Shivnarayan Kabra v. the State of Madras
The Judgment of the . Court was delivered by
Ramaswami, J. This appeal is brought, by special leave, from
the judgment of the Madras High Court dated July 16, 1963 in
Criminal Revision Case No. 1139 of 1961.
The appellant was charged for having committed offence11
under s. 420, Indian Penal Code and s. 21(d) and (e) of the For
ward Contracts (Regulation) Act, 1952 (Act 74 of 1952), here
inafter called the "Act'', with regard to certain transactions bet
ween the appellant and P.W. 2, Rajam. The appellant was con
victed of all the charges and was sentenced to rigorous imprison
ment for oi:te year and a fine of Rs. 1,000/- under s. 420, Indian
Penal Code and a fine of Rs. 100/- under each of clauses ( d) and
(e) of s. 21 of the Act by the District Magistrate, Kumbakonam.
He further directed that a sum of Rs. 1,000/- out of the said .fine
should be paid to P.W. 2. On appeal, the convictions and sen
tences were affirmed by the Sessions Judge, West Thanjavur.
14 0 SUPREME COURT REPORTS ( 1967] I S.C.R
The appellant took the matter in revision to the Madras High
Court but the revision application was dismissed.
The appellant was the proprietor of a firm in Bombay known
as "Jawarmal Guiab Chand". He advertised that people could
invest capital in cotton, oil-seeds and other commodities and
that J. G. Market reports issued by him could help them in the
matter. P.W. 2, a whole-sale merchant dealing in cotton seed,
ground nut cakes etc. at Kumbakonam bacame a subscriber to
the reports. P.W. 2 asked the appellant for his business terms.
The appellant sent him Ex. P-30 wherein he stated that he under
took e~port, import, ready and forward business in various com
modities in accordance with Pucca Adatia system and according
to the usual practice and usage of the various associations con
cerned. Neither the appellant nor his firm was a member of any
recognised association within the meaning of the Act. P.W. 2
placed orders with the appellant and correspondence and state
ments of accounts were exchanged between the appellant and
P.W. 2 who paid a sum of Rs. 12,000(- as margin. Subsequent
to the demand of P. W. 2 the appellant sent Rs. 1,000/- and also
a final statement showing loss in the transaction and claiming
that a sum of Rs. 398 · 52 P was due lo the appellant. According
to the prosecution case, the appellant induced P.W. 2 to send
him Rs. 12,000/- between May I, 1958 and June 15, 1958 for for
ward contract business in cotton, castorseeds and ground
nut by a fradulent representation that the appellant conducted
such business even though he was not actually entitled to do any
such business and thereby cheated P.W. 2. The case of the
appellant was that he could do business under the Pucca Adatia
system with members of recognised associations like the Bombay
Oil-Seed and Oil Exchange, and the East India Collon Associa
tion, Bombay, though he himself was not a member of either of
these associations. The appellant denied that he made any false
representation or that he induced P. W. 2 to part with his money.
The case of the appellant was rejected by the District Magistrate
of K umbakonam who accepted the prosecution case as true and
convicted and sentenced the appellant on all the charges. The
decision of the District Magistrate was aflirmed by the Sessions
Judge, West Thanjavur in appeal.
It was argued, in the first place, on behalf of the appellant
that on the admitted or proved facts no case of cheating has been
made out against the appellant and therefore his conviction under
s. 420, Indian Penal Code was illegal. We are unable to accept
this argument as correct. It has been found that the appellant
sent a letter, Ex. P-34 along with a copy of the business terms,
Ex. 34(a) "on which we undertake business of our clients". In
this document the appellant has made the representation that he
SHIVNARAYAN v. MADRAS (Ramaswami, ].) J(J
could do business in forward contracts in cotton, grains, seeds,
bullion, black pepper etc. in accordance with the pucca adatia sys
tem and "in accordance with the usual practice and usage of the
various associations concerned". In Ex. P-33 the appellant
sent a telegram to P.W. 2 intimating that "buying is advisable
for quick profits". The appellant knew fully well that J:ie had
no right to do forward business and that he was not a. member
of any recognised association and that he could not lawfully ad
vertise to P. W. 2 for investment in forward contracts. It is not
necessary that a false pretence should be made in express words
by the appellant. It may be inferred from all the circumstances
including the conduct of the appellant in obtaining the property
and in Ex. P-34(a) the appellant stated something which was not
true and concealed from P. W. 2 the fact that he was not a member
of any recognised association and that he was not entitled to carry
on the forward contract business. It is clear that P. W. 2 would
not have parted with the sum of Rs. 12,000/- but for the induce
ment contained in Ex. P-34 and the representation of the appel
lant that he could lawfully carry on forward contract busi
ness.
