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S. Rajam. Vs. the Indian Union, Ministry of Rehabilitation, New Delhi - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtChennai High Court
Decided On
Case NumberAppeal No. 273 of 1961
Judge
Reported inAIR1966Mad235
ActsGovernment of India Act - Sections 175(3); Indian Contract Act - Sections 29 and 70; Constitution of India - Article 299; Code of Civil Procedure (CPC), 1908 - Sections 80
AppellantS. Rajam.
RespondentThe Indian Union, Ministry of Rehabilitation, New Delhi
Cases ReferredKofi Sunkersette Obu v. Strauss and Co. Ltd.
Excerpt:
.....as to (i) whether, in the view that there was concluded agreement between the parties fixing the rate of commission such a agreement was void for non-compliance with the mandatory provisions of article 299 of the constitution; (ii) whether the plaintiff would be entitled to a commission at a reasonable rate as the work was not done by him gratuitously and (iii) whether the agreement between the parties, if valid, meant only fixation of reasonable rate,; held, (i) while the requirements of article 299 whose terms were identical with those of section 175(3) of the government of india act, 1935, were mandatory and should be complied with in the order that an agreement entered into by a private party with the central or state government in the exercise of their executive power..........that the rates specified in the draft agreements were not acceptable to him and that he should be paid commission at the rate of one per cent. it is in the light of this we have to see what the parties might have intended. surely, by accepting the telegram of the regional settlement commissioner, the plaintiff did not mean to convey that he was accepting the terms provided for in the draft agreement. his acceptance was in the expectation, as we said, of a fair and reasonable rate of commission. we hold that the plaintiff would be entitled to such a rate of compensation, namely, a fair and reasonable one.(13) unfortunately in this case the trial court has not proceeded on that basis and there was no material placed before the court below or before us to determine what would be a fair and.....
Judgment:
(1) The controversy in this appeal by the plaintiff is as to the rate of commission at which he is entitled to be paid for certain auction sales of evacuee properties in Madras, Bangalore, Mysore, Ootacamund and Coonoor, which the held in five batches between February 22, and June 26, 1955, on behalf of the defendant. He has been paid at one per cent of the sale proceeds in respect of the first batch of sales held between 22-2-1955 and 26-2-1955 at Madras. With regard to the other batches of sales between 7-4-1955 and 16-4-1955, 26-1-1955 and 1-5-1955, 9-5-1955 and 15-5-1955, and 26-6-1955 and 27-6-1955, the defendant paid the plaintiff only a sum of Rs. 7,324,56 against a claim of Rs. 23,098-35. The suit is to recover the difference, the main ground of the appellant being that there was no reason to make a distinction between the sales made prior to 1-4-1955 and those subsequent thereto, as the work involved in respect of both the sales was just the same, and there was no reason why the general rule as to the reasonable quantum of remuneration payable in respect of sales should not be applied. On the ground that certain sales held on 28-4-1955 and 10th, 12th and 13th May 1955, were for prices below 60 per cent of the reserve price, the defendant denied liability to any commission whatever. The plaintiff contended that the sales were effected by him not gratuitously and was, therefore, entitled to a reasonable remuneration.

(2) The suit was resisted by the defendant pleading an agreement fixing the rate of compensation and stipulating that for sales fetching prices less than sixty per cent of the reserve price no commission would be payable. The agreement set up was that the plaintiff had agreed to received commission at such rate as the Government might fix.

(3) The court below framed a number of issues on those pleadings, but substantially it found that the agreement set up by the defendant was true and that remuneration already paid to the plaintiff was in accordance therewith. On that view it dismissed the suit.

