Hardayal Hardy, J.
(1) This Regular First appealis directed against the judgment and decree of a subordinate Judge 1st Class whereby the plaintiff-appellant's suitfor recovery of Rs. 22,93,387/10.00 and future interestat the rate of 6 per cent per annum was dismissed. Therespondent is Union of India which was defendantin the suit.
(2) The appellant was appointed by the Iron and SteelController as Controller Stock-holder of iron andsteel of various categories, on a fixed remunerationat Lahore. The appointment was made subject to theteims and conditions which were set out in a memorandum enclosed with the letter dated 19th/ 21/05/1945and was to commence from an earlier date viz., 14/09/1941. During the period 28-11-1946 to 26-3-1947,Government of India made a slight change in thearrangement whereby the Provincial Governments wereauthorised to issue permits for all stocks other than tinplates against which the plaintiff was to make supplies.This arrangement did not work and was cancelled aftersome time as Provincial Governments did not issue permits and the stocks continued to accumulate with theplaintiff.
(3) In the middle of 1947 the communal situation inLahore deteriorated, riots broke out and it was notpossible after August 1947, for the plaintiff to continueto work there. All its officers left Pakistan leavingstocks of the value of Rs. 17,93,677/3.00 which werecompletely lost to the plaintiff. In December 1947,all those stocks were taken possession of by the Government of West Punjab, in the Dominion of Pakistan.In the suit filed by the plaintiff, a claim was made againstthe defendant for the value of the stocks and Rs.1,49,971/12.00 as its remuneration. A sum of Rs. 3,49,838.00Annas Ii was also claimed on account of interest atthe rate of 6% per annum on the total sum. of Rs. 19,43,548/15.00.
(4) The plaintiff alleged that the owner-ship of theiron and steel stocks lying at Lahore all along vestedin the Government and that the plaintiff was merelya custodian or agent of the Government for the sale ofthe stocks. In the alternative it was pleaded thateven if the owner-ship of the stocks vested in the plaintiff the defendant was still liable for the above saidamount as the Government was responsible for theprotection and preservation of the stocks. The plaintiff's own responsibility was limited only to losses whichoccurred on account of in-correct handling, care-lesssupervision and negligence. The plaintiff contendedthat it would not have financed the purchases if theGovernment had not taken upon itself the responsibility of protecting and preserving the stocks. Anallegation that the Government was guilty of severalbreaches of the contract from November 194 6/03/1947 was also made and it was contended that it wasliable to compensate the plaintiff to the extent of theamount mentioned above which represented the valueof the stocks and the remuneration due to the plaintiffunder clause 13 of the contract entered into betweenthe parties.
(5) The defendant contested the suit. It was admitted that the plaintiff was appointed as a Controlled Stockholder on the terms and conditions set out in the memorandum referred to in the plaint, but it was assertedthat the contract which formed the basis of the plaintiff's claim was not in accordance with Section 175(3) ofthe Government of India Act, 1935 and was thereforeevoid and un-enforceable. It was pleaded that on the plaintiff's own showing the stocks lying at Lahore wereabandoned by it and were taken possession of by theProvincial Government of West Punjab. The defendantwas thereforee under no legal liability to the plaintiff.The plaintiff's allegation that it was the duty of thedefendant to safe-guard the stocks of the plaintiff andto arrange for their immediate release was denied.The plaintiff's claim that the stocks lying in the stock-yardat Badami Bagh Lahore belonged to the Governmentand that the plaintiff itself was merely an agent or factorof the Government was denied and it was pleaded thatthe legal owner-ship and possession of stocks vested inthe plaintiff and the Government had only appointedit as a Controller Stock-holder under the existing controlorders and the law for the time being in force. Thecontract between the parties was terminated by the plaintiff by means of a notice dated 26-3-1948. On that datethe plaintiff was not in possession of the stocks norwas he in a position to deliver the same to the Unionof India. It was thereforee not entitled to maintain thesuit.
