Full Judgment Text
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CASE NO.:
Appeal (civil) 6324 of 2005
PETITIONER:
Assam Small Scale Ind. Dev. Corp. Ltd. & Ors.
RESPONDENT:
M/s. J.D. Pharmaceuticals & Anr.
DATE OF JUDGMENT: 07/10/2005
BENCH:
S.B. Sinha & R.V. Raveendran
JUDGMENT:
JUDGMENT
[Arising out of S.L.P. (C) No. 3950 of 2005]
S.B. Sinha, J :
Leave granted.
The Legislature of State of Assam and the Parliament took legislative
measures to allay the difficulties faced by the small scale industries. The
State of Assam made rules known as The Assam Preferential Stores
Purchase Rules in the year 1972. The said rules having not served its
purpose, the Assam Preferential Stores Purchase Act, 1989 (for short "the
1989 Act") was enacted which received the assent of the Governor on 14th
July, 1989. The said Act was enacted for encouraging growth of industries
in the State of Assam specially small scale and cottage industries and for
taking measures ancillary thereto. The State intended to patronize the
products of the small scale and cottage industries on preferential basis and to
rationalize the procedure for purchase of stores required by the State
Government Institutions, Government companies and State Government
undertakings, as would appear from the preamble thereof.
Section 2(d) of the 1989 Act defines "State Board" to mean the Assam
State Stores Purchase Board constituted under Section 3 of the 1989 Act.
"Small Scale Industry" has been defined in Section 2(f) to mean ’an
industrial unit in which the capital investment for plant and machinery does
not exceed thirty five lakhs of rupees or any other amount as may be decided
by the Central Government from time to time and located in the State of
Assam’. "Registered Industry" has been defined in Section 2(l) to mean an
industrial unit registered under the Directorate of Industries in accordance
with provisions thereof. "Requiring Authority" has been defined in Section
2(r) to mean the State Governments Departments and their subordinate
authorities, State Government Undertaking/ Corporation/ Statutory Bodies/
Autonomous Bodies. Section 2(s) defines "ASIDC" to mean the Assam
Small Industries Development Corporation Limited (for short "the
Corporation", the Appellant herein).
Section 3 of the 1989 Act provides for constitution of the State Store
Purchase Board on such term as may be specified in Schedule \026 1.
Preference to the small scale industries is provided in Section 7. Clause (c)
of sub-section (1) of Section 7 reads as under:
"(c) Items of stores mentioned in Schedule III shall be
purchased by requiring authorities from ASIDC, ASIDC
shall follow the guideline regarding fixation of price,
commission, etc. as laid down in office memorandum
issued by Notification No. PE-61/88/1, dated 28th March,
1988 as in Schedule IV."
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The Purchase Committee is required to be constituted in terms of
Section 8 of the 1989 Act consisting of the Head of Department, Director of
Industries, a representative of the Department not below the rank of Under
Secretary, Financial Adviser of the Department and Finance and Accounts
Officer of the concerned Directorate.
Section 9 postulates that the Purchase Committee shall include two
representatives from the State Government, one of which shall be the
Director of Industries or his representative not below the rank of Deputy
Director and the other representative of the Finance Department in respect of
each Government Corporation, Government Undertaking, Assam Electricity
Board.
In the State Board, amongst others, the Managing Director of the
Appellant Corporation is a member. Schedule \026 III provides for the
preferences to be given as required under Section 7(c). Item 4 of the said
Schedule is ’drugs and pharmaceuticals and clinical equipments’.
An office memorandum dated 28th March, 1988 referred to in Section
7(1)(c) of the 1989 Act is based on a cabinet decision and issued in the name
of the Governor of Assam laid down guidelines for strict adherence thereof
by all government departments, their subordinate authorities, governments
organizations and public sector undertakings while making their purchases
of any SSI products which are dealt in or manufactured by the Corporation.
