M/S. Binani Commercial Co., Ltd. Vs.
Ramanlal, Maganlal Mehta  INSC 204 (1 May 1961)
Control of supply-Non-ferrous metals-Statute
empowering Government to fix maximum quantity that may be sold Notification
fixing such maximum-Validity of-Agreement to sell more than maximum quantity
fixed-If void-Supply and Prices of Goods Act, 1950 (70 of 1950), ss. 4 and 5
Government of India Notification dated September 2, 1950.
The Supply and Prices of Goods Act, 1950,
made provisions for the control of prices, supply and distribution of certain
goods essential to the national economy. Section 4(1)(c) empowers the Central
Government to fix the maximum quantity of such goods which may be sold to any
person in one transaction. Sect ion 4(2)(a) provides that the maximum
quantities may be fixed for the same goods differently in different localities
or for different classes of dealers or producers. Section 5(1)(c) provides that
no dealer or producer shall sell or agree to sell or offer for sale goods
exceeding the maximum fixed under s. 4. The Central Government issued a
notification prohibiting dealers and producers from selling any non-ferrous
metal exceeding one ton except upon a declaration by the purchaser that the
quantity did not exceed his requirements for three months.
The appellant entered into an agreement to
sell to the respondent 300 tons of zinc. The respondent did not take the entire
quantity and the appellant filed a suit for damages for breach of contract. The
respondent resisted the suit on the ground that the agreement was void as it
offended s. 5(1)(c) of the Act. The appellant contended that the notification
was invalid as only an immutable arithmetical maximum could have been fixed for
each non-ferrous metal but the notification did not do so and also as it did
not fix the maximum by reference to difference classes of dealers and producers
according to s. 4(2)(a). It was further contended that the notification applied
only to a sale and not to an agreement to sell and as such the agreement did
not offend s. 52(1)(c).
Held, that the notification was perfectly
valid and that agreement was void as it offended s. 5(1)(c) of the Act.
Section 4(1)(c) did not require the fixing of
an immutable arithmetical maximum as a large number of goods were intended to
be covered by the Act which would be required by different classes of persons
under a variety of circumstances. Section 4(2)(a) was merely an enabling
provision and did not oblige the Government to fix the maximum differently for
different classes of dealers and producers; s. 4(z)(a) was not a proviso to s.
4(1)(c). Once the maximum was fixed, then by the combined operation of s. 4(1)(c)
and s. 5(1)(c) an agreement to sell or an offer to sell such goods in excess of
the maximum was immediately hit, 627
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 371 of 1957.
Appeal from the judgment and decree dated
August 22, 1955, of the Bombay High Court in Appeal No. 49 of 1955.
C. B. Agarwala, J. B. Dadachanji, Ravinder
Narain and O. C. Mathur, for the appellant.
Ajit H. Mehta and I. N. Shroff, for the
1961. May 1. The Judgment of the Court was
delivered by GAJENDRAGADKAR, J.-This appeal arises from a suit filed by M/s.
Binani Commercial Co. Ltd., on the Original Side of the Bombay High Court
against the respondent Ramanlal Maganlal Mehta. In its suit the appellant
sought to recover from the respondent a sum of Rs. 93,053-3-0 which represented
the loss suffered by it in the transaction in question or in the alternative
damages for Rs. 88,229-3-0 for breach of the contract in respect of the said
The appellant is a Limited Company and it
carries on business in Bombay as metal merchants, bankers and commission
agents. The respondent also carries on business in Bombay under the name and
style of M/s. Balasinor Export and Import Co., and also as M/s. Ramanlal and
Sons. In January 1952 the appellant agreed to sell to the respondent 300 tons
of Electrolytic Zinc at the rate of Rs. 171 per cwt. against delivery orders
issued under the regulations of the Metal Traders Association, Ltd., for Posh
Sudi 15 delivery (January 12, 1952). The respondent promised to pay for the
said goods by January 21, 1952 and to take delivery thereafter. The respondent
paid to. the appellant several sums aggregating Rs. 1,56,000 as a deposit for
the price of the said goods. The appellant tendered the said goods to the
respondent whereupon he arranged to take delivery of only 160 tons and made
payments on account. The appellant then tendered the balance of 140 tons to the
respondent but the respondent failed and neglected to take delivery of the said
balance and to pay for it. As a 628 result of the respondent's default in
taking delivery the appellant had to sell the balance in the falling market at
Rs. 81 per cwt., and that had resulted in the loss to the appellant. That in
brief is the nature of the claim made by the appellant against the respondent.