(6) The plaintiff's allegation about the alleged breachesof contract from November 194 6/03/1947 wasdenied and it was asserted that in any case, the claimwas barred by time.
(7) The trial court dismissed the suit. Hence the presentappeal.
(8) At the hearing of the appeal, the counsel for theappellant confined his attack to the finding of thetrial court on issue No. 6 only which was decidedagainst the appellant while the respondent challengedthe correctness of the trial court's decision on issues2 to 5. Issues 2 to 6 read as under:-
'(2)Are the provisions of Section 175(3) of theGovernment of India Act not applicable tothe contract in suit?(3) Whether the plaintiffs are entitled to claimthe amount in suit on the basis of thequantum Meriut or under Sections 65 and 70 of the Indian Contract Act ?(4) Is the defendant estopped from pleading thatthe contract is un-enforceable ?(5) Has the defendant ratified the contract andwhat is its effect ?(6) Did the ownership of the stocks lying in theplaintiff's stock-yard at Lahore vest in theGovernment of India and were the plaintiffsmere custodian, agents or factors of the defendant for the sale of the said stocks
(9) The appellant's counsel was unable to support thetrial court's decision on issue No. 3 and, thereforee thecontroversy revolved round issues 2, 4, 5, and 6.
(10) As the decision on issues 2, 4 and 5 relates to thevery basis of the appellant's claim in suit, we shall dealwith these issues first.
(11) The respondent's counsel contended that the trialcourt was in error in holding that since the person whohad made the appointment of the plaintiff had theauthority to do so and the arrangement was acted uponand subsequently ratified by the Government the defendant was estopped from challenging the contract asvoid and un-enforceable.
(12) It was not disputed that the Iron and Steel Controller was authorised by the Government to appoint theplaintiff as a Controlled Stock-holder subject to theterms and conditions contained in Ex. C.P./3. Theobjection raised by the learned counsel for the respondent however, was that the contract had not been enteredinto in accordance with the provisions of sub-section(3) of S. 175 of the Government of India Act, 1935which read as under :-
'SUBJECTto the provisions of this Act withrespect to the Federal Railway Authority, allcontracts made in the exercise of the executiveauthority of the Federation or a Province shallbe, expressed to be made by the Governor-General or by the Governor of the Province,as the case may be, and all such contracts andall assurances of property made in the exerciseof that authority shall be executed on behalf ofthe Governor-General or Governor by suchpersons and in such manner as he may director authorise.'
The requirements of that section are (a) that thecontract should be expressed to be made by the Governor-General, (b) that it should be executed on behalf ofthe Governor-General and (c) that it should be executed by an officer duly appointed in that behalf andin such manner as the Governor-General may director authorise.
THEtrial court relying upon a decision of the Supreme Court in Chatturbhuj Vithaldass Jasani v. Moreshwar Parashram and others : 1SCR817 heldthat the factum of the contract had not been deniedby the defendant-respondent. It was also admittedthat the Iron and Steel Controller had the authority toappoint the appellant as Controlled Stock-holder subjectto the terms and conditions contained in Ex. C.P./3.and there was also evidence to show that the contracthad been acted upon. In such circumstances, thecontract must be held to have been ratified by the Government.
(13) The case of Chatturbhuj Vithaldass Jasani was however distinguished by the Supreme Court in State ofWest Bengal v. B.K Mondal and Sons : AIR1962SC779 where it was said that neither the observation ofBose J. in that case about the effect of non-compliancewith the provisions of Article 299(1) of the Constitution nor the final decision in that case, could beread as supporting the proposition that notwithstandingthe failure of the party to comply with article 299(1) the contract would not be invalid. The same view wasalso taken in another decision of the Supreme Courtin Seth Bhikraj Jaipuria v. Union of India : 2SCR880 where Shah J. who wrote the judgment ofthe court said that the rationable of Chatturbhuj's casedid not support the contention that a contract on behalfof State which was not in the form prescribed, wasenforceable against the State. In both these casesit was held that the provisions of Section 175(3) ofthe Government of India Act, 1935 or the correspondingprovisions of Article 299(1) of the Constitution aremandatory and their non-observance has the effectof rendering the contract void and un-enforceable.