The said office memorandum satisfies the requirements of Article 166 of the
Constitution of India and has been made a part of the 1989 Act. In terms of
the said guidelines, the Corporation is required to publish a list of items/
materials/products to be dealt in or manufactured by it as detailed in
Annexure \026 1 thereof. The price of such SSI products is to be fixed by any
Technical Committee constituted by the Corporation with members from
neutral organization and concerned departments. As per the said OM,
purchasing authorities shall pay to the Corporation upto 5% as commission
over the price fixed by the Corporation. The purchasing authorities shall pay
advance to the extent of 90% of the value of the orders placed with the
Corporation. Annexure \026 A to the said guidelines is the marketing
assistance scheme wherein ’drugs and pharmaceuticals and clinical
equipments’ had been identified as one of the items, supply of which to the
Government departments is to be taken over by the Corporation. The said
scheme provides for quality control, pricing, registration of units as also
indenting by the Corporation. The clause relating to indenting of the goods
reads as under:
"The purchasing authorities will issue indent to the
Corporation for the required products with 90% advance.
The Corporation will immediately allot the work to the
most suitable unit or units to complete supply within
stipulated time. If the supply could not be completed in
due to time by the Corporation, the purchasing authorities
will deduct 1 = p.m. from bills.
The stores will be dispatched by the units only
after they are given dispatch instruction by the ASIDC.
Normally the dispatch will have to commence within the
third day from the date of dispatch instruction, failing
which the unit may be penalized the extent of bank
interest on the amount. The stores will be received by
the purchasing authority and the acceptance or rejection
notes will be issued on the challans.
The Corporation will release payment upto 90% of
the bills to the units on completion of supply. Any
advance or advances will be deducted fully. The
remaining 10% will be released on receipt of full
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payment of the bills from the purchasing authority."
Only if the Corporation is unable to supply some items and such
inability is communicated to it in writing, the purchasing authority can
purchase them from alternative sources.
It is not in dispute that the plaintiff is a SSI unit registered with the
Corporation and fulfills all the criteria laid down in the 1989 Act and the
Scheme framed thereunder. It entered into an agreement with the
Corporation on or about 19th October, 1990 wherein the plaintiff
(Respondent herein) was termed as a principal and the Corporation as an
agent. The said agreement was entered into in terms of the marketing
support scheme formulated by the Corporation under the 1989 Act. Para 3
of the preamble and Clauses 1, 4, 6, 7 and 8 of the said agreement read as
under:
"And whereas the Corporation has agreed to act as an
Agent to market the goods manufactured by the Principal
as specified in the schedule appended to this agreement,
under the marking support scheme formulated by the
Corporation under the AP SP Act, 1989\005\005..The
principal hereby covenants with the Corporation as
hereinafter provided :
"1. The Principal shall quote lowest rates in respect of
"Scheduled Goods" to the Corporation and shall not
quote to any party mentioned above directly or indirectly,
rate lower than those quoted to the Corporation in respect
of the goods for which competitive rates are being quoted
by them. The rates so quoted to the Corporation by the
Principal shall be valid for a period of one year from the
date of submission of the quotation.
4. The Principal shall, when advised to do so, supply the
goods wherever required within the stipulated time at his
cost. In event of failure to comply with aforesaid clause,
if any penalty is imposed by the actual buyer of the goods
in the event of the Principal failing to comply the above
provision of conditions, or if any losses are otherwise
incurred, the said penalty or loss is to be borne by the
Principal by reimbursing the said amount to the
Corporation within 15 days from the date of demand.
The Principal shall also be responsible for losses by way
of breakages, theft or pilferage etc. during the transit of
goods.
6. The Principal authorizes the Corporation to raise bills
of sale on their behalf, disclosing or without disclosing
the name of the principal, and to collect payment thereon
from the buyer(s). On collection of payment from the
buyer(s). Payment to the principal will be effected by the
Corporation deduction the service charges. Penalty due
to delayed supplies, or other dues/advance, if any. The
Corporation may release 90% value of the materials on
delivery and acceptance of the material by the buyer after
deduction of dues/advance payment if any subject to
receipt of payment from buyer(s). The balance 10% less
penalty due to the delayed supplies etc. or any other dues
will be paid to the Principal on receipt of full payment
from the Purchasing Department.
7. The Principal hereby agrees to the terms and condition
in the Marketing Support Scheme of the Corporation as
amended from time to time and agrees to comply with
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general specific instructions as might be issued by the
Corporation regarding the Marketing of "Scheduled
goods".
