UNION OF INDIA & ANR. versus M/S. RAJDHANI GRAINS & JAGGERY EXCHANGE LTD. AND OTHERS

UNION OF INDIA & ANR.

M/S. RAJDHANI GRAINS & JAGGERY EXCHANGE LTD. AND OTHERS

March 19, 1975

(A. N. RAY, C. J., K. K. MATHEW AND V. R. KRISHNA IYER, JJ.)

Forward Contracts (Regulation) Act (74 of 1952) as amended by Amending Act ·62 of 1960, ss. 4(/), 6, 14A, 14B, 15 to 18 and 7A of the Forward Contracts (Regulation) Rules. 1954--Scope of.

The object of the Forward Contracts (Regulation) Act, 1952, is to provide for the regulation of certain matters relating to forward Contracts, the prohibi· tion of cptions in goods and for matters connected therewith. Section 6 of the Act provides that the Central Government may, if it is satisfied that it \\'Ou1d be in the interest of trade and also in public interest to grant recognition to an association, grant tecognication in such form and \Vith such condition as mav be specified and shall specify the goods \\'ith respect to which forward contracts may be entered into. between the members of such assqciation or through or with any such member. Section 14A(I), inserted by Amending Act 62 Of 1960, provides that no association con-cerned \\·jth the regulation and control of business relating to forward contracts shall, after the commencement of the 1960 Act, carry on such business except under, and in accordance with, the conditions of certificate of registration granted by the Commission, and s. 14B provides that on receipt of an applica-tion under s. l,4A, the Commission rnay, after making such enquiry as it consi-ders' necessary" grant or refuse the certificate. Sections 15 to 18 of the Act. authorise the Central Government to· impose restrictions as to commodities with respect to which bu.siness in. forward contracts can be carded on. , Rule 7 ot the Forward Contracts (Regulation) Rules, 1954, framed under the Act, pro-vides that the certificate of registration granted to an association shall be in Form F, which states that the registration is granted subject to the conditions (i) that the association shall comply with such directions as may from time to time be given by the Forward Markets Commission, and (ii) that the asso-elation shall not conduct forward trading in any commodity other than those si>ecified hereunder except with the previous approval of the Forward Markets Commission.

The respondent was granted certificate of registration under s. 14B with the second condition that it shaJl not commence trading- in non-transferable specific delivery contracts in any comm9(1ity without obtaining the prior appro-val of the Commission. direction to the same effect was also given by the Commission to the respondent in letter.

The respondent filed \\Tit petition in the High Court for quashing the condition and direction, and the High Court quashed them on the grounds : ( 1) While s. 6 gives power to the Central Government to specify goods in respect of which forward contracts may be entered into by the members of the recognised association, s. 14A is silent in regard to this matter implying that the Commissiolt has no such power; (2) the conditions which the Com-mission could attach to the certificate Of registration are only those which relate to the manner and method of carrying on the business of forward con· tracts, and the second condition imposed in the instant case did not relate 10 the manner or method of carrying on the business; and (3) no power to ini.pose ·such condition could be implied as that would be repugnant to the power of Government to control, regulate or prohibit forward trade in respect of nny commodities, vested irt the Central Government under ss. 1.S to 18.

Allowing the appeal. to tqis ,Courh

!/ELD.: .Rule ~A is intra vires the ~ule-making pov,rcr and it v.·as open to the Comn11ss1on to impose the second co1\dition in tho certificate of registration. The condition and direction are tberefore:valid. '[8-Dl

' ( 1 )(a) The areas covered by s. 6 and s. 14A are different. The fact that an associatjon is recognised by the Government \Vould not enable it to carry 9n the .business in forward contracts. For that purpose, certificate under s. 14A 1s suie qua non. The fact that Central Government has power to attach conditions as regards commodlties iO. respect of which the business of forward contracts c~n be carried on is not in any way incompatible v.•ith the power ,of the- Commission to impose conditions as: respects the comn1odities in whiCh the business can be conducted. The conditions in the market dealing with forward contracts. Jo. ·'.not'· remain·.stati<;,'· and unless the Commission .is inVested with powe~ .. ~o i!Jlpose further conditJons the object of constiiuting the Con1mission \vould be frustrate.cl. The assumption by the. H,iglc. Court that when once conditions as to comn1odities have been laid down by the Government at the time ·.of recognition, the power of the Commission · .. to attach further con.ditions as to commodities in which transactions in for.\vard contracts can ~ carrie~L:on wqi1ld .Pe.· repngll(!I1t to .tPe· power o{ the GovernJTient, fails;td: take note of changing conditions in .the. market. [6E-HJ . ' . :

