I96I

February a7.

1020 SUPREME COURT REPORTS [1961]

M/S. DHANRAJAMAL GOBINDRAM

v.

M/S. SHAMJI KALIDAS AND CO.

(J. L. KAPUR, M. HIDAYATULLAH and J.C. SHAH, JJ.)

Arbitration-Contract for purchase of African cotton-Provision

for arbitration under statutory

bye-laws on failure-Application

in court for filing of arbitration agreement-Power of

Court-Vali­

dity of contract-Indian Arbitration Act, r940 (Io of r940), ss. zo,

46-Foreign Exchange Regulation Act, r947 (7 of r947), ss. 5, ZI­

Bye-laws of East India Cotton Association Ltd., Bomba)--Bye­

law 48A.

The appellant entered into an agreement with the respond­

ent to purchase African raw cotton. The agreement. included a

clause

that the contract would be subject to the

"1Jsual Force

Majeure clause", the Bye-laws of East India Cotton Association

Ltd., Bombay, except bye-law 35, the said Bye-laws having

statutory force, and to the jurisdiction of the Bombay High

Court. Clause 6 of the agreement provided that the buyers were

to. obtain import licence from the Government of India, failing

which

the seller would be entitled

eithar to carry over the goods at

the cost of the buyers or call upon them to take immediate deli­

very on payment in British East Africa, and in default to sell the

goods in British East Africa and claim the deficit, if any between

the contractual price and the price obtained on re-sale. Clause 7

further provided that notwithstanding the import policy followed

by the Government of India in respect of the import of the con­

tracted goods, the buyers would be bound to obtain the necessary

import licences and communicate the numbers thereof to the

sellers on specified dates, failing which cl. 6 would operate. The

buyers did not perform the contract and the sellers after notice

to them re-sold the goods and thereafter claimed the deficit which

the buyers refused to pay. The sellers invoked the atbitration

clause and the rules contained in bye-law 38A of the Bye-laws

and others following it, which conferred on the Chairman of the

Board of Directors of the East India Cotton Association Ltd., the

power of selecting the arbitrator or arbitrators, and applied to

the High Court under s. 20 of the Indian Arbitration Act for

filing

the agreement and referring the dispute to arbitration. The

buyers resisted and the trial Judge dismissed the application, but

the

Court of appeal reversed that decision. It was urged in this

Court on behalf of the buyers that (r) ·els. 6 and 7 contemplated

acquisition of

property or Exchange in Africa and thus involved

a breach of

s. 5 of the Foreign Exchange Regulation Act, since no

general or special exemption had been granted thereunder by

the

Reserve Bank, (2) that the expression

"subject to the usual

Force M ajet.tre clause" was vague and uncertain and rendered the

agreement void,

(3) that the application of bye-law 48A et seq

left no powers in the

Court to act under sub-ss. (r) and (4) of s. 20

•

•

•

3 S.C.R. SUPREME COURT REPORTS 1021

x96r of the Arbitration Act and the section was thus inapplicable and

(4) that the Jaw applicable to the case was the law of British East

Africa and not that of India. M/s. Dhanrajamal

Held, that the contentions must fail.

The provisions

of sub-ss. (2)

and (3) of s. 21 of the Foreign

Exchange Regulation Act, properly construerl, left no manner of

doubt that they contemplated matters which were within the

prohibition

of s. 5 of the Act and had the effect of engrafting on

the agreement of

p11rties a term that it would be for the decree­

holder before he could enforce the decree or order of the court to

obtain the permission of the Reserve Bank and were

thus

designed to prevent the non-performance of the contract under a

cover of illegality.

The contract involved no actual or contingent right to

acquisition

of property abroad, and even assuming it did, it was

saved by

s. 21 of the Act subject to its conditions. The

agree­

ment was thus enforceable.

Nor was the contract void for uncertainty.

It was clear from

judicial decisions

that a reference to

"force majeure" means the

saving

of the performing party from the consequence of factors

beyond his control. The condition in respect of

"force majeure"

did not, therefore, make the contract vague. Further, the use of

the word " usual '·' made it clear that the clause could be made

certain by evidence and so it was protected by s. 29 of the

Contract Act.

Lebeaupin v. Crispin, [1920] 2 K.B. 714, referred to.

British Industries v. Patley Pressing, [1953] l All E.R. 94 and

Scammell (G) and Nephew Ltd. v. Ouston (H. C. and]. G.) [1941]

A.C. 251, distinguished.

Bishop 6-Baxter Ld. v. Anglo-Eastern Trading & Industrial

Co. Ld., [1944] l K.B. 12, Shamrock S.S. Co. v. Storey, (1899) 5

Com. Cas. 21, Hi/las & Co. v. Arcos Ltd., [1932] All E.R. 494 and

Adamastos Shipping Co. Ltd. v. Anglo-Saxon Petroleum Co. Ltd.,

[1959] A.C. 133, relied on.

Although by

s. 46 of the Arbitration Act, the Bye-laws, if

inconsistent with the provisions of the Act, must prevail, it was

not correct to say

that their application made the

Court functus

officio

under s.

20 of the Act. It must not be overlooked that

although the present was a case of statutory arbitration governed

by its own rules, the

court under s.

20(4) of the Arbitration Act

had two distinct powers,

(1) of judicially considering whether or

not the arbitration agreement should be filed in court and

(2) whether there should be a reference to the arbitrator or

arbitrators appointed by the parties or selected by it. Since in

the instant case the parties had by their agreement empowered

the

Chairman of the Board of Directors of the East India Cotton

Association, Ltd., to select the arbitrator or arbitrators, the court

could send the agreement to him to be dealt with under the pro­

cedure laid by the said Bye-laws.

Gobindram

v;

M/s. Shamji

KaHdas & Co.

1022 SUPREME COURT REPORTS [1961]

z96z Whether the law of the country where the contract is made

or

of the country where it is to be performed should apply is

M /s. Dhanrajamal sometimes a matter of presumption. But the declared intention

Gobindram of the parties overrides such presumption. Where there is no

v. such declaration, the intention may be inferred from the terms

M/s. Shamji and nature of the contract and the general circumstances of the

Kalidas

& Co. case.