(14) The above view was reiterated in the subsequentdecisions of the Supreme Court in K.P. Chowdhry v.State of Madhya Pradesh : 3SCR919 and Mulanchand v. State of Madhya Pradesh AIR 1963 Sc 1218 and it was clearly held that the contravention of theseprovisions nullified the contract and as such there wasno question of estoppel or ratification in such a case.In the present case, it was urged by the counsel forthe respondent that the contract was neither expressed to be made by the Governor-General nor was it executed on his behalf. All that could be said about thecontract in question was that it was executed by anofficer who was authorised by the Government buteven there it could not be said that it was executedin such manner as had been directed or authorisedby the Governor-General.
(15) We were also referred to an un-reported decisionof Shah and Mitter JJ. in Supreme Court Civil AppealsNos. 657 and 658 of 1965. The Balgaum District Commissioner of Income Tax Purchase & Sales Union Limited v. The State of Mysoredecided on 3/05/1968 where it was held that although the contract of agency might be created by expressor implied agreement of principal and agent, in thecase of Government of a Province, section 175(3) of the Government of India Act, 1935 had to be complied with and since it had been noticed by the courtsbelow that there was no document or.letter appointingthe plaintiff as an agent of Government there was noenforceable contract, the breach of which could giverise to a claim for damages against the Government.
(16) Counsel for the appellant, on the other hand, reliedupon the Supreme Court's decision in Union of Indiav. A.L. Ralhia Ram : 3SCR164 where it wassaid that although Section 175(3) used the expression'executed', that did not by itself contemplate the execution of a formal document between contracting partiesand that a valid contract could result from contractby correspondence. In that case a tender for purchaseof goods in pursuance of an invitation issued by or onbehalf of the Governor-General of India and an acceptance in writing which was expressed to be made in thename of the Governor-General and was executedon his behalf by a person authorised in that behalf, washeld to conform to the requirements of Section 175(3).
(17) In the instant case, it was submitted that Ex. C.P./41was issued by the Iron & Steel Controller on the formused by the Government of India. All prior and subsequent correspondence was also made on a similarform. The authority of the Iron and Steel Controllerto enter into the contract on behalf of Government ofIndia was also established.
(18) In the case of Rallia Ram, however, the letter accepting the tender issued under the signature of the Directorof Purchases recited that the tender was accepted subjectto the special terms and conditions in the letter from the Chief Director of Purchases and the general conditions of the contract in Form J.D. (M) 70 which accompanied that letter and the first clause therein defined'Government' as meaning the 'Governor-General'for India in Council and when the context so admitted, his successors and assigns and the Governmentof India and officers acting for him or them.' In theinstant case there was no such definition. The appellant's counsel however contended that under Section 3(8) of the General Clauses Act, 1897, 'Central Government' in relation to anything done before the commencement of the Constitution meant the Governor-Generalor the Governor-General-in-Council, as the case may be.No help can however be derived from the definitionof 'Government' in the General Clauses Act, the definitions which can only be availed of for the purpose ofconstruing the meaning of the expressions used in allCentral Acts and Regulations made after the commencement .of the said Act. The contract in the present case isneither one nor the other. In fact that seems to be the onlyreason why it became necessary in the General Conditions attached to the letter of acceptance in Rallia Ram'scase to give the definition of the word 'Government'byequating it with the Governor-General-in-Council.While we are, thereforee, of the opinion that Section 175(3) did not necessarily require execution of any formaldocument and that the Iron & Steel Controller whohad obtained the special sanction of the Governmentof India to appoint the appellant as a Controlled Stockholder on the terms and conditions embodied in Ex.CP/3, was authorised to enter into the contract, thecontract itself was not expressed to be made by theGovernor-General nor was the letter executed onbehalf of the Governor-General. In our opinion thereis no difference between the present case and thecase of Seth Bhikraj Jaipuria. In that case tooit was found that the Divisional Superintendent ofRailway, though not expressly authorised by theNotification Ex. M-2 to contract for the purchaseof food grains, was specially authorised to enter intothe contracts in question for purchase of food grains.The evidence also showed that it was with a view toeffectuate the scheme devised by the Railway Boardfor distributing food grains to their employees at concessional rate, that in the implementation of the schemefood grains were received by the Railway Administration, special wagons were provided and goods werecarried to different destinations and distributed and payments were made to the suppliers for food grains thusreceived by the Railway Administration. It was stillheld that since the purchase orders which were executedby the Divisional Superintendent were not expressedto be made by the Governor-General and were not executed on behalf of the Governor-General, they were notbinding on the Government of India.