(b) UI1de<"& i4(0 ol. the Act,:Jbe Commission has to perfo<m •uch· other· duties and exercise such ·other pOwers ~-may be assigned· to the Commission. by or under the Ac(, or as n1ay be prescribed. In interpreting the expression 'by .or.-11nder the Act·or as may be prescribed,' that is, where the court is can· cemed With. the question whether it is legally 'CQmpetent for the Government to vest. particular power in statutory body like thd Commission, the proper rulf.. of interpretation would ·be that unless the nature of the power is such· .as is, jncompatible with the pu~e fot: , which the: body. jc; created, or. unlessJ E. the· ·particular power is contra·i.odicated by 'any specific provjsion ef the en.act· ment bringing the. body· into extstence, any. power- ·which wo.uld furthe1 the; provisions ·of . the Act could ·be legally conferred on it. Jn the' instant c~sc, r. 7 ptescribes the conditions under which certificate of registration can be issued and that authorises the incorporation of the second condition in the cert(ficate. [7A-CJ ',,. ' .

. ·I. 'P. Gupta v. W. R. Natu; ;t\.-LR. 1963 S.c. 274, followed.

(2) The, power of the Commissi~n under ss. 14A and J4B is plenar\< as reg8rds .the ·nature. of the conditions which it can .attach for. regulating and con.tr~Hin& the. business. of Jorward .con.tracts , .of particular Association. limitatio~ · thit s. 14A ·Only authorises c_onditionS as to n1an11er_ in .. whic·h., .!~, business 1n forward contracts c:an be earned on, cannot be read tnto the .~cttoi.1 or from other P.rovisions of the. Act The specification of commodities in res· 1'iect of .. which business can be e~rfied ol} is conditiori. conce~ned \Vith the regtilatia:n and control of the business relating }O for\\-'ard contrftcts. [7D·F] · (3)(a) ·rhe restrictions or prohibitions in··~· 1'5 t~ ~8 are gener.at. _and apply to all persons. They are not concerned with restncttons or proh1b1t1ons as regards commodities in. respec_t of which business in forward contracts ~an be' .. carried· on b)r ~ particu.rar al!sociation or. _its members._ . The C'?mmiss1on atone is Invested wtth power to impose cond1ttons or proh1bttions with r.~gard tO sUch commodities. Therefore, .S..'>" .. l5 .. to .18 do not clash with pi~. power, Of the·'· ·commiSsion~ and recognition ·.of the· ·power .of thP. ~mnnss1on,,.. wil~ nOt dero£:ate 'from· the gerieral pov:er of.the GoverQment. Of course, the Cdn1· mtsSlon, being snbotdinate body, should act in conformity· with ss. 15 to 1~. . · .'· '· !7G-Hl

(by~Th~·, comffiodi:~ies . .i~ which'.,th~ as_sc;>ci~ti?n can caffY, o~ the OllsiO~ss; of forward contracts is· an i{ltegral. p,art of tts bus1n~.ss. The .';'t.::TY. idea. <?f sett?ng up 'the Commission· Wf,1$ .to" supenrise and r~.gu!~.te- such. bus1n~ss: by 1mp~SJng. Conditions· subjet:;t to 'which ,;alone;.-_the -a§soc_1a!10-?1 cart. ~a.~~ .o_tt the b.u.s1~~-.' Conditiotts .are· tioth.ing but ,qt;1alific,'}tions,,. res.tn.Clt<?ns or .l.1.~1.tattons mod,1fyt~g,:

-oi even destroying, to certaiµ eXteht, the right tO carry on buSineSs,. ':T_her·~-'fo~:the_ ·specificat_ion of comµioditi¢s. i.n whi~h_ busine,~'i cao- .be.: cm;ne,d on is : ~nditloµ Tela ting to regu13.tion and C?.ntrol <;>f that bus1:11ess .. [8B·.~J ".:' ...

':T_her·~- ·-·.A

CIVIL ArPELLATE JURISDI~TION : Civil Appeal No. 603(N) of '.1973_ . . From .the J uMment and Order dated 4-8-1972 of-the Delhi 'High . ' . 'Jl. 'Court in L.P.A. No. 7 of 1968. -

_ L. N. Sinha, Solicitor General of brtdia, P. P. Rao and Girish

, Chandra, for the appellants ..