In the instant case, since the parties agreed that in case of

dispute the Bombay High Court would have jurisdiction and the 1

arbitration clause indicated arbitration in India, there could be

no doubt

that the Indian law was to apply.

N. V.

Kwick 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.), referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No.

73 of 1961.

Appeal from

the judgment and order dated

Janu­

ary 23, 1961, of the Bombay High Court, in Appeal

No. 5

of 1960.

C. K. Daphtary, Solicitor-General of India, Purshottam

Tricumdas,

F.

S. Nariman, Buresh D. Parekh and

I. N. Shroff, for the appellants.

M. K. Nambiar, K. S. Cooper, Anil Dewan, Ramesh

A. Shroff, S. N. Andley, J.B. Dadachanji, Rameshwar •

Nath and P. L. Vohra, for the respondents.

1961.

February 27. The Judgment of the

Court

was delivered by

Hidayatu/lah ]. HIDAYATULLAH, J.-This is an appeal (with certi-

ficate) by Messrs.

Dhanrajamal Gobindram against

a

judgment of the Divisional Bench of the High Court

of Bombay, by which a petition under s. 20 of the

Indian Arbitration Act was held to be maintainable

and the decision of the learned Judge (Original Side)

who held otherwise, was reversed. The respondents

are Messrs. Shamji Kalidas &

Co. (a registered firm),

who were

the petitioners in the High

Court.

The facts of the case are as follows : On October 24,

1957, Messrs.

Dhanrajamal Gobindram (referred to

as

buyers, hereafter) entered into an agreement with

Messrs. Shamji Kalidas & Co. (referred to as sellers, ...

hereafter), for purchase of 500 bales· of African raw

cotton. The contract was in the form of a letter

'

•

3 S.C.R. SUPREME COURT REPORTS 1023

written by the sellers and confirmed by the buyers. z96z

The material portions of the letter, which bears No. Ml Dk .

1 · s. anra;ama

SK/Bom/13/2014 and was stamped as an agreement, Gobindram

a.re as follows : v.

"We confirm having sold to you African raw M/s. Shamji

cotton on the following terms and conditions subject Kalidas o;. Co.

to the usual Force Majeure Clause:

Description:

ARBP 52 F. A. Q. Crop/58.

Quality

500 (Five Hundred) bales.

Price at Rs. 1,401 nett per candy CIF

Bombay.

Payment Against shipping documents in

Bombay.

Packing ' 420 lbs. approximately per bale.

Shipment February /March 1958.

Remarks: The terms and conditions on the

reverse form part 0£ the contract. This contra.ct

is subject

to the Bye.Jaws of

Kast India Cotton

Association, Ltd., Bombay,

other than the bye-law

35 for arbitration on Quality in case of East African

cotton. • • •

Terms and Conditions •

1. The shipment is subject to any cause beyond

seller's

or seller's shipper's control and is also

sub­

ject to availability of freight.

5. This

contract is subject to the jurisdiction of

the High

Court of Bombay.

6. It will be the duty of the buyers to obtain the

import licence and to communicate the number

thereof to the sellers immediately on the same being

obtained

but in any event, not later

than 20th

February, 1958, and in the event of their failure to

do so for any reasons whatsoever including the

reason that the Government of India. may not allow

the imports of the contracted goods, the sellers

shall be entitled a.t their discretion either to carry

over the goods, in which

event the buyers shall pay

to the seller

all carry over charges in addition to the

contracted price or to call upon the buyers to pay

for the contracted goods and take immediate

ile!ivery thereof in British East Africa. and upon

H idayatullah J.

1024 SUPREME COURT REPORTS [1961]

the buyers failing to do so, to sell the contracted

goods

at Kampala or Mombasa at the

ratffi prevalent

Mjs. Dhanrajamal

Gobindram

there in convenient lots and as and when it may be

v.

M /s.

Shtrmji

Kalidas & Co.

H idayatuUah J.

practicable to do so at the risk and account of the

buyers and to claim from them any deficit that arise

between

the contracted price and such re-sale price

aud also all expense incidental thereto.

7. Even

if-the Government of India may

announce the import policy of the contracted goods

in such

manner that only

·the consumers would be

entitled to obtain

the

licence~, it will be the duty of

the buyers to see that necessary import licences for

the contracted goods are obtained in

the consumers'

name or in

the joint names of themselves and those

of the consumers the intention being that in all

eventualities

it is the duty of the buyers to obtain

licences under any policy that may be followed by

the Government of India for the import of the

con­

tracted goods and to communicate the number

thereof to the sellers within the time as specified

hereinabove

and on the buyer's failure to do so all

the eventualities contemplated under clause 6 shall operate."

By a letter dated November 30, 1957, the contract

was later amended by the parties as follows :

"With reference to the above mentioned contracts

we hereby confirm tha.t, if necessary, we shall carry

over the contracted goods for two months, namely,

March

and April and you will pay as the carry over

charges for

the same. The interest payable under

such carry over charges will

be

at the rate prevalent

in Mombasa.

The

other terms and conditions remain unaltered ...

"

The contract was not pe,rformed. The sellers wrote

as

many as five letters between March 1, 1958, and

May 26, 1958, before they received

a reply from the

buyers dated June 3, 1958. By that time, the sellers

had carried forward the contract, . and also invoked

their

right of re-sale after giving notice, and claimed Rs. 34,103. 15 nP. for which a debit note had been

issued. This note was returned by,

the buyers with

a

Jetter of June 3, 1958, stating that the contra.ct was

..

•

'

•

3 S.C.R. SUPREME COURT REPORTS 1025

" void and/or illegal", that they were not obliged to z96z

perform it, that there was no right of any sale on their M D-.

account and/or on their behalf, and that the alleged

1

'Gob::;;:;::m•I

sale was not binding upon them. [Ex. "D" (Colly) v.

