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The Coffee Board, Bangalore Vs. Famous Coffee and Tea Works, Coimbatore and ors. - Court Judgment

LegalCrystal Citation
CourtChennai High Court
Decided On
Case NumberAppeal Nos. 254 to 263 of 1958 and 163 to 167 of 1960
Reported inAIR1965Mad14
ActsCoffee Market Expansion Act, 1942; Coffee Market Expansion (Amendment) Act, 1947 - Sections 9, 16, 26, 32-A, 34, 47, 48, 48(2) and 48A(2)(1); Constitution of India - Article 14; Coffee Market Expansion Rules, 1940 - Rules 29 to 31; Public Contracts Act
AppellantThe Coffee Board, Bangalore
RespondentFamous Coffee and Tea Works, Coimbatore and ors.
Cases ReferredPayne v. Cave.
commercial - damages - coffee market expansion act, 1942, sections 9, 16, 26, 32a, 34, 47, 48, 48 (2) and 48a (2) (1) of coffee market expansion (amendment) act, 1947, article 14 of constitution of india, rules 29 to 31 of coffee market expansion rules, 1940 and public contracts act - successful bidders failed to take delivery of goods due to subsequent fall in price due to measures adopted by plaintiff-vendor - suit for recovery of damages pursuant to resale of goods - plaintiff dutybound to adopt measures for bringing down price of coffee which was abnormally high at time of bid - said measures cannot be treated as illegal - plaintiff entitled to effect resale on default by bidder - resale proved to have effect within reasonable time - held, defaulter bidder liable to pay damages to.....ramadchandra iyer, c.j. (1) the india coffee board has filed these appeals against the decree of the subordinate judge, coimbatore, in a batch of suits dismissing its claim for recovery of damages from the respondents in the respective appeals, occasioned by their failure to pay the price of quantities of coffee sold to them. the respondents were the successful bidders at the pool auctions held on 7-10-1952 and 14-11-1952 by the chief coffee marketing officer at coimbatore. under the terms of sale they should pay the price and take delivery of the goods within 14 days of the sale; that time could be extended by 3 days by the seller. but soon after the sale, and presumably by reason of the measures adopted by the appellant the price of coffee fell. none of the purchasers honoured their.....

Ramadchandra Iyer, C.J.

(1) The India Coffee Board has filed these appeals against the decree of the Subordinate Judge, Coimbatore, in a batch of suits dismissing its claim for recovery of damages from the respondents in the respective appeals, occasioned by their failure to pay the price of quantities of coffee sold to them. The respondents were the successful bidders at the pool auctions held on 7-10-1952 and 14-11-1952 by the Chief Coffee Marketing officer at Coimbatore. Under the terms of sale they should pay the price and take delivery of the goods within 14 days of the sale; that time could be extended by 3 days by the seller. But soon after the sale, and presumably by reason of the measures adopted by the appellant the price of coffee fell. None of the purchasers honoured their obligations. The coffee was then re-sold on 23-12-1952 and 5-2-1953 and the suits out of which these appeals arise were laid for recovery of the loss ascertained on such re-sale.

(2) The substantial defence to the suits related to the validity of the auction sales at which the respondents became purchasers. There was also a plea as to the sustainability of the claim for damages which according to them was occasioned by the steps taken by the seller to reduce the market price of coffee. The defence has been accepted by the learned Subordinate Judge. For a proper consideration of these appeals against his judgment it is first necessary to set out briefly the history of the constitution of the Coffee Board and of the procedure adopted by it for selling coffee.

(3) Coffee is one of the principal plantation products of India that has a good maternal as well as a foreign market. It has been said that the mild stimulating effect of coffee has made it popular and indeed is the solace of the teetotaller. But continued drinking of coffee creates a habit in the consumer with the consequence that a coffee drinker can seldom abandon it. That property in the product has secured for it a fairly stable demand in this country. The production of coffee in this country is however, higher than its internal demand; it is inevitable therefore, that in the interests of the grower, and the consumer and of the country that there should be a proper balancing of the internal and external trade in the commodity. Undue emphasis on the latter by exporting large quantities of coffee would have it s adverse effect on the consumer in this country; while any attempt in the opposite direction would undoubtedly affect the grower.

(4) Business in coffee was fairly systematised by coffee curers. Coffee beans have to be prepared for the market by a process of curing and polishing etc. Prior to the year 1942, bulk of the coffee grown was sold by the curers or commission agents on behalf of the planters. The principal curing stations in this part of the country are Mangalore, Coimbatore and certain other palaces in the Mysore State. Apart from private sales by or on behalf of the planters and sale by export bulk of the coffee crop was sold by auction. The method adopted has been set out thus in the 'Report on the Marketing of Coffee in India' published under the authority of the Government.

'A sealed box having a slot at the top is kept in the auction room. Buyers bid for selected lots and post the bid forms in the sealed box. The curers who auction the coffee on behalf or the planters are themselves large buyers and very often wish to buy lots on their own account. To avoid suspicion of any underhand dealing they give a sealed copy of the tender to one of the traders and place the original in the box. Auctions close at a definite hour each day; the sellers examine the bids and announce the sold lots by posting the lot number and the successful bidder's name on a notice board. They are not bound to accept the highest or any bid.' (See page 164)

There can be little doubt that the method of selling at an auction facilitating as sit does competitive bids, helps the planter to get the best price for his goods; but an auction sale foes not always fulfil that purpose. Combination amongst bidders had not unoften resulted in the seller obtaining far less than what he would obtain in sale by private treaty.

(5) The second World War did affect considerably the export trade of this country and created a need for regulating the coffee industry. An ordinance was issued in the year 1940 to secure that end. This ordinance was in due course replaced by the Coffee Market Expansion Act (VII of 1942), which we shall refer to hereafter as the Act. That was intended originally as a temporary measure, But by Act IV of 1947, it secured a permanent place on the statute book. Since its enactment there have been a number of amendments, but neither their history nor the provisions are relevant for the present purpose. In its present form the Act applies to all estates irrespective of their size; they have all to be registered with the Coffee Board constituted under the Act and the owners or planters of all such estates must submit such returns to the Board as may be required. All coffee produced should be delivered to the Board which is empowered to make allotments between export and internal trade and to market coffee allotted to under the latter category in this country. Three methods are generally adopted by the Board for releasing coffee to trade: (1) by sale in what are called pool auctions held at Mangalore, Coimbatore and certain other centres in Madras and in the Mysore State; (2) by sale to co-operative societies and (3) by retail sale through propaganda centres established by it. The sale proceeds of coffee exported as will as those released for internal consumption are brought together and after making certain deductions towards administrative expenses, excise duty payable to Government, etc., the balance is distributed to the growers in proportion to the quantities of coffee delivered by them. We are concerned in this case with the internal sales falling under the first category, namely, sales effected through pool auctions.

(6) The Act provides that the Board to be constituted thereunder should consist of members representing the interests of the growers and traders in coffee, of the state and central governments of the Council of Agricultural Research and of labour. The Coffee board is to be a corporation with a power to acquire and hold property and to enter into contracts. The composition of the board would appear to show that the Legislature did not intend it merely to be an agent of the grower and the trader for the limited purpose of gathering and marketing the produce exclusively to their advantage. The functions entrusted to it under the Act to which we shall make brief reference will show that its duty will undoubtedly be to preserve and improve the country's economy to maintain a balance between the interest of the grower and consumer which itself will be conducive to a steady coffee market. There is to be an executive officer of the Board designated as the Chief Coffee Marketing Officer who is to be appointed by the Government. The Central Government is given the power under s. 16 of the Act to fix a ceiling both as to wholesale and retail price of coffee in the internal market. The Board is made responsible for curing and storing the coffee and also for marketing the same.

(7) Section 34 of the act provides for payment by the Board to the registered owners out of the pool fund for coffee delivered to it. The Central Government under section 48 is given the power to make rules to carry out the provisions of the Act, the State governments too have powers to make rules regarding the registration of owners of coffee estates and allied matters. (See Section 16). The Coffee Board has certain powers (with the previous sanction of the Central Government) to make by laws to provide for the matters specified in S. 9. Certain rules have been framed under S. 48. Under those rules the Chief Marketing Officer is vested with the power of administration and of marketing of the surplus coffee pooled; he has also the power to modify and cancel contracts.

