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Union of India Vs. Modi Sugar Mills Ltd. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtDelhi High Court
Decided On
Case NumberRegular First Appeal No. 28D of 1961
Judge
Reported inILR1970Delhi92
ActsIndian Contract Act, 1872 - Sections 70
AppellantUnion of India
RespondentModi Sugar Mills Ltd.
Advocates: R.L. Tandon and; B.K.S. Charan, Advs
Cases ReferredGovernment. (Piloo Bhunjishav Sidhwa v. Municipal Corporation of
Excerpt:
contract act, sub-section 70 and 73--applicability of --liability to return containers of materials supplied for manufacture of biscuits for the government but not sold--measure of damages for failure to return containers--determination of, by an agreed valuer--valuer not bound to hear parties or take evidence before fixing the market price of the goods on the date of the breach of contract.; government had asked the contractor to manufacture biscuits by using atta, sugar and hydrogenated oil supplied by the government and the property in which was to remain with the government and was not to pass to the contractor. the raw-materials could have been taken by the contractor in its own conainers but actually they were supplied to it by the government in the containers belonging to the..........act under section 70 of the contract act in the context of the terms and conditions of government contracts and, the manner and the quantum of proof there under by the government are some questions which have arisen for consideration in this appeal.(2) the respondent-contractor entered into ten contracts with the appellant-union of india on various dates from 20-11-1947 to 7-3-1952. the contractor was to manufacture biscuits and deliver the same to the government. the government was to supply to the contractor commodities as raw materials-namely, atta', 'sugar' and 'hydrogenated oil'. these raw materials were to be used by the contractor in making the biscuits. the relevant terms and conditions of the contracts were as follows :- 1.the general conditions of contract embodied.....
Judgment:

Deshpande, J.

(1) The nature of the obligation of a person enjoying benefit of a non-gratitutious act under Section 70 of the Contract Act in the context of the terms and conditions of Government contracts and, the manner and the quantum of proof there under by the Government are some questions which have arisen for consideration in this appeal.

(2) The respondent-contractor entered into ten contracts with the appellant-Union of India on various dates from 20-11-1947 to 7-3-1952. The contractor was to manufacture biscuits and deliver the same to the Government. The Government was to supply to the contractor commodities as raw materials-namely, Atta', 'Sugar' and 'Hydrogenated oil'. These raw materials were to be used by the contractor in making the biscuits. The relevant terms and conditions of the contracts were as follows :-

1.The general conditions of contract embodied in Form No. W.S.B. 133 in so far as they were not at variance with the conditions of these ten contracts were to apply.

(3) Paragraphs 4(d), 6 and 14 of the general conditions are as follows :

4(D)On due performance of the contract the Security Deposit will be returned to the Contractor on presentation of a 'No Demand Certificate' and return in good condition of any specifications, drawings, samples or other property belonging to the Purchaser which have been issued to the Contractor.

6.RISK Of Loss Or Damage To PURCHASER'S Property -

THEContractor guarantees the due return of all purchaser's property including particulars issued to him and will be responsible for the full value thereof to be assessed by the office issuing the 'Acceptance of Tender for all loss thereof or damage thereto from whatever ]cause happening while in the possession or control of the Contractor.

14.Whenever under this contract any sum of money is recoverable from and payable by the Contractor, the Purchaser shall be entitled to recover each sum by appropriating, in part or whole, the security deposited by the Contractor, or other sum payable to the contractor towards the money so due to the Government.'

2.The Government was to supply to the contractor the raw materials such as Atta, Ghee & hydrogenated oil free of cost of which the contractor was to take delivery from Ex-Military Supply Depot allotted for thepurpose. The Contractor would credit to the Government in the first instance the cost of both the Atta and the Ghee at Military Payment Issue Rates. The amount so deposited will be returnable to the contractor on satisfactory completion of the contract.

3.The contractor shall surrender to the Government all unused surplus materials issued to the contractor by the Government and received by the contractor immediately on the completion of the contract. The contractor shall be responsible for disposal of the materials issued to it by the Government according to any disposal instructions which may be given by the Government.

