w w w . L a w y e r S e r v i c e s . i n



Howrah Mills Co. Ltd. v/s Libra Exporters Pvt. Ltd


Company & Directors' Information:- LIBRA EXPORTERS LIMITED [Active] CIN = U51909WB1967PLC027122

Company & Directors' Information:- HOWRAH MILLS CO LTD [Active] CIN = L51909WB1890PLC000625

Company & Directors' Information:- LIBRA INDIA PRIVATE LIMITED [Under Process of Striking Off] CIN = U51909DL1996PTC082555

    Matter Appeal No. 1072 of 1955

    Decided On, 04 September 1987

    At, High Court of Judicature at Calcutta

    By, THE HONOURABLE MR. JUSTICE PRATIBHA BONNERJEA

    For the Appearing Parties: A.C. Bhadra, Ajay Gupta, Anindya Mitra, Pratap Chatterji, S.K. Gupta, S.N. Chowdhury, Advocates.



Judgment Text

(1) THE facts of the case are as follows : the petitioner entered into a contract No. JG/e/1528 dated 7-6-83 for supply of two lakh yards of hession cloth to respondent No. 1 at the rate of Rs. 167/- per 100 yards on terms and conditions contained in Annexure-'a' to the petition. The petitioner is a jute mill and is a member of the East India Jute and Hessian Exchange Ltd. It is alleged in the petition that it was agreed between the parties that there would be no 'option' in respect of the said contract. It is admitted that the contract contained an arbitration clause and is governed by the provisions of Forward Contract Regulation Act 1952 and the bye-laws of the East India Jute and Hessian Exchange Ltd. , Calcutta. The petitioner alleged that the respondent No. 1 accepted the said contract and issued shipping instructions No. L/1871 dated 8-6-83 for delivery of the said goods. This shipping instruction is annexure-'b' to the petition. The petitioner in accordance with the said shipping instruction placed on board the export vessel S. S. Jalarashmi, 100 bales each containing 2000 yards of hessian cloth an 18-6-83 and obtained mate's receipt. Thereafter the petitioner presented its bill No. L/298 dated 6-7-83 along with the mate's receipt for Rs. 3,34,728. 34 being the value of the said goods to the respondent No, 1 on 7th July, 8th July, 11th July, 14th July and 15th July 1983 respectively but the respondent No. 1 failed and neglected to pay the same or any portion thereof in spite of demands. The petitioner made a demand by a letter dated 26-7-83. The petitioner further alleged that the said goods were carried by the said vessel and it reached its destination and the respondent No. 1 received delivery of the said goods from the said vessel at the destination by giving indemnity bond and production of the xerox copy of the mate's receipts. It is also alleged that the respondent No. 1 did not submit sales-tax declaration from 'c' and as such the petitioner did not and/or could not furnish any E. 1 form. In the premises, the disputes relating to non-payment of the price of the said goods as well as the disputes for non-furnishing of sales-tax declaration form 'c' were referred to the Tribunal of Arbitration of the Bengal Chamber of Commerce on 13-8-84 by the petitioner in terms of the Arbitration Agreement contained in the contract. The respondent No. 1 repeatedly obtained extension of time on the plea of inspection of the documents and for submitting its counterstatement of facts and then actually took inspection of the documents on 12-11-84. The respondent No. I took further two extension on 23-11-84 and 7-12-84 for filing counterstatement of fact but instead of filing the same, the respondent No. 1 through its Advocate-on-record informed the Tribunal of arbitrators about the institution of the suit No. 2288 of 1984 in the City Civil Court at Calcutta against the petitioner and other two defendants. The main prayer in the said plaint was for declaration that the contract No. JG/e 11528 dated 7-6-83 entered into between the parties to this proceeding was illegal and void as it violated the provisions of the Forward Contract Regulation Act of 1952. In prayer (c) of the plaint, the respondent No. 1 as the plaintiff in the suit prayed for a declaration that the purported reference Case No. 74 of 1984 before the Tribunal of Arbitration, Bengal Chamber of Commerce and Industry was void and illegal and/or without jurisdiction. In the said plaint, the respondent No. 1 the plaintiff also prayed for a declaration that out of the sale proceeds due to the petitioner under Contract No. JG/e/11528 dated 7-6-83 and the hill No. 4298 dated 6-7-83 the respondent No. 1 as the plaintiff would be entitled to retain Rs. 86,435. 94 with interest thereon at the rate of 19% from 1-7-83 on account of Central Sales-tax which the defendant No. 1 in that suit failed to give credit to the plaintiff. It is significant to note that this alleged claim for adjustment of Central Sales-tax to the extent of Rs. 86,435. 94 was made by the plaintiff against all three defendants in the said suit in respect of three different contracts made with them respectively on the allegation that all the defendants belonged to Jardin Henderson Group of Mills. This suit was filed with deficient Court fees and in spite of the suit being placed before the Court for consideration of that said deficiency no order was passed by the City Civil Court regarding same up to the time present petition was moved. The respondent No. 1 as the plaintiff in the said suit in spite of this defect in the suit, served a notice on the Tribunal of Arbitration, the respondent No. 2 herein, who stopped the hearing of the arbitration proceeding as the plaintiff alleged that the said suit covered the entire subject-matter of the reference. The petitioner alleged in the present petition that the respondent No. 1 deliberately instituted the said suit with deficient Court fees with the mala fide motive to stop the hearing of the arbitration proceeding as well as to prevent the petitioner from taking out an application for stay of the suit under Section 34 of the Arbitration Act. No such application could be made due to the fact that the suit was defective.