8. That in case of any shortage, leakage, damage,
breakage, late supplies, late submission of R/R/Motor
Transport Receipt, delivery challans, inadequate packing
etc. or any losses in transit for whatever circumstance or
reasons, it shall be on the account of the principal and the
amount thus involved, shall be deducted from his bills."
A specimen copy of the orders placed by the Corporation on the
Respondent from time to time is extracted below :
"DATED 16.6.1992
To
M/s. J.D. Pharmaceuticals Limited
M.C. Road
Guwahati \026 3
SUB: ORDER FOR SUPPLY OF STORES:
Dear Sir,
With reference to above, we have the pleasure to
order with you for supply of the under noted articles to
the Sub Divisional Medical and Health Officer, I/C.
D.M.S. Dibrugarh, as per terms and conditions shown
over overlead.
S.No. Name of Item Quantity Price
1. Tab Trimetoprim 80 mg 75,000 Rs. 559.35 /
with sulphamethoxagole thousand tab
400 mg.
Delivery period: within 30.6.1992"
Some of the terms and conditions attached to the supply orders are as
under:
"4. The Stores must be supplied through your challan
issued in favour of indenting department and should be
properly a/c Assam Small Industries Development
Corporation Limited, marketing Division and will be
submitted to this office after duly receipted by the
department and stamped.
5. The above prices are inclusive of packing/ forwarding/
transportation charge, but exclusive of 5% commission
and tax as admissible.
8. After execution of the order your bill should be
submitted for payment. Payment will be made subject to
receipt of the fund from the indenting department. No
interest/ compensation can be claimed for delay in
payment.
10. Terms and conditions other than the above, will be as
per the deed of agreement executed by you, red with
other tenders/quotations."
The Parliament also enacted ’Interest on Delayed payments to Small
Scale and Ancillary Industrial Undertakings Act, 1993’ (for short "the 1993
Act") being Act No. 32 of 1993 which came into force with effect from 23rd
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September, 1992. "Appointed day" has been defined in Section 2(b) to
mean the day following immediately after the expiry of the period of thirty
days from the day of acceptance or the day of deemed acceptance of any
goods or any services by a buyer from a supplier. Section 3 provides for the
liability of buyer to make payment. Sections 4 and 5 thereof read as under:
"4. Date from which and rate at which interest is
payable.--Where any buyer fails to make payment of the
amount to the supplier, as required under section 3, the
buyer shall, notwithstanding anything contained in any
agreement between the buyer and the supplier or in any
law for the time being in force, be liable to pay interest to
the supplier on that amount from the appointed day or, as
the case may be, from the date immediately following the
date agreed upon, at such rate which is five per cent
points above the floor rate for comparable lending.
5. Liability of buyer to pay compound interest.--
Notwithstanding anything contained in any agreement
between a supplier and a buyer or in any law for the lime
being in force, the buyer shall be liable to pay compound
interest (with monthly rests) at the rate mentioned in
section 4 on the amount due to the supplier."
It is not in dispute that pursuant to the said agreement, the Corporation
placed orders for supply of medicines manufactured by the Respondent
herein for the period June, 1991 to June, 1993. The total price of the
medicines supplied by the Respondent in pursuance of the supply orders of
the Corporation stood at Rs. 20,56,654.13 out of which only a sum of Rs.
46,512.80 was paid to the Respondent.
It stands admitted that the payments have not been made in relation to
the supplies made for the said indents. A suit was filed by the Respondent
herein on 7.9.1993 claiming the aforementioned amount (Rs.20,56,654.13)
together with the interest payable thereon in terms of the 1993 Act
(Rs.675,881/45). In the said suit, the Corporation in its written statement
inter alia raised the following plea:
"4. That the suit is bad for non-joinder of necessary party
and on the score alone the suit is liable to be dismissed.
10. That with regard the statements made in Para 16 to 46
of the plaint, the defendants do not admit anything
contrary to the relevant records of the case. The
defendants submit that the supply order placed by the
defendants does not relate to a single transaction and as
such, the plaintiffs cannot claim for recovery of its dues,
if any, in one suit. The defendants have placed orders
with the plaintiff firm as per the APSP Act, 1989 and as
per the indent of the Govt. department. It was agreed in
the terms and conditions of the order that the payment of
the bills would be released to the plaintiffs on receipt of
payment by the defendants from the concerned
Government Department. This condition of payment has
also been agreed to by the plaintiff and as per the terms
and conditions of the agreement executed by the parties.