(8) Soon after the passing of the Act, the Central Government fixed the ceiling price at which coffee should be sold. Such price regulation was in force till February 1948. The Board, however, appears to have felt that the price control should be lifted and the market should be allowed to be regulated by the demand for the coffee. The Government acceded to the request on condition that the Board took effective steps to establish and maintain the price of coffee at reasonable levels. An assurance having been given by the Board in that behalf, the Central Government lifted the ceiling price in the year 1948. The method adopted by the Board to implement it s assurance to the Government was by releasing a portion of coffee in its stock to co-operative societies and to its own propaganda department for direct sale to the consumer. The rest of the stock was sold in pool auctions in which all bonafide whole-sale dealers in coffee having permits from the board were allowed to participate. The board also fixed the quantity of coffee to be allotted to co-operative societies and its own propaganda department on the one hand and for sale through pool auctions on the other. Such auctions were regulated more or less on the following lines. The Chief Marketing Officer fixes the date and place of sale which is to be confined only to those who have obtained permits from the Board Samples of coffee put up for sale would be exhibited for inspection by intending bidders at the pool auction centres a day previous to the sale. There are prescribed bid forms which would be supplied to the registered dealers who will have to note their bids. The form contains the basic price fixed by the Board for the lots offered for sale, etc. The intending bidder should put up his offer or bid amount in the form against the basic price. the form after being competed is to be put into a closed sealed box having a slot maintained for the purpose, within the time notified. After the close of the hour fixed for lodging bids the box is to be opened in the presence of the bidders, the various bids arranged with respect to the lots and tabulated with reference to the names of the respective bidders. The sale conducting officer or the Chief Coffee Marketing Officer, then makes a choice among the bidders. A declaration containing the names of the bidders whose bids have been accepted then follows. The successful bidders thus declared will have to pay the price and take delivery of the coffee. A copy of the declaration is also sent to the successful bidder. It will be seen from what we have stated above, and indeed from the very contents of the bid form, that the sale is of ascertained goods the coffee offered for sale being put up in separate lots and sufficiently described with reference to its quality and quantity etc. Evidence in the case shows that the general practice of the Board has been to accept the highest bid, though there were occasions when that was not done but only a lower bid was accepted. The power of the Board to accept the lower bid had never been disputed except in the present case. But the practice of accepting the highest bid, advantageous as it would be from the point of view of the planter, did not prove to be an unmixed blessing. It enabled, as we shall presently show, certain unscrupulous permit holders, to regulate the market to their own advantage. Certain dealers who secured large quantities of coffee at one auction, secreted the stock thus brought, puffed up prices at the next auction by the simple process of themselves making high bids. That being accepted, the inflated price came to be regarded as the market price and they unloaded on the market the goods which earlier they had purchased at a cheaper price and thus made unconscionable profits. A repetition of this process in each succeeding auction had its inevitable effect on the unfortunate consumer who having contracted the habit of coffee drinking, could not give it up and was therefore, obliged to pay whatever price was demanded for it. The merchants thus took advantage of the exclusive right of bidding at the pool auctions which their permits entitled them in exploiting the public. That was not the only means by which they increased the price of coffee. About 28 to 30 of the permit holders formed themselves into a ring, and began to bid at the pool auction; the entire quantity secured by the members of the clique would be pooled again and re-auctioned amongst themselves. the profits realised at the second auction would be divided amongst the members of the clique. The second auction had also the effect of increasing the price which the consumer had to pay. Evidence in the case shows that such profits were not inconsiderable.

(9) From June 1952 the price of coffee was rising month after month. For example the price of coffee Plantation A which was Rs. 252 per CWt. in June 1952 went up to Rs. 269-6-0 in July, to Rs. 299-2-0 in August and to Rs. 316-11-0 in September 1952. There was a similar rise in the prices in regard to other varieties of coffee. Naturally enough the public was agitated at the high prices of coffee brought about by the manipulations in the market. Representations were also made to the Hon'ble Minister for Commerce and Industry of the Government of India. The Coffee Board too received several complaints.

The Central Government who took notice of the unhealthy tendencies in the market appears to have sent a note to the Coffee Board. All these facts, which stand amply proved by the evidence in the case, are not controverted. It was found that in the auctions held in September the permit-holders had formed themselves into a group and had secured about fifty per cent of the coffee and at the re-auction amongst them, they had made a profit of about Rs. 30,000/-.

(10) The next pool auction was fixed for 7-10-1952. The Chief Coffee Marketing Officer came to understand that the same tendencies persisted and he warned the bidders not to push up the prices. The bidders themselves knew that the Government could at any time fix the prices. But yet they paid no heed to the warning. They made bids for amounts higher than what even the September auctions brought. The situation did require immediate action. On the analysis of the bids received the Chief Coffee Marketing Officer found that the puffed up bids came mostly from the members of a group. He rejected some of them, accepting lower bids from others. Out of 315 lots put up for sale on that date, highest bids were accepted only with respect to 128 lots; for the remaining 187 lots, only lower bids were accepted. The rejection of the maximum offer for coffee in certain cases was only the culmination of certain steps taken for bringing the price within certain limits. Pool auctions which were announced to be held in the various places on different dates, were fixed up to be held on the same day, i.e., on 7-10-1952 to reduce the chances of the same group purchasing at every place. The export quota was reduced and more coffee was made available for the pool sales, with the idea that the improvement in the supply might lessens the demand. But these and even the warning conveyed to the bidders by P. W. 2 had no effect. Presumably the merchants thought that once they got the coffee, they could keep up the high price level by cornering and manipulating the sale to retain their stock. The acceptance of the lower bids and that too from bidders outside the ring, however, appears to have smashed their hopes in that direction. The price of coffee came down. On the falling of the market price, the successful bidders at the auction held on 7-10-1952 defaulted in the performance of their obligation to pay the price and clear the stock. On the 21st October, 1952, fourteen days after the October sales, a deputation of purchasers, viz respondents in A. S. Nos. 165, 255, 256 and 258 of 1958, waited on the Committee of the Indian Coffee Board and requested for a reasonable extension of time for payment of price; they also pleaded for postponement of the November auction. The latter request was evidently made with the object of creating conditions of scarcity in the market. The Committee agreed to extend the time for payment till 10-11-1952 and that without collecting any deposit or incidental charges. But the market for coffee showed no tendency to rise again. The purchasers defaulted. The Coffee Board then re-sold the goods in the usual manner at the pool auctions held on 14-11-1952 and 23-12-1952. The resale price was less than the prices accepted in the October auction. The Board then filed the suits out of which these appeals arise for recovery of loss on re-sale from the purchasers at the October pool auction. They comprised both types of successful bidders, those who offered the highest price and whose offers had been accepted and those whose offers had been accepted in preference to the highest bids for their lots Cases where highest bids were accepted are:

A. S. No. 256 of 1958 except in regard to three lots. A. S. 258 of 1958 except in regard to five lots, A. S. 259 of 1958 except in regard to one lot, A. S. 260 of 1958 except in regard to five lots. In regard to lots excepted above, highest bids were not accepted by the officer but only lower bids were accepted. That was also the case in the remaining appeals. Apart from these, two of the appeals A. S.260 of 1958 and 165 of 1960 stand on a special footing. The respondents in these cases claim that they had withdrawn their bids before the acceptance was made and that there had been therefore no binding contract of sale.

(11) The substantial defence to the suits which were also the only points raised in the appeals can broadly be stated to these; (1) As the Chief Coffee Marketing Officer is a statutory authority he had no power to discriminate and select bids and make binding declarations on the purchasers. An auction sale conducted on that basis, implying as it does an arbitrary power of selection in the statutory authority would be invalid; (2) Sales being by auction, the moment the highest bid is received, the lower ones lapsed and it would not be competent to the sale conducting officer to accept lower bids; (3) The bids in A. S. 260 of 1958 and 165 of 1960 having been retracted before acceptance there could be no valid contract and no claim for damages would lie against the purchasers and (4) The Coffee Board having itself taken steps to bring down the price of coffee after the auctions could not claim any damages as it, the seller had defaulted in discharging its obligation to minimise the damages instead, it had taken steps to enhance it.

