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State of Karnataka Vs. the West Coast Paper Mills Ltd. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtKarnataka High Court
Decided On
Case NumberRegular First Appeal No. 155 of 1975
Judge
Reported inAIR1986Kant103; ILR1985KAR3857; 1985(2)KarLJ498
ActsSale of Goods Act, 1930 - Sections 18; Code of Civil Procedure (CPC), 1908 - Sections 34
AppellantState of Karnataka
RespondentThe West Coast Paper Mills Ltd.
Appellant AdvocateR.P. Hiremath, Govt. Adv.
Respondent AdvocateA.M. Farooq, Adv.
Excerpt:
.....in this regard within prescribed time. - he submitted, even if the transaction between the company and the government is regarded as purchase and sale of bamboos standing in a specified area of the forest, it was wrong to hold that the ownership of the bamboos is transferred to the company the moment they were cut, inasmuch as something more like taking measurement and ascertaining the value of the bamboos by preparing bills bad to be done at a particular point, namely tatwal check-post, as agreed between the company and the government. d-1) in support of his contention that the bamboos in whatever form not removed from the forest would, revert back to the government and only under exceptional circumstances extension of time could be granted to the company to remove the remaining..........same towards the agreement. in other words, unless and until the company chooses to severe and separate the bamboos standing on the forest land, the goods are not ascertained. when the company actually cuts and extricates the bamboos, the goods being ascertained and also being in deliverable state, the property in goods passes to the company. this view finds support from the decision of the supreme court in badri prasad v. state of m. p.. air 1970 sc 706 : (1970) 1 scj 757. 'there, all the teak trees of more than 12 inches girth standing in the jagir village were given to one contractor under an agreement executed on behalf of the jagirdar. the felling of the trees had to be done in a particular manner and in terms of the conditions mentioned in the agreement. before the contractor.....
Judgment:

M.S. Patil, J.

1. This appeal by the defendant and cross-objection by plaintiff arise out of the judgment and decree in 0. S. No. 5 of 1972, dated June 30, 1975, passed by the Civil Judge, North Kanara, at Karwar.

2. The State of Karnataka is the defendant. The West Coast Paper Mills Ltd., Dandeli (the 'Company'), a Company registered under the Indian Companies Act is the plaintiff.

3. While the defendant has filed the appeal being aggrieved by the judgment and decree directing to refund Rs. 2,34,531/- being excess amount recovered from plaintiff with interest thereon at 6% per annum from the date of decree till the date of realisation, plaintiff has filed cross-objection against that part of the decree refusing to award interest from the date of suit to the date of decree and also claiming future rate A interest at higher rate than that awarded by the trial Court. .

4. The only controversy between the parties is as to the fate at which the Company has to pay for the bamboos cut before January 15, 1969, but lifted subsequent to that date. This dispute arises because of the enhancement of the rate from Rs. 10/- per ton to Rs. 20/-per ton under Government Order dated December 31, 1968.

5. The facts of the case which are mostly admitted or held proved about which there is no longer any dispute may be stated briefly as follows:

The Company manufactures pulp and paper in its factory at Dandeli, using bamboos available in the Government forest as raw material. The Government was permitting the Company to remove bamboos from time to time under different agreements. Certain area in the forest was allotted to Sri S. V. Viswanathan, Managing Director of the Greater Mysore Rayon Grade Pulp and Paper Mills for removing bamboos. That Mills, however, could not start manufacture of its products for want of imported machinery, and at its request the Government by order dated January 16, 1967, permitted the Company to remove green bamboos up to an 13 extent of 1,30,000 tons from Yellapur Forest Division, consisting of Kirwati, Manchikeri and Yellapur Ranges. The period prescribed there in was one year in the first instance at a rate of Rs. 10/- per ton for the material removed. Subject to completion of formalities of execution of the agreement, the Company was permitted to extract and remove green bamboos on depositing Rs. 75,000/- at the rate of Rs. 25,000/- for each of the three ranges. But, however, on the representation made by the Company that the maximum quantity of bamboos that could be cut and removed during the period of one year would not be more than 40,000 tons, the company was permitted to deposit Rs. 40,000/-. Accordingly, the Company deposited Rs. 40,000/- and on March 21,1%7, the agreement (Ex. D-1) was executed the Company being represented by its Secretary and the Government by the Divisional Forest Officer, Yellapur Division.

