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Judgment
Hardayal Hardy, J.
(1) This Regular First appeal is directed against the judgment and decree of a subordinate Judge 1st Class whereby the plaintiff-appellant''s suit for recovery of Rs. 22,93,387/10.00 and future interest at the rate of 6 per cent per annum was dismissed. The respondent is Union of India which was defendant in the suit.
(2) The appellant was appointed by the Iron and Steel Controller as Controller Stock-holder of iron and steel of various categories, on a fixed remuneration at Lahore. The appointment was made subject to theteims and conditions which were set out in a memorandum enclosed with the letter dated 19th/ 21/05/1945and was to commence from an earlier date viz., 14/09/1941. During the period 28-11-1946 to 26-3-1947,Government of India made a slight change in the arrangement whereby the Provincial Governments were authorised to issue permits for all stocks other than tinplates against which the plaintiff was to make supplies. This arrangement did not work and was cancelled after some time as Provincial Governments did not issue permits and the stocks continued to accumulate with the plaintiff .
(3) In the middle of 1947 the communal situation in Lahore deteriorated, riots broke out and it was not possible after August 1947, for the plaintiff to continue to work there. All its officers left Pakistan leaving stocks of the value of Rs. 17,93,677/3.00 which were completely lost to the plaintiff. In December 1947,all those stocks were taken possession of by the Government of West Punjab, in the Dominion of Pakistan. In the suit filed by the plaintiff, a claim was made against the defendant for the value of the stocks and Rs.1,49,971/12.00 as its remuneration. A sum of Rs. 3,49,838.00Annas Ii was also claimed on account of interest at the rate of 6% per annum on the total sum. of Rs. 19,43,548/15.00.
(4) The plaintiff alleged that the owner-ship of their on and steel stocks lying at Lahore all along vested in the Government and that the plaintiff was merely a custodian or agent of the Government for the sale of the stocks. In the alternative it was pleaded that even if the owner-ship of the stocks vested in the plaintiff the defendant was still liable for the above said amount as the Government was responsible for the protection and preservation of the stocks. The plaintiff''s own responsibility was limited only to losses which occurred on account of in-correct handling, less supervision and negligence. The plaintiff contended that it would not have financed the purchases if the Government had not taken upon itself the responsibility of protecting and preserving the stocks. An allegation that the Government was guilty of several breaches of the contract from November 194 6/03/1947 was also made and it was contended that it was liable to compensate the plaintiff to the extent of the amount mentioned above which represented the value of the stocks and the remuneration due to the plaintiff under clause 13 of the contract entered into between the parties.
(5) The defendant contested the suit. It was admitted that the plaintiff was appointed as a Controlled Stockholder on the terms and conditions set out in the memorandum referred to in the plaint, but it was asserted that the contract which formed the basis of the plaintiff''s claim was not in accordance with Section 175(3) of the Government of India Act, 1935 and was therefore void and un-enforceable. It was pleaded that on the plaintiff''s own showing the stocks lying at Lahore were abandoned by it and were taken possession of by the Provincial Government of West Punjab. The defendant was Therefore under no legal liability to the plaintiff. The plaintiff''s allegation that it was the duty of the defendant to safe-guard the stocks of the plaintiff and to arrange for their immediate release was denied. The plaintiff''s claim that the stocks lying in the stock-yardat Badami Bagh Lahore belonged to the Government and that the plaintiff itself was merely an agent or factor of the Government was denied and it was pleaded that the legal owner-ship and possession of stocks vested in the plaintiff and the Government had only appointed it as a Controller Stock-holder under the existing control orders and the law for the time being in force. The contract between the parties was terminated by the plaintiff by means of a notice dated 26-3-1948. On that date the plaintiff was not in possession of the stocks nor was he in a position to deliver the same to the Unionof India. It was Therefore not entitled to maintain the suit .
(6) The plaintiff''s allegation about the alleged breaches of contract from November 194 6/03/1947 was denied and it was asserted that in any case, the claim was barred by time.
(7) The trial court dismissed the suit. Hence the present appeal .
(8) At the hearing of the appeal, the counsel for the appellant confined his attack to the finding of the trial court on issue No. 6 only which was decided against the appellant while the respondent challenged the correctness of the trial court''s decision on issues2 to 5. Issues 2 to 6 read as under:-
"(2)Are the provisions of Section 175(3) of the Government of India Act not applicable to the contract in suit?(3) Whether the plaintiffs are entitled to claim the amount in suit on the basis of the quantum Meriut or under Sections 65 and 70 of the Indian Contract Act ?(4) Is the defendant estopped from pleading that the contract is un-enforceable ?(5) Has the defendant ratified the contract and what is its effect ?(6) Did the ownership of the stocks lying in the plaintiff''s stock-yard at Lahore vest in the Government of India and were the plaintiffs mere custodian, agents or factors of the defendant for the sale of the said stocks ?
