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Case Number

O.C.J Suit No. 786 of 1941

Attorney(S)

N.H Bhagwati, with M.V Desai, for the plaintiff.
D.B Desai, for the defendant.

Judges

Mr. Blackwell, J.

Acts

s. 4 sub-s. (7), of the Bombay Cotton Contracts Act.A
BOMBAY COTTON CONTRACTS ACT
s. 6(1) of the Indian Arbitration Act (X of 1940),
s. 1(1) of the English Arbitration Act of 1934
s. 6(1) and sub. s. (2)(j). Section 6(1)
s. 37 of the Indian Contract Act,

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Smart Summary

Concise Analytical Summary of the Opinion (Blackwell, J.)

Factual and Procedural Background

The plaintiff sued as the heir and legal personal representative of his deceased father, Ramchandra Bhagwandas Loyalka, seeking recovery of money alleged to be due under cotton brokerage contracts entered into by the deceased. The deceased had been a member of the East India Cotton Association Ltd. and had acted as broker for the defendant under contract notes containing an arbitration clause referring disputes to arbitration under the Association's by-laws.

Ramchandra Bhagwandas died on or about 1 May 1940. The plaintiff offered to take over and perform the outstanding contracts, so that the Association's by-law for closing contracts on death without successors (by-law 15) did not operate. The defendant paid Rs. 444 on 9 May 1940 but failed to pay Rs. 3,486 due on the clearing of 25 May 1940. The plaintiff's attorneys called on the defendant for payment and later requested appointment of an arbitrator; the defendant did not appoint an arbitrator. The Association's chairman appointed arbitrators under by-law 38B, who proceeded in the absence of the defendant. The plaintiff later requested leave to withdraw that reference and the arbitrators agreed to permit withdrawal.

The defendant's written statement alleged (paragraph 11) that, by the Bombay Cotton Contracts Act and the Association's rules and by-laws, it was obligatory for the plaintiff to submit his claim to arbitration and that obtaining an award in his favour was a condition precedent to instituting suit. The learned judge tried as a preliminary issue whether the plaintiff was entitled to maintain the suit for the reasons mentioned in paragraph 11.

Legal Issues Presented

Whether a plaintiff who sues as personal representative of a deceased member must submit the claim to arbitration under the East India Cotton Association's by-laws and whether obtaining an award in his favour is a condition precedent to instituting a suit (as framed in paragraph 11 of the written statement).
Whether the arbitration clause and the second part of article 96 of the Association (stating that obtaining an award is a condition precedent to commencing legal proceedings) are operative as by-laws within the meaning of the Bombay Cotton Contracts Act, having regard to sections 4(7) and 6.

Arguments of the Parties

Defendant's Arguments (as advanced by Mr. D.B. Desai)

Cited authorities (including Baird's case and James v. Buena Ventura Nitrate Grounds Syndicate) to argue that the death of a member does not dissolve his connection with a company and that, until the deceased's interest is transferred, the estate remains a member. On that basis, the arbitration clause remains applicable and the plaintiff (as heir and legal representative) is bound to submit to arbitration.

Plaintiff's Arguments (as advanced by Mr. Bhagwati and Mr. M.Y. Desai)