(12) The learned Subordinate Judge has accepted the defence. He held that the appellant would not be entitled to recover any sum by way of damages from the defaulting purchasers. He has accepted the entirety of the defence, and as we will have occasion to consider his reasons while dealing with the several points raised in the appeals, it is needless to set them out here. Of the two chief grounds on which the claim of the Coffee board is resisted, the first relates to the power of the Chief Coffee Marketing Officer, to accept any but the highest competitive bid at an auction. This contention, if accepted will primarily benefit only those among the purchasers who offered less though the argument of Mr. Nambiar appearing for the purchasers is that the entire auction sale held on 7-10-1952 proceeding as it did on the assumption that as the sale conducting officer can arbitrarily select the bidders, his own individual choice of bids on that date would be invalid regardless of the accident that the officer in certain cases accepted the highest bid. It is somewhat strange that the very persons who made the bids, whose bids had been accepted, should turn round and say that the sale to them is invalid. Assuming that the acceptance of a lower bid, when a higher one is available is beyond the powers of the seller, the only person who can feel aggrieved thereby is the grower or planter and not the person who offered to purchase the coffee and got it at his own price. But yet the contention is that an auction sale of coffee conducted on an assumption that the selling authority has a right to accept any bid, is a discriminating sale which is ultra vires of its powers. This contention has the merit of having been accepted by the learned Subordinate Judge who held that neither the Act nor the rules framed thereunder conferred any power on the sale conducting officer to arbitrarily select bids. Mr. Nambiadr's arguments however, covered a wider ground: they can be put under the following heads

(a) the terms on which the auction sale was held in the present case did not confer any power of selection among the bidders.

(b) even if it were to be assumed that under the terms of the auction, it was open to the officer to accept lower bids it would be an invalid provision as the statute does not authorise the Coffee Board to effect sales by which the grower would get anything but the highest price which alone should be regarded as the market price.

(c) the power of the Board and of the Chief Marketing Officer to effect sales being purely statutory, any arbitrary exercise of it would be invalid and will be contrary to Article 14 of the Constitution.

(13) We shall deal with the points seriatim:

(a) It must be remembered that the coffee pool auctions are not public auctions in the sense that any member of the public can attend and bid at it. Only registered dealers who have obtained permits from the Coffee board can participate in the pool auctions. Ex A-3 contains conditions of sale which generally regulate sales conducted by the Coffee Board during the month of October, 1952. They can indeed be taken as typical in respect of all the auction sales conducted by the Board. The relevant provision in Ex A-3 is clause 6 which runs:

'The seller does not bind himself to accept the highest or any bid; he is not bound to assign any reason for his decision and his decision shall be final and conclusive.' The contention raised on behalf of the respondents is, that this clause can only empower the seller to reject all bids whether one be the highest or otherwise and cannot be taken as conferring any power of selection i.e. a power to accept a lower bid in preference to a higher one. This argument ignores the necessary implication that flows from the clause that the seller is not bound to accept the highest bid; viz. that he has got power to accept any other or lower bid. Indeed if the interpretation contended for, were to be accepted there will be no need even for the further provision which confers a power not to accept any bid; secondly, once the highest bid is found to be unacceptable, (it may be even for any reason personal to the bidder e.g. his insolvency) the entire auction would have to be started de novo. In our opinion, the terms of clause 6 clearly import a right in the seller to accept any bid be it the highest one or a lower one. Whether such a power should at all exist or whether in any particular case it has not been properly exercised are matters which are not quite relevant for a true interpretation of the clause. Assuming even that there is some ambiguity in it, the practice obtaining in the coffee market before and after the Act, supports our construction. We have already referred to the practice that obtained in the sale of coffee prior to the Act where the agents of the growers wear sometimes selling coffee by private negotiations and at other times by public auction at their own choice. Subsequent to the Act it appears from Ex. A-275 that in the years between 1949 to 1951, lower bids had been accepted. There is also the evidence of D. W. 2 the managing director of Messrs. Stanes and Co. one of the leading coffee merchants, who said that in certain cases when the curers were not satisfied with the highest bid on account of the bidder's insolvency, that bid was not but the next lower bid was accepted. He also stated that the normal practice was to accept the highest bid. The Chief Marketing Officer, examined as P.W. 3 referred to the fact of his predecessors and of himself having exercised a discretion prior to 7-10-1952. Ex. A-372 is the list prepared showing the occasions on which discretion of the sale conducting officer had been exercised in rejecting the highest bid. We are, therefore, of opinion that Ex. A 3 confers a power on the seller, to accept lower bids in preference to higher ones in a proper case.

But it is argued that this view is opposed to the decision of the Supreme Court in Sate of Assam v. Kesab Prasad Singh, : [1953]4SCR865 . There is nothing, however, in that decision to lend support for the present contention. There was a sale of fishery in that case by a Governmental authority. The relevant rule stated that the officer conducting the sale was not binding himself to accept the highest or any bid. But that was not a case where the officer having rejected the highest bid accepted a lower one. The point that came up for decision was a different one. The auction sale was held subject to the sanction of the Government. The officer in fact accepted the highest bid and his acceptance was also affirmed and sanctioned by the Government. Later the Government cancelled the sale of the fishery right and the same was granted to another person. It was held that the Government had no authority to cancel the previous sale which was a completed contract binding on it; nor had it the power of directly granting the right to some other person.

(b) The next contention, namely, that under the terms of the statute, there is no power in the Chief Coffee Marketing Officer to accept any but the highest bid, depends for its validity on the relevant provisions in the Act. Learned counsel for the respondents urged that the Board as constituted under the Act, existed only to safeguard the interests of the growers. That being so an acceptance of a lower bid would be prejudicial to them. On the other hand, the learned Advocate General appearing for the appellant contended that neither the Board nor the Chief Coffee Marketing Officer could be regarded as a bare agent or fiduciary of the growers; they were exercising certain powers vested in them under the statute and that so long as such powers were exercised bona fide in the fulfilment of the objects for which they wee given, it could not be said that the act complained of was ultra vires.

(14) We shall proceed to consider the rival contentions. Section 25 of the Act says that coffee delivered by the growers to the pool shall on such delivery remain under the control of the Board who is to be liable for its storage, curing and marketing. The grower on delivery loses all his rights to the coffee except a right to receive payment from the Board under section 34. The next section, Section 26 is an important one. It directs the Board to take all practical measures to market the coffee included in the pool. The Board can also augment its stock by purchase from other sources. The provisions read in the light of the fact, that the Board is a statutory corporation with a right to hold property and enter into contracts, would lend colour to the view that in effecting sales of coffee it is doing its own statutorily authorised act. No doubt an improper way of doing it, will have repercussions on the grower. But the question as to the propriety of the auction sales to this case is not raised by the grower but by the purchaser who impugns the validity of the very contract under which he became the purchaser. He says that as the only power of the Board is to market, it must be taken that it can sell it only at the highest price offered as that alone would be indicative of the true market price.

(15) The word 'market' has been defined in the Shorter's Oxford Dictionary as meaning 'to sell, to buy and sell in the market, to go to market; with produce'. There is nothing in the term to imply as to how and in what manner the product is to be sold. No doubt generally speaking the highest bid at an auction may be taken as indicating the market price; but it cannot be accepted that it is invariably so. Let us for example take a case, an inverse of the present one. Not unoften bidders at an auction, form themselves into a ring with an agreement not to bid against each other, the object being to knock off the property for less than its price. In such a case, it can hardly be said that the price offered at the auction is the market price. Per contra where bidders with ulterior motives boost the price, it cannot be said that the price offered at the auction is the real or the market price. Marketing cannot, therefore, mean selling only through an auction and that to the highest bidder.