(4) On behalf of the plaintiff, who has appealed to this court, his learned counsel Mr. K. Rajah Iyer, contends (1) that if there was a concluded agreement between the plaintiff and the defendant fixing the rate of commission, it was void for non-compliance with the mandatory provision of Art. 299 of the Constitution, and that as the work done by the plaintiff was not intended to be gratuitous, he was entitled to commission at a reasonable rate; (2) that, alternatively, if the agreement was, for any reason, valid, it failed to fix a rate of commission, and that, in any case, the parties meant that a reasonable rate of commission would be paid for the work done by the plaintiff. On the other hand, the learned Government Pleader contends that, though there was no formal agreement drawn up and executed, there could be a valid agreement entered into by correspondence between the parties after conforming to the requirements of Art. 299 of the Constitution, and that an agreement by which the plaintiff agreed to accept such rate of commission as may be fixed by the defendant is valid and it is not open to the court to depart from its terms and tenor and fix a rate which it may consider to be reasonable.

(5) Before we examine these contentions, a few more facts may be notices. The plaintiff was appointed as a commission agent by the Regional Settlement Commissioner, Bombay, acting for the Government of India, Ministry of Rehabilitation, by a letter dated 28-1-1955. The appointment was restricted to the conduct of auction sales of evacuee property, and buildings in Madras from 22-2-1955 to 26-2-1955, and the letter said that the plaintiff would be given commission on the auctions as would be fixed by the Government of India from time to time. On 12-2-1955, the Deputy Secretary to the Government of India, Ministry of Rehabilitation, by a letter of that date, asked the plaintiff's concurrence to and execution of a formal agreement a draft of which was enclosed with it. One of the clauses in this draft stated that the rate of commission would be as specified in Clause 13, and this clause contained certain rates of commission calculated on different specified slabs. The plaintiff immediately wrote back on 16-2-1955, expressing his unwillingness to accept a rate less than one percent as commission. On 4-3-1955, there was a telegram from the Regional Settlement Commissioner to the plaintiff:

"Your letter 16th February Stop 57 properties in Madras programmed sale from 17th to 15th April. Stop telegraph you agree undertaking auction on terms whatever decided by Government."

The plaintiff replies the same day:

"Your telegram March 3rd Stop Agree to arrange April auctions on terms to be decided by Government Stop 14th April Tamil New Years day hence holiday and not suitable for auctions."

This reply telegram was followed by a letter of the plaintiff dated 4-3-1955, in which he stated that as suggested by the Regional Settlement Commissioner, he had agreed to conduct all sales to be arranged from 7th April onwards and on terms that might be decided by the Union Government. About 21-3-1955, or so the Government of India, Ministry of Rehabilitation, addressed a letter to the plaintiff enclosing a draft revised agreement for his signature. Clause 14 of this draft contained the rates of commission on slab basis and by one of its sub-clauses, it stipulated that where a bid in respect of any property was less than sixty per cent of the reserve price, no commission would be paid, but only the actual advertisement charges as determined by the Regional Settlement Commissioner. The plaintiff did not return this draft duly executed by him, but entered into correspondence with the relative officers, asking for one per cent commission. Eventually a letter dated 2nd June 1955 of the Ministry of Rehabilitation addressed to the Regional Settlement Commissioner, a copy of which was marked to the plaintiff with a post-script, made it clear that the plaintiff's request for raising the commission to one percent of the sale proceeds was not accepted. A further correspondence ensued including the plaintiff enclosing his bills claiming a commission at the rate of one per cent. On 27-6-1955, the Ministry of Rehabilitation affirmed its earlier stand that commission would not be paid at the rate of one per cent. By a letter dated 26-8-1955, the same Ministry further intimated the plaintiff that his request for commission at one per cent was separately under consideration. The ultimate reply of the Ministry was dated 4-11-1955, by which it sanctioned to the plaintiff commission at the rate of one per cent for auctions conducted prior to 1-4-1955, but as regards auctions held subsequent thereto it said:

"Regarding the auctions conducted by the firm after 1-4-1955, the rate of commission should be paid as contained in the agreement and also agreed to by the firm. Vide their telegram dated 4-3-1955, a copy of which has been enclosed by you with your letter under reply."