Mr. Bhagwati argued that a deceased member remains a member only for limited purposes and that a legal representative has no right to vote, give proxies, or refer matters to arbitration under the by-laws; by-law No. 1's definition of "Member" showed no intention to treat a legal representative as a member for such purposes.
Mr. Bhagwati relied on Re An Arbitration between Percival to show executors are not bound to appoint an arbitrator where a personal exercise of judgment is required, and he referred to s.1(1) of the English Arbitration Act 1934 and s.6(1) of the Indian Arbitration Act (X of 1940) to note that these statutes (the English and the Indian Arbitration Act) altered the old rule so that arbitration agreements are not discharged by death and become enforceable by or against the personal representative (the opinion records these statutory provisions were drawn to the court's attention).
Mr. M.Y. Desai contended that a letter from the defendant's attorneys dated 26 July 1940 (exhibit A) repudiated the defendant's obligations under the contract (the letter stated that the transactions were really those of a third party and that the defendant should not be held liable). He relied on Jureidini v. National British and Irish Millers Insurances Company, Ltd., to support the proposition that repudiation going to the root of the contract prevents the repudiating party from pleading an arbitration clause as a bar to enforcement.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Baird's case	Illustration that death of a company member does not automatically dissolve the member's connection and that the estate remains a member until transfer.	The court noted the defendant relied on this authority but did not accept that it meant a living "member" capable of invoking by‑law arbitration remained in existence for the purposes of art. 96; the court distinguished estate liability from membership able to refer to arbitration.
James v. Buena Ventura Nitrate Grounds Syndicate, Limited	Similar principle to Baird's case regarding the estate of a deceased shareholder remaining a member for certain purposes.	The court recorded the defendant's reliance on the case but concluded that, although the estate may remain liable on contracts, that did not mean a "member" capable of invoking arbitration existed after death.
Re An Arbitration between Percival	Held that executors were not bound to appoint an arbitrator where appointment required exercise of personal judgment by the deceased; death could discharge the arbitration agreement in that context.	The court treated the Percival decision as supportive of the plaintiff's position that executors/legal representatives may not be bound where a personal exercise of judgment is required. The court also noted subsequently enacted statutory provisions in England and India that altered that rule.
Jureidini v. National British and Irish Millers Insurances Company, Ltd.	Repudiation of a claim on grounds going to the root of the contract precludes the repudiating party from pleading the arbitration clause as a bar to action to enforce the claim.	The court accepted the principle and applied it: the defendant's July 26, 1940 letter was construed as a total repudiation of liability, and on that basis the defendant could not insist on the arbitration clause.

Court's Reasoning and Analysis

The court conducted a statutory and contractual analysis focused on the association's articles and by-laws and the relevant statutory provisions of the Bombay Cotton Contracts Act.

Interpretation of article 96 and by‑laws: The first part of article 96 required differences between members (and certain others) to be referred to arbitration "in such manner as shall be prescribed by the by-laws." The court examined by-law 1 (definition of "Member"), by-law 15 (closing contracts where a party dies without successors), and by-law 38 (procedures for arbitration).
Existence of a "member" able to refer to arbitration after death: The court held that, although the deceased's estate remained liable to perform contractual obligations (and that liability may flow from s.37 of the Indian Contract Act), there was no longer a living "member" within the meaning of article 96 or by-law 1 who could either call for arbitration or be called upon to appoint an arbitrator. Accordingly, the arbitration clause ceased to be applicable on the member's death in the circumstances of this case.
Validity of the second part of article 96 (award as condition precedent): The court addressed whether the provision that "the obtaining of an Award ... shall be a condition precedent to the right ... to commence legal proceedings" could be treated as a by-law under s.4(7) of the Bombay Cotton Contracts Act. The court found that only those provisions of articles which relate to matters for which by-laws may be made under ss.5 and 6 are to be deemed by‑laws. Because ousting a party's right to resort to the courts is a matter of grave character, the court concluded that the second part of article 96 (to the extent it made obtaining an award a condition precedent) could not be treated as a by-law under s.4(7) and therefore could not be relied upon to bar suit.
Effect of subsequent by-law (44): The court noted that by-law 44 (which preserves arbitration rights for legal representatives after death) was not in force at the material time — it came into operation on 21 April 1941 — and therefore did not assist the defendant.
Repudiation argument: The court construed the defendant's letter of 26 July 1940 (annexed as exhibit A) as a total repudiation of liability under the contract. Drawing on Jureidini, the court held that such repudiation prevented the defendant from asserting the arbitration clause as a defence. On this ground as well, the defendant could not insist on compliance with the arbitration clause.

Having considered the parties' arguments, statutory provisions (including s.4(7) and s.6(1) & sub-s.(2)(j) of the Bombay Cotton Contracts Act) and the Association's articles and by-laws, the court concluded the arbitration clause did not bar the plaintiff's suit.

Holding and Implications

Holding: The court held that the plaintiff is entitled to maintain this suit; the plaintiff's preliminary issue was answered in his favour and the suit was decreed. (Plaintiff entitled to maintain suit; suit decreed.)

