M/S. Dhanrajamal Gobindram vs M/S. Shamji Kalidas And Co

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 73 of 1961

Decision Date: 27 February, 1964

Coram: M. Hidayatullah, J.C. Shah, M. Kapur, J.L. Shah

The matter was styled M/S. Dhanrajamal Gobindram versus M/S. Shamji Kalidas and Co. and was decided on the twenty‑seventh day of February, 1964 by the Supreme Court of India. The judgment was authored by Justice M. Hidayatullah, who sat on the bench together with Justices J. C. Shah and K. C. Kapoor. The report of the decision appears in the 1961 All India Reporter at page 1285 and in the 1961 Supreme Court Reports (Third Series) at reference 1020. Subsequent citations of the case are recorded in the legal citator under the entries E 1979 SC1457 (4) and F 1985 SC1156 (18). The principal statutory provisions that governed the dispute were Sections 20 and 46 of the Indian Arbitration Act of 1940, and Sections 5 and 21 of the Foreign Exchange Regulation Act of 1947. The contractual relationship was also subject to the Bye‑laws of the East India Cotton Association Limited, Bombay, particularly Bye‑law 48A.

The appellant, M/S. Dhanrajamal Gobindram, entered into a contract with the respondent, M/S. Shamji Kalidas and Co., for the purchase of African raw cotton. The agreement incorporated a clause stating that the contract would be subject to “the usual Force Majeure clause” as set out in the association’s Bye‑laws, except for Bye‑law 35, and that the Bye‑laws possessed statutory force and the jurisdiction of the Bombay High Court. Clause 6 required the buyers to obtain an import licence from the Government of India; if they failed to do so, the sellers were authorised either to transport the goods at the buyers’ expense or to demand immediate delivery on payment in British East Africa, and in default to sell the goods in British East Africa and recover any deficit between the contract price and the resale price. Clause 7 further obliged the buyers, notwithstanding the Indian government’s import policy, to secure the necessary licences and to communicate the licence numbers to the sellers on specified dates, with the operation of clause 6 if they failed to comply. The buyers ultimately did not fulfil their obligations under the contract. After giving notice, the sellers resold the cotton and then claimed the shortfall from the buyers, who refused to pay. The sellers invoked the arbitration clause in the agreement and the rules set out in Bye‑law 38A, which gave the Chairman of the Board of Directors of the East India Cotton Association the authority to select the arbitrator or arbitrators. The sellers applied to the High Court under Section 20 of the Indian Arbitration Act for filing the arbitration agreement and for referring the dispute to arbitration. The trial judge dismissed the application, but the Court of Appeal reversed that decision. On behalf of the buyers, the counsel argued that (1) clauses 6 and 7 involved the acquisition of property or exchange in Africa and therefore violated Section 5 of the Foreign Exchange Regulation Act because no general or special exemption had been granted by the Reserve Bank; (2) the phrase “subject to the usual Force Majeure clause” was vague and rendered the agreement void; (3) the application of Bye‑law 48A removed any power of the Court to act under sub‑sections (1) and (4) of Section 20 of the Arbitration Act, making that provision inapplicable; and (4) the law of British East Africa, rather than Indian law, should govern the dispute.

In the appeal the petitions were dismissed on the ground that the phrase “subject to the usual Force Majeure clause’’ was vague and uncertain and therefore rendered the agreement void, that the operation of bye‑law 48A and the following provisions left the Court without any power to act under sub‑section (1) of section 20 of the Arbitration Act and consequently that section was inapplicable, and that the law to be applied to the dispute was the law of British East Africa rather than the law of India. The Court held that each of these contentions must fail. It observed that the provisions of sub‑sections (2) and (3) of section 21 of the Foreign Exchange Regulation Act, when read properly, plainly covered matters prohibited by section 5 of that Act. These provisions effectively attached to the parties’ agreement a condition that the decree‑holder must obtain prior permission from the Reserve Bank before enforcing any decree or court order, a condition intended to prevent the parties from evading the prohibition by claiming illegality. The Court further noted that the contract did not create any actual or contingent right to acquire property abroad; even assuming such a right existed, it would be saved by section 21 of the Act subject to the conditions therein, and consequently the agreement remained enforceable. The Court rejected the argument that the contract was void for uncertainty, pointing to established judicial decisions that a reference to “force majeure’’ simply excused the performing party from consequences arising from events beyond his control. The condition relating to force majeure therefore did not render the contract vague. Moreover, the inclusion of the word “usual’’ indicated that the clause could be made certain by evidence, and it was consequently protected by section 29 of the Contract Act. The Court referred to Lebeaupin v. CriSpin, [1920] 2 K.B. 714, distinguished British Industries v. Patley Pressing, [1953] 1 All E.R. 94 and Scammell (G) and Nephew Ltd. v. Ouston (H.C. and J.G.) [1941] A.C. 251, and relied on Bishop & Baxter Ltd. v. Anglo‑Eastern Trading & Industrial Co. Ltd., [1944] I.K.B. 12, Shamrock S.S. Co. v. Storey (1899) 5 Corn. Cas. 21, Hillas & Co. v. Arcos Ltd., [1932] All E.R. 494 and Adamastos Shipping Co. Ltd. v. Anglo‑Saxon Petroleum Co. Ltd., [1959] A.C. 133. Although section 46 of the Arbitration Act provides that bye‑laws inconsistent with the Act must prevail, the Court held that this does not mean the application of the bye‑laws makes the Court functus officio under section 20 of the Act. It emphasized that, despite the matter being governed by statutory arbitration rules, section 20(4) of the Arbitration Act gave the Court two distinct powers: first, to determine judicially whether the arbitration agreement should be filed in court, and second, to decide whether reference should be made to the arbitrator or arbitrators appointed by the parties or selected by the Court. Since, in the present case, the parties had expressly empowered the Chairman of the Board of Directors of the East India Cotton Association Ltd. to select the arbitrator or arbitrators, the Court could accordingly forward the agreement to him for determination in accordance with the procedure laid down in the applicable bye‑laws.