No. 6.] Mfs. Shamji

Th'e sellers then invoked the arbitration clause of Kalidas & Co.

the agreement and Bye-law 38-A of the Bye-laws of

the East India Co&ton Association, Ltd., Bombay, Hid•yalullaA J.

and moved the Bombay High Court, on the Origin8.l

Side, under s. 20 of the Indian Arbitration Act, re-

questing

that the agreement be filed in

Court and the

dispute referred to arbitration. The buy~rs appeared,

and resisted the petition on grounds which they set

forth in affidavits filed from time to time. By their

first affidavit dated July 31, 1958, the buyers contend-

ed

that els. 6 and 7, quoted above, were unlawful,

as

the liability created under them amounted to a contra-

vention " of the import policy of Government of

India" and the Foreign Exchange Regulation Act,

1947, and the Rules made thereunder. They con-

tended

that, in

vitiw of the invalidity of the contract

as a whole, the arbitration clause in the agreement

was not binding,

and that the agreement could not be

filed. In the second affidavit which was filed on

February.

4, 1959, they added the reason that the

words

"subject to the usual Force Majeure Clause"

were vague and uncertain, and made the contract

void

ab initio, as there was no

consensus oiJ idem

between the parties. They contended that the con-

tract being void, the arbitration clause was also void.

By

yet another affidavit filed on February 27, 1959,

they averred that the· letter dated November

30,

1957, was void, being in contravention of the Import

Trade Control Act and the Foreign Exchange Regula-

tion Act and the Rules made under the two Acts,

inasmuch as

the consideration was one forbidden by

law and was likely to defeat the provisions of law.

They also

stated that the words

" if necessary " in

that letter rendered the contract void ab initio for

vagueness and uncertainty. .

· The case was heard by K. T. Desai, ,J. (as he then

was). On March 3, 1959, the learned Judge dismissed

1026 SUPREME COURT REPORTS (1961)

'

96

' the petition as not maintainable on the ground that

M/s. Dhanrajama1the dispute was about the legality or validity of the

Gobindram contract including the agreement about arbitration,

v. and that such a dispute could only be considered

M/s. Shamji under ss. 32 and 33 of the Arbitration Act by the

Kalidas '"' Co. Court and not by the arbitrator in a. reference under

Hidayatullah

1

.

s. 20 of the Act. He declined to consider the question

under

the former sections, because the petition had

not asked for that relief, observing that if by a proper

petition the question were raised, it would be decided.

Against

the order of the learned Judge

(0. S.), an

.appeal was filed by the sellers. This appeal was heard

by Chainani, C. J. and S. T. Desai, J. on April 28,

1959. The learned Judges held that a claim was

made

by the sellers and was denied by the buyers;

that there was thus a dispute arising out of or in re]a.

tion to a contract as contemplated

by Bye-law 38-A;

that in showing cause against the petition under s. 20,

the buyers had averred that the contract was illegal

and void; and that such a question could be decided

by the Court before making the reference. The learn­

ed Judges pointed out that a petition under ss. 32 and

33 of the Indian Arbitration Act questioning the

existence or validity of an arbitration agreement was

not to be expected from one making a claim under a.

contract, that the plea was always likely to be raised

by one resisting

the petition, and that when such a

plea was raised,

the

Court must decide it, even though

the proceedings be under s. 20 of the Act for making

a reference. The case was, therefore, remanded with

the following direction:

"As the respondents have challenged the vali­

dity of this agreement, the Court will have to 9.ecide

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."

•

•

3 S.C.R. SUPREME COURT REPORTS 1027

When the case went back for retrial, the buyers filed z96z

their fourth affidavit on November 16, 1959. They M D-h .

1

t d

. h t

ffid . b B 1 3 A

. /s. an,a1ama

s ate m t a a av1t t at ye-aw 8-was a Gobind,am

statutory Bye-law of the East India Cotton Associa- v.

tion, Ltd., Bombay, a recognised Institution under M/s. Shamji

the Forward Contracts Regulation Act, No. 74 of Kalidas & Co.

1952, and thats. 46 of the Arbitration Act was ap-Hidayatullah].

plicable. They contended that inasmuch as the

Bye-laws of the Association prescribed a different

machinery inconsistent with

and repugnant to s.

20

of the Arbitration Act, the latter section was inapplic-

able,

and that the petition was incompetent. By bis

order

dated November 26 and 27, 1959, K. T. Desai, J.

held that the petition did not disclose sufficient

• materials, and that the sellers were not entitled to

have the agreement of reference filed, or to have an

order of reference made. Though be held that the

Bye-laws of the East India Cotton Association, Ltd.

were statutory, and that ss. 46 and 47 of the Arbitra­

tion Act applied, he was of opinion that s. 20 could

not be invoked, because no action under sub-s. (4) of

s. 20 could be taken. The reason given by the learned

• Judge was that under that sub-section the Court had

to appoint an arbitrator, if the parties failed to agree,

and that sub-section was not applicable, because the

machinery of Bye-law 38-A left no power of action to

the Court. He also felt that there was no averment

in the petition that the parties had not agreed. On

the rest of the points raised by the buyers in their

affidavits, the lea.rued Judge held against them. He

held that, in view of ss. 21(2) and 21(3) of the Foreign

Exchange Regulation Act, there was no infringement

of that Act by the agreement entered into, though he

expressed a doubt if the words " legal proceedings"

in s. 21(3) were wide enough to include an arbitration.