(4) The Government supplied to the contractor the required quantities of Atta, Sugar and Hydrogenated oil which were used by the contractor in making the biscuits for the Government. The Atta and the Sugar had been supplied in gunny bags while the hydrogenated oil was supplied in time. These containers were not returned by the contractor to the Government after receiving delivery of the Atta, Sugar and the Hydrogenated Oil and after the contracts had been performed by the contractor. The Government thereupon demanded from the contractor the return of these containers or the price thereof. The claims made by the Government in each of the ten contracts for the return of the containers or the price thereof are summarised by the contractor itself at pages 78-79 of the paper book. The total price of the containers was worked out at Rs. 19,561-5-9. When the contractor failed to pay this amount, the Government deducted the same from the security deposits and other sums due to the contractor on performance of these contracts. The contractor disputed the deduction made by the Government and at first referred the dispute to arbitration. After spending some time in arbitration the contractor abandoned the arbitration and filed a suit against the Government claiming from the Government Rs. 19,561-5-9 and interest on the same. The contractor based its claim on the following grounds:-

1.That the raw-materials such as Atta, Sugar and oil had been sold to the contractor by the Government against payment and there was no condition in the contract that the containers were to be returned to the Government by the contractor, the inference being that the property in the containers also passed to the contractor.

2.Even if the containers continue to belong to the Government, the Government had delayed the making of the claim for the return of the same so much that the value of the containers could not remain the same as it was when they were first supplied to the contractor.

3.The price of the containers was assessed by the Government at the price of the new container while the containers were used and were practically scrap. The Government was not, thereforee, entitled to the price claimed. The Government must prove each and every item of the claim and the value thereof.

(5) The Government in its defense pointed out that the contractor had been supplied only the raw-materials for being used in biscuits making and that it was bound to return the containers to the Government. The contractor was bound to return the containers under paragraphs 4(d) and 8 of the general conditions of contract. According to paragraph 14 thereof the Government was entitled to deduct the amount due from the contractor from the security deposits and other sums due to it. The deduction made by the Government was, thereforee, valid.

(6) The learned Senior Sub-Judge held that the contractor had purchased the Atta, Sugar and oil from the Government including the tins and the gunny bags in which the same were delivered on the ground that the custom and the practice of the trade was that the containers in which the raw materials were supplied were not returnable. For, the raw materials are sold at a rate which includes the charges for the containers. In the contracts between the parties there was no stipulation that the containers were to be the property of the Government. The learned Senior Sub-Judge disallowed the claim for interest and decreed the claim of Rs. 19,561-5-9 in favor of the contractor.

(7) The only questions for consideration in this appeal by the Government against the above mentioned decree are as follows :-

1. Whether the containers were sold by the Government to the contractor?

2.If not, whether the contractor was bound to return the same or pay the value thereof to the Government under Section 70 of the Contract Act or otherwise ?

3.To what amount was the Government entitled as the price of the containers ?

(8) Question No. 1 It is elementary that a sale is a transfer of ownership of a thing for a price. The contract between the parties was that the Government was to give raw-materials to the contractor. The ten contracts entered into between the parties are substantially on the same terms. We take a typical contract being Ex. D/2 at page 106 of the paper book. In paragraph 2, the particulars of the articles to be supplied by the contractor are described and the price payable to the contractor for the same is set out at the end of the paragraph as N.B. : The above price is exclusive of the cost of atta and flour. At page 110 in paragraph 8, it is stated that the Government would suuply 'free of cost' the requisite quantity of atta and Flour to manufacture the agreed quantity of biscuits. The supply would be made after the cost of the Atta is deposited in the treasury by the contractor. The money so deposited will be refundable only after the approximate quantity of the biscuits have been accepted from Atta and Flour supplied. These terms would apply equally to the supply of Sugar and oil. It would be seen from these conditions of contract that these rawmaterials were supplied by the Government to the contractor ''free of cost'. The contractor was to deposit an amount equal to their costs with the Government and the said amount was to be returned by the Government to the contractor on completion of the contract. The raw-materials were to be used by the contractor in making the biscuits to be supplied to the Government. It would be seen, thereforee, that the property in the raw-materials continued to be with the Government. The same raw-materials went into the biscuits which were supplied by the contractor to the Government. The amount deposited by the contractor equal to the cost of the raw-materials was only by way of security, against mis-appropriation of the raw-materials by the contractor. The raw-materials forming part of the biscuits would come back to the Government and the amount deposited by the contractor would go back to the contractor. There was thus no sale at all of these raw-materials by the Government to the contractor and the learned trial Court completely mis-conceived the nature of the transaction by allowing itself to be persuaded by the contractor into holding that there was a sale of the raw-materials by the Government to the contractor. This finding of the learned trial Court is so palpably untenable that Bakshi Shiv Charan Singh, learned counsel for the contractor who was also its counsel in the court below, made no attempt to justify this finding. We reverse the same.

