1962 (5) TMI 27 - SC - Indian Laws

Summary

Issues Involved:
1. The vires of the Forward Contracts (Regulation) Act, 1952.
2. Whether the question of the contracts' legality should be decided by arbitrators or the court.
3. Whether the respondents' participation in arbitration proceedings amounts to a fresh agreement for arbitration.
4. Whether the contracts dated September 7, 1955, and October 17, 1955, are non-transferable specific delivery contracts and thus exempt from the notification dated October 29, 1953.

Detailed Analysis:

1. Vires of the Forward Contracts (Regulation) Act, 1952:
The appellants challenged the validity of the Forward Contracts (Regulation) Act, 1952, on two grounds: first, that Parliament lacked competence to enact it, and second, that the Act was repugnant to Articles 14 and 19(1)(g) of the Constitution.

Competence of Parliament:
The court examined the relevant entries in the Legislative Lists of the Seventh Schedule of the Constitution. The appellants argued that the Act fell under Entries 26 and 27 of List II (State List), while the respondents contended it fell under Entry 48 of List I (Union List) or Entry 7 of List III (Concurrent List). The court concluded that the Act, in its pith and substance, was legislation on "Futures Markets" under Entry 48 of List I, thereby falling within the exclusive competence of Parliament.

Repugnance to Articles 14 and 19(1)(g):
The court referred to its previous decision in M/s. Raghubar Dayal Jai Prakash v. The Union of India, which held that the Act did not violate Article 14. Regarding Article 19(1)(g), the appellants did not press this point during the hearing, and thus, the court found this contention against the appellants.

2. Whether the Question of Contracts' Legality Should Be Decided by Arbitrators or the Court:
The appellants argued that the legality of the contracts should be decided by the arbitrators as per the arbitration clause. The court, referencing its decision in Khardah Company Ltd. v. Raymon & Company (India) (P.) Ltd., held that if a contract is illegal and void, the arbitration clause within it also becomes inoperative. Therefore, the validity of the contract is a matter for the court to decide, not the arbitrators.

3. Whether Respondents' Participation in Arbitration Proceedings Amounts to a Fresh Agreement for Arbitration:
The appellants contended that the respondents' participation in the arbitration proceedings constituted a new agreement for arbitration. The court examined whether the respondents' actions could be construed as a new arbitration agreement. It concluded that mere participation in arbitration proceedings does not equate to a new agreement unless there is a clear, independent agreement to that effect. The court found no such agreement in this case, and thus, the respondents were not precluded from challenging the validity of the contracts.

4. Whether the Contracts Are Non-Transferable Specific Delivery Contracts:
The appellants argued that the contracts were non-transferable specific delivery contracts exempt from the notification dated October 29, 1953, under Section 18 of the Act. The court, referring to its decision in Khardah Company Ltd. case, accepted the appellants' contention and held that the contracts in question were not affected by the said notification.

Conclusion:
The appeals were allowed, and the court set aside the judgments of the High Court of Calcutta, reinstating the awards in favor of the appellants. The court awarded costs throughout, with one set of costs for Civil Appeals Nos. 389 and 390 of 1960, and another for Appeals Nos. 391 and 392 of 1960, along with one hearing fee.