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The State of Madhya Pradesh Vs. Firm Gopichand Sarju Prasad and ors. - Court Judgment

LegalCrystal Citation
SubjectCommercial;Constitution
CourtMadhya Pradesh High Court
Decided On
Case NumberFirst Appeal Nos. 56 and 88 of 1965
Judge
Reported inAIR1972MP43; 1971MPLJ898
ActsConstitution of India - Article 299I; Code of Civil Procedure (CPC) , 1908 - Order 6, Rule 8 - Order 8, Rule 2; Evidence Act, 1872 - Sections 115
AppellantThe State of Madhya Pradesh
RespondentFirm Gopichand Sarju Prasad and ors.
Appellant AdvocateRama Gupta, Govt. Adv.
Respondent AdvocateJ.S. Verma and ;Ramayan Prasad Pandey, Advs.
DispositionAppeal allowed
Cases Referred and Mulamchand v. State of Madhya Pradesh
Excerpt:
.....for, but the breach had been waived by the government by reason of the fact that the divisional forest officer extended the time for payment. 9. it is now well settled that where a contract between the government and a private individual is not in the form required by article 299(1) of the constitution, it was void and could not be enforced and, therefore, the government cannot be sued by a private individual for breach of such a contract. nevertheless, in all the cases, their lordships have laid down that all the three tests indicated must be satisfied and that article 299(1) of the constitution is mandatory. thirdly, the tender notice as well as the correspondence showed that he was acting on behalf of the governor-general in council. the parties admit in their pleadings, as well as..........by the trial judge.3. the facts shortly stated are as follows. on 26th june 1959, the divisional forest officer, rewa issued an advertisement in the madhya pradesh rajpatra stating that 4301.71 cft. of timber lying at the forest depot at jhiria would be sold by auction on 2nd july 1959. the auction on that day was, however, postponed to 9th july 1959 as the bids offered were too low. on 9th july 1959, the divisional forest officer increased the up-set price to rs. 27,000/- and announced to the bidders the sale conditions, inter alia, that (a) the successful bidder would have to deposit rs. 1000/- as earnest money together with half the amount of his bid immediately after acceptance of the bid, (b) he would have to furnish solvency certificate for the balance within 7 days therefrom,.....
Judgment:

A.P. Sen, J.

1. This judgment will also govern the disposal of First Appeal No. 88 of 1965 (Firm Gopichand Sarju Prasad v. The State of Madhya Pradesh) heard along with this appeal.

2. These appeals arise out of a suit for damages wherein the plaintiffs claimed Rs. 21,975/- as damages for breach of a contract. The trial Judge has given a decree in favour of the plaintiffs to the extent of Rs. 4,800/- and dismissed the rest of the claim of the plaintiffs. The State of Madhya Pradesh has preferred this appeal against the decree granted to the plaintiffs who have filed First Appeal No. 88 of 1965 with regard to the claim which was disallowed by the trial Judge.

3. The facts shortly stated are as follows. On 26th June 1959, the Divisional Forest Officer, Rewa issued an advertisement in the Madhya Pradesh Rajpatra stating that 4301.71 cft. of timber lying at the forest depot at Jhiria would be sold by auction on 2nd July 1959. The auction on that day was, however, postponed to 9th July 1959 as the bids offered were too low. On 9th July 1959, the Divisional Forest Officer increased the up-set price to Rs. 27,000/- and announced to the bidders the sale conditions, inter alia, that (a) the successful bidder would have to deposit Rs. 1000/- as earnest money together with half the amount of his bid immediately after acceptance of the bid, (b) he would have to furnish solvency certificate for the balance within 7 days therefrom, and (c) the remaining amount of the bid would have to be paid before removal of the timber from the depot and such removal had to be carried out within a month.