(16) Neither section 26 nor any other provision in the Act provides positively or specifically how the sales have to be effected. There is nothing for example to preclude the Board from selling coffee by private contract. The Central Government is given power under section 48(2)(b) to frame rules as to the manner in which the Board shall exercise its powers of buying and selling coffee in the Indian Market. But no rules have yet been framed by the Government under that provision. Section 48 is only an enabling provision and if rules are framed, the Coffee Board would undoubtedly be bound to act in accordance with such rules. But at the same time, it must be noticed that the existence of the rules will not be a condition precedent to the exercise of the powers vested in the authority under section 26 to sell coffee forming the subject-matter of the pool. This principle has been accepted as laid down in Nemi Chand v. Secretary of State for India, ILR 34 Cal 511 and Collector of Customs v. Gokul Das, : AIR1955Mad187 .

(17) Sections 17 to 19 of the Act place restraints upon registered owner in the matter of sale of his produce. There is no restraint placed on the Coffee Board when it proceeds to sell coffee. If the Board can sell coffee by a private contract and section 26 is wide enough to confer that power, the acceptance of a lower bid (mala fides apart) can even be taken as tantamount to a sale by private contract to such a bidder.

(18) Mr. Nambiar, however contends that the obligation cast on the Board by section 26 to market coffee pooled under the provisions of the Act, would imply that the commodity should be sold at the fair market price; a sale to highest bidder at an auction being one of the recognised methods of ascertaining that price, the acceptance of any but the highest offer at the auction would mean that there has been no marketing of the product. Section 26 does not prescribe that the sale of coffee must be by auction. The power to market is a power of sale; it can be by private treaty or public auction subject to such conditions as may be prescribed. In the familiar case of sale by receiving tenders one of the usual conditions to be found is, that the seller does not bind himself to accept the highest tender. Indeed one can imagine the circumstances under which it will be even undesirable to sell to the highest bidder, for example, if the bidder happens to be an insolvent or a confirmed black-marketer. To accept lower bid in such a case should certainly be within the powers of the sale conducting officer. The question, therefore, will be not one, whether there is no power at all but whether such power has been properly exercised in any individual case. There is nothing in the Act which restrains the Coffee Board to abandon an auction for example and forthwith sell by private contract Acceptance of a lower bid at an auction where such power is reserved and where it is exercised bona fide cannot substantially be different from that Section 47 of the Act is primarily intended to invalidate contracts made by registered growers and it cannot affect the Board's powers which as we have seen are analogous to owners selling their goods. Even otherwise we are of the view that the sales in the present case are not void.

(19) The Act is intended to regulate the sale of coffee; it cannot be construed as one enacted purely to provide an agency for the sale. The grower retains no rights in the coffee once it is delivered to the Board except his right to receive the payment out of the pool funds. Realisations of price of coffee sold are not entirely made over to the growers. For example, under section 32-A, the Board is given power to make donations to the Gandhi National Memorial Fund out of the pool fund. It has also the authority for borrowing on the security of the pool fund or of the coffee that forms part of the pool. A reading of rules 29 to 31 of the Coffee Market Expansion Rules 1940 will show that a large amount of discretion is vested in the Board in the matter of allotment of coffee for internal sales and for appointing persons for the marketing of coffee etc. From these provisions as indeed from the very representative character of the Board itself, it is plain that the Legislature does not intend that the powers of marketing were entrusted solely with a view to secure the highest price of coffee to the grower; but rather such powers were conceived in the interests to the public as a whole.

(20) But it cannot at the same time be denied that the Board in performing its own duties under the Act has a responsibility analogous to a fiduciary one to the grower in the sense that consistent with its other obligations it should secure the best price for coffee delivered to it. The learned Advocate General will, however go further and contend that when the Board proceeds to sell the coffee collected in the pool, it should be regarded as doing it in its private capacity like any other owner selling his property. It has been argued that the statutory authority of the Board is called for only when it proceeds to enforce the obligation of the growers, or when it makes allotment for internal and external consumption. But when it sells the coffee it should, it is argued be regarded as in the same position as a bank constituted under an enactment selling the goods pledged to it.

(21) But we are afraid that the analogy is apt to mislead. The bank in such a case is acting under the terms of the contract of pledge and those implied under the law. Reliance has however been placed in support of the contention on the observations contained in Perkins v. Lukens Steel and Co., (1939) 84 Law Ed. 1108 where dealing with the question as to what extent breaches of statutory provisions would afford scope for judicial review, the learned Judge observed:

'Like private individuals and businesses the government enjoys unrestricted power to produce its own supplies, to determine those with whom it will deal and to fix the terms and conditions upon which it will make the needed purchases. Acting through its agents as it must of necessity the government may for the purpose of keeping its own house in order lay down guide posts by which its agents are to proceed in the procurement of supplies....... It has done so in the Public Contracts Act. That Act does not depart from but instead embodies the traditional principle of leaving purchases necessary to the operation of our government to administration by the executive branch of government with adequate range of discretion free from vexatious and dilatory restraints or at the suit of prospective or potential sellers. It was not intended to be a bestowal of litigable rights upon those desirous of selling to the government.

In our view the power to sell vested in the Board is for achieving the objects of the Act, that of putting the industry on a sound footing by regulating the sale of coffee and not a mere power conferring private rights. In one sense it is analogous to small rights. The power of marketing conferred under section 26 can be exercised in any manner which an owner can exercise but at the same time its exercise in each individual case should subserve to the principles behind the enactment. In other words, the authority to market coffee being statutory, it must be exercised in conformity with and be regulated by the terms of the statute. On the one hand the Board having been given powers of entering into contracts, where could be no restriction on its rights to enter into any contract in the way it pleases except where the statute either expressly or by clear implication limits the power. But the Board itself having been constituted for a specific purpose, another principle will come into play, namely, its contracts cannot be made on considerations extraneous to the purpose of its constitution. In Maxwell's Interpretation of Statutes (11th Edn.) it is stated at page 290.

A corporate body constituted by statute for certain purposes is regarded as so entirely the creature of the statute, that acts done by it without the prescribed formalities or for objects foreign to those for which it was formed would be in general, null and void.'

In the present case the statute has given a power to the Board to market coffee. How best it should be marketed is a matter for its discretion. it can for example, divert a substantial portion of the pool to direct sales through co-operative societies and propaganda centres.

(22) We have, therefore, only to see whether the action of the Chief Coffee Marketing Officer in choosing bids for acceptance avowedly with a view to stabilising the price of coffee at normal levels should be regarded as one exercised for objects foreign to the scope of the enactment.

(23) For the respondents, it is contended that the Act having expressly provided under S. 16, the authority to fix the price, viz. the Central Government, no other authority would be competent to take any action..............with a view to regulate the price of coffee. But section 16 only enables the fixation of a ceiling price for coffee. That has little to do with the development of a healthy and steady market for the product.

(24) The acceptance of the lower bid where higher prices were offered by certain unsocial elements, was made to protect the larger interests if the coffee industry and of the consumer s well. In so doing the Chief Coffee Marketing Officer could in the circumstances be more correctly said to have proceeded to ascertain the normal price. This will be clear from the following extract from his affidavit Ex. A-276 filed before the High Court of Mysore.

'The Chief Coffee Marketing Officer and the Deputy Chief Coffee Marketing Officer issued a warning to the traders before the sales were conducted on 7-10-1952 at Coimbatore and at Mysore respectively that the traders should not form into groups or try to push up prices and that if anybody tried to do so be might not get any lots at all. In spite of this warning, there was an attempt made mostly by members of this group to push prices particularly in regard to Roubsta, The present complaint about the rejecting of the highest bids is also mostly about Roubsta. The Chief Marketing Officer had therefore to reject bids of all those persons who tried to push prices beyond the average price secured in September last (1952) and to accept lower bids which were round about that average or less. If the highest bids have been accepted, about 382 tons of Roubsta out of a total quantity of 455 tons released at the Coimbatore auction on 7-10-1952 would have fallen into the hands of this group and this would have enabled them to dictate their own terms to the market. Similarly out of a total quantity of 150 tons of Roubsta realised at Mysore auction on 7-10-1952 about 112 tons would have fallen into the hands of this group.'