Implications

Direct effect on the parties: The defendant cannot successfully rely on the Association's arbitration clause or the second part of article 96 (as a by-law) to prevent the plaintiff, acting as heir and legal representative, from bringing the present suit. The defendant's repudiatory letter further precludes him from invoking the arbitration clause.
Statutory and contractual limits: The decision rests on a narrow construction of the Association's articles and by-laws in light of the Bombay Cotton Contracts Act — specifically, that only those article provisions capable of being by-laws under ss.5 and 6 are to be deemed by-laws under s.4(7), and that the mere liability of a deceased's estate does not equate to the continued existence of a "member" able to invoke arbitration under article 96 as it stood at the material time.
Broader precedent: The opinion resolves the preliminary issue between these parties on the facts and law presented. The court did not announce a sweeping, generalized rule beyond its statutory and contractual analysis; the decision's direct legal effect is to permit the present suit to proceed and to deny the defendant's reliance upon the arbitration requirement and the award-as-condition-precedent provision in the circumstances before the court.

Attorneys of record (as named in the opinion): Messrs Madhawji & Co. for the plaintiff; Messrs Samant & Co. for the defendant.

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Chiranjilal Ramchandra Loyalka v. J.N. Joshi

Blackwell, J.:—

This case raises a curious point as to whether it is obligatory upon the plaintiff who seeks, as personal representative of his deceased father, to recover from the defendant a sum of money alleged to be due by the defendant in respect of contracts made by his deceased father to submit the claim made by him to arbitration in accordance with the by-laws of the East India Cotton Association, and whether the obtaining of an award in his favour is a condition precedent to the institution of any suit in respect of the transactions. After the issues had been raided learned counsel asked me to try this as a preliminary issue, and I agreed to do so. The issue has been argued upon the assumption that all the allegations made in the plaint are correct, and a number of documents have been put in by consent.

The facts necessary for the determination of this issue may be stated shortly as follows:—

Ramchandra Bhagwandas Loyalka, the deceased father of the plaintiff, was a member of the East India Cotton Association Ltd., and carried on business as a broker under the name and style of Bhagwandas Ramchandra. The defendant employed the said Bhagwandas Ramchandra as his broker to put through various transactions for purchase and sale of cotton for April—May 1940, and July—August, 1940, delivery. Bhagwandas Ramchandra rendered to the defendant contract notes in the prescribed form. Exhibit No. 3 is a specimen. It provides that in the event of any dispute arising between the parties the matter is to be referred to arbitration as provided by the by-laws of the East India Cotton Association, Ltd.

Ramchandra Bhagwandas died on or about May, 1, 1940. Thereafter the plaintiff being willing to take over the liability in respect of the outstanding contracts of his deceased father the transactions were not closed by the East India Cotton Association and the liability to perform the same rested on the plaintiff. By-law 15 of the by-laws of the East India Cotton Association provides among other things that if before the maturity of a contract to which a member is a party one of the parties dies without leaving executors or others able and willing forthwith to take over his liabilities under the contract, the contract shall be closed, and that various provisions laid down in that by-law shall then operate. That by-law did not come into operation because the plaintiff was ready and willing to take over and perform the outstanding contracts.

At the time of the death of Ramchandra Bhagwandas the defendant had outstanding transactions for the purchase of one hundred and fifty bales for July-August 1940 delivery and in respect of these transactions the defendant became liable to pay and paid to the plaintiff the sum of Rs. 444 for the clearing of May 9, 1940.

Thereafter a sum of Rs. 3,486 became due and payable by the defendant to the plaintiff on the clearing of May 25, 1940, in respect of his aforesaid transactions of one hundred and fifty bales. The defendant failed to pay that amount and the plaintiff in this suit claims that amount as payable to him as the heir and legal personal representative of Ramchandra Bhagwandas. The plaintiff in the suit sued for the further sum of Rs. 149 but that claim has been abandoned and I need not go into it further.