The defendants submit that it has not received payment
against the value of the medicines supplied by the
plaintiff to the Government department and as such, the
bill amount could not be released due to the aforesaid
factor. The Drug Association, Assam where the plaintiff
firm is also a Member, has informed the defendants by
letter that the firm registered under them, are agreeable to
accept orders without 90 percent advance payment at the
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time of placement of the order and accordingly orders
were placed and as per the terms and conditions of the
agreement, the defendants were to release payment on
receipt of the same from the concerned Government
department. As stated earlier since the defendants has
not received any payment from the Government
Department against the value of the medicines supplied
by the plaintiff firm, the required payment could not be
released to the plaintiff firm."
The Trial Judge by a judgment dated 1st August, 1998 passed a decree
in favour of the Respondent herein in the following terms:
"In the light of the above discussion and the decisions
made therein, the plaintiffs suit is decreed for Rs.
2010141.33 on contest with cost. The plaintiffs shall be
entitled to realize compound interest @ 23% with
monthly rest in respect of the concerned bill amounts till
the month of June, 1991 and at the rate of Rs. 23.5% with
monthly rest w.e.f. 1.7.1991 till filing of the suit. The
plaintiff shall be entitled to realize compound interest at
the rate of Rs. 23.5% at monthly rest on the decretal
amount from the date of filing the suit till the date of the
decree and further interest at the said rate from the date
of decree till realization."
An appeal preferred thereagainst, by the Corporation before the High
Court was dismissed. The Corporation is, thus, in appeal before us.
Mr. R.F. Nariman, learned senior counsel appearing on behalf of the
Corporation would raise the following contentions in support of the said
appeal:
(i) Having regard to the terms and conditions of supply, the
Corporation was to pay unto the Respondent the price for the
goods supplied only as and when the same was received from the
respective departments of the State Government. The Corporation
is an agent of the Respondent and not the buyer of the goods; and
as per clause 6 of the agreement until payments are received from
the buyers (Departments of the State), no liability could have been
fastened upon the Corporation to pay the said amount. Clause 8 of
the terms and conditions of the orders for supply also make it clear
that payment will be made subject only to receipt of funds from the
indenting department.
(ii) The different departments of the State and other government
corporations and undertakings being the buyers and the
beneficiaries of the supplies only, they were liable to pay the price
of the goods supplied over which the Corporation had no control
and in that view of the matter the State of Assam was a necessary
party. In any event, the recipient of goods, namely, the buyer
being disclosed principal of the Corporation, the Respondent as a
principal of the Corporation could maintain a suit as against the
actual buyer only.
(iii) The provisions of the 1993 Act for payment of interest, are not
applicable in view of the fact that the same applies only to a buyer
of any goods or recipient of a service from a supplier for a
consideration. Further clause 8 of the terms and conditions of the
orders for supply provide that no interest can be claimed for delay
in payment.
(iv) In the entire plaint, the Respondent has admitted that it is bound by
the terms and conditions of supply and in particular clause 8 therof
and, thus, it does not lie in its mouth now to contend, as has been
done in the counter-affidavit filed before this Court, that the said
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clause is illegal and of no effect being opposed to public policy.
Mr. Pravir Choudhary, learned counsel appearing on behalf of the
Respondent, on the other hand, would submit that both the 1989 Act and the
1993 Act are beneficial legislations. The 1989 Act having been enacted by
the State of Assam for granting certain reliefs to the SSI units as a part of its
industrial policy, the terms and conditions of the agreement as also the
conditions of supply shall be subservient thereto and, thus, to the extent the
same is inconsistent with the Scheme, the later will prevail. In view of the
provisions contained in the 1989 Act and the scheme, it will appear that the
Corporation exercises a total control - from quality to pricing to indenting
and, thus, the expressions used in the agreement as principal and agent will
have no bearing. An agent as is commonly understood cannot have a control
over the principal. As its agreement was with the Corporation, and the
orders were all placed by the Corporation and as it had no privity with the
departments of the State who received delivery of the goods, the Corporation
is liable to pay the price with interest.