If under the circumstances aforesaid the highest bids had been accepted, its effete would undoubtedly be disastrous form the point of view of the consumer. In the absence of rules under Section 48(2)(1), the mode of exercising the power has not been defined; but that, as we pointed out, does not mean that there is no power. From what we have said already, it will be clear that marketing of coffee is not a bare duty of the Board it has some interest in it. There is a discretion vested in it as how best to market. It is true that such discretion might be regulated if rules exist under Section 48(2)(1). But there being no rules the conditions and rule, as to acceptance of offers will be entirely let within its discretion. But where there is an excess or abuse of the power in the matter of exercise of such discretion, it will undoubtedly be open to the aggrieved party to obtain relief in Court. The true nature of a discretionary power and the limits of its exercise has been enunciated with great clarity and preciseness in the following passage in Administrative Law by Wade (1961 Edition) at page 40.

'Administrative power derives from statute. the statute gives power for certain purposes only, a subject to some special procedure, or with some other kind of limits. the limits are to be found not only in the statute itself but in the general principles of construction which the courts apply, provided of course that the statute has not expressly or impliedly modified them--for every statute is an act of sovereign legislation and can abrogate all principles of administrative law, if Parliament wishes. But in practice powers are carefully defined. Any act unjustified by law, and if it is also a wrongful act by the ordinary law (such as a trespass to person or property) it is illegal and the ordinary remedies lie.'

Again at page 56 the learned author observes:

'The principles of statutory interpretation often come into conflict. first, it is to be presumed that powers, even tough widely defined, have some ascertainable limits, and that Parliament is unlikely to intend the executive to be the judge of the extent of is powers; therefore, if it can fairly be implied that the powers were given for some particular purpose, exercise for any other purpose will be illegal. Secondly, however, the Court must not usurp the discretion given to some other body. If the statute says that the minister, or the local authority may decide something, it is not for the court to impose its own idea of what ought to have been decided, for the statute intended the power of decision to lie elsewhere. The court must not, in other words, concern itself with the politics of the case, or with the mere merits. The court's only concerns with the legality of what is done.'

There is it we may say so, a very clear statement of the principle which should the discretion given to an authority can be exercised in the judgment of Lord Green, M. R. in Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation 1948 1 KB 223 where it is observed:

'When discretion of this kind is granted the law recognises certain principles upon which that discretion must be exercised, but within the four corners of those principles the discretion in my opinion is an absolute one, and cannot be questioned in any court of law. what then are those principles?

Bad faith, dishonesty--those of course stand by themselves, unreasonableness, attention given to extraneous circumstances, disregard of public policy and things like that have all been referred to according to the facts of individual cases, as being matters which are relevant to the question. If they cannot all be confined under one head; they, at any rate I think, overlap to a very great extent. For instance, we have heard in this case a great deal about the meaning of the word 'unreasonable'.

It is true that discretion must be exercised reasonably. Now what does that mean? Lawyers familiar with the phraseology commonly used in relation to exercise of statutory discretions often use the word 'unreasonable' in a rather comprehensive sense. It has frequently been used and is frequently used as a general description of the things that must not be done. For instance, a person entrusted with a discretion must, so to speak, direct himself properly in law. He must call his own attention to the matters which he is bound to consider. He must exclude from his consideration matters which are irrelevant to what he has to consider. If he does not obey those rules, he may truly be said, and often is said, to be acting unreasonably. similarly, there may be something so absurd that no sensible person could ever dream that it lay within the powers of the authority, Warrington, L. J. in short v. Poole Corporation, 1926 Ch. 66 gave the example of the red-haired teacher dismissed because she had red hair. That is unreasonable in one sense. In another it is taking into consideration extraneous matters. It is so unreasonable that it might almost be described as being done in bad faith; and in fact, all these things run into one another.'

(25) Mr. Nambir has attempted to bring the respondents case within the rule stated above: he argues that the power of marketing being given solely for the purpose of securing to the planter the best price be could get at the market, the exercise of it for a different purpose, namely, for securing coffee at a reasonable price to the consumer will be one extraneous to the objects of the Act and therefore ultra vires. If it were to be held that efforts at stabilising the price of coffee at normal levels is beyond the purpose of the Act and outside the authority of the Coffee Board, there can be little doubt that this argument will be sound. But as we have pointed out in the course of this judgment, the Coffee Board has a two-fold duty; (a) to the planter to secure a market value for the goods; (b) to the consumer and the public by regulating the coffee industry. Both aspects of its duty require the development of healthy market conditions and it is of paramount importance that the consumer is not allowed to be exploited by the merchant.

(26) The question then is whether the act of the Chief Coffee Marketing Officer can be regarded as being outside this object.

(27) There is yet another test which, his act should satisfy. The power should have been exercised bona fide. In V. Paddington and Marylebone Rent Tribunal Ex parte Bell, 1949 1 All ER 720 Lord Goddard, C. J. took it as a settled rule what has been stated in Biddulph v. St, George's Hanover Square, (1863) 3 De G. J. and Sm 493 (by Turner L. J.) thus:

'I am far from thinking that this court has no power to interfere with public bodies in the exercise of powers which are conferred on them by Act of Parliament. it take it that it would be within the power and the duty of this Court so to interfere in cases where there is not a bona fide exercise of the powers given by Parliament; and I should be very sorry to be supposed to entertain the notion that public bodies under the general powers given to them by Act of Parliament can do what ever they think right.'

(28) In Prescott v. Birmingham Corporation, 1954 3 All ER 698 a local authority were authorised by statute to maintain and operate their transport undertaking and to charge such fares to passengers travelling on their vehicles. The local authority provided free travelling facilities between certain hours for a limited class of women passengers i.e., those over sixty-four years of age and men over sixty-nine. There was no provision in the statute which permitted the authority to run their services free for any class of passengers. it was held that although the local authority had power to discriminate in the charges made to different people they, who were occupying an analogous fiduciary position to their rate-payers were not entitled to use the discriminatory power in order to confer out of the rates a special benefit on some particular class of inhabitants. Jenkins, L. J., stated

'We think it is clearly implicit in the legislation that while it was left to the defendants to decide what fares should be charged within any prescribed statutory maxima for the time being in force, the undertaking was to be run as a business venture or in other words, the fares fixed by the defendants at their discretion, in accordance with ordinary business principles were to be charged. that is not to say that in operating their transport undertaking, the defendants should be guided by considerations of profit to the exclusion of all other considerations. they should no doubt aim at providing an efficient service of omnibuses at reasonable cost. But it by no means follows that they should go out of their way to make losses by giving away rights of free travel.'

That was a case where the discriminatory power vested in the local authority was not used in accordance with the provisions of the statute.

(29) The Coffee Board in the present case while it cannot be said to be a trustee to the growers does occupy a position of responsibility. Spasmodic increase in the prices brought about by a few wishing to have a complete control over the market can hardly be conducive to its steadiness. Coffee industry which depends for its progress on the capacity of the ultimate consumer cannot be left to the mercies of the bulls and bears similar to the transitions in a stock exchange. We must not, however, be taken as laying down that the Coffee Board will have power at all times to reject the highest bid at an auction and arbitrarily select any lower bid. What all we mean is that although the acceptance of the highest bid at an auction will be the normal rule, a departure from that rule where circumstances call for it and where it is done bona fide and on considerations germane to the purpose for which the Board is created, cannot be regarded as ultra vires. In other words, where in selecting the lower bid the Coffee Board is actuated by relevant considerations with a view to maintain a balance between its duty to the grower ad to the consumer the discretion exercised could not be challenged.

(30) Taylor v. Munrow, 1960 1 All ER 455 a case that was concerned with a power of surcharge of certain councillors of a borough who had authorised unlawful payment of monies belonging to the borough council. The court held that while deciding n the payment of money out of the general rate fund, the council must preserve a balance between their duty to the particular rate prayers in respect of whom the payment was to be made.