The Court observed that the parties’ agreement gave the Chairman of the Board of Directors of the East India Cotton Association, Ltd. the authority to appoint the arbitrator or arbitrators. Consequently, the Court held that it could refer the agreement to the Chairman for resolution in accordance with the procedure prescribed by the Association’s Bye‑laws. The Court further explained that determining whether the law of the place where the contract was made or the law of the place of performance should govern is often a matter of presumption. However, the Court stressed that an explicit declaration of the parties’ intention supersedes any such presumption. In the absence of an explicit declaration, the Court said that the parties’ intention may be inferred from the contract’s terms, its nature, and the surrounding circumstances. Applying this principle to the present case, the Court noted that the parties had agreed that any dispute would be subject to the jurisdiction of the Bombay High Court and that the arbitration clause specified arbitration in India. Accordingly, the Court concluded that there was no doubt that Indian law was the applicable law. The Court referred to the authorities N. V. Kwik Who Tong v. James Finlay & Co. (1927) A.C. 604, Hamlyn & Co. v. Tallisker Distillery (1894) A.C. 202 and Spurrier v. La Cloche (1902) A.C. 446 (P.C.).

The matter before the Court was a civil appeal, numbered 73 of 1961, arising from the judgment and order dated 23 January 1961 of the Bombay High Court in appeal number 5 of 1960. The appellant’s counsel included the Solicitor‑General of India and several senior advocates, while the respondent’s counsel comprised a team of experienced advocates. On 27 February 1961, Justice Hidayatullah delivered the judgment. The appeal, which carried a certificate, was filed by Messrs. Dhanrajamal Gobindram challenging a decision of the Divisional Bench of the Bombay High Court that had held a petition filed under section 20 of the Indian Arbitration Act to be maintainable, thereby reversing an earlier decision of the learned judge on the original side. The respondents, Messrs. Shamji Kalidas & Co., a registered firm, had been the petitioners in the High Court. The Court set out the factual background, noting that on 24 October 1957 the buyers, referred to as Messrs. Dhanrajamal Gobindram, entered into an agreement with the sellers, Messrs. Shamji Kalidas & Co., for the purchase of five hundred bales of African raw cotton. The contract took the form of a letter written by the sellers and later confirmed by the buyers. The letter, bearing the reference number SK/Bom/13/2014 and stamped as an agreement, contained essential terms, including a description of the cotton as ARBP 52 F. A. Q. Crop/58, a price of rupees 1,401 per candy on a cost‑insurance‑freight basis to Bombay, payment against shipping documents in Bombay, packing specifications of approximately 420 pounds per bale, and a shipment schedule for February‑March 1958, together with a standard force majeure clause and other conditions.

In this case the agreement between the parties was expressly bound by the Bye‑laws of the East India Cotton Association, Limited, Bombay, except for Bye‑law 35 which dealt with arbitration on quality in the case of East African cotton. The parties stipulated that the shipment of the cotton would be subject to any cause beyond the seller’s or the seller’s shipper’s control and would also depend on the availability of freight. They further provided that the contract fell within the jurisdiction of the High Court of Bombay. The buyers were assigned the duty of obtaining an import licence and of communicating the licence number to the sellers immediately after it was obtained, but in any event no later than 20 February 1958. The agreement stated that if the buyers failed to obtain or communicate the licence for any reason, including a possible refusal by the Government of India to allow import of the contracted goods, the sellers could at their discretion either carry over the goods, in which case the buyers would be required to pay all carry‑over charges in addition to the contracted price, or demand that the buyers pay for the contracted goods and take immediate delivery in British East Africa. Should the buyers fail to comply with either of those options, the sellers were authorised to sell the goods at Kampala or Mombasa in convenient lots at the prevailing rates, with the risk and account falling on the buyers, and to claim from the buyers any deficit between the contract price and the resale price together with all incidental expenses. Moreover, the contract required the buyers, even if the Government of India announced an import policy whereby only consumers could obtain licences, to ensure that the necessary licences for the contracted goods were obtained either in the consumers’ name or jointly in the names of the buyers and the consumers, with the intention that the buyers bear the responsibility to secure licences under any policy adopted by the Government and to communicate the licence numbers to the sellers within the time specified. The agreement further provided that if the buyers failed to do so, all the eventualities contemplated under clause 6 would operate. By a letter dated 30 November 1957 the parties later amended the contract, confirming that, if necessary, they would carry over the contracted goods for the two months of March and April, that the buyers would pay the carry‑over charges, and that interest on those charges would be at the rate prevailing in Mombasa, while all other terms and conditions remained unchanged. The contract was not performed. The sellers subsequently sent as many as five letters between 1 March 1958 and 26 May 1958 before receiving a reply from the buyers.