In view of the fact that the Respondent had no privity of contract with
different departments of the government, they were not necessary parties.
Reliance in this behalf has been placed on Balvant N. Viswamitra and
Others Vs. Yadav Sadashiv Mule (Dead) Through LRS. And Others [(2004)
8 SCC 706]. In view of the statute and the scheme as also the guidelines
issued, the question of the Respondent waiving its right thereunder does not
arise. The 1993 Act, it was submitted, being also a beneficient statute, the
same should be construed liberally. The Act, Mr. Choudhary would argue,
will thus, have a retrospective effect.
THE EFFECT OF THE 1989 ACT
The 1989 Act indisputably is a beneficient legislation. There was a
purpose behind enacting it. It was primarily enacted so as to enable the State
to effectively perform a sovereign function namely health care. The
Marketing Assistance Scheme being appended to the provisions of the Act
and marked as Annexure \026A thereto forms a part of the Act. The scheme
envisages pervasive control over the manufacturers including quality control
of the production. Guidelines which were to be strictly adhered to by the
authorities, as noticed hereinbefore, had also been issued by the State. Such
guidelines having fulfilled the requirements of Article 166 of the
Constitution of India were required to be followed by the Corporation.
The order for supply of stores, the provisions of the agreement and the
terms and conditions of supply, therefore, cannot be read in isolation. They
must be read in conjunction with the provisions of the Act, the scheme and
the guidelines issued thereunder. The provision in the scheme relating to
indenting envisages that the purchasing authorities will issue indent to the
Corporation for the required products with 90% advance whereupon the
Corporation would immediately allot the work to the most suitable unit or
units to complete supply within the stipulated time. In the event, such
supplies are not made within the specified time, the supplier would be
subjected to penalty. In view of the fact that the supplying authority will
have to send advance of 90%, the Corporation owes a duty to release
payment upto 90% on completion of supply. If the Corporation had not
taken the advance in terms of the provisions of the scheme, it acted at its
own peril.
It is not disputed that the Respondent did not commit any breach or
any irregularity in regard to the supplies. Once the supply of the goods was
completed, having regard to the clause aforementioned, the Corporation was
bound to release the payment upto 90% in view of the fact that the
purchasing authorities were also obligated to issue indent to the Corporation
with 90% advance. If such advance had not been given, the Corporation in
terms of the scheme should not have issued the indent. It may be true that
the terms and conditions appended with each order of supply stipulate that
payment would be made subject to receipt of the fund from the indenting
department. But, the scheme, guidelines, the agreement as also the terms
and conditions for supply of stores, if read as a whole, the only meaning
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which can be attributed thereto would be in relation to the 10% of the
amount which the Corporation was to realize from the supplying authorities
upon submission of bill by the manufacturer. The said term has nothing to
do with payment of 90% advance in accordance with the provision of the
Scheme.
Clause 8 of the terms and conditions of order of supply refers to a
stage when after execution of the order a bill is submitted and payment
thereof, i.e., 10% of the balance amount only would be subject to the receipt
of the fund from the indenting department.
So read, Clause 8 may not be held to be opposed to public policy but
it cannot be read in isolation. It cannot be read in such a manner so as to
destroy or defeat the very purpose for which the Act or the Scheme was
enacted. It cannot be read as laying down a term which would run contrary
to the guidelines.
The expressions ’principal’ and ’agent’ used in a document are not
decisive. The nature of transaction is required to be determined on the basis
of the substance there and not by the nomenclature used. Documents are to
be construed having regard to the contexts thereof wherefor ’labels’ may not
be of much relevance. The 1989 Act, the scheme and the guidelines
postulate constitution of a State Board for the purpose of monitoring
supplies to various departments of the State, the government corporations
and the companies. The Managing Director of the Corporation is a member
of the board in terms of the provisions of the 1989 Act. The Corporation
was created for the purpose of giving effect to the provisions of the Act and
the scheme framed thereunder. It is a statutory body and is a ’State’ within
the meaning of Article 12 of the Constitution of India. The contract by and
between the parties being a statutory one, the Corporation was required to
act fairly and reasonably. The principal purpose of the Act was to give
encouragement to the growth of industries in the State of Assam and
patronizing the products of small scale and cottage industries on preferential
basis. The 1989 Act contemplates acts which would be for the betterment of
the SSI units and not acts which would be detrimental to their interest. The
terms used in the agreement must, therefore, be understood in that
perspective.