(19) The argument that this may involve hardship to theun-wary was repelled by Shah J. who spoke for the Courtin these words:-
'ITmay be said that the view that the provisionsin the Constitution relating to the form-of contractson behalf of the Government are mandatory mayinvolve hardship to the unwary. But a person whoseeks to contract with the Government must bedeemed to be fully aware of statutory requirements as to the form in which the contract is tobe made. In any event, inadvertence of an officer of the State executing contract in mannerviolative of the express statutory provision, theother contracting party acquiescing in suchviolation out of ignorance or negligence willnot justify the court in not giving effect to theintention of the legislature, the provisions havingbeen made in the interest of the public. It musttherefore be held that as the contract was not in theform required by the Government of India Act,1935, it could not be enforced at the instance ofthe appellant and thereforee the Dominion ofIndia could not be sued by the appellant for compensation for breach of contracts.'
(20) Issues 2, 4 and 5, thereforee, do not appear to us tohave been correctly decided. It cannot be said thatthe requirements of Section 175(3) of the Governmentof India Act, 1935 were satisfied in this case andthere was a valid and enforceable contract which couldform the foundation of a claim for damages. Thereis also no question of estoppel or ratification in thiscase.
(21) Our decision on these issues is enough to disposeof the appeal. We are, however, proceeding with thedecision of the only other issue that remains, namely,issue No. 6 to avoid the possibility of a remit in the eventof our view about the enforcement of the contract beingfound to be erroneous. The issue puts into focus thenature of relation-ship between the appellant and theGovernment and the appellant's interest in the stockslying in the stock-yard at Badami Bagh Lahore. Thebackground and the circumstances under which theappellant came to be appointed as a Controlled Stockholder of certain categories of iron and steel materialsare not in dispute and have to some extent been explainedin two decisions of the Supreme Court : (1) The Unionof India and others. Messrs Bhana Mal Gulzari Mal andothers 1950 2 Scr 627 and Indian Steel and WireProducts Ltd. v.. State of Madras : 1SCR479 where the provisions of the Iron and Steel (Control ofProduction and Distribution) Order, 1941 were discussed.We need not thereforee attempt a fresh survey of thosecircumstances. Suffice to say that during the WorldWar Ii, iron and steel goods became scarce. It,therefore, be came necessary for the Government tocontrol the production and distribution of those goodsin the interest of War effort and maintenance of supplies of these articles to the community. In order todo so the Government in exercise of its powers underRule 81(2) of the defense of India Rules, issued the Ironand Steel (Control of Production and Distribution)Order, 1941 hereinafter called the Iron and Steel Controlorder, which came in to force on August, 1941.
(22) After the cessation of hostilities, this Order cameto an end. In 1946 the Governor-General promulgated an Ordinance called the Essential Supplies (TemporaryPowers) Ordinance 1946 which came into force on1-10-1946. In due course, the Ordinance was replacedby the Essential Supplies (Temporary Powers) Act 24of 1946 and provisions similar to those of the Iron& Steel Control Order, 1941 were continued under thatordinance and the Act.