In this case the sellers sent five letters between 1 March 1958 and 26 May 1958, but they did not obtain a response until the buyers replied on 3 June 1958. By the time the reply was received the sellers had already carried forward the contract and had exercised their right of resale after giving notice, claiming a sum of Rs 34,103.15. A debit note reflecting that amount had been issued by the sellers, but the buyers returned the note together with a letter dated 3 June 1958. In that letter the buyers asserted that the contract was void or illegal, that they were under no obligation to perform it, that no right of sale existed in their favour or on their behalf, and that any alleged sale was not binding upon them. The sellers then invoked the arbitration clause contained in the agreement and Bye‑law 38‑A of the Bye‑laws of the East India Cotton Association, Ltd., Bombay. They moved the Bombay High Court, on the original side, under section 20 of the Indian Arbitration Act, seeking an order that the agreement be filed in Court and that the dispute be referred to arbitration. The buyers appeared and contested the petition, relying on affidavits filed at various times. In the first affidavit, dated 31 July 1958, the buyers contended that clauses 6 and 7 of the contract were unlawful because the liability they created contravened the Government of India’s import policy and the Foreign Exchange Regulation Act, 1947, together with the rules made thereunder. They argued that, because the contract was invalid in its entirety, the arbitration clause was not binding and the agreement could not be filed. In a second affidavit filed on 4 February 1959, the buyers added that the phrase “subject to the usual Force Majeure Clause” was vague and uncertain, rendering the contract void ab initio due to the absence of a consensus ad idem between the parties. They further maintained that a void contract made the arbitration clause void as well. In a third affidavit dated 27 February 1959, the buyers asserted that the letter of 30 November 1957 was void because it violated the Import Trade Control Act and the Foreign Exchange Regulation Act, along with the rules made under those Acts, since the consideration involved was prohibited by law and likely to defeat legal provisions. They also argued that the words “if necessary” in that letter rendered the contract void ab initio for vagueness and uncertainty. The matter was heard by Justice K. T. Desai, who then presided over the case. On 3 March 1959 the learned judge dismissed the sellers’ petition as not maintainable, holding that the dispute centred on the legality or validity of the contract, including the arbitration agreement, and that such a dispute could be considered only under sections 32 and 33 of the Arbitration Act by the Court, not by an arbitrator in a reference made under section 20 of the Act. The judge therefore declined to address the question of validity, noting that the petition had not sought relief under the appropriate sections, and observed that had a proper petition been presented, the Court would decide the issue.

The learned Judges observed that the petition had not asked for relief under sections 32 and 33 of the Arbitration Act, and therefore they could not decide the issue on that basis; however, they noted that if a proper petition were filed raising that question, the Court would be bound to decide it. The order of the learned Judge (O S) was therefore appealed by the sellers. That appeal was heard by the Chief Justice Chainani and Justice S T Desai on 28 April 1959. The Judges held that the sellers had made a claim which the buyers had denied, creating a dispute that arose out of or in relation to a contract contemplated by Bye‑law 38‑A. In the buyers’ showing of cause against the petition under section 20, the buyers alleged that the contract was illegal and void, and the Judges concluded that such a question could be decided by the Court before any reference was made to an arbitrator.

The Judges further pointed out that a petition filed under sections 32 and 33 of the Indian Arbitration Act, questioning the existence or validity of an arbitration agreement, would not normally be expected from a party making a claim under a contract; rather, such a plea would usually be raised by a party resisting the petition. When such a plea is raised, the Court must decide it even though the proceedings are issued under section 20 of the Act for making a reference. Consequently, the case was remanded with the following direction: “As the respondents have challenged the validity of this agreement, the Court will have to decide this question before passing further orders in the matter. Accordingly we set aside the order passed by Mr Justice K T Desai, dismissing the petition filed by the petitioners, and remand the matter to the trial court for deciding the objections raised by the respondent under sub‑section (3) of section 20 of the Act, to the arbitration agreement being filed in Court, and then disposing of the matter in accordance with law.”

When the matter returned for retrial, the buyers filed a fourth affidavit on 16 November 1959. In that affidavit they stated that Bye‑law 38‑A was a statutory Bye‑law of the East India Cotton Association, Ltd., Bombay, a recognised institution under the Forward Contracts Regulation Act, No 74 of 1952, and that section 46 of the Arbitration Act was applicable. They contended that the Association’s Bye‑laws prescribed a different procedural machinery that was inconsistent with and repugnant to section 20 of the Arbitration Act, rendering that section inapplicable and making the petition incompetent. By orders dated 26 and 27 November 1959, Justice K T Desai held that the petition did not disclose sufficient material and that the sellers were not entitled to have the agreement of reference filed or to obtain an order of reference. While acknowledging that the Bye‑laws of the East India Cotton Association were statutory and that sections 46 and 47 of the Arbitration Act applied, he was of the opinion that section 20 could not be invoked because no action under sub‑section (4) of that provision was taken.

In the earlier proceedings, the learned judge explained that section 20 of the Arbitration Act could not be applied because its sub‑section required the court to appoint an arbitrator when the parties failed to reach an agreement, and the machinery prescribed by Bye‑law 38‑A gave the court no authority to act in that manner. The judge further observed that the petition did not contain any allegation that the parties were unable to agree, and therefore the conditions for invoking section 20 were not satisfied. On the remaining issues raised by the buyers in their affidavits, the judge decided against them. He held that, in light of sections 21(2) and 21(3) of the Foreign Exchange Regulation Act, the agreement entered into did not breach that Act, although he expressed a reservation as to whether the expression “legal proceedings” in section 21(3) was broad enough to include arbitration. The judge also concluded that clause 7 of the contractual conditions was not, at least in part and under certain circumstances, a violation of the Import and Export Control Act, 1947, or of the Import Trade Control Order issued under sections 3 and 4‑A of that Act, and consequently the clause could not be declared wholly void. Finally, he ruled that the contract was not void for vagueness or uncertainty on the basis of the reference to “the usual Force Majeure Clause” or because of the words “if necessary” appearing in the letter dated November 30, 1957.

