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Issues: (i) Whether a dispute as to the legality and validity of the underlying contract could be referred to arbitration under the arbitration clause, and whether the respondents could challenge the award under the arbitration law; (ii) whether the respondents were estopped from disputing the award after participating in the arbitration; (iii) whether the contract was illegal under the Forward Contracts (Regulation) Act, 1952 and the notification dated 29 October 1953, or was a non-transferable specific delivery contract outside the prohibition.
Issue (i): Whether a dispute as to the legality and validity of the underlying contract could be referred to arbitration under the arbitration clause, and whether the respondents could challenge the award under the arbitration law.
Analysis: An arbitration clause contained in an agreement does not survive where the agreement itself is void ab initio or illegal. A challenge that the contract never had legal existence is a challenge to the very foundation of the submission, and such a question is for the court under the arbitration law, not for the arbitrators. A wide arbitration clause may cover disputes arising under a valid contract, but it cannot confer jurisdiction where the contract is alleged to be void from the outset.
Conclusion: The dispute as to illegality and voidness was not arbitrable, and the respondents were entitled to invoke the court's jurisdiction.
Issue (ii): Whether the respondents were estopped from disputing the award after participating in the arbitration.
Analysis: Participation in proceedings does not cure an initial want of jurisdiction where no valid arbitration agreement exists. Estoppel cannot create jurisdiction in the absence of a valid submission, though a different result may follow where only a procedural irregularity affects an otherwise valid reference.
Conclusion: The respondents were not estopped from challenging the award.
Issue (iii): Whether the contract was illegal under the Forward Contracts (Regulation) Act, 1952 and the notification dated 29 October 1953, or was a non-transferable specific delivery contract outside the prohibition.
Analysis: The statutory scheme distinguished ready delivery contracts, forward contracts, specific delivery contracts, and non-transferable specific delivery contracts, and the notification prohibited forward contracts in raw jute except such non-transferable specific delivery contracts. The contract was a specific delivery contract, and its transferability had to be judged by its terms and the surrounding commercial and licensing context. The buyer's import licence was expressly non-transferable and restricted use of the goods to the buyer's factory, while the contractual machinery, including the opening of letters of credit, the shipping documents, and delivery arrangements, showed that the parties contemplated no transfer of rights or liabilities under the bargain.
Conclusion: The contract was to be treated as a non-transferable specific delivery contract and therefore was not hit by the notification.
Final Conclusion: The award could not be sustained on the ground of illegality, and the appeals succeeded because the contract fell outside the statutory prohibition.
Ratio Decidendi: An arbitration clause embedded in an agreement cannot operate where the agreement is void ab initio or illegal, and a contract may be treated as non-transferable from its terms and surrounding circumstances even if it lacks an express prohibition on transfer.
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