Contentions Raised

Contentions Raised by Petitioner

Invalidation of Outstanding Contracts: The petitioners argued that, due to the government order
on February 15, 1950, all remaining transactions in "futures" in gur became void.

Resolution Validity: They contended that the decision made on March 14, 1949, allowing the
company to engage in "futures" contracts in gur, was not valid. This was because some of the
directors present at the meeting were disqualified under the Indian Companies Act, 1913, as
amended by Act 22 of 1936. Additionally, they argued that the company had not incorporated
Regulation 94 of Table A into its rules, which would have validated acts done by directors even
if their disqualifications were discovered later.

Resolution of February 15, 1950: The petitioners claimed that the decision made on February 15,
1950, was not made in the best interests of the company. They believed that it amounted to the
company repudiating the existing contracts.

Substratum of the Company: They argued that, due to the government order, the primary purpose
for which the company was established had been destroyed, rendering the company unable to
conduct any further business.
Contentions raised by Respondent
In the case of Seth Mohan Lal & ANR vs. Grain Chamber Ltd., the respondents raised several
contentions, which were considered by the Supreme Court of India in its decision on November
15, 1967:

1. Validity of Outstanding Transactions: The respondents challenged the contention that,

due to a government notification issued on February 15, 1950, all outstanding
transactions in 'futures' in gur were rendered void. They argued that the notification only
prohibited entering into new 'future' transactions and the payment or receipt of margins
related to such futures. The company had resolved to settle outstanding transactions at the
prevailing rate on the closing day of February 14, 1950.

2. Validity of Resolution: The respondents defended the validity of the resolution passed
on March 14, 1949, which allowed the company to engage in transactions in 'futures' in
gur. They disputed the claim that the directors participating in that meeting were
disqualified under the relevant sections of the Indian Companies Act, 1913. They also
pointed out that the company's Articles had not incorporated Regulation 94 of Table A,
which validated acts done by directors when disqualifications were subsequently
discovered.

3. Repudiation of Contracts: The respondents argued against the claim that the resolution
passed on February 15, 1950, amounted to repudiation of contracts by the company. They
contended that the resolution was made in the interests of the company.

4. Effect of Government Notification: The respondents disputed the assertion that the
government's notification had destroyed the substratum (essential purpose) of the
company, making it impossible to continue its business
Obiter dicta
1. The court observed that the prohibition imposed by the government on futures and options in gur
was not intended to invalidate outstanding futures contracts but was aimed at regulating such
transactions prospectively.

2. The court discussed the disqualification of directors under the Indian Companies Act, specifically
Section 86F, and the need for the directors to obtain consent before entering into contracts with
their own company. This discussion was not directly relevant to the central issues in the case.

3. The court considered the question of frustration of contracts under Section 56 of the Indian
Contract Act and opined that the difficulty arising due to government orders did not amount to
frustration of the contracts in question.

4. The court discussed the substratum of the company and the circumstances under which a
company's substratum might be considered to have disappeared, rendering it just and equitable to
wind up the company. The court concluded that the substratum of the company had not
disappeared in this case.

Ratio Decidendi
The notification prohibiting futures transactions in gur operates prospectively and does not invalidate the
existing outstanding contracts. These contracts can still be settled through payment of margin or by the
delivery of goods.

The resolution passed on March 14, 1949, allowing the company to enter into futures transactions in gur
was not invalid. It was considered valid under Regulation 94 of Table A of the Companies Act, which
was incorporated into the company's articles of association by virtue of Section 18 of the Act.

The resolution passed on February 15, 1950, which fixed the rate of settlement for the outstanding
contracts, was made prudently and in good faith by the directors. It was aimed at protecting the interests
of the company and its members and did not constitute repudiation or frustration of the contracts.

The company's substratum was not destroyed by the government's notification, as it could continue to
engage in business involving other commodities in addition to gur. There was also no evidence indicating
an inability to pay debts or that its assets were insufficient to cover its liabilities.
In essence, the court ruled in favor of the company, concluding that the government's notification did not
invalidate existing contracts, and the actions of the company and its directors were not in violation of the
law but were taken in the best interests of the company and its members.