This claim was resisted by the respondent on
several grounds. The principal ground urged by him, however, was that the
transaction in suit for the sale of 300 tons of Electrolytic Zinc was in
contravention of the provisions of Supply and Prices of Goods Act, 1950 (70 of
1950) and cl.
(b) of the Government of India Notification
No. 1(4)32(17)50 issued on September 2, 1950. According to the respondent the
said transaction was void and illegal and therefore the appellant's claim was
not maintainable in law.
The respondent also raised other contentions
on the merits without prejudice to his principal contention about the
illegality of the contract.
The suit was tried by Coyajee, J. on the
Original Side of the Bombay High Court. The principal defence raised by the
respondent was tried as a preliminary issue by the learned Judge. On this
preliminary issue, the learned Judge held that the defence set out by the
respondent was not good and not applicable to the facts and circumstances of
His conclusion, therefore, was that the
contract was valid.
The learned Judge, after delivering this
interlocutory judgment, proceeded to try the issues on the merits, and having
found in favour of the appellant on the said issues he directed that the matter
be referred to the Commissioner for taking accounts to ascertain the damages
suffered by the appellant in the light of the directions given in the Judgment.
Against this decision the respondent
preferred an appeal and the Division Bench of the Appeal Court allowed his
Before the Court of Appeal only one point was
argued and that was in regard to the validity of the contract. The Court of
Appeal has held, reversing the conclusion of the trial Judge, that the defence
raised by the respondent was good and that the contract in question was
invalid. In the 629 result the Appeal Court has directed that the appellant's
suit should be dismissed with costs. The appellant then applied for and
obtained a certificate from the said High Court and it is with that certificate
that it has come to this Court by its present appeal; and the main contention
raised by Mr. Agarwala on behalf of the appellant is that the view taken by the
Division Bench in upholding the contention of the respondent against the
validity of the contract is erroneous in law. It is, therefore, necessary at
the outset to refer to the material provisions of the Supply and Prices of
Goods Act 70 of 1950 (hereafter called the Act) and to examine very broadly its
scheme and purpose.
The Act has been passed in pursuance of a
resolution under Art. 249 of the Constitution for the control of prices of
certain goods and the supply and distribution thereof. Article 249 confers on
Parliament the power to legislate in regard to a matter in a State List but the
said power can be exercised only in national interest and after the Council of
State passes a resolution in that behalf supported by at least two-third of the
members voting. There is no doubt that the Act has been passed in national
interest because national interest undoubtedly required that the supply and
prices of certain types of goods should be controlled by the Central
Legislature. The prices in regard to those goods which are essential for
national economy are apt to vary from place to place, and unless the supply of
goods is rationally controlled the goods may be available in plenty in one
place and may not be available in adequate measure in another. It is with a
view to make the' supply of controlled goods fairly available in the country at
a reasonable price that the Act purports to impose the necessary restrictions
to regulate the supply and sale of the said goods. Section 2 of the Act defines
goods as meaning goods to which the Act applies. Section 3 provides, inter
alia, that the Act applies to the goods specified in the Schedule and to such
other goods that the Central Government may by a notified order specify in 80
630 that behalf. Section 4 deals with the fixing of maximum prices and maximum
quantities which may be held or sold, while s. 5 imposes restrictions on
possession and sale by dealers and producers where maximum is fixed under s. 4.
Under s. 6 is imposed a general limitation of
quantity which may be possessed at any one time, and the proviso to sub-s. (1)
makes it clear that it does not apply to the persons specified in cls. (a) and
(b) of the proviso. A duty to declare possession of excess stocks is imposed by
s. 7, while s. 8 imposes an obligation to sell goods as therein specified.
Failure to comply with the requirements of the said section is made an offence
under the Act. Under s. 13 power is conferred on the Central Government to
regulate production and distribution of goods, and s. 16 confers power on the
Central Government to authorise by general or special order any officer not
below the rank of an inspector of police to effect search and seizure for the
purpose of enforcing the provisions of this Act. It is thus clear that the
sections of the Act have been so framed as to give effect to the object of the
Act to regulate and control the supply and prices of goods which are brought
within the purview of the Act in the interest of national economy.
