Forward trading, which normally plays a useful part in tempering price fluctuations, tends in certain situations to exaggerate such fluctuations to the detriment of the interests of producers as well as consumers. During the war and immediately thereafter, the Central Government issued orders under Rule 81 of the Defence of Indian Rules, prohibiting forward trading in commodities, such as foodgrains, oil-seeds, oil-cakes, vegetable oils, raw cotton, spices, sugar and bullion. After the Defence of India Act lapsed, orders in respect of foodgrains, edible oil-seeds and oils, raw cotton and spices were kept in force under the Essential Supplies (Temporary Powers) Act, 1946, and similar orders about cotton-seed and sugar were also issued later under this Act. It was only in the case of raw cotton that a general exemption was granted with respect to forward trading conducted under the auspices of the East India Cotton Association, Bombay. "Among the States, Bombay is the only one which has adopted a comprehensive scheme for the regulation of forward trading under the Bombay Forward Contracts Control Act. That Act has been brought into force mainly to control forward trading in cotton bullion and oil-seeds. "Under the Constitution, the subject of "stock exchanges and future markets" is included in the Union List Consequently, the State Legislatures are no longer competent to enact any fresh legislation with regard to forward markets, and unless Central legislation on this subject is enacted, the resulting lacuna may prevent desirable action being taken, when needed. When the Central Act comes into force, the existing State Acts will cease to operate to the extent to which they are inconsistent with the Central Act. "In February, 1950, a draft Bill on this subject was circulated to the State Governments, the Reserve Bank of India, Chambers of Commerce and various other interests concerned. In July, 1950, the draft Bill was referred to an Expert Committee under the Chairmanship of Shri A.D. Shroff, and was revised in the light of the Committee's recommendations. The Government of India also accepted in, principle the Committee's recommendations, in regard, to the practical operation of this measure, though their application to individual cases would have to be decided in the light of experience and the circumstances of each case. "A Bill was introduced in the Provisional Parliament on 19th December, 1950 and was referred by it to a Select Committee on 24th April, 1951. The Select Committee's Report, which was submitted on 20th August, 1951, could not be considered by the Provisional Parliament before it was prorogued and the Bill lapsed. This Bill as now introduced is largely in the form recommended by the Select Committee, but certain alterations have been made therein as a result of further consideration. "The Bill provides for the regulation of forward trading and the prohibition of options in goods. Transactions on stock exchanges have been excluded, since the problem of regulating Stock Exchanges have some special features of its own and can best be treated separately. It is proposed to prohibit options altogether, since they are considered to be an undesirable form of speculation. "The regulatory provisions of this Act will be extended by notification to different classes of goods and to different areas as and when necessary. The main principle underlying these provisions is that forward contracts should be allowed to be entered into only in accordance with the rules and bye-laws of a recognised association. The rules and bye-laws will be subject to the approval of the Central Government who will also have the power to make such rules and bye-laws. Provision has been made for the appointment by the Central Government of one person as its own representative and not more than three persons to represent interests not directly represented through the membership of the association, as members of the governing body of a recognised association. The Central Government will also have the powers to order an inquiry into the affairs of a recognised association or those of any of its members and to direct the Forward Markets commission to inspect the accounts and other documents of the Association. In emergencies the Central Government may have to suspend the business of a recognised association, and in certain extreme cases, to supersede the governing body of a recognised association for a period not exceeding six months, or even to withdraw recognition. It has been provided that the provisions of this Act will apply to non-transferable specific delivery contracts only in certain areas to be notified by the Central Government. "In order to assist the Central Government in the administration of the Act, it is considered desirable that a commission, to be called "The Forward Markets Commission" should be established. Provision has also been made for the establishment of an Advisory Committee to advise the Central Government on any matter concerning the operation of the Act." AMENDING ACT 62 OF 1960 Experience gained in the Administration of the Forward Contracts (Regulation) Act, 1952, during the last six years has revealed that the present provisions of the Act are not adequate to deal with excessive speculation and other malpractices now prevalent in some of the forward markets. Persons indulging in illegal forward trading cannot be prosecuted for want of adequate documentary evidence. Further persons found guilty of violation of the provisions of the Act often get away with a light punishment. Trading outside official hours in association recognised for forward trading cannot be stopped under the existing provisions of the Act. The object of the Bill is to remove these and other difficulties which have been experienced in the working of the Act and to enable the Central Government and Forward Markets Commission to exercise a stricter control over forward trading activities. Opportunity has been taken to extend the provisions of the Act to the State of Jammu and Kashmir. AMENDING ACT 53 OF 1971. 1. The Forward Contracts (Regulation) Act, 1952 was enacted with a view to regulate matters relating to forward contracts, the prohibition of options in goods and matters connected therewith. Under this Act, Government have regulated or banned forward trading in several commodities in order to check undue speculations in the prices of those commodities. Lately it has been observed that the speculative elements have taken resort to the ready market itself and conducted their business in forward contracts in banned and regulated commodities under the guise of ready delivery contracts. A ready delivery contract is intended to result in actual delivery of goods and payment of full price therefor within a period of eleven days. The method employed by the parties is to enter into an apparently ready delivery contract for a week or ten days thus keeping themselves strictly within the law and then to square it up by entering into an opposite contract. The next day or a day thereafter a seemingly new contract for the same quantity and variety of goods and with the same party is entered into afresh and so squared up at the end of the next period of seven or ten days by an opposite contract and so on. Thus a contract is carried on with the same party for the same quantity and quality of goods for so long as both parties desire. This method corresponds remarkably with the mechanics of future trading where a contract having been entered into, lay, for three months is usually cleared every Week or ten days or fortnight when the differences between the contract rate and prevailing rate are duly cleared. 2. The misuse of ready delivery contracts has been indulged in by the parties because of certain lacuna in the definitions of the expressions "forward contract" and "ready delivery contract" in S. 2 (c) and S. 2(i) respectively of the Forward Contracts (Regulation) Act, 1952. Government have been advised to the effect that the fact that there was no actual delivery of goods within the stipulated period of eleven days but there was settlement, by payment of differences or set off does not convert a ready delivery contract into a forward contract. The Government was, therefore, unable to check the misuse of ready delivery contracts under the existing Act. 3. In order to eradicate the misuse of ready delivery contracts, it was considered necessary to amend suitably the definitions of the expressions "forward contract" and "ready delivery contract" contained in the Act. Since immediate action had to be taken in this behalf, the Forward Contracts (Regulation) Amendment Ordinance, 1971 was promulgated by the President on 11th October, 1971. 4. The present Bill is intended to replace the Ordinance.
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