(23) The appointment of the appellant was made underthe Iron and Steel Control Order, 1941 by letter datedMay 19/21, 1945 (Ex. C.P./41) in accordance with theterms and conditions as set out in the memorandumenclosed thereto (Ex. C.P. 3.). It is on the basis ofsome of the clauses of the said memorandum that it-was argued by the appellant's counsel that whateverstocks were acquired by the appellant and were heldby it in its stock-yard at Badami Bagh Lahore actuallybelonged to the Government and the appellant merelyacted as financiers. All the profits and losses were enjoyedand borne by the Government. The rise and fall inprices was always on Government account. The liability of the appellant was limited merely to in correcthandling, care-less supervision and negligence. Therelease of the stocks from the stock-yard was also theresponsibility of the Government and the appellant-company had no say in the matter. According toExs. P. 32, P34, P35 and P36 even the delivery chargeswere paid by the Government. The appellant was alsorequired to submit periodical statements of stock atregular intervals. It was also required to maintain regular accounts of the stocks lying in its stock-yard wherein the stocks supplied to it and released from the stockyard were credited and debited respectively (See P. 19,P.38 and P.39).
(24) It was contended that the matter of supplies of stocksinto the stock-yard, was governed entirely by Government without any consultation with the appellant-company and even surplus stocks elsewhere were broughtinto the stock-yard of the appellant without any consultation with it. This clearly indicated a complete controlof the Government on the stocks.
(25) It was also contended that the appellant-companywas brought into being by the Government itself. Evenits Memorandum and Articles of Association were prepared by the Government. The Board of Directorsof the company and a substantial number of its ex-officio directors were appointed by the Government.The Chairman of the Board of Directors was himselfa nominee of the Government which exercised completecontrol over the working of the company.
(26) In this connection our attention, was also invitedto letter dated 29.121942 (Ex. P. 9) which revealedthe earlier attempts made by the Government to furtherthe objects of the Iron and Steel Control Order. Itwas there said that the Government of India had decidedto introduce a scheme for the stocking and operationof controlled iron and steel and that for effectuatingtheir decision two alternatives were possible. The firstwas to establish Government stock-yards in which case the stock-holders who had already been registeredindividually would be virtually driven out of business.The second alternative to which the Government hadagreed, was to give a trial to allow stocks of iron andsteel to be maintained by association of registeredstock-holders in the circle concerned provided such anassociation financed the purchase of iron and steel andagreed to distribute it to license holders at fixed pricesand at a profit of about Rs. 20.00 per ton and it also agreedto operate such controlled stocks through the stock-yardor stock-yards which were run and controlled entirely bythe association as distinct from the stock-yards ofthe registered individual stock-holders.
(27) EX. P. 9-A was also relied upon to show that themember-ship of such an association was open to registeredstock-holders who were required to pay an entrancefee of Rs 100.00 and subscribe to the fund accordingto the schedule approved by the Iron and Steel Controller. The War Production Commissioner Punjabwas to be ex-officio President of the Association whilethe Controller of Supplies Punjab Circle, was to be itsex-officio Vice-President. The Secretary Civil SuppliesPunjab and three persons nominated by the Iron &Steel; Controller were the other honorary members ofthe Association whose business was to be carried on bya Trustee Committee consisting of (a) Controller ofSupplies, (b) the three honorary members nominatedby the Iron and Steel Controller, (c) the Secretary CivilSupplies and (d) nine members selected by members of theAssociation, three to represent stock-holders of Lahoreand six to represent stock-holders of the major citiesof the Punjab Circle.
(28) It was urged that subsequently, the appellant-companywas formed as a limited liability company and its objectwas to acquire from the Trustee Committee of the PunjabRegistered Stock-holders Association Lahore, the entirebusiness of the Association, including its assets and liabilities and also to enter into contracts with the CentralGovernment for the purpose of being appointed stockholders of controlled stock in pursuance of the objectsof the Iron and Steel Control Order.
(29) It was contended that the very object of bringing into existence the appellant-company was to associate the stock-holders with a view to making theirfinances available for running the controlled stocksand the supplies of iron and steel into those yards. Itwas not the intention of the stock-holders who wereoriginally members of the Association nor was it theintention of the company to become the owner of thesupplies placed in the controlled stocks.