In the present appeal we are directly
concerned with the notification issued under s. 4(1)(c). It is, however,
necessary to read s. 4. Section 4 provides thus:
"4. (1) The Central Government may, by
notified order, fix in respect of any goods(a) the maximum price or rate which
may be charged by a dealer or producer;
(b) the maximum quantity which may at any one
time be possessed by a dealer or producer;
(c) the maximum quantity which may in one
transaction be sold to any person.
(2) Any such order may(a) fix maximum prices
or rates and maximum quantities for the same description of goods differently
in different localities or for different classes of dealers or producers;
631 (b) instead of specifying the maximum price
or rate to be charged, direct that price or rate shall be computed in such
manner and by reference to such matters as may be provided by the order."
Section 5 imposes restriction on possession and sale by dealers and producers
in cases covered by s. 4 and provides by sub-s. (1)(c) that no dealer or
producer ,,hall sell or agree to sell or offer for sale to any person in any
one transaction a quantity of any goods exceeding the maximum fixed under cl.
(c) of sub-s. (1) of s. 4. It would be recalled that the respondent's
contention is that the contract in suit is void because it contravenes the
provisions of s. 5(1)(c) in that it does not comply with the requirements of
the notification issued under s. 4(1)(c).
Thus, for deciding the narrow controversy between
the parties it would be necessary to determine the scope and effect of the
provisions of s. 4(1)(c) and the notification issued under it and the
provisions of s. 5(1)(c).
Let us now read the notification. The
"(b) No such dealer or producer shall
sell any non-ferrous metals exceeding one ton unless he has obtained a
declaration in writing from the buyer that the quantity proposed to be sold to
him does not exceed his requirements for consumption for three months or in
case the buyer is a dealer his requirements for normal trade for three
months." What does the notification provide? It provides that no dealer
shall sell any nonferrous metals exceeding 1 ton unless the other requirement
of the notification is satisfied. In other words, the notification imposes in
the first instance a general ban on sale of non-ferrous metals beyond 1 ton but
this coiling is not absolute. Sale beyond 1 ton can be validly effected
provided the dealer obtains a declaration in writing from the buyer that the
quantity proposed to be sold to him does not exceed his requirement for
consumption for three months. It also allows latitude to sell more than 1 ton
in the case of a buyer who is a dealer. The effect of the notification,
therefore, is that two kinds of ceilings are imposed and thereby two maxima are
632 fixed. Upto 1 ton sale can be effected without any declaration; beyond 1
ton sale can be effected either to a consumer or to a dealer provided the
consumer or the dealer makes a declaration that the quantity sold to him does
not exceed his requirements for three months. It is common ground that no
declaration was given by the respondent to the appellant before the agreement
to sell was made, and so the respondent contends that agreement to sell more
than 1 ton of the non-ferrous metal in question is violative of the
requirements of the notification and as such it contravenes s. 4(1)(c) read
with the notification and attracts s. 5(1)(c) of the Act.
Mr. Agarwala contends that this notification
does not fix the maximum quantity because according to him the requirement of
the section can be satisfied by fixing an arithmetical quantity and that too in
an immutable form.
The argument is that the failure to comply
with the provisions of the relevant sections of the Act is made penal, and so
it is necessary to fix one maximum quantity in respect of a specified
non-ferrous metal, and since that has not been done by the notification it is
invalid. We are not impressed by this argument. Having regard to the large
number of goods intended to be covered by the Act and the variety of
circumstances under which they would be required by different classes of
persons or dealers it would be entirely unrealistic to suggest that the maximum
which is required to be fixed by s. 4(1)(c) is the maximum determined in
arithmetical term and fixed immutably in all cases.
Besides, s. 4(2)(a) itself indicates that
different maxima can be prescribed by reference to different localities or
different classes of dealers or producers. Therefore, the argument that in the
absence of the fixation of any arithmetical quantity of the immutable maximum
the notification is bad must be rejected.
Then it is urged that the notification is
invalid because it is inconsistent with the provisions of s. 4(2) (a). It would
be noticed that s. 4(2)(a) enables the Central Government to fix maximum prices
or rates and maximum quantities for the same description of goods 633
differently in different localities or for different classes of dealers or producers.