(9) If the raw-materials were not sold, no question of the containers being sold can arise. Evidence as to the usage of the trade that containers are sold along with the raw-materials is, thereforee, absolutely irrelevant. The raw-material continued to remain to be the property of the Government along with the containers in which they were supplied. The contractor was bound to return the raw-materials to the Government by using them in making the biscuits. It would follow, thereforee, that the contractor was equally bound to return the containers as well.

(10) Question No. 2 :- The claim of the Government for the return of the containers or their price is based on paragraphs 4(d) and 8 of the general conditions of contract also the term in the particular contracts reproduced at paragraph 3 at page 3 and 4 above and also on Section 70 of the Contract Act. The contractual terms bind the contractor. We may examine if the claim against the contractor is also covered by Section 70 of the Contract Act. The requirement of Section 70 areas follows :-

1.The Government must supply the containers to the contractor lawfully;

2. It must not intend to do so gratuitiously;

3.The contractor must enjoy the benefit of the same.

(11) If these conditions are satisfied then the contractor is bound to return the containers to the Government or to pay compensation for its failure to do so.

(12) The contracts between the parties required the Government to supply the raw-materials to the contractor. The raw-materials were of such nature that they could be supplied only in containers and not otherwise. The only manner in which the Government could perform their part of the contract was by supplying the rawmaterials in containers. The contractor could have supplied to the Government its own containers into which the raw-materials could have been put by the Government so that the contractor would not be required to return the containers to the Government. The contractor did not do so. The supply of the containers along with the raw materials by the Government to the contractor was, thereforee, lawfully made within the meaning of Section 70. For the same reason the acceptance of the containers by the contractor was voluntary. For, it had the option of either supplying its own containers or to receive the raw-materials in the containers of the Government. The acceptance of the containers of the Government by him was, thereforee, voluntary according to the test laid down by the Supreme Court in State of West Bengal v. Mis. B. K. Mondal : AIR1962SC779 .

(13) Did the Government intend to supply the containers to the contractor gratuitously? There is no pleding by the contractor nor any admission by the Government to this effect. On the contrary, under paragraphs 4(d) and 8 of the general conditions of the contract the contractor was to returns to the Government property belonging to the Government which had been issued to the contractor by the Government, if the contractor were to be unable to return the property then he would be responsible for the full value thereof to be paid to the Government. Those conditions completely negative any suggestion that the containers could be supplied to the contractor gratuitously.

(14) Did the contractor enjoy the benefit of the supply of the containers The answer must be in the affirmative. The contractor I, was interested in receiving the raw-materials. He did not supply to the Government any containers in to which the raw-materials could have been put by the Government for supply to it. thereforee, it got the benefit from the Government by way of the supply of the containers. The containers of the Government saved the contractor from the necessity of supplying its own containers to hold the raw-materials till the biscuits were manufactured. All the essentials of Section 70 are thus satisfied. Paragraphs 4(d) and 8 of the general conditions of contract also require the contractor to return to the Government the property belonging to the Government which had been issued to the contractor by the Government.

(15) Question No. 3 :- Section 70 of the Contract Act says that the contractor was bound to make compensation to the Government 'or to return the thing' to the Government. The contractor has not offered to return the containers to the Government. It is not stated that the containers were preserved by it for return to the Government. It is not even known whether the contractor still possessed the containers. It is not, thereforee, possible to pass a decree for the return of the containers by the contractors to the Government in specie. The only alternative is to order the contractor to pay compensation to the Government.