This communication was actually addressed to the Regional Settlement Commissioner, but a copy of it was also sent to the plaintiff. In their copy, the Ministry further stated that the plaintiff's request for higher rates of commission had been considered in the light of the facts furnished by him from time to time, but it was regretted that the same could not be accepted to. This drove the plaintiff to the suit after a notice under S. 80, C.P.Code.

(6) On the assumption that there was an agreement between the parties fixing the rate of commission, Mr. Rajah Iyer, argues that inasmuch as it was not put in the proper form and it did not comply with the mandatory requirements of Art. 299 of the Constitution, it was void. He says, therefore, that in the absence of any binding agreement the plaintiff would be entitled to be paid a reasonable rate of commission to be fixed by this court. Learned counsel relies on New Marine Coal Co. v. Union of India, and Karamshi v. State of

Bombay, . Both these cases were decided with reference to S. 175(3) of the Government of India Act, and in the first of these cases the Supreme Court following its earlier Judgment in State of West Bengal v. B. K. Mondal and Sons, held that the

requirements of S. 175(3) were mandatory, that their non-compliance would render the contract void and unenforceable, and that at the same time, if in pursuance of such a void contract a party had performed his part, and the other had received the benefit of the performance of the contract by the former, the former would be entitled to compensation on the principles of S. 70 of the Contract Act. In the second case a contract was sought to be made out of correspondence between the parties, and the question was whether it complied with S. 175(3). Pointing to the requirements of that section. Subba Rao, J. observed:

"This section laid down two conditions for the validity of such a contract, namely (1) it should be expressed to be made by the Governor of the Province, and (2) it should be executed on behalf of the Governor by such person and in such manner as he might direct or authorise." On the facts before it, the Supreme Court was of the view that the contract by correspondence did not satisfy these requirements. In reaching that conclusion the Supreme Court distinguished Bhikraj Jaipuria v. Union of India,

and Union of India v. Rallia Ram, . Both these

cases recognised that there could be a contract by correspondence, but its validity would depend on compliance with the requirements of S. 175(3), but on the facts in each of those cases it was held that the contract did conform to that statutory provision. It is, therefore, well settled now that, while the requirements of Art. 299, whose terms are identical with those of S. 175(3), are mandatory and should be complied with in order that an agreement entered into by a private party with the Central or State Government in the exercise of their executive power be enforceable, it is not necessary that there should be drawn up a formal agreement as such, but there could be a valid contract entered into by correspondence provided the two requirements, pointed out by the Supreme Court in are complied with.

(7) Learned Government Pleader contends that the point based on Art. 299, had never been raised at any earlier stage, not even in the grounds of appeal, and that if it had been raised at the trial, the defendant would have by further evidence satisfied the court that the agreement regarding the rate of commission in this case conformed to Art. 299. He also points out that there could be a valid agreement entered into by exchange of telegrams as it happened in M/s. Chiranjilal v. Union of India, . We are inclined to think that this contention is not without force, and we recognise that the defendant is naturally handicapped in the appeal before us in satisfying this court on that point. But in view of the alternative argument of Mr. Rajah Iyer, which we think is one of substance, we do not propose to base our judgment on his first point with reference to Art. 299 of the Constitution.

(8) As we said, Mr. Rajah Iyer's alternative contention is the agreement, such as it was here, never fixed any firm rate of compensation. The material correspondence between the plaintiff and the Ministry of Rehabilitation has already been referred to. There is no doubt that the two telegrams of March 4, 1955, one from the Regional Settlement Commissioner and the other in reply by the plaintiff, did bring about a consensus, the effect of which was the plaintiff agreed to hold auctions in April on terms to be decided by the Government. Mr. Rajah Iyer's contention is that this meant that the plaintiff would be paid a reasonable rate and no less and that, as a matter of fact, the letter of the Ministry of Rehabilitation dated 4-11-1955, was totally unavailing to fix a rate. On the latter part of the contention, we see that, while this letter of