(30) Learned counsel for the appellant strongly urgedthat the jural relationship between the parties dependedupon the nature of the contract between them and thatmerely because the appointment of the appellant was madein pursuance of the scheme of control and distributionof iron and steel material under the Iron and Steel ControlOrder, the efficacy of the contract was not impaired inany manner. The existence of the contract was inno way in-consistent with the existence of statutorycontrol. He submitted that Laisse faire as anideal had no doubt been supplanted by social securitywhich in turn suggested status rather than contract,but the freedom of contract was not clearly erodedand within narrow limits, it could operate with fullforce.
(31) We are prepared to accept the argument that notwithstanding the provisions of the Iron and Steel ControlOrder the arrangement between the parties was governedby the contract embodied in Ex. C P./41 and Ex. C.P./3.But the terms and conditions laid down therein couldnot be read in isolation. The contract had to operatewithin the frame-work of the Iron and Steel ControlOrder and was intended to further the objects of the saidOrder. Even the terms of the contract (Ex. CP./3), however, do not support the appellant's contention aboutthe Government being the owner of the stocks and theappellant being its agent or custodian of the stock onbehalf of the Government. According to clause 7,the appellant was to pay for all supplies at prices fixedby the Iron and Steel Controller. Under clause 8 itsremuneration was to be paid on the basis of the servicesrendered and expenses incurred by it while under clause 9the sale of the material was to be made on prices notified by the Controller. The clause also gave full rightto the appellant to extend the facility of credit to thebuyers of material while clause 11 compelled it to payto the Government the excess in the value of the stockon account of any rise in prices. Likewise the Government was bound to pay to the appellant for any shortfall in the value of the stock. There could be noreason for the Government to pay to the appellantthe difference in the price in the event of short-fallin the value of the stock if the appellant was notthe owner of the stock. Under clause 13 the Governmentwas bound on the termination of the arrangement topurchase the un-disposed of stock at the prices andremuneration provided for in clause 9. There couldbe no question of Government purchasing its ownstocks from the appellant.
(32) In the trial court's judgment there is a detailed discussion of the various documents and statements ofwitnesses and the argument advanced on behalf ofthe appellant, on the basis of which it was contendedthat it was only a custodian, financier, or agent of theGovernment and that owner-ship of the stocks vestedin the Government itself.
(33) No fresh material has been brought to our noticenor has any fresh argument been advanced by the learnedcounsel for the appellant. The conclusion reached bythe trial court is that the appellant was the owner ofthe stocks lying in its stock-yard and was not merelya custodian, agent or financier of the respondent. Whatever restrictions and conditions were imposed on the appellant were merely incidental to and necessary for achievingthe object which the Iron and Steel Control Orderhad in view. We are in entire agreement with the conclusion reached by the trial court and, thereforee, holdthat issue No. 6 was rightly decided against the appellant.
(34) We also find it difficult to accept the argument thatthe respondent was bound to safe-guard and protectthe stocks lying at the stock-yard of the appellant.The respondent's obligation to protect the propertyof the persons who before the partition of the countrywere residing and owned property in that part of the territory which became the Dominion of Pakistan, was nohigher as respects the appellant's stocks than what itmight be vis-a-vis other such persons. If the appellantfelt that the respondent was not performing its obligationsand was neither permitting and appellant to removestocks nor affording it the necessary protection it wasopen to the appellant to have terminated the agreementin accordance with clause 13 of Ex. C.P./3 which wouldhave compelled the Government to purchase thosestocks on the termination of the arrangement. Nosuch steps were, however, taken by the appellant and itwas on 26-3-1948 only that the appellant gave noticeof termination of the agreement. Before that the stockshad already been taken possession of by the Governmentof West Punjab and the appellant was not in a positionto deliver the same to the respondent.
(35) The result of the fore-going discussion is that thereis no merit in this appeal and the same is accordinglydismissed with costs.