It was then submitted on behalf of the appellant that the
forward contract in the present case was a wagering contract and
fell outside the purview of the Act and the provisions of s. IS of
that Act were therefore not attracted to this case. In our opi
nion, there is no justification for this argnment. Before setting
out the statutory provisions it is desirable to indicate briefly the
economic implications of forward trading in commodities, the need
for the regulation of such trading and the mischief which the Act
was intended to remedy. The expert committee to which the Bill
which became the Act was referred, explained in their report the
meaning of forward trading as follows :
"Forward trading involves speculation about the
future, but not all forms of forward trading could be consi
dered as · either unnecessary or undesirable for the effi
cient functioning of anything but the most primitive
economy ............ To the extent to which forward
trading enables producers, manufacturers and traders to
protect themselves against the uncertainties of the future,
and enables all the relevant factors; whether actual or
anticipated, local or international, to exercise their due
influence on prices, it confers a definite boon on the
community, because, to that extent, it minimises
the risks of production and distribution and makes for
greater stability of prices and supplies. It thus plays
a useful role in modern business. At the same time,
it must be admitted that this is an activity in which a
great many individuals with small means and inadequate
142 SUPIU!IO COUllT lU!POllTS [1967) I S.C.ll·
knowledge of the market often participate, in the hope
of quick or easy gains and consequently, forward trading
often assumes unhealthy dimensions, thereby increasing,
instead of minimising, the risks of business. There are
forms of forward trading for example, options, which
facilitate participation by persons with small means
and inadequate knowledge .......... It is, therefrre,
necessary to eliminate certain forms of forward trading,
and permit others under carefully regulated conditions,
in order to ensure that, while producers, manufactu
rers and traders will have the facilities they need for
the satisfactory conduct of their business the wider in
terests of the community, and particularly, the interests
of consumers, will be adequately safeguarded against
any abuse of such facilities by others.''
It was with these objects that the provisions of the Act
were enacted.
It is necessary at this stage to set out the relevant provisions
of the Act. The object of the Act as stated in the preamble is 'to
provide for the regulation of certain matters relating to forward
contracts, the prohibition of options in goods and for matters
connected therewith'. Section 2(c) of the Act defines a "forward
contract" as a contract for the delivery of goods at a future date
and which is not a ready delivery contract. Section 2(i) defines
a "ready delivery contract" as a contract which provides for the
delivery of goods and the payment of a price therefor, either im
mediately or within such period not exceeding eleven days after
the date of the contract. The statute therefore makes a distinc
tion between "ready delivery contracts" and "forward contracts".
Forward contracts are again divided into two categories 'specific
delivery contracts' and 'non-transferable specific delivery contracts'.
'Specific delivery contracts' mean forward contracts which pro
vide for actual delivery of specific goods at the price fixed dur
ing specified future period. 'Non-transferable specific delivery
eontracts' are specific delivery contracts the rights or liabilities
under which are not transferable. Section 15 of the Act confers
power on the Government to issue notifications declaring illegal
forward contracts with reference to such goods or class of goods
and in such areas as may be specified. Section 15 states :
"15. (I) The Central Government may by noti
fication in the Official Gazette, declare this section to
apply to such goods or class of goods and in such areas
as may be specified in the notification, and thereupon,
subject to the provisions contained in section 18, every
forward contract for the sale or purchase of any goods
specified in the notification which is entered into in the
I!