The sellers subsequently appealed the dismissal of the petition, and the buyers filed a cross‑objection to challenge the adverse findings and the refusal to award costs. The appeal was heard before the judges Tarkunde and Chitale, who each delivered separate but concurring judgments. Both judges allowed the sellers’ appeal, dismissed the buyers’ cross‑objection, and ordered the buyers to pay the costs of the proceedings throughout. In doing so, the appellate court affirmed the lower court’s determinations that had been made against the buyers on the various issues previously discussed.

The Divisional Bench, while agreeing with Justice K. T. Desai on all points that had been decided against the buyers, retained the question of whether the phrase “legal proceedings” in section 21(3) of the Foreign Exchange Regulation Act was sufficiently wide to encompass arbitration for the purpose of deciding the appointment of arbitrators. On the matter of section 20, the bench held that the petition was maintainable. The bench expressed the view that the court possessed the authority to order that the arbitration agreement be filed and also to refer the dispute to arbitrators to be appointed in accordance with Bye‑law 38‑A. Even if the latter step could not be taken, the bench believed that at least the former step—ordering the filing of the agreement—could be effected, because the procedural deficiency could not nullify the substantive power conferred to file the agreement.

In the present appeal, all the arguments that had failed before the High Court were again put forward. The parties contended that the contract was void on two grounds: first, because it was illegal, and second, because it was uncertain and vague. They further argued that the petition filed under section 20 of the Indian Arbitration Act was incompetent because that section was inapplicable, and they asserted that the law governing the parties was not Indian law but the law of British East Africa. The court proceeded to examine these contentions in detail.

In this part of the judgment the Court examined the first contention raised by the petitioners, namely that clause seven of the agreement violated the Foreign Exchange Regulation Act. The petitioners relied upon section 5 of that Act, which provides that, save for any general or special exemption that may be granted conditionally or unconditionally by the Reserve Bank, no person who is in or resident in British India shall make any payment to or for the credit of any other person as consideration for or in connection with (i) the receipt by any person of a payment or the acquisition by any person of property outside India, or (ii) the creation or transfer in favour of any person of a right, whether actual or contingent, to receive a payment or acquire property outside India. The petitioners argued that the contract contemplated three types of transactions: (a) payment for goods located in Africa against shipping documents, (b) payment in Africa of charges for carrying over, and (c) in the event of resale, payment of any deficit also in Africa. They further submitted that clauses six and seven of the agreement contemplated the acquisition of property in Africa, and that such acquisition would also involve the acquisition of foreign exchange when the goods were resold in Africa and the buyers received credit for the price. Accordingly, the petitioners claimed that these arrangements amounted to a breach of section 5 unless a general or special exemption had been granted by the Reserve Bank in connection with the contract, and they asserted that no such exemption existed at the time the contract was executed. In response, the Court turned to section 21 of the Foreign Exchange Regulation Act, which declares that no person shall enter into any contract or agreement which directly or indirectly evades or avoids any provision of the Act or any rule, direction or order made thereunder. Section 21 further provides that a provision of the Act requiring permission of the Central Government or the Reserve Bank does not render an agreement invalid if the agreement itself stipulates that the act may be performed only after such permission is obtained, and that it is an implied term of every contract governed by the law of any part of British India that any prohibited act may be carried out only with the requisite permission. The Court observed that the third sub‑section of section 21 states that neither the provisions of the Act nor any term, whether expressed or implied, contained in any contract that anything for which the permission of the Central Government or the Reserve Bank is required shall be done without that permission, can be undertaken unless the permission is granted. Consequently, the Court indicated that the validity of the contractual obligations hinges on the existence of a permissible exemption, and that without such an exemption the alleged breach would stand.

In this case, the Court explained that the statutory provisions require that any act which, under the law, needs the permission of the Central Government or the Reserve Bank cannot be performed without such permission. Those provisions also prevent the institution of legal proceedings in British India to recover any sum that, aside from the statutory restriction, would otherwise be due as a debt, damages or any other form of liability. The Court further observed that the provisions apply equally to sums that must be paid under any judgment or order of a Court, just as they apply to other sums. Accordingly, the Court held that no steps may be taken to enforce a judgment or order for the payment of any amount covered by the provisions except to the extent that the Central Government or the Reserve Bank, as the case may be, permits that portion to be paid. For the purpose of deciding whether to grant such permission, the relevant authority may require the person entitled to the benefit of the judgment or order and the debtor under that judgment or order to produce specified documents and to furnish any information that the authority may prescribe.