4-11-1955 said that the rates of commission should be paid as contained in the agreement, the apparent reference being to the draft agreement enclosed with the letter of the defendant dated 21-3-1955, or so, it also stated that those rates were fixed as agreed to by the plaintiff. In point of fact, it is clearly inaccurate to state that the plaintiff had at any time prior to 4-11-1955 or later agreed to the rates contained in the draft agreement enclosed with the letter of March 1956. But the letter of 4-11-1955, presupposes that such an agreement of the plaintiff was contained in his telegram dated 4-3-1955. This assumption, again, is not warranted, because both before and after the telegram the plaintiff made in quite clear to the defendant or its officers that he could not agree to the terms contained in the first draft agreement enclosed with the letter dated 12-2-1955. Mr. Rajah Iyer's argument goes further namely, that even if the letter of the Ministry of Rehabilitation dated 4-11-1955, fixed the rate as contained in the draft agreement aforesaid, the whole correspondence would make it clear that the contract only meant that the plaintiff would be paid a reasonable rate.

(9) Questions have arisen as to the validity and enforceability of an agreement entered into, for instance, by A with B that the former would render service at a remuneration to be fixed by the latter. Decided cases show that the answer to the question depended, to a certain extent, on the construction of the particular contract, and whether such a fixation was entirely within the discretion of the obligee or whether the agreement merely meant that the obligee should fix the rate, the intention of the parties being that the services contemplated was rendered not gratuitously. In Taylor v. Brewar, (1813) 1 M and S. 290 the promise to pay such remuneration as should be deemed right was held to be bad for uncertainty. In Roberts v. Smith, (1859) 157 ER 861, the agreement was:

"I agree to accept the appointment of secretary..... first a salary of..... per annum, if the company be completely registered and put into operation; if not, I shall be satisfied with any remuneration for my time and labour you may think as deserving of as your means can afford."

It was held that there was no contract upon which the plaintiff could recover any part of the salary. In this country too, as is apparent from Ramaswami v. Rajagopala, (1888) ILR 11 Mad 200 such a contract or a contract worded more or less similarly was regarded as unenforceable. That was a case of patta containing an agreement to pay whatever rent the landlord may impose. The court held that this stipulation was void for uncertainty. But a different approach to such contracts or contracts worded more or less similarly is found in some of the later decisions, both in England as well as in this country. In Bryant v. Flight, (1839) 151 ER 49, the agreement was:

"I hereby agree to enter your service as a weekly manager, commencing next Monday; and the amount of payment I am to receive and the amount of payment I am to receive I leave entirely to you."

(1813) 1 M and S 290 though cited, was not followed, and it was held, Parke B, dissenting, that the contract in that case implied that the obligor was to be paid something at all events for the services performed, and that the jury in an action on a quantum meruit, might in an action on a quantum meruit, might ascertain what the obligee action bona fide, would be or ought to have been awarded. This approach more or less on the basis of quantum meruit was followed and applied by the House of Lords in Way v. Latilla, 1937-3 All ER 759. It was found in that case that there was not meant to be gratuitous. The House of Lords held that the appellant, who was the obligor was entitled to a reasonable remuneration on the implied contract to pay him quantum meruit. Powell v. Braun, 1954-1 All ER 484 at p. 486 was also a case of service contract providing that the claimant there would be paid a bonus on the net trading profits of the previous financial year. When it was not paid in a particular year, there was a claim therefor. Construing the contract, the court of Appeal said that it was intended by the parties, not that the payment of bonus should be within the discretion of the defendant, but that he should pay the plaintiff a reasonable sum. Lord Denning, among others, observed:

"It was said in the course of the argument that no case has been found in the books where a quantum meruit has been awarded in a case like the present. I hope that this case will provide the deficiency. In lieu of a rise in salary, the defendant agreed to pay the plaintiff a bonus each year on the net trading profit....... The learned Judge said that what he should pay was a matter the defendant in his discretion, that is, whether he should pay something or nothing, I do not agree. I think the defendant plainly bound himself to pay something. The precise amount would not be an amount in his unfettered discretion. It would be an amount within his reasonable discretion, that is, it would be the amount which a fair and just man would pay in the exercise of a reasonable discretion."