In Chairman, Life Insurance Corporation and others Vs. Rajiv Kumar
Bhasker [2005 AIR SCW 3636], a bench of this Court opined:
"39. Agency as is well-settled, is a legal concept which is
employed by the Court when it becomes necessary to
explain and resolve the problems created by certain fact
situation. In other words, when the existence of an
agency relationship would help to decide an individual
problem, and the facts permits a court to conclude that
such a relationship existed at a material time, then
whether or not any express or implied consent to the
creation of an agency may have been given by one party
to another, the court is entitled to conclude that such
relationship was in existence at the time, and for the
purpose in question. [See "Establishing Agency" by GHL
Fridman - 1968 (84) Law Quarterly Review 224 at p
231]."
It is no longer in doubt or dispute that while interpreting the terms of
agreement, it is necessary to look to the substance of the matter rather than
its form. Use of a terminology may not be sufficient to lead to a conclusion
that the parties to the contract in fact intended that the said status would be
conferred.
In The Bhopal Sugar Industries Ltd. Vs. Sales Tax Officer, Bhopal
[(1977) 3 SCC 147], a 3-Judge Bench of this Court referred to the dicta laid
down by this Court in Sri Tirumala Venkateswara Timber and Bamboo Firm
Vs. Commercial Tax Officer, Rajahmundry [(1968) 2 SCR 476] wherein the
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law has been laid down in the following terms:
"As a matter of law there is a distinction between a
contract of sale and a contract of agency by which the
agent is authorised to sell or buy on behalf of the
principal. The essence of a contract of sale is the transfer
of title to the goods for a price paid or promised to be
paid. The transferee in such a case is liable to the
transferor as a debtor for the price to be paid and not as
agent for the proceeds of the sale. The essence of agency
to sell is the delivery of the goods to a person who is to
sell them, not as his own property but as the property of
the principal who continues to be the owner of the goods
and will therefore be liable to account for the sale
proceeds."
It was opined:
"It is clear from the observations made by this Court that
the true relationship of the parties in such a case has to be
gathered from the nature of the contract, its terms and
conditions, and the terminology used by the parties is not
decisive of the said relationship. This Court relied on a
decision in W.T. Lamb and Sons v. Goring Brick
Company Ltd. where despite the fact that the buyer was
designated as sole selling agent, the Court held that it was
a contract of sale."
In certain circumstances, even an agent can become a purchaser where
an agent pays to the principal on its own responsibility. [See Gordon
Woodroffe and Co. (Madras) Ltd. Vs. Shaik M.A. Majid and Co. [AIR 1967
SC 181]
Law contemplates different types of agency. Under the Contract Act,
the concept of del credere agent is well-known. A del credere agent assumes
responsibility for the solvency and performance of their contract by the
vendees and, thus, indemnifies his employer against loss. He gives an
additional security to the seller. [See Bowstead & Reynolds on Agency, 17th
Edition, para 1-038]. However, it is not necessary to dilate thereupon as the
status of the parties herein must be determined in terms of the provisons of
the 1989 Act.
The 1989 Act makes a statutory provision beyond the concept of
agency as contained in the Contract Act. It is a special statute. In terms
thereof the Respondent was not required to pay any commission to the
Corporation, though the Corporation was described as ’agent’ of the
Respondent under the agreement. 5% commission was to be paid to the
Corporation by the purchasing authorities. The provisions of the 1989 Act,
thus, should be given full effect. The status of the parties must not, thus, be
determined as to how they have described themselves but having regard to
the substance of the transaction as envisaged under the Act and the scheme
framed, which as noticed hereinbefore, is as a part of the Act.
