JETHALAL C THAKKAR Vs. R N KAPUR

JUDGEMENT

(1.) THIS appeal raises a short and interesting question as to the construction and legality of a contract. The respondent, who was the defendant in the suit, contended that the contract dated 19-3-1948, on which the plaintiff filed the suit was void by reason of the provisions of the Bombay Securities Contracts Control Act, Act 8 of 1925. The learned Judge accepted that contention and dismissed the suit.

(2.) THE inclination of every Court must be in favour of validating rather than avoiding a contract, and when a law makes a contract void the Court must strictly construe the provisions of that law. The contract came to be entered into under the following circumstances. One Pillani wanted to convert the International Bank of India, Ltd. , into a finance corporation and he wanted the sanction of the District Court for the purpose, and he wanted the co-operation of the plaintiff in this behalf and the defendant was asked to approach the plaintiff to give his assistance. The plaintiff agreed to give his assistance, and as the plaintiff was the holder of 1000 ordinary shares of the International Bank of India, the agreement' in suit was arrived at and the operative part of the agreement dated 19-3-1948, is to the following effect: It is signed by the defendant and he gives an undertaking to the plaintiff to sell off for him, the plaintiff, 1000 ordinary shares of the bank at a price of Rs. 50 per share within 12 months from the date the bank is converted into a finance corporation, and if at the end of 12 months the defendant has not been able to sell off the shares for the plaintiff, he himself will take delivery of the 1000 shares and pay the plaintiff himself for the same the sum of Rs. 50,000 without interest. As the defendant failed to sell off the thousand shares within the time stipulated, the plaintiff filed the suit claiming damages on the strength of this contract.

(3.) THE Bombay Securities Contracts Control Act, 1925, defines a ready delivery contract as a contract for the purchase or sale of securities for the performance of which no time is specified and which is to be performed immediately or within a reasonable time. The contention of the plaintiff was that this was a ready delivery contract. The contention of the defendant on the other hand was that this was a contract which did not satisfy the definition of a ready delivery contract, and it is common ground that if the contract is not a ready delivery contract, it comes within the mischief of Section 6 of the Act and is void. Therefore, the question that we have to consider and determine is whether the contract in suit is a ready delivery contract bearing in mind the definition given in the Act. The definition is very simple and very clear. If there is a contract for the purchase or sale of securities, then in that contract no time must be specified for its performance and the contract must be performed immediately or within a reasonable time. The test, therefore, we have to apply is first whether this is a contract for the purchase or sale of securities and whether it is to be performed within a specified time or whether no time is specified in the contract and the contract is to be performed immediately or within a reasonable time. It will be noticed that the obligation undertaken by the defendant under the contract was to sell for the plaintiff his thousand shares at a price of Rs. 50 per share within 12 months from the date when the bank was converted into a finance corporation. He then promised in the case of the first event not taking place to take delivery of the thousand shares himself and pay the plaintiff the sum of Rs. 50,000. The plaintiff is not suing the defendant on the first part of the contract. He is suing the defendant on the second part which has come into operation by reason of the fact that the defendant has failed to get the shares sold. It is clear on a plain reading of this contract that no obligation attached with regard to the purchase of these shares on the part of the defendant until the contingency contemplated occurred after the lapse of 12 months. A clear distinction must be borne in mind between a case where there is a present obligation under a contract and the performance is postponed to a later date, and a case where there is no present obligation at all and the obligation arises by reason of some condition being complied with or some contingency occurring.