Firm Girdhar Mal Kapur Chand vs Firm Dev Raj Madan Gopal
Rewritten Version Notice: This is a rewritten version of the original judgment.
Court: Supreme Court of India
Case Number: Civil Appeal No. 240 of 1961
Decision Date: 11 February 1963
Coram: K.C. Das Gupta, P.B. Gajendragadkar, K.N. Wanchoo, M. Hidayatullah, J.C. Shah
In this case the Supreme Court of India rendered its judgment on 11 February 1963. The case was styled Firm Girdhar Mal Kapur Chand versus Firm Dev Raj Madan Gopal. The judgment was authored by Justice K C Das Gupta and was pronounced by a bench consisting of Justices K C Das Gupta, P B Gajendragadkar, K N Wanchoo, M Hidayatullah and J C Shah. The parties were identified respectively as the petitioner, Firm Girdhar Mal Kapur Chand, and the respondent, Firm Dev Raj Madan Gopal. The citation of the judgment is reported in 1963 AIR 1587 and in 1964 SCR (1) 995.
The matters relied upon by the Court involved provisions of the Indian Partnership Act of 1932, specifically section 69 (2), and the applicability of forward‑transaction regulations under the Essential Supplies (Temporary Powers) Act of 1946, sections 2, 3 and 5, together with the Cotton Options (Forward Contracts and Prohibition) Order, 1943, the Oil Seeds (Forward Contracts and Prohibition) Order, 1943, and Rule 81 of the Defence of India Rules.
The respondent, a partnership firm, instituted suit to recover the sum of money with interest that it claimed was due on account of purchases and sales of cotton‑seeds and bales of cotton carried out on its own behalf for the appellant firm. The appellant, while admitting that a commercial relationship existed with the respondent, contested the correctness of the accounts presented. The appellant contended that the transactions were wagering contracts and therefore void, that they were forward contracts prohibited by law, and that the respondent, having been originally registered at Lahore before the partition of India, could no longer be considered a registered partnership for the purposes of the Indian Partnership Act.
The trial court accepted the respondent’s version of the underlying transactions. However, regarding the accounting, the trial court held that the respondent was obliged to credit certain amounts to the appellant. It directed that the price of 2,300 bags of cotton‑seeds and 50 bales of cotton on the final sale be credited to the appellant at the market rate prevailing on 28 May 1947. The trial court also issued further directions for the calculation of incidental charges and interest and ultimately passed a final decree in favour of the plaintiff, awarding costs.
Both parties appealed the decree to the High Court. The High Court dismissed the appellant’s appeal and allowed the respondent’s appeal, increasing the amount awarded by the decree.
Before the Supreme Court, the appellant raised two questions of law: first, whether the requirements of section 69 (2) of the Indian Partnership Act had been satisfied; second, whether the forward contracts in cotton and edible oil seeds were illegal and therefore prohibited. The Court held that once a partnership is registered under the Indian Partnership Act, the registration remains effective and valid in the territorial area that applied before the partition of India, provided it has not been cancelled in accordance with law. The Court also affirmed that forward contracts in cotton and cotton‑seeds were not barred by the Essential Supplies Act.
The Court cited the decision reported in Co., r. L. R. Bom. (1958) 1351 and approved its reasoning. It held further that forward contracts involving cotton seeds were not prohibited by any statute. Because cotton and cotton seeds did not fall within the definition of an essential commodity, any earlier order that treated them as such conflicted with the newer legal position and could not continue under section 5 of the Essential Supplies Act, 1946.
Civil Appeal No. 240 of 1961 was filed in the civil appellate jurisdiction, challenging the judgment and decree dated 21 November 1958 issued by the Punjab High Court at Chandigarh in Regular First Appeal No. 266 of 1951. Counsel for the appellant consisted of senior advocates, while the respondent was represented by counsel specialized in commercial litigation. The judgment was pronounced on 11 February 1963 by Justice Das Gupta.
The respondent was a partnership firm that operated as commission agents in the town of Khanna, Punjab. It initiated the suit from which this appeal arose, seeking recovery of the sum of Rs 17,615.10, which it claimed the appellant firm owed for purchases and sales conducted on its behalf. Between December 1946 and 3 February 1947, the respondent purchased a total of 7,600 bags of cotton seeds for the appellant at various rates. Of these, 5,300 bags were sold by the respondent on the appellant’s behalf between 2 January 1947 and 3 February 1947, leaving a balance of 2,300 bags in the respondent’s possession on 3 February 1947.
In May 1947 the market price for cotton seeds began to decline. The respondent therefore instructed the appellant either to remove the remaining 2,300 bags within forty‑eight hours and pay the full contract price, or to provide additional margin money; it warned that failure to act would result in the goods being sold. The appellant gave no response, and consequently the respondent sold the 2,300 bags on 24 May 1947, charging Rs 11 11⁄16 per maund for part of the lot and Rs 11 12⁄‑ per maund for the remainder.