By a letter of July 23, 1940, the attorneys of the plaintiff called upon the defendant to pay the said sum of Rs. 3,486. The defendant failed to do so. By a letter dated July 27, 1940, the plaintiff called upon the defendant to appoint an arbitrator to deal with the matter. The defendant failed to do so. By a letter dated September 3, 1940, the plaintiff requested the chairman of the Board to appoint an arbitrator as the chairman is under the by-laws empowered to do. The chairman of the Board thereupon appointed two arbitrators under by-law 38B and they proceeded to told the arbitration. The defendant did not appear and took no part in the arbitration. Subsequently by a letter from the plaintiff's solicitors to the arbitrators dated December 10, 1940, the plaintiff requested leave to withdraw the reference by reason of technical difficulties mentioned in the letter reserving his rights to apply for a proper reference as the heir and legal representative of the deceased Ramchandra Bhagwandas Loyalka. The arbitrators made an endorsement upon that letter to the effect that they agreed that the reference might be withdrawn.

The correspondence to which I have referred was put in as exhibit No. 5 (collectively).

The plaintiff then brought this suit, and among other defence the defendant in paragraph 11 of the written statement submitted that by reason of the provisions of the Bombay Cotton Contracts Act (Bom. IV of 1932) and the rules, regulations, articles of association and by-laws of the East India Cotton Association, Ltd., it is obligatory upon the plaintiff to submit the claim made by him to arbitration according to the said rules and regulations and that the obtaining of an award in his favour is a condition precedent to the institution of any suit in respect of the said transactions. The first issue raised which I have tried as a preliminary issue is in this form—

“Whether the plaintiff is entitled to maintain this suit for the reasons mentioned in paragraph 11 of the written statement.”

It is to be observed that by reason of his not having been ready and willing himself to submit the dispute to arbitration it was not open to the defendant to apply for a stay of the suit. He has, however, taken the defence to which I have alluded.

Section 4(7) of the Bombay Cotton Contracts Act (Bom. IV of 1932) is in these terms:—

“It is hereby declared that the East India Cotton Association, Limited, is a recognised cotton association for the purposes and subject to the previsions of this Act and the articles and by-laws of the said Association shall, so far as they relate to matters for which by-laws may be made under the provisions of ss. 5 and 6, be deemed to be by-laws of a recognised cotton association”:

It is to be observed that not all the articles of the association are to be deemed to be by-laws, but only those made under the provisions of ss. 5 and 6. For the present purpose, it is only necessary to refer in this connection to s. 6(1) and sub. s. (2)(j). Section 6(1) is as follows:—

“The Board of Directors may, subject to the sanction of the Provincial Government, make and, from time to time add to, vary or rescind by-laws for the regulation and control of transactions in cotton.”

Sub-section (2):—

“In particular and without prejudice to the generality of the foregoing provision such by-laws may provide for—

*******

(j) the settlement of claims and disputes by arbitration and appeals against awards.”

The only article of association to which it is necessary to refer is art. 96, which was put in with certain other articles as Exhibit No. (1) (collectively). It is in the following terms:—

“Whenever any difference arises between Members or Associate Members or Special Associate Members or between one or more of them and another or others who are not Members or Associate Members or Special Associate Members touching or in connection with the cotton trade or any transaction therein it shall be referred to arbitration in such manner as shall be prescribed by the by-laws. And it is hereby expressly declared that the holding of such an arbitration and the obtaining of an Award thereunder shall be a condition precedent to the right of any Member or Associate Member or Special Associate Member or Non-Member to commence legal proceedings against any other Member or Associate Member or Special Associate Member or Non-Member in respect of any such difference as aforesaid and any Member or Associate Member or Special Associate Member or Non-Member shall have no right of action against any other Member or Associate Member, Special Associate Member or Non-Member except to enforce the Award in any such Arbitration.”

See Exhibit (1) (collectively).

The relevant by-laws or parts thereof are as follows:—

“1. In these by-laws unless there be something in the subject-matter or context inconsistent therewith—

*******

Member means a person, firm or company duly elected to membership of the Association whether entitled or not entitled to use the Clearing house.”

I have referred to by-law 15 and need not refer to it again.