(2) THE petitioner, under the circumstances, being unable to proceed with the reference or to stay the suit, took out the present application under Sections 28, 31, 32 and 33 of the Arbitration Act for declaration that the arbitration agreement and the reference are valid and the suit is barred under Sec. 32 of the Arbitration Act.


(3) THIS application is contested by the respondent No. 1 mainly on the ground that this T. S. D. Contract dated 7-6-83 is illegal.


(4) THE counsel for the respondent No. 1 submits that the option clause in the prescribed form has been filled up with the word 'none' which means that 'option' will not be exercised. The word 'none' would amount to deletion of the option clause from the prescribed form which will render the contract illegal. In support of his contention, the counsel for the respondent No. 1 relies on AIR 1974 SC 1579 (Jaikishna Dass Mul) v. Luchhimenarain Kanoria and Co.). He invites my attention to paragraph 13 where Bhagwati, J. held :-


"in the first place it is not correct to say that the prescribed form may be followed only in so far as circumstances may admit. The prescribed form, as we have already pointed out above, is imperative and a contract in order to be valid must contain all the terms and conditions set out in that prescribed form. Either the contract must incorporate all these terms and conditions or no contract can be made at all. No terms or condition in the prescribed form can be dispensed with on the plea that it is inapplicable. "


The aforesaid observation of the Supreme Court was made in that case as in two of the contracts before them, the clause 2 of the prescribed form "buyers to give. . . . . clear working days' notice to place goods along side" were scored out. On account of deletion of the clause these two contracts were held to be illegal. He also submits that Chapter V Rule 15 of the East India Jute and Hessain Exchange Ltd. , Working Manual, Volume III provides as follows :-"no member shall enter into or pass any transferable specific delivery contract in raw jute and/or jute goods otherwise than on the terms and conditions prescribed under these Bye-laws. "


Chapter V Rule 17 provides :-"any transferable specific delivery contract entered into in raw jute and/or jute goods which at the date of the contract is in contravention of the provisions of any of the Bye-laws 1 (b), 1 (i), 13, 14, 15 and 16 of Chapter V shall be illegal under the provisions of Section 15 (3a) of the Forward Contracts (Regulation) Act, 1952. "


It is submitted on behalf of the respondent No. 1 that in the present contract the option clause has been made inapplicable and/or deleted from the prescribed form by the word 'none' and as such, the contract has become illegal.


(5) THE petitioner's counsel invites my attention that in AIR 1974 SC 1579 the Supreme Court after considering the law on this point as laid down in AIR 1933 PC 55 (Radhakissen Gopikissen v. Balmukund Ramchandra) and AIR 1971 SC 166 (Megna Mills Co. v. Ashoka Marketing Co.) arrived at the finding recorded in paragraph 11 at page 1586 :-


"it is, therefore, clear that in order that a contract may be in the prescribed form, literal compliance is not essential. What is necessary is that the contract must contain all the terms and conditions set out in the prescribed form. "


He submits that in the present case all the clauses in the prescribed form have been retained. There was no scoring out or any claim. The contract is perfectly valid. Therefore, I have to find out whether there was sufficient and/or substantial compliance of the prescribed form in the present case.