4. At the auction, the plaintiffs offered the highest bid of Rs. 24,000/-which was accepted by the Divisional Forest Officer subject to sanction by competent authority and conditions of sale. The bid-list was signed by the plaintiffs in token of their acceptance of the terms and by the Divisional Forest Officer. The plaintiffs on acceptance of their bid, deposited Rupees 1000/- towards earnest money and Rupees 9,000/- as part payment of the price i. e. Rs. 10,000/- in all. On 20th July 1959, the Divisional Forest Officer conveyed the sanction of the Conservator of Forests of the auction sale in their favour under memorandum No. 7415, dated 14th July 1959 and asked them to deposit the balance amount of Rs. 14,000/- by 9th August 1959 and take away the timber within that time. But before the plaintiffs could lift the timber, the Divisional Forest Officer, by his letter dated 28th July 1959, informed the plaintiffs that the Conservator of Forests, by memo No. 128 dated 27th July 1959, had cancelled the sale in their favour and directed them to withdraw the amount of Rupees 10,000/- deposited by them. The plaintiffs made representations in the matter and on their being turned down, eventually withdrew the amount on 20th March 1961 and brought the suit for recovery of Rupees 20,000/- as damages for breach of contract and Rs. 1975/- towards interest on the amount of Rs. 10,000/- from the date of deposit till the date of withdrawal at the rate of 12 per cent, per annum.

5. The cancellation of the auction sale was ordered by Shri K. N. Mishra, the new Conservator of Forests on the instructions of the Chief Conservator of Forests as they apprehended that there was something seriously amiss with the auction. The Divisional Forest Officer had neither made any physical verification of the timber nor had adhered to Government instructions in fixing the up-set price. On an investigation being ordered by Shri K. N. Mishra, it was discovered that the actual stock of timber measured 6248.77 cft. It is worthy of mention that the Divisional Forest Officer first reported that the timber on verification was 4846.58 cft. but Sri Mishra was not satisfied and he directed that a responsible officer should take an actual measurement. Apart from this, the auction sale was also cancelled because the new Conservator of Forests found that there was no due publicity given to the adjourned sale and no reason was forthcoming why the adjourned sale was held only after 5 days. Besides, the Conservator also found that the Divisional Forest Officer had departed from the normal practice of forwarding the result of auction in which the highest bid was lower than the up-set price to the Conservator of Forests for his approval.

6. For all these reasons, the State of Madhya Pradesh contested the claim of the plaintiffs. Their defence was that the plaintiffs were guilty of a breach of contract; that the sale was invalid and that the Conservator of Forests was justified in cancelling the auction which was prejudicial to the interest of the Government. The learned trial Judge held that there was a breach of contract on the part of the plaintiff inasmuch as they failed to deposit half the amount of their bid at the end of the auction and to furnish a solvency certificate within 7 days as stipulated for, but the breach had been waived by the Government by reason of the fact that the Divisional Forest Officer extended the time for payment. He further held that the Government had also committed a breach of the contract by improper cancellation of the auction sale which was complete and binding on them, the plaintiffs bid having been accepted by the Conservator of Forests who was the competent authority. He accordingly granted to the plaintiffs a decree for Rs. 4800/-by way of damages.

7. In the appeal filed by the State three points have been urged. The principal point taken in the appeal is that there was no binding contract in view of the breach of Article 299 of the Constitution. In the alternative, the second point taken is that, even if the requirements of Article 299 of the Constitution had been complied with, the plaintiffs had by withdrawal of the amount of Rs. 10,000/- deposited by them, accepted the repudiation of the contract by the Government and, therefore, the contract must be regarded as having been abandoned. The third point raised is that the plaintiffs having themselves committed a breach of an essential term of the contract; their claim for damages was not maintainable. In the appeal filed by the plaintiffs, the only point urged is regarding the quantum of damages.

8. At tie very outset, it must be stated that there was no plea in the written, statement nor is there a ground in the memorandum of appeal, questioning the validity of the contract. It cannot be disputed that the question whether or not the provisions of Article 299(1) of the Constitution have been complied with, is a question of fact. In view of Order VI, Rule 8 and Order VIII, Rule 2 of the Code of Civil Procedure, the question cannot be allowed to be raised at the hearing unless it is sufficiently pleaded in the written statement. But where the non-compliance of Article 299 of the Constitution is patent from the allegations in the plaint or the defence adduced by the plaintiff himself, the Court will not shut its eyes to it and uphold the defective contract simply because the defect has not been pleaded. If the requirements of Article 299(1) are mandatory, it must follow that a contravention of this constitutional requirement cannot be waived and that the waiver of either party cannot confer any validity upon the invalid agreement (See, Union of India v. A. L. Rallia Ram, AIR 1963 SC 1685.) The point of law raised arises on the admitted facts on record and we, therefore, permitted it to be urged. In all fairness to the learned counsel for the plaintiffs, it must be stated that he did not object to the question being raised at the hearing.