He aslo held that cl. 7 of the conditions under which

the contract was to be performed was, at least in part

and under certain circumstances, not a contravention

of the Import and Export Control Act, 1947, or the

Import Trade Control Order issued under ss. 3 and

4-A of that Act, and thus not wholly void. He held

lastly that the contract was not void for vague11ess· or

ISi

1028 SUPREME COURT REPORTS [1961]

1

961

uncertainty either on account of the reference to

"the

Ml D-;:;:;; ajamal usual Force Majeure Clause", or because of the words

'cobind;am "if necessary" in the letter of November 30, 1957.

v. The sellers appealed aginst the dismissal of the

M/s. Shamji petition, and the buyers cross-objected against the

Kalidas & Co. adverse findings and the disallowance of costs. The

Hidayalullah

1

.

appeal was heard by Tarkunde and

Chita!P, J,J., and

by separate but concurring judgments, the appeal was

allowed and the cross-objection dismissed, and the

buyers were ordered to

pay costs throughout. The

Divisional Bench agreed with K. T. Desai,

J. on all

the points decided by him against the buyers. They

left open

the question whether

"legal proceedings"

in s. 21(3) of the Foreign Exchange Regulation Act

were wide enough to include

an arbitration for the

decision of the arbitrators to be appointed, and

addressing themselves to

the question raised about

s.

20, held that the petition was maintainable. They

were

of opinion

that the Court could order the arbit­

ration agreement to be filed and also to refer . the

dispute to arbitrators to be chosen in accordance with

Bye-law 38-A, though

they felt that if the latter

action could not be taken, at least the first could be,

because

the procedural part could not destroy the

power conferred to file the agreement.

In this appeal, all the. arguments which had failed

before

the High

Court were urged before us. Shortly

stated, they .are: that the contract was void (a) for

illegality

and (b) for uncertainty and vagueness on two

grounds; that the petition under s.

20 of the Indian

Arbitration Act was incompetent, as that section was

inapplicable;

and that the law governing the parties

was not

the Indian law but the law of British East

Africa. We shall now deal with these contentions.

The first contention is

that cl. 7 of the agreement

involves

a breach of the Foreign Exchange Regula­

tion Act.. Reliance is placed upon s. 5 of the Act,

which reads as follows :

"(5) Restrictions on payments.-(!) Save as may

be provided in and in accordance with ariy general

or special exemption from the provisions of this sub­

~ection which may be granted conditionally or

,

3 S.C.R. SUPREME COURT REPORTS 1029

unconditionally by the Reserve Bank, no person in,

or resident in, British

India shall-• •·

(e) make any payment to or for the credit of any

person as consideration for or in association with­

(i) the receipt by any person of a payment or

the acquisition by any person of property outside

India;

(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:"

It is contended that the agreement envisaged (a)

payments for goods in Africa

against shipping

docu­

ments, (b) payment in Africa of carrying over charges,

and (c) in the event of re-sale, payment of deficit also

in Africa. It is also contended that the two clauses

(6 and 7) contemplate acquisition of property in

Africa. The clauses,

it is submitted, also involved

acquisition

of foreign exchange, if the goods were

resold in Africa

and credit for the price was given to

the buyers. This, it is argued, was a breach of s. 5,

unless

there was a general or special exemption granted

by the Reserve Bank in connection with this contract,

and that no such exemption was in existence when the

contract was made.

In this connection, s. 21 of the Foreign Exchange

Regulation

Act may be read. It provides :-

" 21. Oontract.3 in evasion of this Act.-(l) No

person shall enter into any contract or agreement

which would directly

or indirectly evade or avoid in

any way the operation of any provision of this Act

or of any rule, direction or order made thereunder.

(2) Any provision of, or having effect under, this

Act that a thing shall not be done without the

permission

of the Central Government or the Reserve

Bank, shall

not render invalid

auy agreement by

any person to do that thing, if it is a term of the

agreement

that that thing shall not be done unless

permission is

granted by the

Central Government

or the Reserve Bank, as the case may be; and it

shall be an implied term of every contract governed

M fs. Dhan1ajama1

Gobindtam

v.

M/s. Shamji

Kalidas

& Co.

Hidayatullak ].

1961

M /s. Dhanrajamal

Gobindram

v.

MJs. Shamji

Kalidas & Go.

HidoyolullaA ] •

i030 StJPREME COtJRT REPORTS [1961]

by the law of any part of British India. that any­

thing agreed to be done by any term of that con.

tract which is prohibited to be done by or under a.ny

of the provisions of this Act except with the permis­

sion of the Central Government or the Reserve

Bank, shall not be done unless such permission is

granted.

(3) Neither the provisions of this 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

by the said provisions shall not be done

without that. permission, shall

prevent legal

proceed­

ings being brought in British India to recover any

sum which, apart from the said provisions and any

such term, would be due, whether as a debt, damages

or otherwise, but-

(a) the said provisions shall apply to sums

required to be paid by

any judgment or order of

any

Court as they apply in relation to other sums;

a.nd

(b) no steps shall be taken for the purpose of

enforcing any judgment or order for the payment of

a.ny sum to which the said provisions apply except

a.s respects so much thereof as the Central Govern­

ment or the Reserve Bank, as the case ma.y be, ma.y

permit to be paid ; and

(c) for the purpose of considering whether or

not to grant such permission, the Central Govern­

ment or the Reserve Bank, as the case may be, may

require the person entitled to the benefit of the

judgment or order and the debtor under the judg­

ment or order, to produce such documents and to

give such information as may be specified in the

requirement."

No· doubt, sub-s. (1) prohibits contracts in contra­

vention or evasion, directly or indirectly, of the

Foreign Exchange Regulation Act, and if there was

n0thing more, then the argument would be under­

standable. But, sub-s. (2) provides that the condition

that a thing shall not be done without the permission

of the Reserve Bank shall not render an agreement

,.

3 S.C.R. SUPREME COURT REPORTS 1031

invalid, if it is a term of the agreement that the thing i96r

shall not be done unless permission is granted by the M. D-;;-. """

Central Government or the Reserve Bank and further ·'Gobi:r,;,:

that it shall be an implied term of every contract v.

governed by the law of any part of India that any-Mfs. Sh•mft

Kalidas & Co.

thing agreed to be done by any term of that contra.ct,

which cannot be done except with the permission

of

HidayatullahJ.

the Reserve Bank, shall not be done, unless permission

is granted. Sub-section

(3) allows legal proceedings to

be brought to recover sum due as a debt, damages or

otherwise, but no steps shall be taken to enforce the

judgment, etc.,. except to the extent permitted by the

Reserve Bank.