The Court then noted that subsection (1) expressly prohibits contracts that contravene or evade the Foreign Exchange Regulation Act, whether directly or indirectly, and that this alone would support the argument raised. However, subsection (2) provides that the condition that an act may not be done without the permission of the Reserve Bank does not render an agreement invalid, provided the agreement itself contains a term stating that the act will only be performed if permission is obtained from the Central Government or the Reserve Bank. Moreover, subsection (2) creates an implied term in every contract governed by the law of any part of India that any performance which requires Reserve Bank permission cannot occur unless such permission is granted. Subsection (3) permits legal proceedings to be brought to recover a sum due as a debt, damages or otherwise, but bars any enforcement of the judgment except to the extent permitted by the Reserve Bank. The effect of these provisions, the Court observed, is to prevent the claim that the Foreign Exchange Regulation Act furnishes a shield of illegality to avoid performance of contracts. An implied term is thus incorporated into contracts by the latter part of subsection (2), and subsection (3) shifts the duty of obtaining Reserve Bank permission before enforcing a court decree to the holder of the decree. The Court found the section to be clear, although it might have been expressed more precisely, as a model existed in England. It was also noted that section 21 uses the word “permission” while section 5 uses the word “exemption”, and that sections 21(2) and 21(3) do

The Court observed that the Foreign Exchange Regulation Act employs a variety of terms such as “authorise”, “exempt” and “permission” in different provisions. It explained that the term “exempt” indicates that a person is placed beyond the operation of the law, whereas “permission” signifies that a person is granted leave to act in a particular manner. The Court noted, however, that the expression “permission” in this statute carries a broad import; it merely confers leave to do an act that would otherwise be illegal. In that sense, exemption can be considered one form of granting such leave. The Court cautioned that if one were to look solely at the word “permission” and search only for sections where the word appears expressly, sections 21(2) and 21(3) might appear to be dead letters. The Court held that such a conclusion could not have been intended, because the detailed provisions contained in those subsections demonstrate that the legislature contemplated matters that fall within the prohibition contained in section 5. Accordingly, the Court found the argument that the provisions of section 5 were not covered by the language of “permission” to be without foundation. The Court further rejected the contention that, on resale, the price would initially accrue to the buyers because the sellers would be acting as agents of the buyers. It cited the observation of Justice K. T. Desai that the right of resale granted by sections 54(2) and 54(4) of the Indian Sale of Goods Act is exercised by the seller for his own benefit and not as an agent of the buyer when the buyer receives a notice of sale. The Court explained that this principle is evident from the fact that, in such a circumstance, the buyer is not entitled to the profit arising from the resale, although the buyer may be liable for damages. The Court distinguished the situation where no notice is given, stating that in that case the profit would go to the buyer and it might be possible to characterize the seller as an agent. However, in cases where resale occurs with prior notice, there is no payment to the buyer and consequently no breach of the Foreign Exchange Regulation Act. The Court also ruled that the claim that the contract created an actual or at least a contingent right to acquire property abroad was incorrect. Even assuming such a right existed, the Court held that the contract would be saved by section 21, as previously explained, and therefore the contract was not void on grounds of illegality. Finally, the Court addressed the argument that the agreement was void due to vagueness and uncertainty arising from the phrase “subject to the usual force majeure clause”. It observed that the parties had not reached a consensus ad idem regarding which specific force‑majeure clause was intended. The Court recounted that counsel had referred to the Encyclopaedia of Forms and Precedents and displayed various force‑majeure clauses that differed from one another, and also cited several judicial decisions in which the term “force majeure” had been interpreted, demonstrating that there is no single, consistent, or definite meaning attached to the expression.

The respondents asserted that the parties did not achieve a meeting of minds and therefore the contract must be held void for vagueness or uncertainty. In contrast, the appellants contended that the disputed phrase could be treated as surplusage, and if it were meaningless it could simply be ignored. The respondents further argued that the insertion of the word “usual” indicated that a specific force‑majeure clause, commonly used in such agreements, was intended to form part of the contract. They relied upon section 29 of the Indian Contract Act, which declares that “Agreements, the meaning of which is not certain, or capable of being made certain, are void,” and emphasized the words “capable of being made certain.” On that basis they claimed that the clause could be made certain by evidence, and therefore the agreement was not void on its face. The Court referred to the observations of McCardie J in Lebeaupin v. Crispin, where the historical meaning of “force majeure” was explained. McCardie J noted that the term is not merely a French translation of the Latin “vis major”; rather, it carries a broader significance. He observed that courts have historically struggled to define the scope of “force majeure,” but that judges have accepted that events such as strikes or machinery breakdowns—though not traditionally covered by “vis major”—are included within “force majeure.” An examination of case law, though not exhaustively required here, shows that the purpose of a force‑majeure clause is to shield the performing party from consequences of events beyond his control. This represents the broadest interpretation of the term, and even assuming this broad meaning, the condition concerning “force majeure” in the present agreement was not vague. The presence of the qualifier “usual” altered the analysis, because it permits the parties to produce evidence of a particular clause that was contemplated at the time of contracting, thereby rendering the condition certain. Counsel for the appellants relied heavily on the decision of McNair J in British Industries v. Patley Pressings, where the phrase “subject to force majeure conditions” was examined. McNair J held that “conditions” referred to specific clauses rather than to vague contingencies or circumstances, and observed that the existence of many different force‑majeure clauses in trade did not prevent a concluded agreement when the parties had a particular clause in mind. The Court distinguished that case, noting that in British Industries the reference to force‑majeure clauses was left indefinite, whereas here the addition of the word “usual” signals that a definite clause was contemplated by the parties. Counsel also cited the House of Lords decision in Scammell (G.) and Nephew Ltd. v. Ouston, in which a reference to “on hire‑purchase terms” was held to be too indefinite to constitute a concluded contract. The Court observed that, unlike the situation in Scammell, the word “usual” in the present agreement enables the introduction of evidence to identify the exact clause intended, thereby avoiding the uncertainty that rendered the hire‑purchase reference vague. Consequently, the Court found that the cited precedent did not apply to the present facts.