(9) The appellant''s counsel was unable to support the trial court''s decision on issue No. 3 and, Therefore the controversy revolved round issues 2, 4, 5, and 6.
(10) As the decision on issues 2, 4 and 5 relates to the very basis of the appellant''s claim in suit, we shall deal with these issues first.
(11) The respondent''s counsel contended that the trial court was in error in holding that since the person who had made the appointment of the plaintiff had the authority to do so and the arrangement was acted upon and subsequently ratified by the Government the defendant was estopped from challenging the contract as void and un-enforceable.
(12) It was not disputed that the Iron and Steel Controller was authorised by the Government to appoint the plaintiff as a Controlled Stock-holder subject to the terms and conditions contained in Ex. C.P./3. The objection raised by the learned counsel for the respondent however, was that the contract had not been entered into in accordance with the provisions of sub-section(3) of S. 175 of the Government of India Act, 1935which read as under :-
" SUBJECT to the provisions of this Act with respect to the Federal Railway Authority, all contracts made in the exercise of the executive authority of the Federation or a Province shall be ,expressed to be made by the Governor-General or by the Governor of the Province, as the case may be, and all such contracts and all assurances of property made in the exercise of that authority shall be executed on behalf of the Governor-General or Governor by such persons and in such manner as he may director authorize "
The requirements of that section are (a) that the contract should be expressed to be made by the Governor-General, (b) that it should be executed on behalf of the Governor-General and (c) that it should be executed by an officer duly appointed in that behalf and in such manner as the Governor-General may director authorise.
THE trial court relying upon a decision of the Supreme Court in Chatturbhuj Vithaldas Jasani Vs. Moreshwar Parashram and Others, held that the factum of the contract had not been denied by the defendant-respondent. It was also admitted that the Iron and Steel Controller had the authority to appoint the appellant as Controlled Stock-holder subject to the terms and conditions contained in Ex. C.P./3.and there was also evidence to show that the contract had been acted upon. In such circumstances, the contract must be held to have been ratified by the Government.
(13) The case of Chatturbhuj Vithaldass Jasani was however distinguished by the Supreme Court in State of West Bengal Vs. B.K. Mondal and Sons, where it was said that neither the observation of Bose J. in that case about the effect of non-compliance with the provisions of Article 299(1) of the Constitution nor the final decision in that case, could be read as supporting the proposition that notwithstanding the failure of the party to comply with article 299(1) the contract would not be invalid. The same view was also taken in another decision of the Supreme Courting Seth Bikhraj Jaipuria Vs. Union of India (UOI), where Shah J. who wrote the judgment of the court said that the ration able of Chatturbhuj''s case did not support the contention that a contract on behalf of State which was not in the form prescribed, was enforceable against the State. In both these cases it was held that the provisions of Section 175(3) of the Government of India Act, 1935 or the corresponding provisions of Article 299(1) of the Constitution are mandatory and their non-observance has the effect of rendering the contract void and un-enforceable.
(14) The above view was reiterated in the subsequent decisions of the Supreme Court in K.P. Chowdhary Vs. State of Madhya Pradesh and Others, and Mulanchand v. State of Madhya Pradesh AIR 1963 Sc 1218 and it was clearly held that the contravention of these provisions nullified the contract and as such there was no question of estoppel or ratification in such a case.In the present case, it was urged by the counsel for the respondent that the contract was neither expressed to be made by the Governor-General nor was it executed on his behalf. All that could be said about the contract in question was that it was executed by an officer who was authorised by the Government but even there it could not be said that it was executed in such manner as had been directed or authorized the Governor-General.
(15) We were also referred to an un-reported decision of Shah and Mitter JJ. in Supreme Court Civil Appeals Nos. 657 and 658 of 1965. The Balgaum District Commissioner of Income Tax Purchase & Sales Union Limited v. The State of Mysore decided on 3/05/1968 where it was held that although the contract of agency might be created by express or implied agreement of principal and agent, in the case of Government of a Province, section 175(3) of the Government of India Act, 1935 had to be complied with and since it had been noticed by the courts below that there was no document or. letter appointing the plaintiff as an agent of Government there was no enforceable contract, the breach of which could give rise to a claim for damages against the Government.