'llishamber Lal, for respondent No. 1.

'the Judgment of the Court was delivered by

MATHEW, J.-Respondent No. l, company registered under the Companies Act, together with respondents No. 2 and 3, members CJ) of the company, filed writ petition before the High Court of Delhi · praying for quashing condition No. (ii) specified in the certificate- of · registration granted to respondent No. 1 under s. 14D of the Forward Contracts (Regulation) Act, J 952 (hereinafter referred to as 'the Act') to the effect that !he company shall not commence trading in non'transferable specific delivery contracts in any commodity l: withonl obtaining the prior approval of the Forward Mar-kets Commission (hereina'fter referred to as the 'Commission') in ·writing as also direction contained in letter dated June 2, 1964 from the Commission to the company not to commence trading in non-transferable specific delivery contracts in any commodity without' ob-taining the prior approval of the Commission in writing.

learned Single Judge of the High Court allowed the writ petition and quashed the condition in the certificate and the direction in the Jetter. The appellants preferred an appeal against the order before Division Bench. That was dismissed. This appeal, by certi- , ficaie, is against the order of the Division Dench. To ap-preciate the controversy in this case it is necessary to have _ an idea as to the object of the Act gatherable from the vreamble and its provisions. The preamble to the Act states that the object of the Act is to provide for regulation of certain matters relating to forward contracts, the prohibition of options in goods and for matters connected therewith. The Central Government is oiven . power under the Act to extend its provisions by notification to va~iou3 classes of goods and to . different areas as and when necessary. The general scheme of the Act is that forward contracts s~ould be allowed to be entered into only in accordance 'Y1th the · rules and bye-laws of recognized associations. Sec-uon 2(a) defines an 'association' as meaning body of individuals, whether mcorporated or not, consti\uted for the purpose of regulating and controlling the business of the sale or purchase -of any goods.

'registered association' is defined in s. 2(jj) as meaning an association to which for the time being certificate of registration has been granted by the Commission under s, 14B. Section 2(c) of the Act defines 'forward contract' and sections 2(0, 2(i), 2(m) and 2(n) respectively define "non-transferable specific delivery contract", "ready delivery contract", "specific delivery contract", and "transferable specific deli-B very contract". It is clear from these definitions that specific delivery contract, transferable specific delivery contract and non-transferable specific delivery contract are all different forms of forward contract. Chapter II of the Act conc~rns the establ_ishment and constitution of the Commission and s. 4 occurring in that chapter enumerates the functions of the Commission. Chapter III provides for recognition Of associations concerned with regulation and control of forward cont-racts and deals with the rights, duties and obligations of recognized associations as also the powers of the Central Government in relation to them. Chapter IIIA was inserted in the Act by Act 62 of 1960 as Parliament found after watching the working of the Act for six years that the provisions of the Act as it stood were not adequate to cope with the evil of excessive speculation and other malpractices prevalent in forward markets .. Section 14A in that- chapter provides for the certificate of registration being obtained by all associations concerned with the regulation and control of business relating to forward cont-_racts and the power of the Commission to grant or refuse such certi-ficate of registration. Chapter IV which contains sections 15 to 19 of the Act deals with regulation, control and prohibition of forward contracts in any goods, class o:f goods by the Central Government and also makes special provisions in respect of non-transferable specific delivery contracts and transferable specific delivery contracts and for prohibition of option in goods. Chapter V of the Act deals with penal-ties and procedure.

The controversy in this case centres round the correct construcl!on to be put on s. l 4A of the Act. The material portion of the section reads :

"14A (l) No association concerned with the regulation and control of business relating to forward contracts shall, after the commencement of the Forward-Contracts (Regula-G tion) Amendment Act, 1960 (hereinafter referred to as such commencement) carry on such business except under, and in accordance with, the conditions of certificate of registration granted under this Act by the Commission."

Section 14B says that on receipt of an application under s. 14A, the Commission may, after maki9g such enquiry as it consi_ders neces-H sary, by order in writing grant or refuse to grant the certificate.

