1955 (10) TMI 38 - SC - Indian Laws

Court clarifies broker's authority, upholds arbitration agreement.

JUGAL KISHORE RAMESHWARDAS Versus GOOLBAI HORMUSJI

The Supreme Court held that the contracts in question were not void under Section 6 of the Bombay Securities Contracts Control Act as they related to the ... - Issues Involved:1. Validity of the contracts under Section 6 of the Bombay Securities Contracts Control Act VIII of 1925.2. Scope of authority of the appellant in executing transactions.3. Validity of arbitration proceedings and the award.4. Compliance of contract notes with Rule 167 of the Native Share and Stock Brokers' Association.Issue-wise Detailed Analysis:1. Validity of the Contracts under Section 6 of the Bombay Securities Contracts Control Act VIII of 1925:The respondent argued that the contracts were forward contracts and void under Section 6 of the Act, which states that every contract for the purchase or sale of securities, other than a ready delivery contract, shall be void unless made in accordance with sanctioned rules. The appellant contended that the contracts were ready delivery contracts as defined in Section 3(4) of the Act, meaning no time was specified for performance, and they were to be performed immediately or within a reasonable time. The City Civil Judge agreed with the appellant, but the High Court disagreed, stating that the contracts had to be performed within the period specified by the Association's rules, not immediately or within a reasonable time, making them void under Section 6. The Supreme Court, however, held that the contracts fell outside the purview of Section 6 because they were not contracts for sale and purchase of securities but related to the employment of the appellant as a broker, thus not void under Section 6.2. Scope of Authority of the Appellant in Executing Transactions:The dispute centered on whether the appellant was acting within his authority when purchasing shares on 11-8-1947. If authorized, the respondent was entitled to a credit of Rs. 1,847; if unauthorized, the appellant was liable for damages. The Supreme Court clarified that the dispute arose from the employment contract between the appellant and the respondent, not from a contract of sale or purchase of securities. The relationship was one of principal and agent, not seller and purchaser, and the employment contract was collateral to the sale/purchase contracts.3. Validity of Arbitration Proceedings and the Award:The respondent claimed the arbitration clause was void as the contracts were void under Section 6. However, the Supreme Court held that the arbitration agreement was valid as it was part of the employment contract, which was not void. The Court referenced the decision in Kishan Lal v. Bhanwar Lal, affirming that the employment contract was not void even if the related sale/purchase contracts were void. The arbitration proceedings were thus competent, and the award was not objectionable on the ground that the contracts were void.4. Compliance of Contract Notes with Rule 167 of the Native Share and Stock Brokers' Association:The respondent argued that the contract notes were void under Rule 167(c) as they did not show brokerage separately, which was required for forward contracts. The Supreme Court clarified that Rule 167 applies only to forward contracts, and the contract notes in question were ready delivery contracts under the Association's rules. The contract notes were in the form provided for ready delivery contracts, not forward contracts, and thus not void under Rule 167. The Court emphasized that the Association's rules form a complete code, and questions arising under these rules must be determined by their construction, not by statutory provisions of Act VIII of 1925.Conclusion:The Supreme Court set aside the High Court's judgment, holding that the arbitration proceedings were valid and the award was not void. The appeal was remanded to the High Court to be heard on other grounds contested by the respondent, with each party bearing its own costs. The costs of further hearings after remand would be dealt with by the High Court.