(16) Counsel for the appellant, on the other hand, relied upon the Supreme Court''s decision in Union of India (UOI) Vs. A.L. Rallia Ram, where it was said that although Section 175(3) used the expression" executed ,that did not by itself contemplate the execution of a formal document between contracting parties and that a valid contract could result from contract by correspondence. In that case a tender for purchase of goods in pursuance of an invitation issued by or on behalf of the Governor-General of India and an acceptance in writing which was expressed to be made in the name of the Governor-General and was executed on his behalf by a person authorised in that behalf, was held to conform to the requirements of Section 175(3).
(17) In the instant case, it was submitted that Ex. C.P./41was issued by the Iron & Steel Controller on the form used by the Government of India. All prior and subsequent correspondence was also made on a similar form .The authority of the Iron and Steel Controller to enter into the contract on behalf of Government of India was also established.
(18) In the case of Rallia Ram, however, the letter accepting the tender issued under the signature of the Director of Purchases recited that the tender was accepted subject to the special terms and conditions in the letter from the Chief Director of Purchases and the general conditions of the contract in Form J.D. (M) 70 which accompanied that letter and the first clause therein defined" Government "as meaning the " Governor-General for India in Council and when the context so admitted, his successors and assigns and the Government of India and officers acting for him or them." In the instant case there was no such definition. The appellant''s counsel however contended that u/s 3(8) of the General Clauses Act, 1897, "Central Government" in relation to anything done before the commencement of the Constitution meant the Governor-General or the Governor-General-in-Council, as the case may be.No help can however be derived from the definition of "Government" in the General Clauses Act, the definitions which can only be availed of for the purpose of construing the meaning of the expressions used in all Central Acts and Regulations made after the commencement .of the said Act. The contract in the present case is neither one nor the other. In fact that seems to be the only reason why it became necessary in the General Conditions attached to the letter of acceptance in Rallia Ram''s case to give the definition of the word "Government"by equating it with the Governor-General-in-Council.While we are, Therefore, of the opinion that Section 175(3) did not necessarily require execution of any formal document and that the Iron & Steel Controller who had obtained the special sanction of the Government of India to appoint the appellant as a Controlled Stockholder on the terms and conditions embodied in Ex.CP/3, was authorised to enter into the contract, the contract itself was not expressed to be made by the Governor-General nor was the letter executed onbehalf of the Governor-General. In our opinion there is no difference between the present case and the case of Seth Bhikraj Jaipuria. In that case too it was found that the Divisional Superintendent of Railway ,though not expressly authorised by the Notification Ex. M-2 to contract for the purchase of food grains, was specially authorised to enter into the contracts in question for purchase of food grains. The evidence also showed that it was with a view to effectuate the scheme devised by the Railway Board for distributing food grains to their employees at concessional rate, that in the implementation of the scheme food grains were received by the Railway Administration, special wagons were provided and goods were carried to different destinations and distributed and payments were made to the suppliers for food grains thus received by the Railway Administration. It was still held that since the purchase orders which were executed by the Divisional Superintendent were not expressed to be made by the Governor-General and were not executed on behalf of the Governor-General, they were not binding on the Government of India.
(19) The argument that this may involve hardship to then-wary was repelled by Shah J. who spoke for the Courting these words:-
" IT may be said that the view that the provisions in the Constitution relating to the form-of contracts on behalf of the Government are mandatory may involve hardship to the unwary. But a person who seeks to contract with the Government must be deemed to be fully aware of statutory requirements as to the form in which the contract is to be made. In any event, inadvertence of an officer of the State executing contract in mannerviolative of the express statutory provision, the other contracting party acquiescing in such violation out of ignorance or negligence will not justify the court in not giving effect to the intention of the legislature, the provisions having been made in the interest of the public. It must therefore be held that as the contract was not in the form required by the Government of India Act,1935, it could not be enforced at the instance of the appellant and Therefore the Dominion of India could not be sued by the appellant for compensation for breach of contracts."
(20) Issues 2, 4 and 5, Therefore, do not appear to us to have been correctly decided. It cannot be said that the requirements of Section 175(3) of the Government of India Act, 1935 were satisfied in this case and there was a valid and enforceable contract which could form the foundation of a claim for damages. There is also no question of estoppel or ratification in this case .
