BALCHAND ISHWARLAL Vs. EAST INDIA COTTON ASSOCIATION LTD

JUDGEMENT

(1.) THIS is a notice of motion taken out by the plaintiff who has filed this suit against the East India Cotton Association and the defendants who are some of them members of the Board of the Association and others. The suit arises in the following circumstances which arose in the forward contracts market in cotton under the aegis of the East India Cotton Association. The East India Cotton. Association under its Bylaws and Rules regulates the conduct of the merchants dealing through the 'association by making Rules from time to time and enforcing certain Rules under the By-Laws and Rules referred to by me above. It is stated by the plaintiff that under By-Law 52 of the By-Laws of the Association it is provided that if in the opinion of the Board an emergency has arisen or exists, the Board would have the power by resolution to prohibit from a date to be fixed in that behalf trading under hedge contracts in cotton at the rate or rates above, the maximum or below the minimum for such period as may be fixed by the Board. It is admitted that any decision under By-Law 52 is to become effective subject to the concurrence of the Forward Markets Commission constituted under the Act.

(2.) I shall have to refer to the Forward Contract Act and the constitution of the Forward Markets Commission and its power in discussing the dispute between the parties before me. But before I come to that the facts as set out and which are not complicated may be set Out very shortly. It is alleged that on 22-12-1955 the second defendant who was at the relevant time president of the Association and Chairman of the Board received a direction from Government, namely through the Forward Markets Commission asking the Board to take appropriate action and to take it immediately under its By-Laws so as to prevent the price in respect of hedge contract in cotton for February settlement from rising above Rs. 700/- per candy. It is alleged that this direction from the Forward Markets Commission was considered at a meeting of the Board on the 23rd of December when the Board carefully considered the prevailing market conditions and resolved that no emergency had arisen. It is alleged that in fact the ceiling price, in respect of hedge contracts in cotton for February and May 1956 settlements as fixed by the Central Government was Rs. 840/- per candy and that the prevailing prices of cotton for the said settlements were about Rs. 100/- and more below the ceiling price at this particular time. It is also set out and it is not disputed that the spot price of cotton at this stage was ruling somewhere about Rs. 800/ -. It is said that on 23-12-1955 namely the same day the Government exercised its powers which are vested in it under the statute namely the Forward Contracts Act and the rules and closed the hedge contracts market for one week from the 23rd of December. Thereafter it appears that the Committee of the Association had a meeting and it was resolved to make a representation to Government that this direction from the Government was unwarranted nor was it in the best interests of the trade and to ascertain as far as possible what would be the conditions on which the Forward Markets Commission would allow the market in hedge contracts in cotton to be reopened. It is stated that in the above circumstances on 6-1-1956 the Board was coerced and compelled against its views and its opinion and against the expressed opinions of the President of Association and the members of the Board to pass a resolution to the effect and which resolution falls in two parts namely it declared under By-Law 52 of the By-Laws of the Association that first an emergency had arisen and secondly it fixed the price of February and May settlements at Rs. 700/- per candy prohibiting any transaction above that ceiling.

(3.) IT is alleged that in coming to that decision namely that an emergency had existed or had arisen, the Board did not act in the exercise of its own independent judgment, but only acted at the dictates of the Forward Markets Commission and inasmuch as the Board merely followed the dictates of the Government the resolution virtually is not the resolution of the Board and therefore it should not be allowed to be acted upon by the Association and it is also argued very strongly that taking all these circumstances into account the Board did not apply its mind to the situation before arriving at the decision as reflected in the resolution of 6-1-1956.