obligated first to summon the member and require an explanation, and only if the kapli remains unsupplied may the Committee declare the member to be a defaulter. It was submitted that this provision required the Committee to first obtain an explanation and thereafter to allow a period of time for the member to submit the kapli. The Court agreed with the interpretation offered by the learned Chief Justice of the High Court, observing that the language of the by‑law indeed calls for an initial demand for explanation, followed by a determination of whether the reasons for non‑submission are valid, and only then permits the member to file the kapli. The provision does not prescribe a fixed interval such as a half‑hour or any other specific duration.

The appellant had plainly declared that he would not make the required payment and had departed after presenting his submissions. The by‑law does not obligate the Committee to notify the defaulting member by telephone, letter, or formal notice, nor does it require a rigid timetable for payment when the settlement dates for all transactions are already fixed. To impose such a procedure would be unreasonable under clause (4) of bye‑law 155. The length of any period granted must be determined according to the circumstances of each case, and when it is unmistakably clear that no payment will be forthcoming, granting additional time serves no practical purpose.

After reviewing the submissions and the material on record, the Court formed the view that the judgment rendered by the High Court was correct. In reaching this conclusion, the Court determined that no error or material omission existed in the High Court’s decision. Consequently, the Court ordered that the appeal be dismissed. In addition, the Court directed that the costs of these proceedings be awarded against the appellant. The final order therefore recorded that the appeal was dismissed and that the appellant was liable to pay the costs as directed by the Court.