(21) Our decision on these issues is enough to dispose of the appeal. We are, however, proceeding with the decision of the only other issue that remains, namely, issue No. 6 to avoid the possibility of a remit in the event of our view about the enforcement of the contract being found to be erroneous. The issue puts into focus the nature of relation-ship between the appellant and the Government and the appellant''s interest in the stocks lying in the stock-yard at Badami Bagh Lahore. The background and the circumstances under which the appellant came to be appointed as a Controlled Stockholder of certain categories of iron and steel materials are not in dispute and have to some extent been explained in two decisions of the Supreme Court : (1) The Unionof India and others. Messrs Bhana Mal Gulzari Mal and others 1950 2 Scr 627 and Indian Steel and Wire Products Ltd. Vs. State of Madras, where the provisions of the Iron and Steel (Control of Production and Distribution) Order, 1941 were discussed. We need not Therefore attempt a fresh survey of those circumstances .Suffice to say that during the World War Ii, iron and steel goods became scarce. It, therefore ,be came necessary for the Government to control the production and distribution of those goods in the interest of War effort and maintenance of supplies of these articles to the community. In order to do so the Government in exercise of its powers under Rule 81(2) of the defense of India Rules, issued the Iron and Steel (Control of Production and Distribution)Order, 1941 hereinafter called the Iron and Steel Control order ,which came in to force on August, 1941.
(22) After the cessation of hostilities, this Order came to an end. In 1946 the Governor-General promulgated an Ordinance called the Essential Supplies( Temporary Powers )Ordinance 1946 which came into force on1-10-1946. In due course, the Ordinance was replaced by the Essential Supplies (Temporary Powers) Act 24of 1946 and provisions similar to those of the Iron& Steel Control Order, 1941 were continued under that ordinance and the Act.
(23) The appointment of the appellant was made under the Iron and Steel Control Order, 1941 by letter dated May 19/21, 1945 (Ex. C.P./41) in accordance with the terms and conditions as set out in the memorandum enclosed thereto (Ex. C.P. 3.). It is on the basis of some of the clauses of the said memorandum that it-was argued by the appellant''s counsel that whatever stocks were acquired by the appellant and were held by it in its stock-yard at Badami Bagh Lahore actually belonged to the Government and the appellant merely acted as financiers. All the profits and losses were enjoyed and borne by the Government. The rise and fall in prices was always on Government account. The liability of the appellant was limited merely to in correct handling ,care-less supervision and negligence. The release of the stocks from the stock-yard was also the responsibility of the Government and the appellant-company had no say in the matter. According to Exs. P. 32, P34, P35 and P36 even the delivery charges were paid by the Government. The appellant was also required to submit periodical statements of stock at regular intervals. It was also required to maintain regular accounts of the stocks lying in its stock-yard wherein the stocks supplied to it and released from the stockyard were credited and debited respectively (See P. 19,P.38 and P.39).
(24) It was contended that the matter of supplies of stocks into the stock-yard, was governed entirely by Government without any consultation with the appellant-company and even surplus stocks elsewhere were brought into the stock-yard of the appellant without any consultation with it. This clearly indicated a complete controlof the Government on the stocks.
(25) It was also contended that the appellant-company was brought into being by the Government itself. Evenits Memorandum and Articles of Association were prepared by the Government. The Board of Directors of the company and a substantial number of its ex-officio directors were appointed by the Government. The Chairman of the Board of Directors was himself a nominee of the Government which exercised complete control over the working of the company.
(26) In this connection our attention, was also invited to letter dated 29.121942 (Ex. P. 9) which revealed the earlier attempts made by the Government to further the objects of the Iron and Steel Control Order. It was there said that the Government of India had decided to introduce a scheme for the stocking and operation of controlled iron and steel and that for effectuating their decision two alternatives were possible. The first was to establish Government stock-yards in which case the stock-holders who had already been registered individually would be virtually driven out of business. The second alternative to which the Government had agreed ,was to give a trial to allow stocks of iron and steel to be maintained by association of registered stock-holders in the circle concerned provided such an association financed the purchase of iron and steel and agreed to distribute it to license holders at fixed prices and at a profit of about Rs. 20.00 per ton and it also agreed to operate such controlled stocks through the stock-yardor stock-yards which were run and controlled entirely bythe association as distinct from the stock-yards of the registered individual stock-holders.
(27) EX. P. 9-A was also relied upon to show that the membership of such an association was open to registeredstock holders who were required to pay an entrance fee of Rs 100.00 and subscribe to the fund according to the schedule approved by the Iron and Steel Controller. The War Production Commissioner Punjab was to be ex-officio President of the Association while the Controller of Supplies Punjab Circle, was to be itsex-officio Vice-President. The Secretary Civil Supplies Punjab and three persons nominated by the Iron &Steel Controller were the other honorary members of the Association whose business was to be carried on bya Trustee Committee consisting of (a) Controller of Supplies ,(b) the three honorary members nominated by the Iron and Steel Controller, (c) the Secretary Civil Supplies and (d) nine members selected by members of the Association ,three to represent stock-holders of Lahore and six to represent stock-holders of the major cities of the Punjab Circle.