After the expiry of the period of one year, the Government by Order dated November 4, 1968 (Ex. P-2) again permitted the Company to continue to remove bamboos for a further period of one year from January 16, 1968 to January 15, 1969, at the same rate of Rs. 10/-per ton. That permission was subject to the quantity of bamboos available in the same area of Yellapur Forest Division.

Again, by Government Order dated December 31, 1968 (Ex. P-3), the Company was allowed to remove bamboos for one more year from January 16, 1969 to January 15, 1970, but at the rate of Rs. 20/- per ton. This order was also subject to availability of bamboos in Yellapur Forest Division.

At the request of the Company, physical verification to the bamboos extracted and stacked in different areas was made by the forest officials and it was found that up to January 15, 1969, the Company had extracted and stacked 22,769.69 tons of bamboos. Thereupon, the Company deposited a sum of Rs. 1,95,000/- being the approximate value of that bamboo at the rate of Rs. 10/- per ton. The Conservator of Forests, however, sought instructions from the Chief Conservator of Forests as to the rate at which the said bamboos should be released - whether at the old rate of Rs. 10/- per ton or at the revised rate of Rs. 20/- per ton. Awaiting the instructions, the Company was permitted to lift the bamboos at the old rate of Rs. 10/- per ton. Thereafter, the Chief Conservator of Forests directed that for the bamboos cut and stacked but not removed before January 15, 1969, the Company must pay at the rate of Rs. 20/- per ton. Accordingly, Divisional Forest Officer demanded from the Company the balance amount of Rs. 2,80,191.85 Ps. including the sales tax as per there revised bills (Exs. P-14 to P18). The Company, without an alternative remitted the said, amount but requested the Government to re-consider the matter. The Government did not think fit to revise its decision. The Company thereupon issued statutory notice as required under S. 80, C.P.C. and instituted the suit for refund of excess amount paid for the said bamboos.

6. The Company, inter alia, contended that the Government had illegally and unlawfully appropriated the amount of Rs. 2,34,531/- including the sales tax on the value of 22770 tons of bamboos. The Government was entitled to collect the price at Rs. 20/- per ton on bamboos cut subsequent, to January 15, 1969, and not in respect of the bamboos already extracted earlier to the said Government Order dated December 31, 1968, and the Company was there more entitled to refund of the excess amount at paid.

The Government resisted the suit contending inter alia:

That by virtue of Clauses 10 and 11 of the original agreement (Ex. D-1). The bamboos cut but not removed from the forest reverted back to the Government. Such bamboos became the Government properties and the Company was therefore liable to pay at the rate of Rs. 20/- per ton. The forest officers, either by Mistake or being in doubt as to the rate applicable to such bamboos, had however prepared bills at old rate of Rs. 10/- per ton. Subsequently fresh bills at the rate of Rs. 20/per ton in respect of all such bamboos transported after January 15, 1969, were prepared and the amount due from the Company was recovered. There was neither any illegality in the amount recovered nor the Government was liable to refund the same.

7. Learned Civil Judge, among others, raised the following two material issues :

(1) Whether the plaintiff proves that the Government by their order dated 31-12-68 required the plaintiff Co. to purchase the bamboos to be cut after 15-1-1969, to be paid for by way of royalty at Rs. 20/- per ton, as against the earlier order fixing the rate of royalty at Rs. 10/- per ton?

(2) Whether the plaintiff proves that the defendant has unlawfully recovered an amount of Rs. 2,34,531/- against the quantity of 22,770 tons of materials as alleged?

Issue No. (1) seems to be not precise to cover the matter in controversy between the parties, but no prejudice appears to have been caused since they had led all the evidence available on the real controversy that fell for determination in the case. On behalf of the Company Sri C. L. Maheswari was examined as, PW- I and 28 documents including relevant Government Orders under which the Company was permitted to extract and remove the bamboos from the forest were got marked as Exs. P-1 to P-28. On behalf of the Government, one Sri Gajanana Narayana Bhat who, at the relevant period, was working as a First Division Clerk at Yellapur Forest Division was examined as DW- I and various documents including the original agreement dated March 21,1967, were got marked as Exs. D-I to D-33.