SHIVNARAYAN v. MADRAS (Ramaswami, J.) 143
area specified therein otherwise than between members
of a recognized association or through or with any such
member shall be i1Iegal.
(2) Any forward contract in goods entered into in pur
suance of sub-section (!) which is in contravention of
any of the bye-laws specified in this behalf under-clause
(a) of sub-section (3) of section 11 shall be void-
(i) as respects the rights of any member of the recog
nised association who has entered into such contract
in contravention of any such bye-law, and also
(ii) as respects the rights of any other person who
has· knowingly participated in the transaction entailing
such contravention.
"
Section 17 authorises the Government to prohibit by notification
any forward contract for the sale or purchase of any goods or
class of goods to which the provisions of s. 15 have not been made
applicable. Section 18 exempts non-transferable specific de
livery contracts from the operation of these sections. Section 21
relates to penalties and reads as follows:
"21. Any person· who-
(a) .................. ··• ........... .
(b} .............................. ; .
(c) ............................... .
(d) not being a member of a recognised association,
wilfully represents to, or induces, any person to believe
that he is a member of a recognised association or that
forward contracts can be entered into or made or per
formed, whether wholly or in part, under this Act through
him, or
( e) not being a member of a recognised association or
· his agent authorised as such under the rules or bye-laws of
such association, canvasses, advertises or touts in any
manner, either for himself or on behalf of any other per
son, for any business connected with forward con
tracts in contravention of any of the provisions· of
this Act, or
shall, on conviction, be punishable-
(i) for a first offence, with imprisonment which may
extend to two years, or with a fine of not less than one
thousand rupees, or with both;
(ii) for a second or subsequent offence, with impri
sonment which may extend to two years and also with
tine; provided that in the absence of special and ade
quate reasons to the contrary to be mentioned in the
judgment of the court, the imprisonment shall be not
less than one month and the fine shall be not less than
one thousand rupees."
It was argued on behalf of the appellant that the contracts
in this case were not really meant for delivery of goods but were
speculative in character. It was contended that to a contract
of this description the Act has no application. Mr. Na unit Lal
argued that the words of s. 2(c) must be literally construed and
must be taken to cover only those contracts in which the parties
intended actual delivery of goods at a future date. In our opi
nion, the interpretation for which Mr. Naunit Lalcontendsisagainst
the whole scheme and purpose of the Act. If the expression "for
ward contracts" in s. 2(c) is not construed so as to include spe
culative contracts wbich ostensibly are for delivery of goods the
provisions of the Act would be rendered nugatory. It is a sound
rule of interpretation that a statute should be so construed as to
prevent the mischief and to advance remedy according to the true
intention of the makers of the statute. In construing therefore
s. 2(c) of the Act and in determining its true scope it is permissible
to have regard to all such factors as can legitimately be taken into
account in ascertaining the intention of the legislature, such as
the history of the statute, the reason which led to its being passed,
the mischief which it intended to suppress and the remedy pro
vided by the statute for curing the mischief. That was the rule
laid down in Jfeydo11's case(') which was accepted hy this Court
in The Be11go/ Immunity Company Limited v. The Stale of Bihar
and others(2). ·
As we have already pointed out, the Act was passed in order
to put a stop to undesirable forms of speculation in forward trading
and to correct the abuses of certain forms of forward trading in
the wide interests of the community and, in particular, the inte
rests of the consumers for whom adequate safeguards were essen
tial. In our opinion, speculative contracts of the type covered
in the present case are included within the purview of the Act.
One of the contracts in the present case is Ex. P-42 in which P. W. 2
placed an order for supply of 100 bales of cotton Jarilla to be de
livered in August, 1958 at Rs. 654/- per Candy. We think that
~ contract of this description falls within the definition of "for
ward contract" within the meaning of this Act and the provisions
of that Act are therefore applicable to this case. We consider
that Mr. Naunit Lal .has been unable to make good his submission
on this aspect of the case.