The effect of these provisions is to prevent the very

thing which is claimed here, namely, that the Foreign

Exchange Regulation Act arms persons

against

performance of their contracts by setting up the shield

of illegality. An implied term is engrafted upon the

contra.ct of parties by the second

pa.rt of sub-s. (2), and

by sub-s. (3), the responsibility of obtaining the

permission of the Reserve Bank before enforcing

judgment, decree

or order of

Court, is transferred to

the decree-holder. The section is perfectly plain,

though perhaps it might have been worded better for

which a. model existed in England.

It is contended thats. 21 uses the word " permis­

sion", while s. 5 speaks of an exemption, and that

l!S. 21(2) and 21(3) do not cover the prohibition in s. 5.

The Foreign Exchange Regulation Act, no doubt, uses

diverse words like, "authorise'', "exempt" and

"rermission" in different parts. The word" e:rempt"

shows that a person is put beyond the application of

law, while "permission" shows that he is granted

leave to act in a particular way. But the word

" permission " is a word of wide import. " Permis­

sion" in this section means only leave to do some a.ct

which but for the leave would be illegal. In this

sense, exemption is just one way of giving leave. If

one went only by the word and searched for those

sections where

the word

"permission" is expressly

used, ss.

21(2) and (3) a.re likely to

prove a dead letter.

This could not ha. ve been intended, and the very

1032 SUPREME COURT REPORTS [1961)

z96I elaborate provisions in those sub-sections show that

Ml D-;:-.

1

those matters were contemplated which are the subject

'(;

06;::;:!.:m• of prohibition in s. 5. In our opinion, the argument

v. is without foundation.

M/s. Shamji The contention, that on resale the price would have

Kalidas .s. Co. accrued to the buyers in the first insta11cr, as the

Hidayalullah J. sellers would be acting as the agents of the buyers, is

also incorrect.

It has been rightly pointed out by

K. T. Desai,

J. that the right of resale given by

ss. 54(2)

and (4) of the Indian Sale of Goods Act

is

exercised by the seller for himself and not as an agent

of the buyer, when the latter is given a notice of sale.

This is indeed clear from

the fact that the buyer is not

entitled

to the profit on resale in that contingency,

though liable for damages. The position is different

when no notice is so sent.

Then the profits go to the

buyer.

· Perhaps, in that event it may be possible to

say that the seller acted as an agent. But, in the case

of resale with prior notice, there is no payment to the

buyer and no contravention of the Foreign Exchange

Regulation Act.

The contention

that the contract involved

an actual

or, at least, a contingent right to or acquisition of

property abroad

is not correct. Even if it were so, the

contract is saved

by s. 21, as already explained. In

our opinion, the contract was not void for illegality.

The agreement is said to be void because

of

vague­

ness and uncertainty arising from the use of the

phrase "subject to the usual force majeure clause".

The argument is that there was no consensus ad idem,

and that the parties had not specified which force

majeure clause they had in mind. We were taken

through the Encyclopaedia of Forms and Precedents

and shown a number of force majeure clauses, which

were different. We were also ta.ken through a number

of rulings, in which the expression "force majeure "

had been expounded, to show tha,t there is no consis­

tent or definite meaning. The contention thus is, that

there being no consensus ad idem, the contract ,must

fail for vagueness or uncertainty. The argument; on

the other side, is that this may be regarded as

a surplusage, and, if meaningless, ignored. It is

t

•

•

38.0.R. SUPREME COURT REPORTS 1033

contended by the respondents that the addition of·the

1

9

61

·word "usual" shows that. there was some clause Mis. Dh••raj•m•I

which used to be included m such agreements. The Gobfodram

respondents also refer to s. 29 of the Indian Contract v.

Aot, which provides: Mts. Sham;;

"Agreements, the meaning of which is not certain, Kalidas"" Co.

or capable of being made certain, are void," Hiday•lull•h

1

.

and

emphasise the words "capable of being made

certain'', and contend that the clause was capable of

being made certain, and ex facie, the agreement was

not void.

McCardie

J. in Lebeaupin v.

Crispin(') has given an

account of what is meant by "force majeure " with

reference to its history.

The expression

"force

majeure " is not a mere French version of the Latin

expression " vis major ". It is undoubtedly a term

of wider import. Difficulties have arisen in the past

as to what could legitimately be included in "force

majeure ". Judges have agreed that strikes, break­

down of machinery, which, though normally not

included in " vis major " are included in "force

majeure ". An analysis of rulings on the Bl' bject into

which it is not necessary in this case to go, shows that

where reference is made to "force majwre ", the

intention is to save the performing

party from the

consequences of anything over which he has no

control. This is

the

widflst meaning that can be given

to" force majeure ", and even if this be the meaning,

it is obvious that the condition about "force majeure"

in the agreement was not vague. The use of the word

"usual" makes all the difference, and the meaning of

the condition may be made certain by evidence about

a force majeure clause, which was in contemplation of

parties.

Learned counsel for

the appellants relies strongly on a decision of McNair, J. in British Industries v. Patley

Pressings('). There, the expression used was "subject

to force maje.ure conditions". The learned Judge held

that by "conditions" was meant clauses and not

contingencies

or

circumstances, and that there being

a variety off orce majeure clauses in the trade, there

( 1) [1 .. 20] ' K.B. 7 '4. (2) [1953] 1 All E.R. 94.

1034 SUPREME COURT REPORTS (1961} ,.

i96i was no concluded agreement. The case is distinguish-

M

1

,. Dhanrajamal able, because the reference. ~o force majeure clauses

Gobindram was left at large. The add1t10n of the word "usual"

v. makes it clear that here some specific clause was in

MJs. Shamji the minds of the parties. Learned counsel also relies

Kalidas &-Co. upon a decision of the House of Lords in Scammell (G.)