Section 15 says that the Central Government may, by notification in the official gazette, declare that section to a]Jply ~o such g?ods. or class of goods and in such areas as ~a_y be specified ~ the notification and thereupon, subject to the provmons contamed m s. 18, eve~ forward contract for the sale or purchase of any goods specified m

the notification which is entered into in the area specified therein other-A wise than between members of recognised association or through or with any such member shall be illegal. Section 16 provides that where notification .has been issued under s .. 15, then notwithstanding anything contained in any other law for the time being in force or In any custom, usage or practice of the trade or the terms of any CO!ltract or the. bye-laws of any association concerned relating to any contraC(-(a) every contract for sale or purchase of any goods speci-fied in the notification shall be deemed to be closed out at such rate as the Central Government may fix in this behalf and (b) all differences arising out of any contract so deemed to be closed out shall be payable on the basis of the rate fixed under clause (a). Sec-tion 17 provides that the Central Government may by notification in the official gazette declare that no person shall, save with the pennis-sion of the Central Government, enter into any forward contract for sale or purchase of any goods or class of goods specified in the notifi-cation and to which the provisions of s. 15.· have not been made appli-cable, except to the extent and in the manner, if any, as may be speci-fied in the notification and all forward contracts in contravention of the above provision entered into after the publication of the notifica-D tion shall be illegal. Section 18 provides that provisions in Chapter III and Chapter IV shall apply to non-transferable specific delivery oont-racts for the sale or purchase of any goods.

Section 26 confers power upon Government to make rules for carrying out the object of the Act. The material rule fo~ our purpose is rule 7A of the Forward Contracts (Regulation) Rules, 1954, framed by the Government. It states that the_ certificate of registration granted to an association under sub-clause (b) of clause ( 3) of s. 14A of the Act shall ·be in form and the certificate of registration granted to an association under s. l 4B of the Act shall be in form F; and in each case, the certificate shall incorporate the conditions, if any, subject to which it i~ granted. The material portion of Form states :

"The registration her.eby granted is subject to the condi-tions (i) that the said association shall comply with such directions as may from time to .time be given by the Forward Markets Commission and (ii) that the said association shall not conduct forward trading in any commodity other than those specified hereunder except with the previous approval of the Forward Markets Commission."

Conditions No. {i) and (ii) of the Certificate of Registration granted to respondent No. 1 are the same as those specified in} Form F.

The High Court was o( the view that the conditions which the Com.-mission could attach to the certificate of registration were thos~ whic.h relate to the manner and the method of earrying on the business of forward contract, that condition No.(ii) in the-certificate did not relate to the manner or method o! carrying on the business and that no power to impose such condition cduld be implied as that would be repugnant to the power of government to control, regulate or prohibit forward trade in respect of any commodities vested in the Central Government under section 15 to 18 of the Act.

.A. • ·section 6 provides that the Central Government may, ifitis-satisfied :that it would. be in the interest of trade and also in public interel!t ti> .grant recognition to an association, grant recognition to the association .fa such form and with such condition as may be specified or prescribed ·:and shall specify in such. recognition the goods or cla!;Ses of go9ds with respect to which forward contracts may be eniercd into between: the .B -members of such association or through or with any such member. · .

. According to. the High Court, while section 6 which give8 power to· the Central · Government to accord ·recognition to an assci\:ialion provides for specifying the goods in respect of which forward contra~t ·may b_e entered into by the memb_,rs of the recognized association, ;s. 14A is silent in regard to this matter implying ihereby that the :c . Commission has no power under this section to specify the goOds in .respect of which forward trading can be carried on. · · , • .··

· Recot,'Ilition of an association under s. 6 carries with it <Cettalil ·duties· and confers certain rights on the association. Section 8 states that -every recognized association shall furnish to the Central Goverrtc ·men( such periodical returns as may be prescribed. Section 9A pro-D vides that recognised association may make rules with respect to matters specified therein. The fact that an association is recognized ·by the Central Government would not enable it to carry on th~busi-11ess in forward contract. For carrying on business in forward' contract, certificate of registration under s. 14A is sine qua non. The area. covered by section 6 and l 4A is different. The fact that Central Gov-. crnment has power to attach conditions as regards the commodities in respect of which the business of forward contract _can be carried on is not in· any way incompatible with the power of the Commission to impose conditions as respects the commodities in which the busine§S can be conducted. The conditions in the market dealing with forwar,i -contract do not remain static. They change. And unless the Commission is invested with power to impose further conditions with respect to the commodities in which the business of forward contract can be carried on, the object of constituting the Commission would be frustrated. The assumption by the High Court that. when once conditions as to commodities in respect of which busi-• ness can be carried on have been laid down at the time recognition was granted by Government, the power of the Commission to attach further conditions as to the commodities in which transactions in for-ward contract can) be carried on, would be repugnant to the power of · the Government, fails to take note of the changing conditions in the market. When s. 14A says that no association shall carry on business jn forward contracts except in accordance with' the conditions specified · in the Certificate, there can .be no doubt as to the nature of conditions which might be attached, to certificate of registration. Under clause (f) of s. 4, the Commission has "to perform such other duties and exercise such other powers as may be assigned to the Commission by or under this Act, or as may be prescribed." Dealing with the expression "by or under this Act or may be prescribed" in s. 4 ( f), this Court has said in I. P. Gupta v. W. R. Natu(') that there was