8. Appreciating the oral and documentary evidence and in the light of the provisions of the Karnataka Forest Act. 1963, and the rules made there under, learned Civil Judge held:

That the transaction between the Company and the Government was regarding purchase and sale of bamboos grown in the forest and the expression 'remove' as used in the Government Orders must be understood as meaning cut, stack and transport'. In cites of such sales, the ownership passed to the Company after the bamboos were cut and since admittedly 22769 tons of bamboos were cut and stacked in the forest before January 15,1969, the price should be paid at the rate of Rs. 10/- per ton. That price was deposited by the Company under challan by January 15, 1969, the receipt of which was also acknowledged by the Divisional Forest Officer under Ex. P-5. The amount so deposited had been appropriated towards the bamboos cut prior to January 15, 1969, under the relevant bill S (Exs. P-7 to P-10). The transaction having thus been completed, it was not open to the Government unilaterally revise the rates subsequently and claim and recover the value at the revised rate of Rs. 20/- per ton for the bamboos already cut and stacked. The Company paid the excess amount under coercive circumstances and therefore it was liable to be refunded. With these conclusions, learned Civil Judge decreed the suit.

The Government has preferred this appeal.

9. Since learned Civil Judge has refused to award interest from the date of suit till the date of decree without assigning any reason and also complaining about future interest awarded at the rate of 6% per annum, the Company has filed the cross-objection.

10. Mr. R. P. Hiremath, learned Government Advocate, contended that learned Civil Judge had committed an error in reaching the conclusion that the ownership in all the bamboos cut and stacked before January 15, 1969, had passed to the Company. He submitted, even if the transaction between the Company and the Government is regarded as purchase and sale of bamboos standing in a specified area of the forest, it was wrong to hold that the ownership of the bamboos is transferred to the Company the moment they were cut, inasmuch as something more like taking measurement and ascertaining the value of the bamboos by preparing bills bad to be done at a particular point, namely Tatwal check-post, as agreed between the Company and the Government. According to counsel, it was only when the Company removed the bamboos through Tatwal check-post after due measurement, its ownership could be said to have passed to the Company. He also urged that the word' remove' as used in Exs. P-1, P-2 and P-3 has to be understood as meaning actual lifting of bamboos, on measurements and preparation of bills on the value thereof, at Tatwal check-post, although for the sake of convenience the transit pass books were issued to the Company in advance. The counsel referred to Clauses 10 and 11 of the agreement (Ex. D-1) in support of his contention that the bamboos in whatever form not removed from the forest would, revert back to the Government and only under exceptional circumstances extension of time could be granted to the Company to remove the remaining bamboos that were already extracted. Since no such extension of time was granted to the Company to lift bamboos cut and stacked before January 15, 1969, it shall be deemed to have reverted back to the Government and the Company was therefore liable to pay at the rate of Rs. 20/- per ton. in terms of the order of the Government date December 31, 1968 (Ex. P-3).

Mr. A. M. Farooq, learned counsel appearing for the Company, on the other hand, while supporting the judgment and decree under appeal submitted that learned Civil Judge had not only failed to assign any reasons for not awarding interest from the date of suit till the date of decree, but the future interest at the rate of 6% awarded is also ridiculously low and the Company is entitled to a decree for interest from the date of suit to the date of decree and also future interest at a reasonable rate.

11. In the, light of these submissions the points that arise for decision are :

(1). Whether the property in bamboos passed to the Company soon, after they were severed or extracted from the land?

(2) Whether the bamboos cut, but not transported on or before January 15, 1969, were liable to be charged at the enhanced rate of Rs. 20/- per ton under the Government Order dated December 31, 1968? And

(3) If not, whether the Company was entitled to the refund of the amount recovered in excess of Rs. 10/- per ton?

We may at the outset clarify that although the amount of Rs. 10/- per ton payable by the Company has been loosely used by the parties as royalty in some documents, there is no room for any doubt that the transaction between the Company and the Government was one of sale of bamboos grown and standing in the Government forest. The Government had agreed to sell and the Company had agreed to purchase the bamboos available in certain areas in the forest and the Government while preparing the bills was also recovering sales tax from the Company and as such it was a sale of unascertained forest growth standing in the Government forest. We may also state that although up to an extent of 1,30,000 tons of such bamboos was offered for sale tinder Ex. P- I from specified areas in the forest, but having regard to maximum quantity of bamboos that could be cut by civil cultural process, the Company Agreed to cut and remove only 40,000 tons of bamboos as provided under the agreement Ex. D-1. Although at one stage the stand taken by the Company was that the agreement Ex. D-l was not a relevant agreement, it is now not disputed and indeed proved beyond doubt that the Company was permitted to remove bamboos as per conditions specified und er Ex. D-I and it was the relevant agreement pertaining to this case. Since this aspect of the case is not sought to be disputed, it is not necessary to discuss the evidence in this behalf in detail.