The plaint also alleged that the respondent had bought 100 bales of cotton during the same period. Of these, 50 bales were sold on behalf of the appellant, leaving the remaining 50 bales in the respondent’s custody after 14 February 1947. When the appellant again failed to either accept delivery on payment of the price or to provide further margin, the respondent sold those 50 bales on 24 May 1947 at a rate of Rs 27 12⁄‑ per maund.
According to the accounts prepared by the respondent, the appellant still owed Rs 15,556.10. The respondent therefore instituted the suit to recover that amount together with interest. While the appellant admitted that it had engaged in trade relations with the respondent, it contested the correctness of the accounts and denied the plaintiff’s assertions regarding the purchase and retention of the cotton seeds and cotton bales.
In this case the Court recorded that the defendant‑firm denied the plaintiff‑firm’s account of the transactions involving the purchase of cotton‑seeds and cotton bales, and also denied that the 2,300 bags of cotton‑seeds and 50 bales of cotton which had been purchased by the plaintiff‑firm remained in its possession. The defendant further argued that the contracts were wagering agreements and therefore void, that they constituted forward contracts which were prohibited by law, and that the plaintiff‑firm was not a registered partnership under the Indian Partnership Act, rendering the suit inadmissible.
The Trial Court rejected every one of these legal contentions and accepted the plaintiff‑firm’s version of the facts concerning the transactions. However, on the issue of accounting the Court, after reviewing the evidence, held that the plaintiff‑firm was obliged to give credit to the defendant‑firm for the sale of the 2,300 bags of cotton‑seeds at the contract price of Rs 14/5 per maund, even though the bags had actually been sold at a lower price. The Court also determined that the debit for the purchase of those bags should be calculated at the actual purchase rates of Rs 13/8 and Rs 13/10 per maund, which were the rates at which the bags had been bought, despite the parties having originally agreed on a rate of Rs 14/5 per maund on 3 February 1947. The Court directed that the market price on 28 May 1947 be used to credit the defendant‑firm for the final sale of the 2,300 bags of cotton‑seeds and the 50 bales of cotton. Further directions were issued regarding the calculation of incidental charges and interest.
The Court subsequently appointed an advocate as Commissioner to determine the amount due after ascertaining the market price. After considering the Commissioner’s report, the learned judge passed a final decree in favour of the plaintiff‑firm for the sum of Rs 9,749 and 3/9, together with proportionate costs. Both parties appealed this decree to the High Court of Punjab. In the defendant‑firm’s appeal, it was contended that the suit should not have been entertained because the plaintiff‑firm was not registered under the Indian Partnership Act, 1932, and that the transactions were illegal forward contracts in cotton and edible oil‑seeds. The High Court rejected both submissions, as well as two minor points that had been raised before it and were not reiterated before the Supreme Court.
In the plaintiff‑firm’s appeal, it was argued that the Trial Court had erred in its directions concerning the debits and credits for the 2,300 bags of cotton‑seeds related to purchases and sales on 23 February 1947. The High Court accepted this argument in part and held that the plaintiff‑firm was entitled to an additional amount of Rs 3,244 12/-. Consequently, the High Court dismissed the defendant‑firm’s appeal but allowed the plaintiff‑firm’s appeal to the extent that the decretal amount was increased by Rs 3,244 12/-, resulting in a revised decree for Rs 12,694/. On the strength of the certificate granted by the High Court under Article 133(1)(a) of the Constitution, the defendant‑firm has now preferred the present appeal.
After the High Court issued a certificate under Article 133(1)(a) of the Constitution, the defendant firm filed the present appeal. The appellant’s primary contention, which was also raised before the lower courts, was that the suit ought to have been dismissed in its entirety. To support this contention the appellant relied on two legal grounds. The first ground was founded on the requirement of Section 69(2) of the Indian Partnership Act. It was not contested that the partnership had been registered by the Registrar of Firms, Punjab, on 16 August 1946 in accordance with the Indian Partnership Act, 1932, as it existed on that date. That registration order was made prior to the partition of India. At that time the whole of Punjab lay within British India and a single registrar, whose office was at Lahore, exercised jurisdiction over the entire province. It was also not disputed that any registration effected by that registrar up to 14 August 1947 was valid for the whole of what then constituted British India.
The appellant argued that the moment partition occurred, the registration became applicable only to the portion of the former Punjab that formed the Dominion of Pakistan and that it consequently ceased to be effective for the area that remained within the Dominion of India, even after the Constitution of India came into force. The appellant further asserted that the Registrar of Punjab, whose office was situated in Lahore, ceased to be a registrar under the Indian Partnership Act when Lahore became part of a foreign country. Accordingly, the appellant claimed that the registration transformed into a registration of a foreign jurisdiction and therefore lost its status as a valid Indian registration.