(28) It was urged that subsequently, the appellant-company was formed as a limited liability company and its object was to acquire from the Trustee Committee of the Punjab Registered Stock-holders Association Lahore, the entire business of the Association, including its assets and liabilities and also to enter into contracts with the Central Government for the purpose of being appointed stockholders of controlled stock in pursuance of the objects of the Iron and Steel Control Order.
(29) It was contended that the very object of bringing into existence the appellant-company was to associate the stock-holders with a view to making their finances available for running the controlled stocks and the supplies of iron and steel into those yards. It was not the intention of the stock-holders who were originally members of the Association nor was it the intention of the company to become the owner of the supplies placed in the controlled stocks.
(30) Learned counsel for the appellant strongly urged that the jural relationship between the parties depended upon the nature of the contract between them and that merely because the appointment of the appellant was made in pursuance of the scheme of control and distribution of iron and steel material under the Iron and Steel Control Order ,the efficacy of the contract was not impaired in any manner. The existence of the contract was into way in-consistent with the existence of statutory control .He submitted that Laisse faire as an ideal had no doubt been supplanted by social security which in turn suggested status rather than contract, but the freedom of contract was not clearly eroded and within narrow limits, it could operate with full force .
(31) We are prepared to accept the argument that notwithstanding the provisions of the Iron and Steel Control Order the arrangement between the parties was governed by the contract embodied in Ex. C P./41 and Ex. C.P./3.But the terms and conditions laid down therein could not be read in isolation. The contract had to operate within the frame-work of the Iron and Steel Control Order and was intended to further the objects of the said Order .Even the terms of the contract (Ex. CP./3), however, do not support the appellant''s contention about the Government being the owner of the stocks and the appellant being its agent or custodian of the stock on behalf of the Government. According to clause 7,the appellant was to pay for all supplies at prices fixed by the Iron and Steel Controller. Under clause 8 its remuneration was to be paid on the basis of the services rendered and expenses incurred by it while under clause 9the sale of the material was to be made on prices notified by the Controller. The clause also gave full right to the appellant to extend the facility of credit to the buyers of material while clause 11 compelled it to pay to the Government the excess in the value of the stock on account of any rise in prices. Likewise the Government was bound to pay to the appellant for any shortfall in the value of the stock. There could be no reason for the Government to pay to the appellant the difference in the price in the event of short-fallin the value of the stock if the appellant was not the owner of the stock. Under clause 13 the Government was bound on the termination of the arrangement to purchase the un-disposed of stock at the prices and remuneration provided for in clause 9. There could be no question of Government purchasing its own stocks from the appellant.
(32) In the trial court''s judgment there is a detailed discussion of the various documents and statements of witnesses and the argument advanced on behalf of the appellant, on the basis of which it was contended that it was only a custodian, financier, or agent of the Government and that owner-ship of the stocks vested in the Government itself.
(33) No fresh material has been brought to our notice nor has any fresh argument been advanced by the learned counsel for the appellant. The conclusion reached bythe trial court is that the appellant was the owner of the stocks lying in its stock-yard and was not merely a custodian, agent or financier of the respondent. Whatever restrictions and conditions were imposed on the appellant were merely incidental to and necessary for achieving the object which the Iron and Steel Control Order had in view. We are in entire agreement with the conclusion reached by the trial court and, Therefore, hold that issue No. 6 was rightly decided against the appellant.
(34) We also find it difficult to accept the argument that the respondent was bound to safe-guard and protect the stocks lying at the stock-yard of the appellant. The respondent''s obligation to protect the property of the persons who before the partition of the country were residing and owned property in that part of the territory which became the Dominion of Pakistan, was no higher as respects the appellant''s stocks than what it might be vis-a-vis other such persons. If the appellant felt that the respondent was not performing its obligations and was neither permitting and appellant to remove stocks nor affording it the necessary protection it was open to the appellant to have terminated the agreement in accordance with clause 13 of Ex. C.P./3 which would have compelled the Government to purchase those stocks on the termination of the arrangement. No such steps were, however, taken by the appellant and it was on 26-3-1948 only that the appellant gave notice of termination of the agreement. Before that the stocks had already been taken possession of by the Government of West Punjab and the appellant was not in a position to deliver the same to the respondent.
(35) The result of the fore-going discussion is that there is no merit in this appeal and the same is accordinglydismissed with costs.