12. The primary question for consideration is : when did the property in the goods (in bamboos) pass to the Company - was it when the bamboos were cut and extracted from the forest land, or when they were actually lifted from the forest through my specified outpost. There is no specific clause in the agreement Ex.-DI in regard to this matter. We have, however, to ascertain the same with due regard to the miles applicable to the transaction of sale of unascertained goods by description and the terms of the agreement Ex. DI.

13. Section 18 of the Sale of Goods Act provides that where there is a contract for sale of unascertained goods, no property in goods is transferred to the buyer unless and until the good are ascertained. That would be so even where price of goods is agreed and paid in advance, because neither seller nor the buyer could say which of such unascertained goods is sold or purchased. In the instant case, the Company was permitted to remove bamboos from certain areas in Yellapur Forest Division. Under the agreement, the Company had a standing license to enter into the specified forest area to cut and severe bamboos which it wanted to appropriate towards the contract. The Company's servants had to go around the specified areas in the forest, select the bamboos for its use, extract and appropriate the same towards the agreement. In other words, unless and until the Company chooses to severe and separate the bamboos standing on the forest land, the goods are not ascertained. When the Company actually cuts and extricates the bamboos, the goods being ascertained and also being in deliverable state, the property in goods passes to the Company. This view finds support from the decision of the Supreme Court in Badri Prasad v. State of M. P.. AIR 1970 SC 706 : (1970) 1 SCJ 757. 'There, all the teak trees of more than 12 inches girth standing in the Jagir village were given to one contractor under an agreement executed on behalf of the Jagirdar. The felling of the trees had to be done in a particular manner and in terms of the conditions mentioned in the agreement. Before the contractor started felling of the trees as agreed, the Abolition of Proprietary Rights Act, 1950 (Madhya Pradesh Act I of 1951) came into force. When the contractor had just started working in the month of March, on March 31. 1951, a notification was issued vesting the estate in the State Government and the trees standing on the land also were vested in the Government. Thereafter, when the negotiations between the contractor and the Government failed, the contractor instituted a suit for declaration that the rights granted to him under the agreement had not been affected by the vesting of the estate in the State under the said Act. Examining the rights of the contractor, the Supreme Court observed: that the property in the cut timber would only pass to the Plaintiff under the contract at the earliest when the trees of particular girth above 12 inches were felled. But before that happened the trees had vested in the State.

14. Our conclusion also finds corroboration from the terms of the contract Ex. Dl. The relevant clauses (clauses 8, 10 and 11) provides :

'8. From the time, the contractor starts extraction and removal of green bamboos in the manner hereinbefore provided and after taking delivery of the bamboos and whether in the forests or outside, they shall be at the sole risk of the contractor who shall make his own arrangements for the protection of the same from fire, theft, wastage or damage of any kind whatsoever.

10. All bamboos to be extracted and removed by the contractor shall be removed from the said lands by 31-12-1967. No extension to the contract period shall be given except under very special circumstances by the Conservator of Forests, Kanara Circle, Dharwar. In the event of extension being sanctioned to remove the balance quantity of green bamboos, the contractor shall have to pay such extension fees as may be decided upon by the Conservator of Forests, K Dharwar as extension fees.

11. Any bamboos in whatever form not removed from the Forests belonging to the Governor of Mysore on or after 1- 1- 1968 shall at the discretion of the Divisional Forest Officer be forfeited and shall revert and become the absolute property of Governor of Mysore and the contractor shall not by any reason of such forfeiture be entitled to any refund or abatement of the amount payable or due by him under the contract.'