The Court found this argument to be wholly unsound. It held that once a partnership had been registered under the Indian Partnership Act, that registration continued to operate as a registration under the same Act and remained valid in the eyes of Indian law, provided that it had not been cancelled in accordance with the statutory provisions. In reaching this conclusion, the Court acknowledged that certain practical difficulties might arise in particular circumstances, such as the recording of alterations in the firm’s name or its principal place of business under Section 60, the noting of opening and closing of branches under Section 61, the recording of changes in partners’ names and addresses under Section 62, the registration of dissolution, the withdrawal of a minor from the firm under Section 63, the rectification of mistakes in the register under Section 64, and the amendment of the register by order of a court under Section 65. These difficulties stem from the fact that the register, together with the duties imposed by the aforesaid sections, now lay in Lahore, which lay outside Indian territory.
Nevertheless, the Court stated that it was unnecessary to investigate the specific arrangements that might have been made to address those difficulties in the present case. The Court emphasised that the existence of such procedural challenges could not alter the fundamental legal position that a registration which was valid under the Indian Partnership Act continued to be valid so long as it had not been lawfully cancelled.
In this case the Court observed that a registration which was valid under the Indian Act continues to remain valid under the same Act so long as it has not been cancelled in accordance with the law. The Bombay High Court had previously adopted this principle in the decision of Bombay Cotton Export & Import Co. v. Bharat Savodaya Mill Co., and the Court considered that interpretation to be the only correct one. Consequently the Court found it unnecessary to examine, for the purposes of the appeal, whether such a registration would have been regarded as effective registration in a territory that was outside British India at the time the registration was made, and the Court expressly declined to give any opinion on that point.
Turning to the next legal contention raised, the argument was that the transactions in question were prohibited by law. Counsel for the respondent, Mr Aggarwala, contended first that forward contracts involving cotton as well as oil‑seeds were barred by orders issued in 1943 under the Defence of India Rules, and that those prohibitions continued to apply up to the date of the contracts in the present dispute by virtue of section 5 of the Essential Supplies (Temporary Powers) Act, 1946 (Act XXIV of 1946). The existence of forward contracts was not in dispute. It appeared from the record that forward contracts in cotton and in oil‑seeds, including cotton seeds, had indeed been prohibited by the Cotton Options (Forward Contracts and Prohibition) Order dated 1 May 1943 and by the Oilseeds (Forward Contracts and Prohibition) Order dated 29 May 1943. However, the Defence of India Rules under which those orders were made had ceased to operate long before the date on which the contracts under consideration were executed. Therefore, unless the prohibitory orders had been kept alive by some other statutory provision, the transactions could not be said to fall within the scope of the earlier bans.
In order to demonstrate that the earlier orders were continued, Mr Aggarwala relied upon section 5 of the Essential Supplies (Temporary Powers) Ordinance, 1946 and the identical provision as it appeared in the Essential Supplies (Temporary Powers) Act, 1946 which had superseded the ordinance. The wording of that section was quoted in full: “5. Continuance in force of existing any order, whether notified or not, made by whatever authority under rule 80‑B, or sub‑rule (2) or sub‑rule (3) of rule 81 of the Defence of India Rules, in respect of any matter specified in section 3, which was in force immediately before the commencement of the Ordinance shall, notwithstanding the expiration of the said rules, continue in force as far as consistent with this Ordinance and be deemed to be an order made under section 3; and all appointments made, licences or permits granted and directions issued under any such order and in force immediately before such commencement shall likewise continue in force and be deemed to be made, granted or issued in pursuance of this Ordinance.” The Act retained the same phraseology. The Court noted that these provisions of the Ordinance and the Act did not assist Mr Aggarwala’s contention. It was clear that before the
The Court observed that an order issued under rule 81 of the Defence of India Rules could continue in force after the expiry of those rules only if the order related to a matter specified in section 3. Section 3 authorized the Central Government to issue orders solely in connection with essential commodities. The term “essential commodity” was defined in section 2 to include foodstuffs, cotton and woollen textiles, paper, petroleum and petroleum products, spare parts of mechanically propelled vehicles, coal, iron and steel, and mica. Moreover, “foodstuffs” were defined to comprise edible oilseeds and oils. Although cotton seed is technically an oilseed, the Court noted that it could not be regarded as fit for human consumption and therefore was not an edible oilseed. Counsel for the petitioner argued, as a last resort, that “edible oil‑seed” might mean any seed from which edible oil can be produced, but the Court rejected this contention, stating that the phrase means only an oilseed that is itself edible. Consequently, cotton seed fell outside the class of “edible oil‑seed” and was not a foodstuff under the meaning of section 2 of either the Ordinance or the 1946 Act.