As a statutory agency came into being by and between the purchasing
authorities and the Corporation in terms whereof the Corporation not only
exercised the control in relation to the entire supply of materials, as a part of
the statutory scheme, it also undertook to collect the price of the goods
supplied from the purchasing authorities and pay the same to the
manufacturers subject, of course, to the payment of its commission which
would be a substantial amount. Under the scheme, the purchasing
authorities had a duty to pay 90% of the price before the Corporation makes
an indent and, thus, the latter had a statutory duty to realize the same before
an indent is made, as also the remaining 10% when supplies are completed.
If the payment was to be made by the Corporation to the Respondent both
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under the contract as also in terms of the statutory provision, it cannot now
turn round and contend that it was not part of its duty and leave the matter at
that. It was obligated having regard to the statutory scheme on the part of
the Corporation to realize the price for the consideration of the goods
supplied. It was not constituted merely to act as a conduit pipe. It was
bound to perform its statutory duties envisaged under the 1989 Act.
Furthermore, it is one thing to say that the Respondent delivered
goods without receiving 90% of the indented amount but it is another thing
to say that it has waived its right. No case of waiver of statutory duty has
been made out. Nothing has been pointed before us that the Respondent
gave up its claim to receive the amount directly from the Corporation. Its
conduct suggests contra. The Respondent for a period of about two years
made those supplies and had been asking the Corporation to make its
payment and, as noticed hereinbefore, the Respondent filed a suit at the
earliest possible opportunity. Even during last 12 years, the Corporation
made no effort to realize the amount from the State and pay the same to a
small scale industry for whose benefit the 1989 Act was enacted. It had
shown utter despondency and behaved in a cavalier manner taking umbrage
under specious plea that the State was a necessary party. There was no
privity of contract between the Corporation and the purchasing authorities.
All payment of the purchasing authorities were to be channelised through the
Corporation. Having regard to the transactions between the parties as also
the Scheme and the Act, we are of the opinion that the State of Assam was
not a necessary party.
In terms of the agreement between the parties hereto, the State of
Assam would not be a necessary party but merely be a proper party.
In Balvant N. Viswamitra (supra) a distinction has been made
between a proper party and a necessary party in the following terms:
"25. It was contended by learned counsel for the
respondents that the respondents were not made the
party-defendants in the suit and hence no decree could
have been passed nor could be executed against them.
We are afraid we cannot uphold the contention. It is the
case of the plaintiffs that the property was let to
Papamiya. It is not even the case of the respondents that
they were the tenants of the plaintiffs. They are claiming
through Papamiya. At the most, therefore, they can be
said to be sub-tenants i.e. tenants of Papamiya. There was
no privity of contract between the landlord and the
respondents. In our opinion, therefore, it was not
necessary for the plaintiffs to join the respondents as
defendants in the suit nor to give notice to them before
initiation of the proceedings. The respondents cannot be
said to be "necessary party" to the proceedings.
26. As held by this Court in Udit Narain Singh
Malpaharia v. Addl. Member, Board of Revenue, Bihar 8
there is a distinction between "necessary party" and
"proper party". In that case, the Court said: (SCR p.
681)
"The law on the subject is well settled: it is enough
if we state the principle. A necessary party is one
without whom no order can be made effectively; a
proper party is one in whose absence an effective
order can be made but whose presence is necessary
for a complete and final decision on the question
involved in the proceeding." (emphasis supplied)"
We respectfully adopt the same.
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The Corporation for all intent and purport having undertaken the
liability of the purchasing authorities would also be liable for all
consequences arising from non-payment of the price of the goods supplied.
We may summarise the effect of the 1989 Act, the marketing support
scheme of the Corporation, the O.M. dated 28.3.1988 referred to in Section
7(1)(iii) of the 1989 Act, and the agreement between the Corporation and the
respondent, as follows :
i) The Corporation had to collect 90% of the value of the orders
placed by the purchasing departments, in advance, and release the
said 90% to the respondent on supply. This obligation is a statutory
obligation having regard to the provisions of Section 7(1)(c) of the
1989 Act read with Clause 4 of the O.M. dated 28.3.1988 and the
clause relating to ’indenting’ contained in the Marketing
Assistance Scheme. This would mean that if the Corporation
accepts indents from Government departments without 90%
advance and chooses to place corresponding supply orders on the
respondent, it (the Corporation) is liable to pay the said 90% to the
respondent on supply whether the Corporation chose to receive
payment from the indenting departments or not.