Hidayatull•h J. and Nephew Ltd. v. Oustrm (H.C. and J.G.) (

1

), where the

reference to " on hire purchase terms" was held to be

too vague

to constitute a. concluded contra.ct. It will

appear from the decision of the

Home of Lords that

the clause was held to be vague, because no precise

meaning could be

attributed to it, there being a variety

of hire purchase clauses. The use of the word

"usual"

here, enables evidence to be led to make certain which

clause was, in fa.ct, meant. The case

of the House of

Lords does

not,· therefore, apply. Both the cases to

which we have referred were decided after parties

had entered on evidence, which is not the case here.

Our case is more analogous to the decision referred

to in Bishop&: Baxter Ld. v. Anglo-Eastern Trading &:

Industrial Co. Ld. (•), namely, Shamrock S. S. Co. v.

Storey (

3

). In speaking of the condition there, Lord

Goddard observed as follows:

" Abbreviated references in a. commercial instru­

ment are, in spite of brevity, often self-explanatory

or susceptible of definite application in the light of

the circumstances, a.s, for instance, where the refer.

ence is

to a term, clause, or document of a. well.

known import like c.i.f. or which prevails in common

use in

a particular place of performance as ma.y be

indicated

by

the addition of the epithet 'usual' : see

Shamrock S. S. Co. v. Storey(•), where' usual colli.ery

guarantee ' was referred to in a charter-party in

order to define loading obligations."

The addition of the word " usual " refers to something

which is

invariably to be found in contracts of

a parti­

cular type. Commercial documents a.re sometjmes

expressed in language which does not, on its face,

bear a. clear meaning. The effort of Courts is to give a

meaning, if possible. This wa.s laid down by the

{i) (1941] A.C. 251. (2) (1944] 1 K.B. n,

(3) (1899) 5 Com. Cas. 21,

'

I

,.

3 S.C.R. SUPREME COURT REPORTS 1035

House of Lords in Hillas & Co. v. Arcos Ltd. '• and the

observations of Lord Wright have become classic, and M/s. Dh•nraj•,..I

have been quoted with approval both by the Judicial Gobindr•m

Committee and the House of Lords ever since. The v.

latest case of the House of Lords is Adamastos SIJ,ip-M /s. Shamji

Kalidas & Co.

ping Co. Ltd. v. Anglo-Saxon Petroleum Co. Ltd.('). There,

the clause was "This bill of lading", whereas the Hidayatullah J.

document, to which it referred was a charter-party.

Viscount Simonds summarised all the rules applicable

to construction of commercial documents, and laid

down

that effort should

always be made to construe

commercial agreements broadly

and one must not

be

astute to find defects in them, or reject them as

meaningless.

Applying these tests to

the present case and in the

light of the provisions of s. 29 of the Indian Contract

Act,

it is clear that the clause impugned is capable

of

being madE1 certain and definite by proof that between

the parties or in the trade or in dealings with parties

in British

East Africa, there was invariably included

a

force majeure clause of a particular kind.

In our opinion, the contract was not void for vague­

ness or uncertainty by reason of the reference in the

terms stated, to theforcemajeure clause. Mr. Daphtary

posed the question as to on whom was the burden of

proving the usual force majeure clause. In our opinion,

if the agreement is not void for uncertainty, that

question would be a matter for the decision of the

arbitrators. It is too early to say by what evidence

and by whom the usual force majeure clause must be

established.

The next ground on which it is said that the agree­

ment was void for uncertainty has reference to the

employment of the words " if necessary " in the letter

of November 30, 1957. The effect of that letter is to

make

an alteration in cl. 6 of the agreement, which has been quoted already. U oder that clause, the

buyers were

to obtain the import licence and to

com­

m~nicate the number thereof to the sellers not later

than February 20, 1958, and in the event of their

failure to do so for any reason whatsoever, the selleru

(1) [1932] All E.R. <94· \•) [1959) A.C. 133, 15,,

1036 SUPREME COURT REPORTS [l9el] ,..

1961

were entitled "at their discretion " either to carry

M/s. Dh•nrajam•l over the goods or to ask the buyers to pay for the

Gobindram contracted goods and take delivery in British East

v. Africa. By that letter, the sellers confirmed that "if

M/s. Shamji necessary" they would carry over the cont.racted

Kalidas & Co.

goods for two months, namely, March and April, sub.

Hidayatullahf. ject to payment of charges. It is contended that the

words" if necessary" are entirely vague·aud do not

show, necessary for whom, when and why.

In our

opinion, this argument has

no force whatever.

Under

cl. 6, the sellers had an absolute discretion either to

carry over

the goods or to insist on delivery being

taken. By this letter,

they have said that, if

neces­

sary, that is to say, if the buyers find it difficult to

supply the number of

the import licence, the contract

would

be carried over to March and April. By this

amendment, the sellers surrendered to a certain extent

their absolute discretion. The clause means

that the

contract was not extended to March

and April, <Jut

that the sellers would extend it to that period, if

occasion demanded. Since both the parties agreed to

this letter and the buyers confirmed it, it cannot be

said

that there was no

consensus ad idem, or that the

whole agreem~nt is void for uncertainty.

We shall now consider the next argument, which

was very earnestly urged before us.

It is that s.

20 of

the Arbitration Act cannot be made applicable to this

case

at all. We have already quoted extracts from

the agreement which include the clause by which

the

Bye-laws of the East India

Cotton Association Ltd.,

Bombay, were applied to

this contract, except Bye.

law 35,which deals with arbitration on quality in case

of

East African cotton. Bye.law l(B) relates to East

African cotton, and it says that Bye-laws 1 to 46

in­

clusive (with certain exceptions) shall apply to

contracts in respect of East African cotton. It wa.P

conceded before the High Court and also before us

that the Bye-laws are statutory. The buyers were

members of the Association but not the sellers; but

the Bye-laws on arbitration, with which we are con­

cerned, include arbitrations between a member ii,nd a

,

t

~ 3 S.C.R. SUPREME COURT REPORTS 1037

I

non-member. We are concerned directly with Bye-law I'

6

I

38-A. Bye-law 38-A in its opening portion, rfla.ds: M/s. Dhanrajamal

"All unpaid claims, whether admitted or not, and GoJ>indram

all disputes (other than those relating to quality) v.

arising out of or in relation to ... contracts (whether M/s. Shamji

i: d h h b b Kalidas <!> Co.

iorward or rea y and w et er · etween mem ers or

between a member and a non-member) made subject HidayamUah

1

.

to these Bye-laws ... shall .be referred to the arbitra-

tion of two disinterested persons one to be chosen

by each

party. The arbitrators sLall have power

to appoint an umpire and shall do so if and when

they differ as to their a

ward."