The first part of by-law 38 is in the following terms:—

“A. all unpaid claims whether submitted or not and all disputes (other than those relating to quality) arising out of, or in relation to (a) contracts (whether forward or. ‘ready’ and whether between members or between a member and a non-member) made subject to these by-laws or (b) the rights and/or responsibilities of Commission agents, mukadums and brokers not parties to such contracts shall be referred to the arbitration of two disinterested persons one to be chosen by each party. The arbitrators shall have power to appoint an Umpire and shall do so if and when they differ as to their award.

The arbitrators shall make their Award within 15 days of their appointment unless the Chairman shall when appointing arbitrators (in the manner prescribed below) or upon the subsequent application of the arbitrators, whether appointed by the parties or by the Chairman, grant an extension of this period.”

This by-law then provides farther machinery for the arbitration is not necessary to set out in details. There is nothing in this by-law to suggest that the personal representative of either party is entitled to invoke or is bound to submit to arbitration.

By-law 44 was not in force at the time material for the determination of the question before me.

It came into operation on April 21, 1941, and is designed to meet the situation which has arisen in the present case. It provides, among other things, that the death of any party shall not discharge the right of any other party or the legal represantative of the deceased to refer to arbitration under the by-laws any dispute or claim. The relevant by-laws were put in as exhibit No. (2) (collectively).

The first part of art. 96, provides in substance, that when any difference arises between members of various classes inter se or between one or more of them and another person or other persons who are not members or special associate members touching or in connection with the cotton trade or any transaction therein it shall be referred to arbitration in such manner as shall be prescribed by the bye-laws. The first question arising for determination on this part of the article is whether the heir and legal representative of a deceased member can be said to be a member within this part of the article, or, putting it in another way, whether the member having died his heir and legal representative is either entitled or bound to go to arbitration in connection with a transaction which had been entered into by the member during his life time.

It was pointed out by Mr. D.B Desai for the defendant that the death of a member of a company does not, as in the case of a partnership, dissolve his connection with the company and that until steps are taken to transfer his interest the dead shareholder, that is to say, his estate remains a member. In this connection he cited Baird's case(1) and James v. Buena Ventura Nitrate Grounds Syndicate, Limited.(2) Mr. D.B Desai argued that as the estate of the deceased remained a member the arbitration clause was still applicable and his heir and legal representative seeking to enforce a claim for the benefit of the estate was bound by the arbitration clause.

Mr. Bhagwati on the other hand for the plaintiff pointed out as is the fact, that a deceased member only remains a member by virtue of his estate for certain purpose, and he submitted that a legal representative would have no right to vote at meetings, or to give proxies, or to refer a matter to arbitration pursuant to an arbitration clause which would have been binding upon the deceased during his life time. He laid stress upon by-law No. 1 which defines a member and pointed out that there was nothing in the by-law to suggest that the legal representative of a deceased person was to be treated as a member. He referred to Re An Arbitration between Percival. By the terms of the agreement in that case if any dispute arose between the parties it was to be referred to arbitration and each party was to appoint an arbitrator if called on by the other to do so. Disputes arose and one of the parties died before the arbitrators were appointed. The Court held that his executors were not bound by the agreement to appoint an arbitrator. Mr. Justice Mathew said that agreement was that each party should concur in the appointment of the arbitrator and that this required an exercise of personal judgment by the parties and that as one of them had died this had become impossible and there had consequently been no breach of the agreement to refer. In this connection Mr. Bhagwati referred me to s. 1(1) of the English Arbitration Act of 1934 which altered the law in England as laid down in the case above referred to, and which provides that an arbitration agreement shall not be discharged by the death of any party thereto, either as respects the deceased or any other party, but shall in such an event be enforceable by or against the personal representative of the deceased. He also, drew my attention to s. 6(1) of the Indian Arbitration Act (X of 1940), which came into operation on July 1, 1940, that section being in terms similar to the section of the english act to which I have already drawn attention. That section altered the law in India in the same manner in which it had been altered in England.