9. It is now well settled that where a contract between the Government and a private individual is not in the form required by Article 299(1) of the Constitution, it was void and could not be enforced and, therefore, the Government cannot be sued by a private individual for breach of such a contract. Article 299(1) lays down three conditions for the making of a contract by a Governor of a State. They are: it must he expressed to be made by the Governor; it must be executed, and the execution should be by such person and in such a manner as the Governor may direct or authorise. The principle is that provisions of Article 299(1) are mandatory in character and the contravention thereof nullifies the contracts and makes them void. There is no question of estoppel or ratification in such a case. The reason is that the provisions of Article 299(1) of the Constitution have not been enacted for the sake of mere form but they have been enacted for safeguarding the Government against unauthorised contracts. The provisions are embodied in the Constitution on the ground of public policy--on the ground of protection of general public and these formalities cannot be waived or dispensed with. That is the reason why the plea of estoppel or ratification cannot be permitted in such a case (See, Bhikraj Jaipuria v. Union of India, AIR 1962 SC 113; State of West Bengal v. B. K. Mondal and Sons, AIR 1962 SC 779; State of Bihar v. Karam Chand Thapar and Bros. Ltd., AIR 1962 SC 110; Union of India v. A. L. Rallia Ram, AIR 1963 SC 1685; New Marine Coal Co. v. The Union of India, AIR 1964 SC 152; State of Madhya Pradesh v. Ratanlal, 1967 MPLJ 104 (SC); K. P. Chowdhry v. State of Madhya Pradesh, AIR 1967 SC 203; and Mulamchand v. State of Madhya Pradesh, AIR 1968 SC 1218).

10. In Karamchand Thapar's case, AIR 1962 SC 110, their Lordships of the Supreme Court laid down that the authority need not be by a general rule but could be by an ad hoc order. The dictum laid down in that case was applied in AIR 1962 SC 113 (supra). Their Lordships-pointed out that the manner of conferment of authority upon persons of Government for the purpose of execution of contract may differ from case to case. Sometimes a rule, sometimes a notification and sometimes a special authority may validly issue. Nevertheless, in all the cases, their Lordships have laid down that all the three tests indicated must be satisfied and that Article 299(1) of the Constitution is mandatory. In 1967 MPLJ 104 (SC) (supra), their Lordships have reiterated these principles. In AIR 1962 SC 779 and AIR 1964 SC 152, their Lordships said that even if the contract fails, payment may be ordered quantum meruit on the basis of Section 70 of the Contract Act. That view was reiterated in AIR 1968 SC 1218 (supra). In AIR 1967 SC 203 (supra), their Lordships have held that the provisions of Article 299(1) of the Constitution do not contemplate an implied contract between the Government and any other person.

11. There was a controversy whether the words 'expressed to be made' in Article 299(1) of the Constitution required a formal deed and excluded contracts by mere correspondence. But the controversy has been set at rest by their Lordships in AIR 1963 SC 1685 (supra), holding that a contract by tender and acceptance would be valid, provided the other requirements of Article 299(1) are fulfilled. Their Lordships made the following pronouncement:--

'It is true that Section 175(3) uses the expression 'executed' but that does not by itself contemplate execution of a formal contract by the executing parties. A tender for purchase of goods in pursuance of an invitation issued by or on behalf of the Governor General of India and acceptance in writing which is expressed to be made in the name of the Governor-General and is executed on his behalf by a person authorised in that behalf would conform to the requirements of Section 175(3).'

12. On behalf of the plaintiffs, it is contended that their case is covered by this decision. It is urged that in that case also, there was an advertisement for the sale of Government property and a tender for the purchase of the same followed by acceptance of the tender and their Lordships held that a binding contract between the Government and the party resulted. We are unable to accept this contention. This case has no resemblance to Rallia Ram's case, AIR 1963 SC 1685. In the first place, the advertisement inviting tenders was issued by the Government of India, Department of Food. The title of the notice was 'Tender Notice issued by the Government of India Department of Food (Division III), New Delhi'. The name of the authority issuing the tender notice was also the same. Secondly, the Governor-General in Council had by framing rules authorised the Chief Director of Purchases to sell the property on behalf of the Government of India. Thirdly, the tender notice as well as the correspondence showed that he was acting on behalf of the Governor-General in Council. No such conclusion is possible in the present case.