Then follow certain provisions, which were stressed

but which need not be quoted in extenso. Shortly

stated, they are that the arbitrators must make their

award in 15 days, unlees time be extended by the

Chairman. The umpire is to be appointed within 15

days or Ruch extended period as may be fixed by the

Chairman and the umpire is to make his award within

10 days, unless time be extended by the Chairman.

In case of disagreement or failure of a party to

appoint an &rbitra.tor, the Chairman may appoint an

arbitrator, and similarly the Chairman is to appoint

the umpire and he may even appoint himself. Other

powers a.re confeITed on the Chairman, who is the

Chairman of the Board of Directors of the Ea.Rt India.

Cotton Association Ltd.

The contention is that arbitrations under the

Arbitration Act, like those under Sch. II of the Code

of Civil Procedure, are of three kinds described by

Lord Ma.cnaghten in Ghulam Jilani v. Muhamma.d

Hassan('),

and that

this belongs to the second cate­

gory there described, in which •·all further proceed­

ings a.re under the supervision of the Court ". It is

argued th' " :.i; t.he application of the Bye-laws. the

Court is left. no powers under s. 20 which is being

invoked,

and that s.

20 cannot thus apply. Section 20

of the Arbitration Act, in so far as it is material to

this point, is as follows :

" 20. Application to file in Court arbitration agree­

ment.-( I) Where any persons have entered into an

(I) (1901) L.R. 29 I.A. 51, 56, 57·

/' i

. '

. -, '•

"' ' .1038 SUPREME COURT REPORTS . : [1961]

M;s~ Dbn?ajamal

GolJindram

.. arbitration agreement before the institution of any

suit with respect.to the subject-matter of the·agree­

ment or any.part of it, and where a. difference has

. arisen to which-the agreement applies, they or any VH

Mfs. s1ta .. ji · of them, instead . of· proceeding· under • .Clta.pt.er...lI,

may apply. to a Court having jurisdiction in the

. matter to ,which the agreement ·relates, that the

. agreement be filed in Court. ·

. Kalida< .S-Co.

-.

-·-----

. . ; .

:.. (3f On. such application being made, the. Court

shall direct notice

thereof to be given to

all parties

· to the agreement other than the applicants; .requir­

. ing the~ to shqw cause within the time specified in

the notice why the agreement should not be filed •. ·

· (4) Where no sufficient cause is shown, the Court

shall

order the agreement to be filed and shall make , an .. order of reference to. the arbitrator a. ppointed by

, the parties, whether in the agreement.or otherwise,

·

or

where the. parties cannot, agree upon an arbit­

rator, to an arbitrator. appointed by the Court.

· (5) Thereafter the arbitration shall. ·proceed in

. accordance with, . and shall be governed· by, the

other provisions of this Act so. far as. they .. can be:

made applicable." . , • . . , . . " ..

The sellers rely upon cl. (5), which enjoins the appli­

. cation of the provisions of the Arbitration Act, so far

as they can be made applicable. Reference is·then

made to provisions of Chap. II and.the· Schedule of

the Act laying down ·the, powers of the Court, and

. they are contrasted with the provisions of the· Bye-.

· . laws to show that if the latter prevail, no residuum of

power is left to the Court, :and that after filing the

agreement,,the Court must abdicate in favour of the

Chairman. and, the Act, -in terms, ceases ·to apply.'

·Reference· is· .also made to s. 47 of the 'Arbitration.

Act, which 'provides: ,. · · '' '

"Subject. to, the provisions of section ·45, and

.. · save in so far as is otherwise provided by any law,

. for the time being in force, the provisions of this ·

Act·shall apply to· all arbitrations and to all pro­

.ceedings

thereunder:" (Proviso omitted)• ·-'

;,. '

)

'

,

1

...,. 3 S.C.R. SUPREME COURT REPORTS 1039

I

The opening words of s. 47 takes us t.o s. 46, which '9

61

may be read at this stage. It provides : M '" Dh•nrajamal

"The provisions of this Act, except sub.section (1) Gabindr•••

of section 6 and sections 7, 12, 36 and 37, shall ""

apply to every arbitration under any other enact-M/,, Shamfi

ment for the time being in force, as if the arbitra-Kalidas ~ Ca.

tion were pursuant to an arbitration agreement and Hidayatulli1k J.

as if that other enactment were an arbitration

agreement, except in so far as this Act is inconsist-

ent with that other enactment or with any rules

made thereunder."

Section 46 makes the provisions of any other enact­

ment or any rules made thereunder to prevail over

the Arbitration Act, if inconsistent with the latter. In

view of these several provisions, it is clear that the

Arbitration Act applies to all arbitrations and

Chap. III makes it applicable also to arbitrations, in

which the

arbitration agreement is asked to be filed

in

Court under s. 20, subject, however, to this that the

provisions of any other enactment or rules made there,

under, if inconsistent with the Arbitration Act, are to

prevail.

Learned counsel for

the buyers contends that

noth­

ing is saved of the Act. This is not correct. To

begin with, questions as to

the existence or validity

of the agreement are saved from decisions by

arbitra­

tors or umpires, however appointed. Since such a plea

can only be raised in bar of an application by persons

seeking a reference to arbitration,

at least that portion

of the Act still applies, and that power can only be

exercised by

the

Court. Other provisions of Chap. II,

like ss. 15 and 16, still remain applicable. We need

not give a list of all the provisions which may be

saved, because

that will involve an examination

side

by side, of the sections of the Act and the provisieons

of the Bye-laws. So long as something is saved, it

cannot be said that the Court after receiving the

agreement and ordering that it be filed, becomes

completely

f

unctus officio.