(I) (1584] 3 W. Rep, 16: 76 E.R. 637 <2l (t955J 2 s.c.R. 603.
0
'
SHIVNARAYAN v. MADRAS (Ramaswami, !.) 145
It was then contended for the appellant that even if the Act
was applicable there is no breach of the provisions of s. 15 be
cause the appellant placed his order for the goods covered by the
contract through "a member of the recognised. association" as
contemplated in s. 15 of the Act. The argument was stressed
that the appellant was merely acting as an agent of P. W. 2 and
had placed an order for the notified goods through a member of
the recognised association and there was no breach of any of the
provisions of the Act. We are unable to accept this argument
as correct. In the first place, there is no evidence on the record
of the case to show that the appellant placed the order for the
notified goods with a .member of the recognised association. But
even on the assumption that the appellant placed an order for
the notified goods through a member of the recognised associa
tion there is, in our opinion, a breach of the provisions of the Act.
The reason is that the appellant was doing forward contract busi
ness as a Pucca adatia. It is well-established that the pucca adatia
has no authority to pledge the credit of the upcountry constituent
to the Bombay merchant and there is no privity of contract as bet
ween the upcountry constituent and the Bombay merchant. The
pucca adatia is entitled to substitute his own goods towards the
contract made for the prirtcipal and buy the principal's goods on
his personal accounts. In other words, the pucca adatia is not
the agent of his constituent but he is acting as a principal as re
gards his constituent and not as a disinterested middleman to bring
two principals together. The legal position has been explained
by the Bombay High Court in Bhagwandas Narotamdas v. Kanji
Deoji(t) and affirmed by the Judicial Committee in Bhagwandas
Parasram v. Burjorji Ruttonji Bomanji(2). In the present case,
therefore, the appellant was acting as principal to principal, so
far as P. W. 2 was concerned and the contracts are hit by the pro
visions of s. 15 of the Act.
We pass on to consider the next contention of the appellant
that there was a breach of s. 361, Criminal Procedure Code
which states:
''.361. (!) Whenev_er any evidence is given in a lan
guage not understood by the accused, and he is pre
sent in person, it shall be interpreted to him in open Court
in a language understood by him.
(2) If he appears by pleader and the evidence is given
in a language other than the language of the Court, and
not understood by the pleader, it shall be interpreted to
such pleader in that language.
" ..............................................
(I) I.L.R. 30 Born. 205. (2) 45 I.A. 29.
146 SUPREME COURT kl!POllTS (1967] I S.C.R.
It was said that the evidence of the prosecution witnesses was
given either in Tamil or in the English language and the appel
lant did not know either of the languages and so he was not able
to take part in the trial. Mr. Naunit Lal contended that there
was a breach of the requirement of s. 361 (I), Criminal Proce-
dure Code and the trial was vitiated. We do not think there is
any substance in this. argument. Even if it is assumed that the
appellant did not know English or Tamil the violation, if any of
s. 361(1), Criminal Procedure Code was merely an irregularity
and it is not shown in this case that there is any prejudice caused
to the appellant,on this account. It is pointed out by the Sessions
Judge that the appellant did not make any objection at the time
the evidence was given and it appears that be was represented by
two eminent advocates-Sri V. T. Rangaswami Iyenger and Sri
R. Krishqamoorthy Iyer-in the trial court who knew both these
languages and who would not have allowed the interest of the ap-
pellant. 'to be jeopardised even to the smallest extent. In our
opiajon, the irregularity has not resulted in any injustice and the
provisions of s. 537, Criminal Procedure Code arc applicable to
·cure the defect.
Lastly, it was submitted that the 6 items of alleged cheating
were combined together in one charge and the conviction of the
appellant is therefore illegal. There is no merit in this argument
because the lower courts have found that all the six items of cheat-
ing were part and parcel of one transaction and the trial of the
appellant on a single charge was therefore permissible under s. 239, E
Criminal Procedure Code. •
For the reasons expressed we hold that the decision of
the High Court should be affirmed and this appeal should be
dismissed.
G.C. Appeal dismissed. F