The Ahmedabad Cotton Merchants Association has called for a review of the definition of ready delivery contracts as provided in the Forward Contracts (Regulation) Act 1952.
A ready contract is also referred to as a `cash' or 'spot' contract, under which both delivery and payment are made either immediately or within a short period after the contract is entered into.
Most of the sale and purchase transactions which the contracting parties perform by paying for the goods instantly and taking the delivery of such goods soon thereafter are known as "ready delivery contracts".
Under the Forward Contracts (Regulation) Act, 1952 (FC(R)Act), a ready delivery contract has been defined as a contract where delivery and full payment thereof is made within 11 days from the date of entering into the contract.
However, in case of agricultural raw materials such as cotton, which may have to be transported from the northern part to the southern, it is impossible to wrap up the transaction within 11 days, though the sales and purchases are made on ready delivery terms.
Apart from this, there are several transport bottlenecks as a result of which the delivery of goods and the receipt of payments are considerably delayed.
For example, after the contract is entered into, trucks/wagons for bulk transportation may not be available immediately.
Also, loading and unloading take a long time due to non-availability of labour.
Besides, transhipments, clearance at various octroi and check points are other time-consuming factors.
Also, remittance of payment after the arrival of the goods gets delayed due to banking and various other procedural hassles. Thus, the present provision of 11 days to perform a ready delivery contract is totally inadequate, the association secretary, Gautambhai Shah, has said.
In 1993, the Kabra committee had recommended that "the period of 11 days which is the time limit for a ready delivery contract under Section 2 (I) of the FC(R) Act needs to be extended to 30 days".
Under the FC(R)Act, whenever either the delivery or the payment or both, do not take place within 11 days on account of the reasons stated above, the ready contract automatically becomes a non-transferable specific delivery (NTSD) contract.
In fact, ready contracts emanate from the physical markets in the sense that not only the goods can be physically identified but are already appropriated to the contract entered into.
Thereafter, there is no question of a ready contract getting translated into a forward one merely because the delivery and/or the payment is delayed by a few days.
Under the present provision of the FC(R) Act, technically, if the contracting parties are not the members of the recognised association, though they are within their legal rights to enter into such ready contracts, they are deemed to have committed an offence under Section 15 of the Forward Contracts (Regulation) Act.
This is because the ready contract entered into by them turns into a NTSD contract, for not being able to fulfill the conditions of delivery and payment within 11 days.
Besides, in case of commodities to which Sections 17/18 (3) of the Forward Contracts (Regulation) Act have been applied, thereby prohibiting NTSD contracts in such commodities, parties entering into ready contracts in those commodities, are also deemed to have unknowingly committed an offence if the delivery and payment are not completed within 11 days.
However, the prime minister recently promised to revoke all legislations and laws which cause unnecessary hardships to citizens in carrying out their genuine legitimate activities.
The definition of ready delivery contracts and the regulation of NTSD contracts under the FC(R) Act are the instant cases in this regard.
Shah has request the government to immediately look into the present definition of the `ready delivery contract' as provided in the Forward Contracts (Regulation) Act 1952, and amend the same so as to provide for a 30-day period as recommended by the Kabra committee for the completion of the contract.
Most of the sale and purchase transactions which the contracting parties perform by paying for the goods instantly and taking the delivery of such goods soon thereafter are known as "ready delivery contracts"