(16) How is the compensation to be assessed In the absence of agreement between the parties the market value of the goods on the date of the cause of action would have been payable by the conractor to the Government. (Piloo Bhunjishav Sidhwa v. Municipal Corporation of the City of Poona, Civil Appeal No. 19 of 1967(2) dated by the Supreme Court on 15-1-1970). Fortunately, the contract itself gives an indication as to how the compensation is to be assessed. Paragraph 8 of the general conditions of contract makes the contractor responsible for the full value of the containers 'to be assessed by the office issuing the acceptance of tender'. The tender was accepted by the Assistant Director of Purchase, Department of Food, Ministry of Food and Agriculture. The letters-demanding that the contractor must return either the containers or the price thereof were also issued under the signatures of the Assistant Director of Purchase for and on behalf of the President of India as would be shown by Exhibits D/5. D/8, D/9 (Director of Purchase), D/11 (Deputy' Director), D/12 (Director), D/14, D/15 (Director), D/18, D/19 (Director), D/21, D/22 (Deputy Director). D./23. D/24 (Director), D/26 (Deputy Director), D/29 (Director) D/21 (Section Officer) and D/32 (Director). It will be thus seen that in all these demand notice the value of the containers was assessed by the office issuing acceptance of tender within the meaning of paragraph 8 of the general conditions of contract.

(17) Bakshi Shiv Charan Singh, learned counsel for the contractor has argued that the use of the word 'assessed' in paragraph 8 of the general conditions of contract shows that the office issuing the acceptance of tender has to make a voluation or an assessment of the value of the property of the Government which the contractor has failed to return to the Government. He contended that the Government has not placed any evidence on record to show that the price for the containers mentioned in the demand notice by the Government were arrived at after assessment or valuation. There is nothing to show that they represented the market value of the containers. The defense of the Government should, therefroe, fail for want of evidence on this question.

(18) It is true that ordinarily 'assess' means to value or determine the amount of payment of price, etc. Such assessment or valuation is not, however, always done by a uniform process. In CarasWilson and Greene (1886) 18 Q.B.D. 7 one of conditions of sale was that the purchaser should pay for the timber at a valuation. Each party was to appoint a valuer who were to appoint an Empire. The two valuers being unable to agree, the valuation was made by the Empire. An application for setting aside the valuation was, however, rejected by the Court of Appeal on the ground that the valuation was not in the nature of an award by an arbitrator. Lord Beher, M.R. speaking at p. 9 distinguished between valuation and arbitration in the following words:-

'IFit appears from the terms of the agreement by which a matter is submitted to a person's decision, that the intention of the parties was that he should hold an inquiry in the nature of a judicial inquiry, and hear the respective cases of the parties and decide upon evidence laid before him, then the case is one of an arbitration. the intention in such cases is that there shall be a judicial inquiry worked out in a judicial manner. On the other hand, there are cases in which a person is appointed to ascertain some matter for the purpose of preventing differences from arising, not of setting them when they have arisen, and where the case is not one of arbitration but of a more valuation...................

(19) I think that this case was clearly not one of arbitration, and that it falls within the class of cases where a person is appointed to determine a certain matter, such as the price of goods, not for the purpose of settling a dispute which has arisen, but of preventing any dispute. Athe time when the umpire was appointed, it cannot be pretended that any dispute had arisen. The vendor and purchaser had respectively agreed to sell and to purchase the timber at a price to be fixed by valuation, and, the price not yet being fixed, there 'was nothing in dispute between them. If the valuers could not agree as to the price an umpire was to be appointed, but nothing need be known to the vendor and purchaser about the matter, there cannot be said to be anything in dispute between them.'

(20) It appears to us that the power given to the Government to assess the value of the Government property to be returned by the- contractor by paragraph 8 of the general conditions of contract was similar to the appointment of a veluer by the agreement of parties. Such a valuer has simply to announce the valuation which is to be made exclusively by him without hearing the parties to the contract. As observed in 39 Halsbury's laws of England paragraph 6 'a valuer is appointed to determine such a matter i.e. fixation Of the price before any dispute has arisen and with the object of preventing any dispute' as contracted with an arbitrator who is appointed to determine a certain matter, such as price of the goods, for the purposes of settling a dispute which has arisen between the parties. It is well known that in a contract of sale of goods the parties may agree that the price of the goods may be fixed by a third person who would be the valuer. Such a contract is valid in as much as the fixation of the price by the valuer makes it certain and enforceable. (Vide 34 Halsbury's laws of England paragraph 59) and illustration (e) to Section 29 of this Indian Contract Act).