(31) It has not been argued before us that the Chief Coffee Marketing Officer was actuated by any indirect motive in the matter of section of the bids. Let us consider the circumstances antecedent to the auction held on 7-10-952. As early as the 5th of September 1952, the Hon'ble Minister for Commerce had in a public speech adverted to the high price of coffee. That rise was undoubtedly partly attributable to certain labour legislation which had increased the rate of wages to be laid to labourers and also to the cost of production. But even so, the authorities found that there was a tendency for the dealers to push up the market price of coffee. The public mind was agitated. There is indisputable evidence of information having been given to he Chief Coffee Marketing Officer, that the successful bidders at the previous auctions had concerned their stocks and were intent upon raising the price of coffee at the October auction so that they could take advantage of the rise in price and release the goods which they had purchased at cheaper rates in the September auction. Ex. A-39 is a letter dated 13th September 1952 by Mr. Potts of Messrs. Stanes and Co. one of the prominent curers and merchants of coffee to P. W. 2 the managing director of the company complaining of the successful bidders at the auction not putting the goods into he market but trying to push up the price at the next auction with a view to make unconscionable profits. On the 7th October 1952 when the Chief Coffee Marketing Officer, P. W. 3 arrived at Coimbatore with a view to conduct the pool auction fixed for that date be was informed by P. W. 1 (Assistant Coffee Marketing Officer) that there was a ring of dealers who were endeavouring to push up the price of coffee and corner the stocks P. W. 3 met the dealers who had gathered for participating in the auction and warned them that the Government of India was very much concerned on account of the increasing thrice of coffee and they should not push up the prices. The dealers, however, did not heed the warning as the bids received that day showed. This is adverted to by the Chief marketing Officer in his letter to the Joint Secretary Ministry of Commerce and Industry sent on 12th October 1952. We accept the evidence of P. W. 3 that he situation on he 7th of October 1952 was abnormal, judged in the light of the public agitation on the one hand and of the tendencies exhibited by the purchasers in pushing up the prices on the other. That situation required immediate auction. The chief Coffee Marketing Officer then adopted the policy of accepting the lower bids with wherever the highest bid came from the members of the ring. As we have already shown, the acceptance of lower bids was not an unusual feature in the coffee market. (Vide Ex. A-257). Within a short time after the results of the auctions were declared the Chief Coffee Marketing Officer reported the circumstances under which he was obliged to accept lower bids to the Coffee Board and also to the Central Government (Vide Ex. A-45). The Coffee Board entirely endorsed the steps taken by the Officer. So also the Government of India. There were no protests then on he part of nay bidder-successful or the disappointed. Indeed a number of those in whose favour the lots were knocked down accepted the sales, but wanted only time for the due performance of the obligations. the Bard partially acceded to their request by extending the time for payment. There was no suggestion at that stage that the act of the Chief Coffee Marketing Officer in choosing lower bids, was not bona fide or was beyond his powers or was not bona fide or was beyond his powers or was not warranted by the circumstances of the cases.

(32) The learned Subordinate Judge himself has conceded that the Chief Coffee marketing Officer will have power to choose lower bids but he held that the soaring price of coffee could be checked by other means. We do not approve of this time of approach to the question once it is held that the sale conducting officer has power to choose the bids, it can be nullified by a judicial process only if it were shown that he power was exercised mala fide or an extraneous considerations. If the officer had power to stabilise the price of coffee by choosing lower bids, it is not for the court to say that he could have done so by having recourse to one method rather than another, as the stature has vested discretion only in the officer. From what we have said the acceptance of bids in the present case cannot be regarded as invalid. But assuming that the discretion exercised by the Chief Marketing Officer in the selection of bids has been improperly exercised, we fail to see how the successful bidders could be regarded as persons aggrieved to challenge it. Their officers having been accepted it could hardly be said that here is any legal grievance giving rise to a cause of auction.

(33) The learned Subordinate Judge has found that the declarations made as a result of the acceptance of bids violated Article 14 of the Constitution as there had been a discrimination by the Officer, who accepted them. Mr. Nambiar who supported that view does not contend that S. 26 of the Act as such which grants a power to the Coffee Board to market coffee delivered to it by the growers is in any way violative of the provisions of Article 14. What he argued was that the process of discriminatory selection of bids was invalid. That is to say that the exercise of the power by the Chief Coffee Marketing officer was discriminatory. From the provision of the Act to which we have made reference earlier, it will be clear that have made reference earlier, it will be clear that the coffee delivered to the Board becomes practically its property, the right of the persons who delivered the same being only to claim a share in the net proceeds of the sale. the Board in disposing of coffee is practically dealing with it as an owner though its power are regulated by the statute and its position in one sense can be said to be analogous to a fiduciary one. it cannot for example sell arbitrarily for any price. But so long as that act is done honestly, no rights can be held to be invaded. That means that where there has been a misuse of the power in individual cases it will be open to judicial correction. the object of the power to market conferred on the authority being sufficiently defined by the purposes of the Act and there being sufficient safeguards against its misuse (e.g.) by the control by the Board. Government etc., it cannot be held that the power of imposing a condition like not being obliged to accept the highest bid vests any arbitrary power in the authority. this case is quite unlike the one in Balakrishnan v. State of Madras, AIR 1952 mad 5654. But if in any particular case there has been an arbitrary exercise or abuse of the power, the civil court can always give appropriate relief. the objection that a power to accept lower bids would contravene Article 14 of the Constitution fails.

(34) Mr. Nambiar's next line of attack on the validity of the coffee sales now in dispute depends for its basis on the ordinary rule in a sale by auction vix., the receipt of a higher hid by the auctioneer implies a rejection of the lower one. It has therefore been contended that the only offer available for acceptance was the highest one and that when the Chief Coffee Marketing Office proceeded to reject that bid there was no lower offer or bid available for him to accept as they must be deemed to have lapsed the moment a higher bid was contract to sell for the lower price. This argument if valid would invalidate only contracts where lower contended that even those cases where the highest bids had been accepted will have to be declared invalid as they formed part of a single scheme of sale held contrary to the general law of auctions.

(35) Before considering this contention we must advert to one argument of the learned Advocate General that the sales in the present case were sales by tender to which the above rule will not apply. This however, was not the case of appellants in their plaint. There was, however, an attempt to suggest such a case when P.W. 3 gave evidence. But the other evidence in the case namely the notices between the parties the antecedent practice and the very conditions of sale like the power of resale in the event of default of payment of price, etc. would appear to show that what took place was only an auction. We shall therefore proceed to decide the case as the learned Subordinate Judge has done on the footing that the sales were by auction.

(36) But at he same time it cannot be held that coffee was sold in a public auction in the sense it is commonly understood. As pointed out in Secretary of State v. Sunderji Shivji and Co; AIR 1939 PC 12 public auction implies that it is being held in public, all the members thereof having the right to attend and there being competitive bids amongst those openly bidding for the subject-matter of the sale.

(37) Coffee sales are regulated by a system under which registered dealers alone are allowed to bid and the bids are not received openly so as to afford an opportunity to the bidders to raise their bids after knowing what another had bid. Under the closed bid system prevailing in such sales one bidder can know his competitor's bid only after the bids are tabulated. Further the auction sales are subject to conditions whereby the seller had the liberty of choosing the bids as in a case of sale by tender.

(38) In Barlow v. Osborne. (1858) 10 ER 1412 Lord Cranworth said:

'I believe the word auction has been always understood to be derived from 'agenda' items that your are to bid'

Lord Wensleydale was even more specific when he observed:

A sale by auction take to be a sale which one party knows what another bids and increases upon the other's bidding by offering on his own part. But that does not however mean that the auction cannot be by closed bids which secures secrecy of the bids made by the various secures till the moment they are opened.'

In Raja of Bobbilli v. Suryanarayana Rao, ILR 42 Mad 776: AIR 1920 Mad 911 there was a court sale. One of the conditions contained in the sale proclamation was that he highest bidder shall be the purchaser. There was two bidders at the auction. The person who made the highest bid died after the bid, but before its acceptance, with the consequence that in law that bid stood elapsed. The court then proceeded to accept the other remaining bid and called upon that bidder to pay price. It was held that the lower court acted illegally in accepting the preceding bid. Oldfield. J. said:

'No doubt, no authority has been adduced to show that acceptance of a higher bid involves rejection of the preceding lower one. But that is perhaps because it is so clear that it would be impossible to rest an auction sale on any principle if the contrary were the case Condition No. 3 of the sale proclamation in the present case provides that 'the highest bidder must be the purchaser' and when a higher bid has been received as no possibility of a lower bid succeeding can remain the latter must be taken to have been finally refused. It is argued for the respondents that an auction should be reviewed as the successive submission of a number of offers to the auctioneer of which he is bound to select the highest made by a competent bidder and that the one to be selected is ascertainable by him only at the conclusion of the sale when the hammer falls, all remaining effective until such ascertainment and it being open to him in case the apparently highest offer turns out to be that of a disqualified person such as a lunatic or minor to accept the next highest forthwith. But it would, I think, be extremely inconvenient in practice to regard the proceedings in this ways and in the absence of authority I am not prepared to do so.' (italics (here into ) ours).