(6) CH. V rule 3 provides for option :


"t. S. D. contracts in jute goods shall ordinarily provide for delivery of a specified quality of these goods but provisions can be made in the contract for specified options which may be with or without penalty or which may contain terms for delivery at specified rates arranged mutually between the seller and the buyer. Such options shall be exercised by the buyer within the time specified in the contract. "


(emphasis supplied) Reading Bye-law 3 of Ch. V, I have no hesitation to hold that 'option' is optional. It is not compulsory or mandatory that 'option' must be exercised but once an option is specified in the contract it must be exercised within the time specified. If an 'option' is made compulsory or mandatory it will no longer remain an 'option'.


(7) THE counsel for the respondent No. 1 relies on AIR 1982 Cal 282 (Alliance Mills Pvt. Ltd. v. Madan Gopal and Sons). In this case, admittedly the contract was not in the prescribed form and the option clause in the form was left blank. This will be clear from the finding of the Division Bench in this case in paragraph 8 :-


"the question for our consideration is therefore, whether the contract is in Appendix 11 of the Working Manual Vol. III at page 93. Admittedly it is not so. "


Then again in paragraph 19, it is held :-"it appears from the contract form that there was no option given in the Column left for option to be exercised by the buyer within the time specified in the contract. "


If the contract is not in the prescribed form, then how the question of option clause arises ? In any event, reading this judgement, it appears that the option clause in this document before the court was left blank. As the contract must be in the prescribed form this case is not helping the respondent in any way.


(8) THE petitioner's counsel, on the other hand, relies on AIR 1958 SC 713 (Gordhandas Purushottamdas Sonawala v. Eastern Cotton Co.) in which the Supreme Court was considering the validity or legality of a contract governed by Bombay Cotton Contract Act and Bye-laws of East India Cotton Association. The contract was to be in the prescribed form. The parties omitted to mention in the contract measurement of bales and difference above or below settlement rate of hedge contracts. It was held by the Supreme Court in paragraph 16 :-


"the expression 'not in accordance with' has been the subject of judicial interpretation in Radhakissen Gopikissen v. Balmukund Ramchandra, 60 Ind App 63. Their Lordships of the Privy Council there held that the form prescribed was not a stereotyped one and that literal compliance with it was not essential. The only thing required was that the contract notes must contain all the terms and conditions set out in the form in order to comply with it. Their Lordships were of the opinion that substantial compliance with the form would be enough and if such sufficient compliance with the Bye-laws was found in a particular case that would save the contract from being declared void as not being in accordance with the Bye- laws. "

The aforesaid principle laid down in AIR 1933 PC 55 has been followed in AIR 1958 SC 713, AIR 1971 SC 166 and in AIR 1974 SC 1579. Therefore, literal compliance of the prescribed form is not essential. I have no hesitation to hold that in the present case the word 'none' in the option clause was a term of the contract that there would be no option in this case and the word 'none' kept the form intact in substantial compliance with the terms and conditions of the prescribed form. In one of my unreported judgement in Bimal Kumar Ganariwalla v. New Central Jute Mills Co. Ltd. , being Matter No. 333 of 1983, the option clause was fille

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d with the word 'nil'. In that case I held that the word 'nil' was a term of the contract and the option was properly filled up. (9) THE second point taken by the respondent No. 1 is that in Cl. 4 regarding delivery of the goods the words "goods for export, non Russian" have been inserted. Thereby a new term has been introduced in the prescribed form, changing the form itself. This new term has rendered the contract illegal. I am unable to accept this submission. Clause 4 has not been changed and has been properly filled up. The words mentioned above were superfluous and immaterial. Moreover they were not in contravention of any Bye-law of the Association nor it changed the prescribed form. Hence these words cannot render the contract illegal as it is not hit by the provisions of Bye-law 15 of Ch. V. or by the provisions of Bye-law 17 of Ch. V. The contract concerned is therefore lawful, and the arbitration clause contained therein is binding on the parties. Thereafter the pending reference is a valid reference. In that view of the matter, it is declared that the suit filed in the City Civil Court by the respondent No. 1 is barred by the provisions of Sec. 32 of the Arbitration Act. In the premises, the time to make the award by the Tribunal of Arbitration is extended for four months from date. The petitioner will be entitled to the cost of the application from the respondent No. 1. Order accordingly.
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