Decided on October 23,1953

N.K. MURTHY Respondents


- (1.) These appeals arise out of suits instituted by the appellants who are a firm of Stock Brokers called the Central Brokers, for recovery of certain amounts claimed as balance due on account of several purchases and sales of shares effected by them on behalf of the respective defendants. The suits were contested on the ground 'inter alia' that the contracts sued on were void as being in contravention of Section 94-C of the Defence of India Rules, and that the claims based thereon were in consequence unenforceable under Section 23, Contract Act. There were a number of other suits in which the same defence had been raised and Mack J. directed that the question should be argued as a preliminary issue in all of them. After hearing counsel in all the suits, he held that the contracts were illegal and accordingly dismissed the suits 'in limine'. Against this judgment the plaintiffs have preferred the above appeals and the only point that arises for consideration therein is whether the contracts sued on were void and unenforceable on the ground that they were in contravention of Section 94-C of the Defence of India Rules. That section which came into force on 11-91943 runs as follows: "94-C(1). In this rule- (a) "Budla" includes a contango and a backwardation and any other arrangement whereby the performance of any obligation under a contract to take or give delivery of securities within a stipulated period is postponed to some future date in consideration of the payment of receipt of interest or other charges; (b) "Contract" means a contract made or to be performed in whole or in part, in British India relating to the sale or purchase of securities; (c) "Ready delivery contract" means a contract which must be performed by the actual delivery of, or payment for, the securities specified therein on a date not later than the seventh day (or if the seventh day happens to be a holiday, the business day next following); from the date of the contract. (d) "Securities" include stocks, shares, bonds, debentures and debenture stock and any other instrument of a like nature, (e) "Stock exchange" means any association, organisation, or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities. (2) No Stock Exchange shall, after 24-9-1943 permit or afford facilities for - (a) the transaction of budla: (b) the making of any contract other than a ready delivery contract; or (c) the carrying out or settlement of any budla transaction or any contract other than a, ready delivery contract. (3) Any Director, Manager, Secretary or other officer of a stock Exchange who contravenes any of the provisions of this rule shall be punishable with imprisonment for a term which may extend to five years or with flue or with both. (4) The Central Government, may, by order, authorise subject to such condition, if any, as it may impose, any Director, Manager, Secretary or other officer of a Stock Exchange to extend, in any particular case, for reasons to be recorded in writing, the time for the performance of a 'ready delivery contract' specified in Clause (c) of Sub-rule (1)."
(2.) By a notification dated 4-5-1946 "fifteenth day" was substituted for the word "seventh" in Section 94-C(1)(c) and the entire section was repealed on 1-10-1946. The position, therefore, is that transactions of the character mentioned in the section and entered into between 24-9-1943 and 1-10-1946 would be hit by it. As the suit contracts were concluded during this period the only point for decision is whether, otherwise, they fall within the purview of the section. The contention on behalf of the appellants is that the section prohibits only Stock Exchanges from permitting or affording facilities for Budla transactions, that the contracts entered into outside the floor of the Stock Exchange are not within the prohibition enacted in the section; and that contracts made by Stock Brokers in their own office with persons who are not even members of the Stock Exchange are wholly unaffected by the prohibition. The decision in -- 'Nagappa v. Veerappa & Co.', (A), was cited in support of this contention. There, the dealings in question were between persons who were not members of a Stock Exchange and it was held that Section 94-C of the Defence of India Rules applied only to transactions in the stock Exchange and not to any settlement between the parties so long as that settlement was without recourse to the Stock Exchange and that the section did "not bar the enforcement of rights and liabilities under such contracts by a court". This conclusion is supported by the plain language of the section and we agree with it.
(3.) It was suggested for the respondents that the definition of "Stock Exchange" in Section 94-C(1) was wide enough to include all associations which deal in shares and that on that construction the appellants would be within the mischief of that section. This argument did not find favour with Mack J. who considered that the definition was intended to apply only to recognised Stock Exchange and not to firms doing business as Share brokers and he referred to Section 94-C Sub-clause (3) which was complementary to Section 84-C(2) and observed that the partners of a share brokers' firm could not be convicted under that clause as "officers of a self-constituted Stock Exchange". We are in complete agreement with Mack J., that the definition of "Stock Exchange" in Section 94-C(1)(e) cannot apply to a firm of Stock Brokers and that the words "Permit or afford facilities for Budla transactions "are not appropriate to describe contracts entered into by them with their clients. Mr. R. Vaidhyanathan, the learned counsel who argued the case for the respondents, apart from throwing a suggestion that the appellants were "stock exchanges" as defined in the Act did not pursue it further and, indeed conceded and quite correctly, that the transactions in question could not be brought within the express prohibition of the section.;

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