It will be seen from Clause 8 that the bamboos extracted -would remain at the sole risk of the Company and the Company had to make its own arrangement for preserving or protecting the same from accidental fire Even if the extracted bamboos were destroyed by fire. the Company would still be liable to pay the price and the sales tax in addition to fine that may be imposed by the competent authority. Since the Company was required to preserve the extracted bamboos at its own risk, the intention of the parties would seem to suggest that the property in bamboos stood transferred to the Company the moment it was severed and taken possession of by the Company, because generally, though not always, the goods sold are at the seller risk until the property in them is transferred to the buyer and only when the property is transferred to the buyer, the goods are at the buyers risk,, whether goods are actually delivered or not. In Halsbury's Laws of England - 4th Edn., Vol. 41 Para 736, this is what has been stated :

'736. General rule. Unless otherwise agreed the goods remain at the seller's risk until the property in them is transferred to the buyer, but when the property is transferred to the buyer the goods are at his risk whether delivery has been made-or not'

Of course, we agree with Mr. Hiremath, learned Government Advocate, that transferring the risk liability to the purchaser of goods by itself is no indication that the property in the goods has been passed to the purchaser. But, there are other terms in the agreement Ex. D1, like Clauses 10 and 11 which seem to suggest that the Company becomes the owner of the extracted bamboos. Clause 10 of the agreement Ex. DI provides that the extracted bamboos should be removed within the period specified under the contract. The extension of time could be given only under very special circumstances. In the event of extension being granted to remove the balance quantity of bamboos, the contractor shall have to pay such extension fees as may be decided by the Conservator of Forests. It is called as extension fees. That means all bamboos that have been extracted belong to the contractor who could lift it within the prescribed period or within the extended period granted the contractor need not pay anything extra except some amount as extension fees.

What happens if extension of time is not granted to the contractor? That has been dealt with under Clause 11 which provides that any bamboos not removed within the contract period, shall be forfeited by the Divisional Forest Officer and it shall revert and become the absolute property of the Government. This Clause 11 would have been unnecessary, if the contractor does not become the owner of the extracted bamboos. The question of 'forfeiture and reverting back' would arise only in regard to the properties belonging to others, and not to the property of the person who is empowered to forfeit.

15. It may be, as contended by learned Government Advocate, that the goods had to pass through a particular point or check-post, the bills had to be prepared after taking measurements and transit passes had to be issued for transporting out of the forest. These events by themselves are of not the determining factors to find out as to when the property in goods would pass to the Company. They are the prescribed methods by which the goods, which are forest produce, are allowed to be moved without pilferage and on proper accounting. It must be remembered that the Company had no option to reject the bamboos severed and separated from the land either before or after taking measurements. Nor the Government had reserved any right to itself to refuse transit pass unless the price or the value of the bamboos was paid by the Company. As a matter of fact, the transit passes were issued well in advance to facilitate the removal of bamboos as and when the Company decided to transport the same.

16. It is not the case of the Government that it has forfeited the right of the Company in regard to the bamboos already extracted prior to the Government Order Ex. P3. There was no plea in this behalf in the written statement. The First Division Clerk examined as DW I has also admitted that -there was neither any order of forfeiture of bamboos cut and stacked after the expiry of the period under Ex. P2, nor there is any order issued by the Forest Officer at any time exercising his discretion regarding the reversion of bamboos not removed from the forest.

17. In the conclusion that we have reached on point No. (1), the solution to point No. (2) presents no problem. The Government Order dated December 31, 1968 (Ex. P3) under which the Company was permitted to remove bamboos for a further period of one year from January 16, 1969 to January 15, 1970, at the enhanced rate of Rs. 20/- per ton, on the face of it, therefore had to be given effect to from January 16, 1969. The said Order expressly or impliedly does not cover the bamboos that were extracted, but not lifted or removed prior to January 16, 1969. In other words, the enhanced rate was not applicable to the bamboos cut under the Government Order dated November 4, 1968 (Ex. P2) although not removed prior to January 16, 1969.

18. The Company, therefore, is entitled to the refund of the excess amount recovered by the Government.

19. This takes us to the contention in the cross-objection. As already stated, admittedly, the disputed amount of Rs. 2,34,531/-(including sales tax) has been recovered by the Government on 22,770 tons of bamboos cut and stacked prior to January 16, 1969. Since the amounts were wrongly claimed and recovered and unreasonably withheld even after the suit notice, it would be proper to award interest as claimed at the rate of 6% per annum from the date of suit till the date of decree. Learned Civil Judge was in error in refusing to award interest for that period. Cross objection is therefore entitled to succeed.

In the result, while dismissing the appeal, we allow the Cross Objection with costs. It is ordered that the defendant do pay to the plaintiff a sum of Rs. 2,34,531/- with interest at 6% per annum from the date of suit (25-8-1972) till the date of decree, (30-6-1975).

The appellant shall bear its own costs and pay the costs of the respondent in this appeal.

20. Order accordingly.


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