(!)A.LR. 1963 S.C. 274.

no limitation upon the nature of the power that might be conferred except that which might flow from its Mving to be one in relation to the regulation of forward trading in goods which the Act is designed to effectuate. The Court observed that where the Court is concerned with the question whether it is legally competent to vest particular pvwer in statutory body, the.proper rule of interpretation would be that unless the nature of the power is such as is incompatible with the purpose for which the body is created, or unless the particular power is contra-indicated by any specific provision of the enactnrent bringing the body into existence, any power which would further the provisions of the Act could be legally conferred on it. And, as we already said, rule 7 prescribes the conditions under which certificate of registration can be issued and that authorises the incorporation of condition No. (ii} in the ,certificate of registration.

We think thatf the reasoning of the High Court that s. 14A autho-rises only the imposition of conditions as to the manner in which the business in forward contracts can be carried on and that the section has nothing to, do with the commodities with respect to which forward contracts can be carried on is fallacious. We cannot read any such limitation in the language of s. 14A nor can we find any indication in the other provisions of the Act to the contrary. , In other words, the power of the Commission is plenary as regards the nature of tht conditions which it can attach for regnlating and controlling the busi-ness of forward contracts of particular Association. We see no reason to think that specification of the commodities in respect of which business can be carried on is not condition concerned with tbe regulation and control of the business relating to forward contracts.

Sections 15 to 18 authorise the Central Government to impose restrictions as to the commodities with respect to which business in forward contracts can be carried on. These restrictions or· prohibi-tions are general in character. and apply to all persons without any exceptions. These sections arc not concerned with restrictions or pro-.-hibitions as regards the commodities in respect of which ·business in • 'forward contract can be carried on by particular association or its members. The Commission alone is invested with the power to im-pose condition or prohibition with regard to the commodities in res-pect of which forward contracts can be entered into by particular association. These provisions can never clash with the power of the Commission to impose .conditions as respect the commodities in which the business of forward contract can be carried on. Recognition of the pow.e; o'. the . Commission to impose condition as respect the commod1tres m. which the business of forward contract can be carried on will not derogate in any manner from the general power of government to specify the commodities in relation to which the bu.s1~css of. forward co.ntract can be carried on generally. The C?mm1ss10n, ~e.mg subordinate body, is expected to act in conformity with the prov1s10ns of sectrons 15 to 18. Co-existence of these pow-ers in the manner indicated is warranted by the rule of harmonious con-struction.

10 SC/75-2

It is not relevant consi\]eration that the imposition of condition as to the commodities in respect of which business of forward contract can be carried on would. have the effect; of curtailing the area of busi-ness of an association, for the very idea of setting up the Commission was to supervise and regulate the business of forward contract by im-posing conditions subject to which alone the association can carry on business. Conditions are nothing but qualification, restriction or limitation modifying or even destroying to certain extent the right to carry on the business. The commodities in which the association can carry on the business of forward contract is an integral part of its business activity. They are the subject matter or media for carrying on the business and specification of commodities in which business can be carried on is condition sounding only in the realm of regulation and control of that business.

We therefore hold that Rule 7 is intra vires the rule making power and that it was open to the Commission to impose condition No. (ii) in the certificate of registration. It must follm~ that the con-di!ion impugned was valid and that the direction issued by the Com-mission to the respondent was justified.

We are glad to find that the view which we have expressed has been taken by the High Court of Allahabad in Union of India & Another v. Bullion and Agricultural Exchange Ltd. (1), after consider-ing the relvant decisions including the one under this appeal.

We set aside the order of the High Court and allow· the appeal without any order as to costs.

There was no appearance for the respondents. The Court acknow-· acknow-· ledges its indebtedness to Shri Bishamber Lal, Advocate, for the assi-stance rendered by him as amicus curiae.

The Court acknow-· acknow-·

Appeal allowed.

(1) I.LR. [1972] 2 Allahabad 562.