The Court noted that in the House of Lords decision the clause had been described as vague because no precise meaning could be attached to it, the reason being the existence of many different hire‑purchase clauses. The Court then explained that the inclusion of the word “usual” in the present clause permitted the parties to introduce evidence to identify exactly which clause was intended, thereby removing the uncertainty that had troubled the House of Lords. Consequently, the earlier House of Lords case was held not to be applicable to the present dispute. The Court further observed that the two cases previously mentioned were decided after the parties had already adduced evidence, a circumstance that does not obtain here. Accordingly, the Court found the present matter to be more closely aligned with the decision cited in Bishop & Baxter Ltd. v. Anglo‑Eastern Trading & Industrial Co. Ltd., namely the case of Shamrock S.S. Co. v. Storey. In that case, Lord Goddard remarked that abbreviated references in a commercial instrument, although brief, are often self‑explanatory or can be given a definite application when viewed in the surrounding circumstances, especially where the reference is to a term, clause or document of well‑known import such as “c.i.f.” or where the addition of the epithet “usual” indicates a term that commonly prevails in a particular place of performance. Lord Goddard specifically cited Shamrock S.S. Co. v. Storey, where the phrase “usual colliery guarantee” in a charter‑party was employed to define loading obligations. The Court emphasized that the word “usual” points to a term that is invariably found in contracts of that type. It recognized that commercial documents sometimes contain language that does not on its face convey a clear meaning, and that it is the duty of the courts to endeavour to give such language meaning wherever possible. This principle had been articulated by the House of Lords in the 1941 decision [1941] A.C. 251 and subsequently endorsed in Hillas & Co. v. Arcos Ltd., [1944] 1 K.B. 12, as well as in the observations of Lord Wright, which have been repeatedly quoted by the Judicial Committee and the House of Lords. The most recent authority, Adamastos Shipping Co. Ltd. v. Anglo‑Saxon Petroleum Co. Ltd., [1959] A.C. 133, dealt with a clause that read “This bill of lading” while actually referring to a charter‑party. Viscount Simonds summarised the rules for construing commercial documents, directing that parties should always be given a broad construction and that courts must not be overly eager to deem a clause defective or meaningless. Applying these principles to the present case and in view of section 29 of the Indian Contract Act, the Court concluded that the contested clause could be made certain and definite by evidence showing that, between the parties or in the trade generally, a force‑majeure clause of a particular kind was invariably included in contracts of this nature. In the Court’s opinion, the contract was therefore not void for vagueness or uncertainty merely because it referred to a “force‑majeure” clause.

Mr. Daphtary asked which party bore the burden of proving the existence of the usual force‑majeure clause. The Court observed that, provided the agreement was not void for uncertainty, the question of who must prove the clause was a matter that would be decided by the arbitrators appointed under the contract. At that stage, the Court considered it premature to determine what sort of evidence would be required or which party would have to present it in order to establish the force‑majeure provision.

The next ground advanced by the respondents was that the agreement was void for uncertainty because of the inclusion of the words “if necessary” in a letter dated 30 November 1957. The Court explained that the effect of that letter was to amend clause 6 of the agreement, which had already been quoted. Under the original clause, the buyers were required to obtain an import licence and to communicate the licence number to the sellers no later than 20 February 1958. If the buyers failed to do so for any reason, the sellers were, at their discretion, either to carry the goods over to a later period or to demand payment for the contracted goods and to require delivery in British East Africa. By the letter, the sellers confirmed that, “if necessary,” they would carry the contracted goods over for the two months of March and April, subject to the payment of charges.

The respondents contended that the phrase “if necessary” was vague because it did not specify for whom, when, or why the condition would arise. The Court rejected that argument, holding that it had no merit. Clause 6 gave the sellers an absolute discretion to either carry the goods over or to insist on delivery. The letter merely qualified that discretion by stating that the sellers would exercise it “if necessary,” meaning that if the buyers were unable to furnish the import‑licence number, the contract would be carried over to March and April. By making this qualification, the sellers surrendered, to a certain extent, their unfettered discretion. The Court further noted that the amendment did not extend the contract automatically to March and April; rather, the sellers would extend it to that period only if circumstances required it. Because both parties agreed to the letter and the buyers affirmed it, the Court concluded that there was a meeting of minds and that the agreement could not be declared void for uncertainty.

The Court then turned to the argument that section 20 of the Arbitration Act could not be applied to the present dispute. It recalled that the agreement incorporated the Bye‑laws of the East India Cotton Association Ltd., Bombay, with the exception of Bye‑law 35, which dealt with arbitration concerning quality in East African cotton. Bye‑law 1(B) related specifically to East African cotton and provided that Bye‑laws 1 to 46, inclusive of certain exceptions, would apply to contracts concerning East African cotton. The Court noted that the Bye‑laws were statutory and that, although the buyers were members of the Association and the sellers were not, the arbitration Bye‑laws covered arbitrations between a member and a non‑member. The Court identified the specific provision at issue as Bye‑law 38‑A. The opening portion of Bye‑law 38‑A stated that all unpaid claims, whether admitted or not, and all disputes (other than those relating to quality) arising out of or in relation to contracts—whether forward or ready, and whether between members or between a member and a non‑member—made subject to these Bye‑laws would be referred to the arbitration of two disinterested persons, one chosen by each party. The arbitrators were empowered to appoint an umpire and were required to do so if they disagreed on the award. The Court observed that the Bye‑law also prescribed that the arbitrators must render their award within fifteen days unless the Chairman extended the time.