ii) Though the respondent is described as the ’principal’ and the
Corporation is described as the ’agent’ in the agreement dated
19.10.1990 between the respondent and the Corporation, the
Corporation was not entitled to receive any commission or
remuneration or consideration from the respondent for the orders
procured/placed. It is entitled to receive the commission (at the rate
of 5% of the price) only from the indenting departments. The
Corporation, thus, acted as the ’agent’ of both the respondent-
supplier and the Indenting Government departments and took the
responsibility of paying the price to the respondent. In fact, under
clause 6 of the agreement, the respondent specifically authorized
the Corporation to raise bills of sale on behalf of the respondent,
either disclosing or without disclosing the name of the respondent,
and collect the payment from the buyer department. The said
clause also specifically contemplates the Corporation releasing
90% of the value of the material on delivery and acceptance, and
payment of balance of 10% after receipt of full payment from the
purchasing department. As noticed above, the statutory scheme
and the O.M. required the Corporation to receive the 90% payment
in advance along with the indents from the purchasing departments
and any relaxation by the Corporation of that provision was done
at its own risk.
APPLICABILITY OF THE 1993 ACT:
We have held hereinbefore that Clause 8 of the terms and conditions
relate to the payments of balance 10%. It is not in dispute that the plaintiff
had demanded both the principal amount as also the interest from the
Corporation. Section 3 of the 1993 Act imposes a statutory liability upon
the buyer to make payment for the supplies of any goods either on or before
the agreed date or where there is no agreement before the appointed day.
Only when payments are not made in terms of Section 3, Section 4 would
apply. The 1993 Act came into effect with effect from 23.9.1992 and will
not apply to transactions which took place prior to that date. We find that
out of the 71 suit transactions, sl. Nos.1 to 26 (referred to in penultimate
para of the Trial Court Judgment), that is supply orders between 5.6.1991 to
28.7.1992, were prior to the date of 1993 Act coming into force. Only the
transactions at sl. no. 27 to 71 (that is supply orders between 22.10.1992 to
19.6.1993). will attract the provisions of the 1993 Act.
The 1993 Act, thus, will have no application in relation to the
transactions entered into between June, 1991 and 23.9.1992. The Trial
Court as also the High Court, therefore, committed a manifest error in
directing payment of interest at the rate of 23% upto June, 1991 and 23.5%
thereafter..
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Mr. Choudhary has placed reliance upon a Full Bench decision of
Guwahati High Court in Assam State Electricity Board & Ors. Vs. M/s.
Shanti Conductors (P) Ltd. & Anr. [2002 (1) GLT 547] which having regard
to the non-obstane clause contained in Sections 4, 5 and 10 of the 1993 Act
opined that interest payable thereunder shall embrace within its fold even the
contracts which might have been entered into prior to the enforcement of the
Act stating:
"However, in such a case interest on the delayed payment
which is made after the coming into force of the Act of
1993 would be calculated under the Act from the date of
the enforcement of the Act and not from the date of
payment prescribed under the agreement."
With respect, we do not subscribe to the said view as payment of
interest at an enhanced rate cannot be made in relation to the transactions
where Section 3 will have no role to play.
We, therefore, are of the opinion that in relation to the transactions
made prior to coming into force of the said Act, simple interest at the rate of
9% per annum, which was the bank rate at the relevant time, shall be
payable both prior to date of filing of the suit and pendente lite and as future
interest in terms of Section 34 of the Code of Civil Procedure. Interest,
however, will be payable in terms of the provisions of the 1993 Act
(compound interest at the rate of 23.5.% per annum) in relation to the
transactions made after coming into force of the Act, both in respect of
interest payable upto the date of institution of the suit and pendente lite and
till realisation. The judgment and decree to that extent requires to be
modified. It is directed accordingly.
The appeal is, therefore, allowed in part in regard to interest and to the
extent mentioned hereinbefore. The Corporation shall bear the costs of the
Respondent in this appeal. Counsel’s fee is assessed at Rs. 25,000/-.