(39) The decision in the above case is but a recognition of the principle of law which has now been statutorily recognised under S. 64(2) of the Sale of Goods Act that in a case of sale by auction, the sale will be complete only on announcement by the auctioneer by the fall of the hammer or other customary mode. When an auctioneer in a case where the conditions of the sale require that the highest bid should be accepted, passes over a particular bid and proceeds to take a higher one, it is a matter of implication that by such conduct he has rejected the lower bid. But can that rule apply to closed bid auctions where there is no scope for implying a rejection of any bid by the conduct of the auctioneer? There is also the further fact in the present case, there is an express stipulation that the seller is not bound to accept any or the highest bid. it has, however, been argued on behalf of the purchasers that whatever be the manner of sale, whatever its conditions, once the sale is to be by auction law implies that the rejection of a lower bid the moment a higher one is received. In other words it is said that the right in the seller to choose a bid is so inconsistent with the incidents of a true auction that it such a right is reserved it will have to be declared void. Reliance is placed for this contention on the decision of the Court of Exchequer in Rex. v. Taylor (1824) 148 ER 151. The question there was whether there was a sale by auction within the meaning of a particular statute which imposed a penalty on the auctioneer who conducted an auction without being licensed for carrying on such business. In that case an owner of a property put it up for sale inviting each bidder to put down two sums on a slip of paper stipulating that upon collating such bidding he whose paper contained the highest bidding was to be declared the purchaser at the lowest of any other bidder. It was held that the sale notwithstanding the fact that it was to be by closed bids was one by increased bidding and therefore a sale by auction. That case can be taken to decide only that where an auction sale is to be on terms to accept the highest bid, it will be auction notwithstanding that the bids are closed ones and not open by competitive bids,, one increasing the offer of the other. It will, however, be noticed that in that case the successful bidder was entitled to get the property for the lower of the two sums mentioned by him if the amount happened to be higher than the highest offered by any other. That will show that even in ordinary auctions the mere receipt of a higher bid does not revoke the lower one but that the acceptance of bids depends on the terms and conditions of the auction. As we have indicated earlier in ILR 42 Mad 776; AIR 1920 Mad 911 the terms of sale proclamation stated that the highest bid was to be accepted.

(40) Neither of the two cases can therefore be taken as an authority for the position that there could in an auction sale be no condition by receiving a liberty to the seller to choose anyone of the bids made.

(41) We may refer at this stage to two decisions cited at the Bar-Ewing v, Waite, (1865) 1 Equ 440 and (1858) 10 ER 1412. In the former case the sale was one held by orders of the court. One Mr. Bowring knocked down the property offered for sale for . 29000. The court did not accept the bid forthwith but passed an order for re-sale stating that in case there should be no biding for the estate at such resale higher than the sum of . 29000 J. P. Bowring was to be allowed the purchase of the property. At the re-sale there was no higher offer; but a few days later another person wanted to reopen the bidding offering a higher sum. The court by that time had not confirmed the sale. It was held that it was competent for the court to reopen the biddings. The principle laid down in the decision as well as in the other one namely, (1858) 10 ER 1412 is that where a sale is subject to confirmation by the court, higher offers can be considered and the bids can be reopened to long as there has been no confirmation of sale. There are a number of decisions of this court and there is one decision of the supreme court which lay down the principles which should guide the court to reject the highest bid received at an auction at the instance of a person who did not participate in the auction but offered something higher than the original bid. It is unnecessary for the purpose of this case to refer to those decisions as we are not concerned here with a sale held at the directions of and subject to confirmation by court.

(42) Mr. Nambiar's attempt has been to show that not withstanding the terms of an auction sale, there is something inherent in an auction by which a lower bid lapses on receipt of a higher one. It is said that when a person makes a bid he should be deemed to say something to this effect. 'Accept this if there is no higher bid'. certain decisions of the English courts following Warlow v. Harrison, (1858) 1 E&E; 295 have held that where an auctioneer advertises that the sale is to be without reserve or one to be made at the highest bidder, and holds the sale the advertisement is deemed to be an offer and that every bidder is construed as accepting that offer conditionally on there being no higher bid. The learned Advocate General has argued and we find considerable force in the argument that a mere advertisement calling for bids cannot by itself amount to an offer or a promise on the part of the seller to sell to the highest bidder and that it would amount to a mere invitation of offers. the decision in (1858) 1 E & E 295 had been the subject of criticism even in England and the principle underlying therein has been succinctly stated in Anson's Principles of English Law of contract (21st Edn.) at page 35 thus

'In order to understand this criticism it is necessary that two well established principles should first be appreciated. In the first place it as decided as long ago as 1789 that when an auction sale is held, a bid is only an offer which can be retracted at any time before the fall of the hammer. this rule has now been given statutory force by S. 58(2) of the Sale of Goods Act 1893. No contract for the sale of goods therefore comes into existence until a bid is accepted by the auctioneer. Secondly, an advertisement by an auctioneer that a sale of certain articles will take place on a certain day does not blind the auctioneer to sell the goods, nor does it make him liable upon a contract to indemnify persons who have put to expense in order to attend the sale. Such an advertisement is not an offer but an invitation to treat.'

These principles would apply with equal force to this country. We have section 64(2) in the Sale of Goods Act similar to Section 58(2) of is counterpart in England. It will not be correct to say that a bid is a conditional offer depending on its validity upon there being no higher bid. In ILR 42 Mad 776: AIR 1920 mad 911 a lower bid was held to lapse on a higher bid being received, on the assumption that the conduct of the seller proceeding to receive the higher bid amounted to an implied rejection of the lower one and not because it was a conditional one. The true nature of a bid as stated in Payne v. Cave. (1789) 3 TR 148 is:

'Every bidding is nothing more than an offer on one side, which is not binding on either side till it is assented to:'

In a case therefore where there is no scope for rejection of an offer (as in the case of an auctioneer in an open auction) impliedly doing so by passing on to the next bid, the rights of parties have to be ascertained by the terms of the sale. Section 62 of the Sale of Goods Act enacts that every right, duty or liability under a contract of sale by implication of law can be negatived or varied by express agreement. Therefore even the rule that in an auction the receipt of the higher bid will entail the lapse of the lower one, can be the terms of the sale be arrogated. Indeed in cases where public auctions are held subject to reserve rice, even the fall of the hammer is not regarded as concluding the contract. This will be seen from the following passage in Benjamin's book on Sale of Goods (8th Edn. at page 73):

'When it is said that the sale is complete on complete if there be no conditions. Thus where the sale is subject to a reserve price every bid is an offer conditional on the reserve price having been reached or exceeded. The fall of the hammer is similarly conditional'

Learned Advocate General suggests that the use of the word 'Conditional' in the passage extracted above is apt tomes lead and he has referred in this connection to later passages in the same book at pages 462 and 465. whether that is so or not, is not necessary to be considered for the purpose of this case. There is an express stipulation in the notice of sale here that the seller is not bound to accept any or the highest bid. That vests a choice in the seller to accept any bid, and the principle of lapsing of bids in open auctions cannot apply to such a case.

(43) To sum up, the original notice of auction is nothing more than invitation for offers. There is nothing in the conditions of sale which requires the seller to accept only the highest bid; on the contrary they expressly confer a power on the authority to accept any bid. such a contract is valid one. There could therefore be no occasion to imply a rule that once a higher offer is put into the box or entered, there will be lapse of the lower ones and that all the bids, would not be available for consideration and choice, for acceptance by the authority concerned.