But the crux of the argument is that the provisions of

sub-s. (4) of s. 20 read with sub-s.(l), ibid., cannot apply,

and the Court, after filing the agreement, will have

10:10 SUPREME COURT REPORTS [1961]

I9

6

I to do nothing more With it, a~crtliis shO;S that S. 20

J//s. Diusi.rajamal is not ap~Iicable~ ·· Th,is arg~me.nt overlooks the fa:ct

Go!ift<lr•m that this is.a statutory arb1.tration governed by its

... own rules, and that the powers and duties of the

1.1/s. Slusmji Court in sub-s. (4) of s. 20 are of two distinct kinds.

Kalidas & Co. The first is the judicial function to .consider whether

the arbitration agreement shoul. d be filed in Court or

Hi<Jayatullah /-

not. That may involve dealing with objections to

the existence and validity of the agreement itself .

.. Once that is done; and the Court has decided that the

agreement must be filed, the first p;i.rt of its powers

and duties is ovet. . It is significant that an appeal

under s. 39 lies · only . against the decision on this

part of sub-s. (4). Then >follows a ministerial· act

of reference ·to arbitrator . or . arbitrators appointed

by the . parties. That also' was perfectly possible

in this case, if the parties appointed the · arbit­

rator or arbitrators. If tho parties do not agree,

the Court.may be.required t.o make a decision as to

who should be selected as an arbitr~tor; and that. may

be a function either judicial, or procedural, or even··

ministerial; but it is unnecessary to dec!de which it

is. In the present case, the parties by, their agree­

ment have placed the power of selecting an arbitrator.

or arbitrators (in which we include. also the umpire)

.·in the hands of the Chairman of the Board of Direc­

tors of the East India Cotton. Association, Ltd., and

the Court can certainly perform the ministerial act

of sending the agreement to him to be dealt with by

him. Once the agreement filed in Court is sent to the

Chairman, the Bye.Jaws lay down the procedure for.

the Chairman and the appointed arbitrator or arbitra­

tors to follow, and.that procedure, if iv· .;sistent with

the Arbit~ation Act, prevails. In our opinion, there

is no impediment to action being take!! under s. 20(4)

oft.he Arbitration Act. , ,

\Ve may dispose of hnre a supplementary argument.

that the diapute till now is about the legal existence .

of the agreement including the arbitration clause, and

that this is not a dispute arising out of, or in relation

to a. cotton, transaction. Reference. was made to

certain observations in Heyman v. Darwins Ltd. (

1

). In

(1) [1942) A.C. 356.

(

3 S.C.R. SUPREME COUHT REPORTS 1041

1961

our opinion, the words of the Bye-law "arising out of

or in relation to contracts" are sufficiently wide to M/s. Dh•nr•j•m•i­

comprehend matters, which can legitimately arise Gobindr•m

under s. 20. The argument is that, when a party v.

questions the very existence of a contract, no dispute M/s. Shamji

can be said to arise out of it. We think that this is K•lidas °" Co.

not correct, and even if it were, the further words Hid•y•Mlah J.

"in relation to" are sufficiently wide to comprehend

even such a case.

In our opinion, this argument

must also fail.

It was contended lastly that the law applicable to

the case is the lex loci solutionis, that is to say, the law

of British East Africa. Reference was made to a

passage from Pollock

and Mulla's Contract Act, Eighth

Edn., p. 11, where it is observed as follows:

"In ordinary circumstances the proper law of

a contract (to use Mr. Dicey's convenient expres­

sion) will be the law of the country where it is

made. But, where a

contract is made in one country

and to be performed wholly or in part in another,

the proper law may be presumed to be the law of

the country where it is to be

performed." (Auckland

Corporation v. Alliance Assurance Co.) (1)

The learned authors observe, on the same page,

further:

" But these rulee are only in the nature of pre­

sumptions, and subject to· the intention of the

parties, whether expressly declared or inferred from

the terms and nature of the contract and the circum­

stances of the case."

Reliance was also placed on Chitty's Law of Contract

and Rule 148, sub-r. (3), Second Presumption, in

Dicey's Conflict of Laws, Seventh Edn., p. 738, on

which

the statement of the law in Pollock and Mulla

is based.

Whether the proper law is the lex loci

contractus or

lex loci solutionis is a matter of presumption ; but there

are accepted rules for determining which of them is

applicable. Where

the parties have expressed

them­

selves, the intention so· expressed overrides any

presumption. Where there is no expressed intention,

(I) (1937] A.C, 587.

1042 SUPREME COURT REPORTS [1961]

rg6r then the rule to apply is to infer the intention from

M/s. Dha.r•jamal the terms and nature of the contract and from the

Gobinar•m general circumstances of the case. In the present case,

v. two such circumstances are decisive. The first is that

M/s. Shmji the parties have agreed that in case of diRpute the

K alidas 6-Co.

Bombay High Court would have jurisdiction, and an

Hidayat,.l/•h J. old legal proverb says, "Qui eligit judicem eligit jus."

If Courts of a particular country are chosen, it is

expected, unless there be either expressed intention or

evidence,

that they would apply their own law to the

case.

See N. V. Kwick Who Tang v. James Finlay &

Oo. (

1

). The second circumstance is that the arbitra­

tion clause indicated an arbitration in India. Of

such arbitration clauses in agreements, it has been

said on more

than

onE) occasion that they lead to an •

inference that the parties have adopted the law of the

country in which arbitration is to he made. See

Hamlyn & Oo. v. Tallisker Distillery ('), and Spurrier

v. La Oloche ('). This inference, it was said in the

last case, can be drawn even in a case where the

arbitration clause is void according to the law of the

country where the contract is made and to be

performed.

In our opinion, in this case, the circum-

,

stances clearly establish that the proper law to be

applied is the Indian Law.

In the result, the appeal fails, and is dismissed with

costs.

Appeal dismissed.

(1) [1927] A.C. 604. (2) [1894] A.C. 202.

(31 ~1902] A.C. 446 (P.C.).

,