13. Rule 125 of the Forest Financial Rule provides inter alia, that contracts for the sale of forest produce may be enect-ed by the Divisional forest Officers upto Rs. 25,000/-, when payment is received in full at the time of delivery, with the previous sanction of the Conservator. The parties admit in their pleadings, as well as before us, that the Conservator of Forests was the competent authority to sanction the sale. The advertisement fixing the auction was issued not by the Conservator but by the Divisional Forest Officer. It, therefore, follows that the bid offered by the plain tills for the purchase of the timber was not in pursuance of an invitation issued by or on behalf of the Governor. Besides, the bid-list was not signed by the Conservator ac-cording sanction to the sale. In other words, there was no acceptance in writing winch was expressed to be made in the name of the Governor and executed on his behalf by a person authorised in, that be-half. In view ot these infirmities, the Divisional Forest Officer's letter dated 20th July 1959 conveying the sanction accorded by the Conservator under memo No. 7415 dated 14th July 1959 would not be sufficient compliance of the requirements of Article 299(1) of the Constitution. As a result, no binding contract came into existence and the Government could not be made liable for damages for any breach thereof.

14. The plaintiffs must also fail for another reason. By the notice of cancellation, the Government evinced their intention not to be bound by and to repudiate the contract in its entirety. When there was a repudiation of the contract by the Government, the plaintiffs had the right to elect either to treat the contract as having been wrongfully terminated and to sue, if they thought fit, for damages for such breach; or to treat the contract as having been abandoned. The plaintiffs adopted the latter course by withdrawing the amount of Rs. 10,000/- deposited by them towards part payment of the price. The election of the plaintiffs in treating the contract abandoned, relieved the Government from any further obligation under the contract. They must be regarded as having waived their right for damages for breach of contract, if any. Apart from this, there was no wrongful repudiation of the contract by the Government. There was substantial failure of consideration which entitled the Government to cancel the contract. From the evidence, it appears that the timber which was auctioned as measuring 4301.71 cft. was found on actual verification to measure 6248.77 cft. The provisional acceptance of the plaintiffs' bid by the Divisional Forest Officer was subject to sanction by competent authority. The sanction accorded by the previous Conservator of Forests was in ignorance of the true facts. When it was discovered that there was neither any physical verification of the actual stock of timber nor any fixation of the up-set price with reference to the quantity of timber put up for auction, the new Conservator of Forests was entitled to direct a cancellation of the auction under the directions of the Chief Conservator of Forests. The delegation of powers to the different officers under R. 125 of the Forest Financial Rules does not divest the Chief Conservator of Forests to step in when he discovers that an auction is detrimental to Government interest. For these reasons, the cancellation of the auction cannot be held to be a wrongful repudiation of the contract on the part of the Government entitling the plaintiffs to sue for damages. At any rate, the plaintiffs had, as stated above, abandoned their rights under the contract.

15. In view of the discussion aforesaid, there is no need for us to deal with the other questions. We would, however, like to mention OUT agreement with the finding of the learned trial Judge that although there was a breach of the contract on the part of the plaintiffs, by their not depositing half the amount of the bid at the close of the auction and by not furnishing a solvency certificate within 7 days therefrom, the breach had been waived by the Divisional Forest Officer by his letter dated 20th July 1959 when he extended time for payment till 9th August 1959 directing that the plaintiffs may within that time lift the timber by making payment of the full amount of their bid. The question of such waiver is, however, immaterial as the plaintiffs must fail for the reasons already stated. They are not entitled to recover any damages for breach of contract nor are they entitled to interest on the amount of Rupees 10,000/- lying with the Forest Department. They were asked by the Divisional Forest Officer by his letter dated 28th July 1959 to withdraw the amount. Despite this clear offer to refund the amount, the plaintiffs did not withdraw the amount until 20th March 1961 and were, in the meanwhila, making representations for rescinding the order of cancellation which rightly was not granted.

16. The result, therefore, is that the appeal by the State of Madhya Pradesh succeeds and is allowed and that of the plaintiffs fails and is dismissed. The plaintiffs' suit is accordingly dismissed with costs throughout.


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