It was admitted before the High Court and again before this Court that the Bye‑laws of the East India Cotton Association Ltd., Bombay are statutes. The buyers were members of the Association, whereas the sellers were not members; nevertheless the arbitration Bye‑laws applicable to this dispute encompass arbitrations that may arise between a member and a non‑member. The provision that is directly relevant is Bye‑law 38‑A. The opening part of Bye‑law 38‑A states that every unpaid claim, whether admitted or not, and every dispute – except those relating to quality – that arises out of or in connection with contracts, whether forward or ready, and whether the contract is between members, or between a member and a non‑member, and which is made subject to these Bye‑laws, shall be referred to an arbitration tribunal consisting of two disinterested persons, one chosen by each party. The two arbitrators are empowered to appoint an umpire and must do so whenever they differ as to the award they propose to make. The Bye‑law further provides that the arbitrators are required to render their award within fifteen days, unless the Chairman of the Association extends that period. The umpire must be appointed within fifteen days, or within any extended period fixed by the Chairman, and the umpire must deliver his award within ten days, unless the Chairman further extends that time. In the event that a party fails to appoint an arbitrator, or the parties cannot agree on an arbitrator, the Chairman may step in and appoint an arbitrator, and similarly the Chairman may appoint, or even act as, the umpire. The Chairman, who is the Chairman of the Board of Directors of the East India Cotton Association Ltd., is vested with additional powers under the Bye‑laws.

The parties argued that arbitrations governed by the Arbitration Act, like those under Schedule 11 of the Code of Civil Procedure, fall into three categories as described by Lord Macnaghten in Ghulam Jilani v. Muhammad Hassan (1) (1901) L.R. 29 I.A. 51, 56, 57. They contended that the present dispute belongs to the second category, in which “all further proceedings are under the supervision of the Court.” Accordingly, they submitted that by applying the Bye‑laws, the Court is deprived of any power under Section 20 of the Arbitration Act, which the petitioners sought to invoke, and therefore Section 20 cannot be made applicable. For reference, Section 20 of the Arbitration Act, insofar as it is material to this point, provides: “20. Application to file in Court arbitration agreement. – (1) Where any persons have entered into an arbitration agreement before the institution of any suit with respect to the subject‑matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies, they or any of them, instead of proceeding under Chapter II, may apply to a Court having jurisdiction in the matter to which the agreement relates, that the agreement be filed in Court. (3) On such application being made, the Court shall direct notice thereof to be given to all parties to the agreement other than the applicants, requiring them to show cause within the time specified in the notice why the agreement should not be filed.” The sellers rely upon clause (5) of Section 20, which requires the application of the provisions of the Arbitration Act to the extent that they can be made applicable, and they contrast the powers granted to the Court under Chapter II and the Schedule of the Act with the provisions of the Bye‑laws to demonstrate that, if the Bye‑laws prevail, no residual power remains for the Court after the agreement is filed.

The Court observed that subsection (4) required the Court, upon receiving an application to file an arbitration agreement, to issue a notice directing all parties, except the applicants, to show cause within the time specified in the notice as to why the agreement should not be filed. The Court further noted that, where no sufficient cause was shown, the Court was obliged under subsection (5) to order the agreement to be filed and to make an order referring the matter to the arbitrator appointed by the parties, whether named in the agreement or appointed otherwise, or, if the parties could not agree upon an arbitrator, to an arbitrator appointed by the Court. The Court explained that, after such an order, the arbitration was to proceed in accordance with the remaining provisions of the Arbitration Act to the extent that those provisions could be applied.

The sellers relied upon clause (5), which enjoined the application of the provisions of the Arbitration Act insofar as they could be made applicable. The Court examined the provisions of Chapter II and the Schedule of the Act that set out the powers of the Court, and contrasted them with the Bye‑laws, arguing that if the Bye‑laws prevailed, no residual power remained for the Court after filing the agreement, and that the Court would then have to relinquish its role in favour of the Chairman and the Act, effectively ceasing to apply. The Court also referred to section 47, which states that, subject to section 46 and except as otherwise provided by any law then in force, the provisions of the Act shall apply to all arbitrations and to all proceedings thereunder. The introductory words of section 47 led to section 46, which provides that the provisions of the Act, except for specific subsections, shall apply to every arbitration under any other enactment as if the arbitration were pursuant to an arbitration agreement, unless the Act is inconsistent with that other enactment or its rules. Section 46 thereby makes any other enactment or its rules prevail over the Arbitration Act when there is inconsistency. In light of these provisions, the Court concluded that the Arbitration Act applied to all arbitrations, and Chapter III extended its applicability also to arbitrations where the agreement was sought to be filed under section 20, subject to the condition that any other enactment or its rules, if inconsistent, would take precedence. Counsel for the buyers argued that nothing of the Act was saved, but the Court rejected this view, stating that questions concerning the existence or validity of the agreement were saved from determination by arbitrators or umpires, however appointed, and that such a plea could be raised only in the context of an application by persons seeking a reference to arbitration.