Because the Cotton Seeds Order of 1943 did not relate to a matter specified in section 3, the Court held that it could not be preserved by section 5. The Court also observed that raw cotton was not listed among the essential commodities in section 2, so the Cotton Order could not survive under section 5 either. Section 5, the Court explained, continued only those prior orders that were consistent with the new law, and any order concerning cotton or cotton seed was inconsistent and therefore could not continue. The petitioner drew attention to a Central Government notification dated 4 November 1949, which omitted cotton seed from the schedule of the Oilseeds Forward Contracts Prohibition Order, 1943. The petitioner argued that such an exclusion would have been unnecessary unless the Oilseeds Order had remained effective until that date because of section 5 of the Essential Supplies (Temporary Powers) Act, 1946. The Court admitted it did not know the exact reason for the notification, but considered it plausible that the government had sought to clarify whether forward contracts in cotton seed should still be prohibited.
In view of the provisions of section 5 of the Ordinance or the Act that had been discussed earlier, the Government decided to remove any doubt by issuing a notification that excluded cotton seeds entirely from the Schedule to the Oilseeds Forward Contracts Prohibition Order. The Court considered it unnecessary to examine the precise circumstances that led to the issuance of that notification. The Court observed that the Government’s belief that section 5 would keep the Oilseeds Forward Contracts Prohibition Order of 1943 in force was not relevant to the matter before it. On the basis of the reasons previously set out, the Court was of the firm opinion that section 5 could not have the effect of sustaining that earlier Order. Consequently, the submission made by Mr Aggarwala, contending that forward contracts in cotton seeds—the very subject of the present suit—were prohibited by law, was found to be without merit.
The discussion then turned to the question of whether the High Court had erred in allowing the plaintiff’s appeal that increased the decree amount by Rs 3,244 12/‑. The plaintiff had argued before the High Court that a clerical mistake existed in the preparation of the statement of accounts. Exhibit P‑8, an extract from the Saudabahi, displayed the purchase price and the sale price for the transactions dated 3 February 1947 as Rs 14 5/‑ and Rs 14 8/‑ respectively, whereas the correct figures, according to the Saudabahi, should have been Rs 13 5/‑ and Rs 13 8/‑. The Court noted that this discrepancy would not alter the mathematical outcome because the difference between the credit entry and the debit entry for those transactions would remain unchanged.
The Court examined the findings of the Trial Court. The Trial Court had accepted the sale price of Rs 14 5/‑ for the 3 February transaction as shown in Exhibit P‑8, but for the corresponding purchase price it rejected the Rs 14 8/‑ figure in the same exhibit and instead relied on the figures of Rs 19 8/‑ and Rs 13 10/‑ recorded in the plaintiff’s own account book. The Court considered it likely that the parties had agreed that the debits and credits in the running account should reflect the actual rates at which purchases and sales were executed, rather than the rates stated in the Saudabahi. This inference was supported by the account book, which recorded the genuine transaction rates: purchases at Rs 13 8/‑ and Rs 13 10/‑ per maund, and sales at Rs 13 5/‑ and Rs 13 7/‑ per maund. The Court found it difficult to understand why the Trial Judge, having applied the lower actual purchase rates for the debits against the defendant, would nevertheless accept the higher Saudabahi rate for the sale.
The Court concluded that if both the debits and the credits were to be based on the actual transaction rates, the direction of the Trial Court would have resulted in the defendant being credited with an excess amount of Rs 3,244 12/‑ over what should have been correct. This analysis led the Court to affirm that the High Court was justified in increasing the decree amount by that sum.
In this case the Court observed that the High Court had correctly increased the decretal amount by the sum of Rs 3,244/12/‑, because the lower court had applied the Saudabahi rate for the sale while using the actual purchase rate for the debit, thereby awarding the defendant an excess credit. The Court further explained that if the actual rates of purchase and sale relating to the transactions dated February 3, 1947 involving two thousand three hundred bags of cotton‑seeds were rejected and, instead, the Saudabahi rates shown in Exhibit P‑8 – namely Rs 14/5/‑ for the sale and Rs 14/8/‑ for the purchase – were adopted as the basis for calculating the credits and debits, as counsel for the defendant requested, the result would be that the defendant would obtain no benefit whatsoever. Consequently, the Court concluded that the High Court was justified in allowing the plaintiff’s appeal in part and in directing that the decretal amount be increased by Rs 3,244/12/‑. Accordingly, the appeal was dismissed and costs were awarded against the appellant, confirming the dismissal of the appeal.