I am of opinion that Ramchandra Bhagwandas having died the arbitration clause ceased to be applicable. There was in my opinion no longer in existence a member within the meaning of the first part of art. 96 or the definition of member in by-law No. 1 who could either call on the opposite party or be called upon by the opposite party to refer any matter in dispute to arbitration. Although no doubt the estate of the deceased member remained liable for the purpose of the performance and the discharge of the obligations of the contract, a liability which would also arise by reason or s. 37 of the Indian Contract Act, I do not think that it can be said that there was any member in existence who could refer any matter to arbitration within the contemplation of the first part of art. 96. This opinion really disposes of this first issue. As, however, other matters have, been argued and this case may go further, I will refer briefly to the argument and my opinion thereon.

Mr. Bhagwati contended that the second part of art. 96, which provides that the obtaining of an award shall be a condition precedent to the commencement of legal proceedings cannot properly be relied upon as a by-law of the association. He submitted that although by s. 6, sub-s. (2)(j), the board of directors of the association may make by-laws for the settlement of claims and disputes by arbitration and appeals against awards, they are not authorised to make a by-law to provide that the obtaining of an award should be a condition precedent to commence legal proceedings. He submitted that the second part of art. 96 to the extent to which it made such a provision could not be relied upon as a by-law, in that by s. 4, sub. s. (7), only those articles and by-laws which related to matters for which by-laws might be made under the provisions of ss. 5 and 6 are to be deemed to be by-laws. The provision that the obtaining of an award should be a condition precedent to the right to commence legal proceedings is a provision of a very serious character, ousting as it does the right of the person to resort to a Court of law. In my opinion Mr. Bhagwati's argument is right and the second part of art. 96, to the extent to which it makes the obtaining of an award a condition precedent cannot be treated as a by-law. The article is clearly severable, and I think that only those parts of it which relate to matters for which by-laws may be made under the provisions of ss. 5 and 6 can be deemed to be a by-law within s. 4 sub-s. (7), of the Bombay Cotton Contracts Act.

A third point was taken on behalf of the plaintiff by Mr. M.Y Desai, who appeared with Mr. Bhagwati, to which I will briefly refer. In reply to the plaintiff's solicitors' letter of July 23, 1940, above mentioned the defendant's attorneys wrote a letter dated July 26, 1940, which is annexed to the plaint and has been put in these proceedings as exhibit (A), the effect of which in Mr. M.Y Desai's submission, is a repudiation by the defendant of his obligations under the contract. In that letter the following passage appears:—

“Your client is very well aware that the transactions referred to in your letter under reply are really the transactions of Mr. Hansraj Cooverji and by common consent they happen to be in our clients name. Your client is further aware that as arranged between him and the said Hansraj Cooverji it was distinctly agreed that our client should not be held liable in respect of the said transactions and Mr. Hansraj Cooverji alone should be liable for the same.”

The letter went on to state that if any proceedings were taken they would be defended upon the footing that the defendant was not liable under the contract. Mr. M.V Desai relied upon Jureidini v. National British and Irish Millers Insurances Company, Ltd., where it was held by the House of Lords that the repudiation of the claim on a ground going to the root of the contract precluded the company in that case from pleading the arbitration clause as a bar to an action to enforce the claim. I think that Mr. Desai's contention is sound. In my opinion the true effect of the letter in question is a total repudiation of any liability under the contract. If that be the true construction of the letter, as I think it is, it certainly is not open to the defendant to say that although he is not bound by the contract the other party is bound by the arbitration clause in it. I think, however, that he has lost all right to insist upon compliance with the arbitration clause in any event upon the ground that he has himself repudiated all liability under the contract.

I answer issue No. 1 by saying that the plaintiff is entitled to maintain this suit.

Attorney for plaintiff: Messrs Madhawji & Co.

Attorney for defendant: Messrs Samant & Co.

Suit decreed.

N.K.A

Chiranjilal Ramchandra Loyalka v. J.N. Joshi

Concise Analytical Summary of the Opinion (Blackwell, J.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Defendant's Arguments (as advanced by Mr. D.B. Desai)

Plaintiff's Arguments (as advanced by Mr. Bhagwati and Mr. M.Y. Desai)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Implications

Chiranjilal Ramchandra Loyalka v. J.N. Joshi

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