(10) Mr. Rajah Iyer strongly relies on these observations of Lord Denning and argues that here what the parties meant was that the plaintiff would be paid a fair, just and reasonable rate of compensation. In Vellayam Chetti v. Kulandavelappa Chetti, 29 Mad LJ 749: (AIR 1915 Mad 931), a case of principal and agent, a Nattukottai Chetti principal promised to give his Burma agent something as remuneration in respect of sums collected from his old debtors without specifying the amount. Coutts Trotter J., as he then was, and Srinivasa Aiyangar J. repelled the contention that the contract was not enforceable, and held that it was a question depending upon the circumstances of each case whether an alleged agreement of this sort constituted an unqualified contract to give something or whether the party agreeing had the option of giving anything or nothing at all. The court found that the contract in that case was enforceable. Coutts Trotter J observed (at p. 753 of Mad LJ): (at p. 933 of AIR):

"That being so, the question arises whether this would constitute in law an enforceable contract. Reliance was placed for the appellant on two cases. (1813) 1 M and S. 290 and (1859) 157 ER 861. In these cases, it was held that a promise to pay reward to deserving persons may be construed in certain circumstances with certain form of words to mean 'I may or may not give anything. If I do give something I will give exactly what I deem right'. On the other hand, the other side relied on the case of (1839) 151 ER 49, where slightly different words were held to mean 'I will give you something, though that something must be determined later. The dividing line may be different in particular cases. The principle is quite clear. Is there an unqualified contract to give something or is the option of giving anything at all left to the discretion of the proposed donor?"

Secretary of State for India v. Volkart Bros., (1927) ILR 50 Mad 595: (AIR 1927 Mad 513) related to the renewal of a 99 years lease upon such terms and conditions as should be judged reasonable Coutts Trotter C. J. agreeing with Venkatasubba Rao J. on a difference between him and Krishnan J., held that the term for renewal was enforceable on the ground that it was so worded, because it was thought that it might not be reasonable to fix a rent after the lapse of first century for the whole of the next century. The learned Chief Justice considered that the term under the contract was not too vague to be enforced.

(11) Through these cases it is clear that if by a contract it is left entirely to the discretion of one of the parties thereto, whether or not to pay remuneration, the contract would be unenforceable for the simple reason that the person in whom the discretion is vested may or may not exercise it; but if on the other hand, the contract is that the service rendered thereunder was not meant to be gratuitous and meant that one of the parties thereto should fix the rate, the rate fixed is required to be just, fair and reasonable. This distinction is pointed out in 8 Halsbury, Simonds Edition, paragraph 330:

"Where services are performed under an agreement that the remuneration shall be in the discretion of the employer, the question whether the employer has the right to determine whether any remuneration at all shall be paid, so that his decision is a condition precedent to any claim or merely has the right to fix the amount of the remuneration, is a question of construction and intention in each particular case."

Where the exercise of discretion is a condition precedent, the contract will, of course, be unenforceable, but in other cases, the contract is good and will be enforceable. Illustration (e) to S. 29 of the Indian Contract Act shows that a contract by which A agrees to sell to B certain goods at a price to be fixed by C is perfectly good and enforceable.... But the learned Government Pleader argues that in case of contracts in which A's remuneration is to be fixed by B, the other party to the contract which on principle is hardly distinguishable from the other type of contracts, there is no power in courts to interfere with the discretion vested in B, and proceed to determine what it considered to be a fair and reasonable rate of remuneration. In support of his contention he relies on Kofi Sunkersette Obu v. Strauss and Co. Ltd., 1951 AC 243. We do not think that this authority support his proposition. The contract there was this:

"The company has agreed to remunerate my services with a monthly sum of fifty pounds........... to cover my personal and travelling expenses...... A commission is also to be paid to me by the company which I have agreed to leave to the discretion of the company."