(44) There is, however, nothing unusual about this rule for in the case of tenders such a rule exists. The pool auction conducted in this case is neither sale by inviting tenders nor a public auction with a stipulation to accept the highest bid. It partakes the character of both. The question of availability of any bid in such an auction for acceptance by the seller has to be decided only on the terms and conditions of sale and not by any implied presumption as to lapsing of bids. It would follow that the acceptance of the bids by the Chief Coffee marketing Officer on 8-10-1952 was valid in all the cases whether such acceptances were in relation to higher or lower bids.

(45) In this view it is unnecessary to consider the special argument of the learned Advocate General with respect to ten of the above fifteen appeals where the purchasers had accepted the contracts and applied for extension of time to pay the sale price. Evidence shows that there was such acceptance of their results of the auction sales by the purchasers concerned. But it is argued by Mr. Nambiar that in respect of Appeals Nos. 255, 256 and 258 of 1958 and 160 of 1960 the matter would stand on a different footing as the purchasers in those cases applied for extension of time not on their own behalf but on behalf of the general body of purchasers. As we have held that the acceptance of the bids in all the cases was valid, there is no need to pursue this aspect of the case.

(46) The next question relates to A S. 260 of 1958 and 165 of 1960 alone. In these two cases on the date of the auction after bids had been put into and after the boxes had been opened and the bids tabulated. D. W. 1 Gopala Shetti, sometime later in the day sent a telegram Ex. B-22 withdrawing his offer as well as those of the other respondents. This telegram was received by the Assistant Marketing Officer, P. W. 1 at 12-30 midnight the same day. No auction, however, was taken on the telegram and P. W. 2 the Chief Coffee Marketing Officer was not even apprised of it till the bids were finally accepted and declarations made. It is contended on behalf of the concerned respondents in these two appeals that their bids must beheld to have been retracted and it was not thereafter open to the Board (seller) to accept them Clause 8 of he conditions of sale states that 'telegraphic bids or instructions regarding bids will not be considered'. the respondents' case is two-fold: the first is that the conditions referred to above will apply to making of bids only and not to withdrawal of the bids which according to them an be by telegram or any other form of communication. this contention has been accepted by the learned Subordinate Judge. The second is that D. W. 1 had given oral instructions to P. W. 2, the Assistant Marketing Officer confirming his telegraphic instructions and this would be sufficient under clause 8. It has been proved by evidence that D. W. 1 was present in Coimbatore on 7-10-1952 and also at the time when he boxes containing the bids were opened and tabulated. Admittedly he said nothing them by ways of revocations of his offer. But the evidence of P. W. 1 shows that oral instructions confirming the telegram were given to him only at 2 p.m. on 8-10-1952 before the announcement of the results when it was too late to permit the bids to be retracted. P. W. 2 has stated in his evidence (which we have no reason to reject) that when the boxes containing the bids wee opened at 1 p.m. on the 7th of October 1952 D. W. 1 was present but that he did not inform him of any retraction. He even says that neither D. W. 1 nor any other dealer contacted him at any time and retracted the ids of bids before the final declaration was made cannot be true. What then remains for consideration is whether the telegram which admittedly was received on the midnight of 7th of October 1952 can be regarded earlier, is sufficiently comprehensive to include a case if withdrawal of bids also and not good reason behind it. If it were otherwise, i.e., if withdrawal of bids could be permitted to be done by telegram, it would be possible for an unscrupulous bidder to send telegrams in the name of a rival who had made a higher bid and secure the contract in his favour. further it may also happen that evening cases of genuine telegrams there might arise disputes about their authenticity and the Board might be dragged into unnecessary litigation. Clause in our view does not recognise revocation of bids by telegram. As revocation has not been made in any other manner, the declaration of sales made in favour of the respondents to these appeals will be valid. It is interesting to note that Gopal Shetti himself was one of the members of the deputation that waited on the Coffee Board immediately after the auctions were over the purpose of getting extension of time for the performance of the buyers' obligations.

(47) What then remains for consideration is the question regarding damages. In ten out of the fifteen appeals referred to above the respondents obtained extension of time for payment of the sale price till 10-12-1952. On their failure to pay the price and take delivery of the goods they were sold at the next pool auction held on 23-12-1952 in all cases except in the case of appeal No. 258/58 where the purchasers did not apply for extenuation of time the goods wee sold at the next pool auction held on 5-1-153. In both the cases the difference between the contract price and the price at which goods were sold have been claimed by way of damages. The learned subordinate Judge has held that as the fallen price was due to an illegal action on the part of the Coffee Board is not accepting the highest bids and in making an arbitrary selection of the bids, it must be held that the seller had not done all that in his power to minimise the loss and that, therefore, the Coffee Board would not be entitled to claim damages. He has on served that the Board could have minimised the sale through the Board's propaganda centres of co-operative Societies. The sale in the present case was in relation to ascertained goods. The property in the goods therefore prima facie vested in the buyer. By reason of the default of the latter the seller has a right under S. 54(4) of the Sale of Goods Act to re-sell the goods. the relevant condition of sale says:

'In the event of the buyer failing to take delivery within 17 dates excluding the day of sale, the seller shall resell the produce in auction or on after the 18th day excluding the date of sale notifying the buyer by posting of notice of 'resale' on the notice board of the Assistant Coffee Marketing Officer and in these cases the buyer shall be liable for any loss occasioned by resale but shall not be entitled to the profits if any.'

(48) A reading of the clause extracted above particularly in the light of the provisions of he Act and of the procedure followed by the Board would show that what was agreed upon between the parties was that are sale in the event of there being any default should be through the machinery provided namely, by means of pool auction.

(49) Mr. Nambiar has, however, contended that resale in the case of default should only be by public auction where everybody would have an opportunity of bidding and as that had not been be entitled to claim any damages in respect of the loss sustained by it. While that contention may perhaps be right in an ordinary case, it will have little force where the parties themselves have stipulated on the matter. The conditions of rule make it plain that resale has to be done only through the same process as in the case of pool auctions at which registered dealers alone would be at liberty to bid.

(50) It is undoubted that the resale should be conducted within a reasonable time. As we have pointed out just now, in all he cases the appellant had put up the goods for resale at the next pool auction, after the default. the learned subordinate Judge's view that damages could have been minimised it the goods had been set apart for export trade or if they had been sold throughout the Board's propaganda centres or through Co-operative Societies is more speculative than a practical one. There is no evidence in the case to show hat the price of coffee in the export market or in the retail market was higher than that at which it was sold in November and December pool auctions. Further, quantity to be allotted for export trade is restricted in the interests of the Indian consumer. That cannot be enlarged. We have earlier noticed that the situation created by the merchants by cornering the available stocks had created scarcity of the goods even in the internal market and the Coffee Board was obliged to release a part of the quota assigned for export for internal consumption. Sale of Coffee through Board's propaganda centres and through Co-operatives Societies can only be limited. The Board had taken all steps to check the inflation in the price of coffee. Every bidder at the October auction must have known that the prevailing puffed up prices were abnormal and could not last long. There was an agitation by the public because of the considerable rise in the price of coffee. The purchasers knew of the powers of the Government and of the Board. Further on the eve of the auction the Chief Coffee Marketing Officer had warned the dealers against puffing up prices. The merchants for reasons of their own presumably depending upon their capacity to corner and to create a scarcity for he good gambled with the hope of selling at higher prices. They did not heed the advice of the Chief Coffee Marketing officer. How can they now turn round and deny their liability? Further what is it that has been done by the Chief Coffee Marketing Officer? He never said at the time of the auction, that he would not accept the highest bid. On the other hand the buyers must have anticipated a fall in the price of the coffee especially when there was a warning form the Chief Coffee Marketing Officer against their pushing up the prices. Secondly the officer did nothing at the subsequent auctions to being down the prices. We have already pointed out that the steps taken by the Board to bring down the price of coffee to reasonable levels did form part of their duty and it cannot be said that the circumstances of the case that the Board did anything illegal which would deprive them of their claim for damages. We are therefore of the opinion that the contention of the respondents that the damages ascertained on the resale of the goods would not be a fair measure of their responsibility is not a tenable one. There will therefore be a decree in favour of the appellant for the amounts claimed. the respondents will pay the costs of the appellant here and in the court below. Advocate's fee in each case Rs. 350. (Junior fee in addition)

(51) Appeal allowed.

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