1962 (5) TMI 32 - SC - Indian Laws

Supreme Court declares contract void, arbitration clause unenforceable. Respondents not estopped. Appellants awarded costs.

KHARDAH COMPANY LTD. Versus. RAYMON & CO. (INDIA) PRIVATE, LTD.

The Supreme Court held that the contract was illegal and void under the notification dated October 29, 1953. The arbitration clause was deemed ... - Issues Involved:1. Jurisdiction of arbitrators to decide the legality of the contract.2. Estoppel from questioning the validity of the award.3. Legality of the contract under the notification dated October 29, 1953.Detailed Analysis:1. Jurisdiction of Arbitrators to Decide the Legality of the Contract:The appellants argued that the arbitration clause was broad enough to include disputes regarding the validity of the contract. Clause 14 of the agreement stated that all disputes 'arising out of or concerning the contract' should be referred to arbitration. However, the court held that if the contract itself is found to be illegal, the arbitration clause within it also becomes invalid. This principle was supported by precedents such as Heyman v. Darwins Ltd., which established that an arbitration clause cannot operate if the contract is void ab initio due to illegality. The court concluded that the dispute over the contract's legality was not within the arbitrators' jurisdiction, allowing the respondents to challenge the contract under Section 33 of the Arbitration Act.2. Estoppel from Questioning the Validity of the Award:The appellants contended that the respondents were estopped from challenging the award because they had participated in the arbitration proceedings. The court rejected this argument, stating that participation in arbitration does not confer jurisdiction if the initial agreement is void. The court referenced Ex p. Wyld, noting that jurisdiction cannot be conferred by acquiescence if the underlying contract is invalid. Therefore, the respondents were not estopped from questioning the award's validity.3. Legality of the Contract Under the Notification Dated October 29, 1953:The court examined whether the contract dated September 7, 1955, was illegal under the notification issued by the Central Government on October 29, 1953, under Section 17 of the Forward Contracts (Regulation) Act, 1952. This notification prohibited forward contracts for the sale or purchase of raw jute, except for non-transferable specific delivery contracts. The court analyzed the definitions of various types of contracts under the Act, focusing on whether the contract was a non-transferable specific delivery contract. The court found that the contract was indeed a specific delivery contract but was not non-transferable. The import license held by the appellants was non-transferable, and the contract terms implied that neither party intended to transfer their rights. Thus, the contract was deemed illegal under the notification.Conclusion:The Supreme Court allowed the appeals, holding that the contract was illegal and void under the notification dated October 29, 1953. The arbitration clause could not be enforced, and the respondents were not estopped from challenging the award. The court ordered costs in favor of the appellants.