The Privy Council held that on this contract it was beyond the competence of any court to grant any relief to the employee. The Board would appear to have expressed its view mainly on the basis of its own construction of the contract, as will be evident, from its following observation (page 250):

"In their Lordships' opinion the relief which the appellant claims, namely, an account and payment of commission based on rubber purchased or shipped, is beyond the competence of any Court to grant. The court cannot determine the basis and rate of the commission. To do so would involve not only making a new agreement for the parties, but varying the existing agreement by transferring to the court the exercise of a discretion vested in the respondent."

The Privy Council, as we think, proceeded on the view that where payment of commission as remuneration was entirely left to the discretion of a party, the court cannot take upon itself to exercise that discretion. This case merely illustrates, in our view, the distinction between the two classes of contracts, which we mentioned, one of them leaving remuneration entirely to the discretion of a party, and the other not leaving so any discretion but requiring or expecting the other party to fix a remuneration the intention of the parties being that the service is not to be rendered gratuitously. Learned Government Pleader referred us to Anson's Law of Contracts, 21st Edn. Page 163, at 164, where the learned author stated:

"There is still a reluctance to walk upon the shifting sands of public policy and to absolve the parties from an agreement into which they have formally entered on the grounds merely that it is unreasonable. It may be that the law will expand it to meet changing economic conditions, but it cannot yet be said with certainty that this power exits."

These observations in our opinion, do not apply to contracts in which one of the parties is obliged to fix a rate of remuneration in the expectancy of which service is rendered, which means a reasonable remuneration.

(12) In this case, by the two telegrams of 4-3-1955, what did the parties mean? Whatever they meant, surely the intention was not that the payment of remuneration was left to the discretion of the defendant. On the other hand, the telegrams are clear that the plaintiff would be paid on terms to be decided by Government. The only term in controversy is as to the rate of commission, and the telegrams confined themselves to that term. Supposing, in a case like that, the defendant fixed a rate, but ex facie it was unreasonable and unjust, is it to be supposed that the plaintiff will be left without a remedy and will not the courts in such cases have the power to intercede and fix a reasonable remuneration in spite of the rate fixed by the defendant? In Our view, the courts do possess that power in the interest of justice. They in a sense but enforce the contract to fix a reasonable remuneration. We are satisfied, in the context of the correspondence, in this case, that by the two telegrams what the parties thereto meant was the defendants should fix a reasonable and fair remuneration. Right from the beginning to the end of the correspondence, the plaintiff had been insisting and making it very plain that the rates specified in the draft agreements were not acceptable to him and that he should be paid commission at the rate of one per cent. It is in the light of this we have to see what the parties might have intended. Surely, by accepting the telegram of the Regional Settlement Commissioner, the plaintiff did not mean to convey that he was accepting the terms provided for in the draft agreement. His acceptance was in the expectation, as we said, of a fair and reasonable rate of commission. We hold that the plaintiff would be entitled to such a rate of compensation, namely, a fair and reasonable one.

(13) Unfortunately in this case the trial court has not proceeded on that basis and there was no material placed before the court below or before us to determine what would be a fair and reasonable rate of commission. It was argued that for the sales prior to 1-4-1955, the plaintiff was paid by the defendant at the rate of one per cent and there was no reason why a different rate should be adopted in respect of sales effected subsequent to that date. On the other hand, the learned Government Pleader invites attention to some of the agreements the Union of India had entered into with certain third parties in 1955, and contends that the rates agreed to there should be regarded as fair and reasonable. The court below referred to these agreements, but was of the view that they had not been provided. Even apart from that, there is no material before us in the light of which we can judge whether the rates in those agreements were reasonable and under what circumstances. We think that the proper course would be to remit the matter to the court below for fixing a fair and reasonable rate of commission to be paid to the plaintiff, after giving the parties an opportunity to adduce such further evidence as they may choose on the question. The judgment and the decree of the court below are set aside and the suit is remitted for disposal in the light of the observations contained in this judgment. The costs of this appeal will be costs in the case. The court fee paid on the memorandum of appeal will be refunded.

(14) Order accordingly.


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