The Court observed that a part of the Arbitration Act continues to apply and that the remaining power can be exercised only by the Court. It further noted that other provisions of Chapter Two, such as sections fifteen and sixteen, also remain in force. The Court said it was unnecessary to list every provision that might be saved because such a list would require a side‑by‑side comparison of the Act and the Bye‑laws. The Court further emphasized that the purpose of preserving certain provisions was to ensure that the arbitration process could continue in accordance with the governing Bye‑laws. As long as any provision is saved, the Court explained that it could not be said to have become completely functus officio after receiving and ordering the agreement to be filed. The main argument presented by the other side was that the provisions of sub‑section (4) of section twenty read with sub‑section (1) could not apply, and therefore the Court would have nothing further to do after filing the agreement. The Court rejected that view, stating that it overlooked the fact that the arbitration in question was a statutory arbitration governed by its own rules. It further explained that the powers and duties of the Court under sub‑section (4) of section twenty are of two distinct kinds.

The first kind is a judicial function that requires the Court to decide whether the arbitration agreement should be filed in Court, which may involve hearing objections to its existence or validity. Once the Court has decided that the agreement must be filed, that portion of its power is complete, and an appeal under section thirty‑nine is available only against that decision. The next step is a ministerial act of referring the matter to the arbitrator or arbitrators chosen by the parties, which the Court may also perform. If the parties have already appointed an arbitrator, the Court merely facilitates that appointment, and no further judicial intervention is required. Where the parties cannot agree, the Court may be called upon to decide who should act as arbitrator, a function that could be characterized as judicial, procedural, or ministerial, though the precise label is not essential. In the present case, the parties’ agreement gave the Chairman of the Board of Directors of the East India Cotton Association, Ltd. the authority to select the arbitrator or arbitrators, including the umpire. Accordingly, the Court could fulfil its ministerial duty by transmitting the filed agreement to the Chairman for his action. Once the Chairman receives the agreement, the Bye‑laws prescribe the procedure that the Chairman and the appointed arbitrator(s) must follow, and those Bye‑law provisions prevail if they conflict with the Arbitration Act. The Court concluded that nothing in the statute prevented it from acting under subsection (4) of section twenty, and that the argument that the dispute concerned only the existence of the agreement and therefore fell outside a cotton transaction was untenable.

In referring to certain observations in Heyman v. Darwins Ltd. (1) [1942] A.C. 356, the Court noted that the wording of the Bye‑law stating “arising out of or in relation to contracts” is sufficiently broad to include matters that may legitimately arise under section 20. The Court addressed the argument that when a party challenges the very existence of a contract, no dispute can be said to arise out of that contract. It held that this contention is incorrect, and even assuming it were correct, the additional phrase “in relation to” is wide enough to encompass such a case as well. Consequently, the Court concluded that the argument must fail. The Court then considered the final contention that the law applicable to the dispute should be the lex loci solutionis, that is, the law of British East Africa. A passage from Pollock and Mulla’s Contract Act, Eighth Edition, page 11, was cited, which observes that in ordinary circumstances the proper law of a contract, using Mr. Dicey’s expression, will be the law of the country where the contract is made, but where a contract is made in one country and to be performed wholly or partly in another, the proper law may be presumed to be the law of the country where performance is to occur, as illustrated in Auckland Corporation v. Alliance Assurance Co. The learned authors further explained on the same page that such rules are merely presumptions and are subject to the parties’ intention, whether expressly declared or inferred from the contract’s terms, nature, and the surrounding circumstances. The Court also relied on Chitty’s Law of Contract and Rule 148, sub‑paragraph (3), Second Presumption, in Dicey’s Conflict of Laws, Seventh Edition, page 738, which underlies the statement in Pollock and Mulla. The Court observed that determining whether the proper law is the lex loci contractus or the lex loci solutionis involves presumptions, but established rules exist for deciding which applies. When parties have expressly expressed an intention, that intention supersedes any presumption; where no explicit intention is found, the rule is to infer the intention from the contract’s terms, nature, and the overall circumstances. In the present case, the Court identified two decisive circumstances. First, the parties had agreed that any dispute would be under the jurisdiction of the Bombay High Court, and an old legal proverb—“Qui elicit judicem eligit jus”—supports the view that when courts of a particular country are chosen, it is presumed, absent contrary evidence, that the chosen courts will apply their own law. This principle is reflected in N. V. Kwick Who Tang v. James Finlay & Co. (1). Second, the arbitration clause indicated that arbitration would be conducted in India. The Court noted that arbitration clauses in agreements have often been interpreted to imply that the parties adopt the law of the country where the arbitration is to be held.

The Court observed that the language of the arbitration clause leads to the inference that the parties intended to adopt the law of the country in which the arbitration is to be conducted. The Court referred to the authorities Hamlyn & Co. v. Tallisker Distillery (2) and Spurrier v. La Cloche (3) to support this proposition. It further noted that, as expressed in the latter authority, such an inference may be drawn even where the arbitration clause is held to be void under the law of the country in which the contract was made and is to be performed. In the present matter, the Court held that the surrounding circumstances clearly demonstrate that the appropriate law to govern the dispute is Indian law. Accordingly, the Court concluded that the appeal could not succeed. The appeal was therefore dismissed and the appellant was ordered to pay costs. The order of dismissal was affirmed. (1) [1927] A.C. 604. (2) [1894] A.C. 204. (3) [1902] A.C. 446 (P.C.).