(21) The office of the Director of Purchase, Department of Food, had entered into these contracts with the contractor under the general conditions of contract applicable to Department of Supply. This is why because in some of the contracts it is stated that the contractor was to deposit the price of the raw-material with the Government in the first instance 'at Military payment issue rates'. If the contractor was to deposit the price of the raw-materials at the Military payment issue rates it would be reasonable for the authority issuing the aceptance of the tendar to refer to the same rates for assessing the values of the containers of such raw materials when the contractor fails to return the same to the Government. According to the defense of the Government in para 6 of the written statement the contractor was liable to pay the price of the containers at 'Military payment issue rates' during the period in question. According to the evidence of Shri K. L. Gupta, Under Secretary, Ministry of Finance examined by us, the stock book rate list of centrally purchased articles of R.I.A.S.C. Supply contains 'free issue rates' and 'present issue rates' for stores which are obtained by the Army principally for consumption by troops. 'Payment issue rates' are applied when material stores of A.S.C. are issued on payment to individual officers or private parties and they are also utilised for pricing the lost, damaged or destroyed articles. Paragraph 8 of the general conditions of contract makes the contractor responsible for all losses of Government property which was in the possession or control of the contractor, Ins servants, workmen or agents. The containers were in possession of the contractor. They are lost to the Government by the failure of the contractor to return them. The Government have, thereforee, charged the price of these containers to the account of the contractor according to 'payment issue rates'. According to the evidence of Shri K. L. Gupta, 'payment issue rates' are applied when Government has to value their loss of or damage to articles, The question is, whether the) office of the Director of Purchase, Department of Food was entitled to value the containers according to 'payment issue rates'. If the Office of the Director of Purchase had not been appointed by the Government as valuer to fix the value of the lost stores then the valuation could not be made by it without hearing the parties. But as pointed out above, the paragraph 8 of the general conditions of contract gave this power to the office of the Director of Purchase by appointing it as a valuer to prevent any dispute from being arisen. The exercise of this power by a valuer does not require the hearing of parties or taking of any evidence. The valuer is appointed by the parties because they trust his knowledge and competence to make the valuation on his own knowledge. The office of the Director of Purchase had to make the valuation of the containers according to its own knowledge. Shri K. L. Gupta says that the office of the Deputy- Financial Adviser (a) Ministry of Finance (defense) have maintained those 'payment issue rates'. These rates are calculated, according to the witness, on the basis of purchases made through the Director General of Supplies and Disposals or through the Central Purchase Organisation of the Department of Food, viz., the D.G.S.&D.; (Disposal and Chief Directorate of Purchase). The rates are printed by the Manager of Publications and published by the Deputy Financial Adviser (a) Ministry of Finance (defense) and are maintained in his office. The printed copies of the compilation Exhibit D/3/2 were lying in the official custody of the witness when he was working as a Section Officer in the Ministry of Finance (defense). He has brought the printed compilation and has placed it before us.

(22) Bakshi Shiv Charan Singh, learned counsel for the respondent has strongly urged that this printed compilation has not been proved and should not be admitted in evidence. He further urged that if the Government wanted the compilation to be read in evidence than someone should come forth and state how he has compiled these rates and that such proof has not been given in the present case. It was not necessary for the Government to prove either the market value of the containers or that the Military payment rates have been complied by it on the basis of the market rate. All that is required is that these payment issue rates existed in the past for the requisite years, namely, 1947 to 1952. Existence of these rates has been proved beyond doubt by the production of the printed rate list. These rates having existed, we have to decide, whether the Government could use them for the purpose of assessing the value of the containers which the contractors failed to return to the Government. As stated above, the Government was in the position to value the containers and it had to do the valuation entirely according to its own knowledge. No fault can be found in this procedure in as much as this was done entirely within the power given to the Government by paragraph 6 of the general conditions of contract.

(23) The appeal is, thereforee, allowed. The judgment of the trial Court is set aside and the suit of the Respondent 1s dismissed with costs in both, the trial Court and this Court. Cross objections are also dismissed.


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