It is urged that the maximum to be fixed under s. 4(1)(c) must therefore be the
maximum fixed by reference to different classes of dealers or producers, and
since the impugned notification does not purport to do so it is inconsistent
with s. 4(2)(a) and therefore invalid.
This contention is clearly misconceived. It
is obvious that s. 4(2)(a) cannot be read as a proviso and cannot be pressed
into service for the purpose of controlling s. 4(1)(c).
Section 4(2)(a) is an enabling provision and
it is intended merely to serve the purpose of showing that notwithstanding the
provisions of s. 4(1)(c) which refers to persons it may be open to the Central
Government to prescribe the maximum either in the way of prices or rates or
quantities by reference to different localities or different classes of dealers
or producers. Section 4(1)(c) speaks of the fixation of maximum quantity which
may in one transaction be sold to any person, and lest it be said that the
maximum cannot be fixed in reference to classes of dealers or producers the
Legislature has added the enabling provision as s. 4(2)(a). Therefore to rely
on s. 4(2)(a) for the purpose of construing s. 4(1)(c) appears to us to be
wholly unreasonable. Now, if we look at s. 4(1)(c), as we must, it is obvious that
the notification is perfectly consistent with s. 4(1)(c) inasmuch as it
prescribes the maximum by reference to consumers as well as dealers.
There is one more argument which has been
very strongly pressed before us by Mr. Agarwala which still remains to be
considered. He contends that though the notification may have prescribed a
maximum quantity under s. 4(1)(c) we cannot ignore the fact that as the
notification is worded contravention of the requirements of the notification
would not attract the provisions of s. 5(1)(c) in the present case. The
argument is this. The notification prescribes the maximum for sale at any one
time, and sale in the context must mean actual sale. The notification therefore
cannot refer to or cover cases of agreement to sell or offer to sell. In the
present case the appellant no doubt agreed to sell to the respondent a quantity
634 contrary to the condition prescribed by the notification;
but, at the stage of the agreement to sell
the notification would not apply and so the agreement is perfectly valid. If by
his failure to give the necessary declaration the respondent has made the
performance of the contract illegal he cannot take advantage of his own default
and stamp the whole of the transaction as illegal under s. 5(1)(c). In our
opinion this argument is based on a misconception of the effect of the
provisions of s. 4(1)(c) and s. 5(1)(c) read together and of the notification
issued under s. 4(1)(c).
The scheme of the two sections is plain.
Under s. 4(1)(c) the Central Government by a notified order is required to fix
the maximum quantity which may be sold to any one person in one transaction,
and that the impugned notification has done. Once the maximum is thus fixed by
a notified order s. 5 immediately comes into operation, and it provides that in
regard to commodities the maximum quantity of which has been determined by a
notified order under s. 4(1)(c) there is a prohibition against agreement to
sell, offer for sale, or sale in respect of the said commodities contrary to
the requirements of the notification. In other words, once a notified order
fixes the maximum in respect of the sale of any goods the agreement to sell the
goods or the offer for the sale of such goods above the maximum specified in
the notification for the purposes of sale is immediately hit, not by virtue of
the notification as such but by the combined operation of the provisions of s.
4(1)(c) and the notification issued under it and the provisions of s. 5.
Therefore, in our opinion, it is futile to suggest
that because the notification refers only to sale and not to an agreement to
sell s. 5(1)(c) would not hit the present contract in suit.
In this connection, weight to add that any
argument based on the distinction between an agreement to sell and the actual
sale as well as on the conduct of the respondent is really not open to the
appellant at this stage. The judgment of the learned trial Judge as well as of
the Appeal Court clearly show that the appellant's learned Cousel Mr. Mistree
expressly conceded before both the Courts that if under the relevant 635 clause
of the notification it is held that a maximum has been validly prescribed then
the respondent's defence would be valid and the appellant would have no case on
the point of law. In fact the Appeal Court has referred to this concession more
than once in the course of its judgment and it has made it perfectly clear that
on the appellant's side it was expressly stated before the Court that if the
point of law raise a by the appellant about the invalidity of the notification
failed he would be out of Court. That is why we think that the point raised by
Mr. Agarwala that the agreement to sell was valid in this case is really not
open to him.
It is true that in the trial Court the
learned Judge has made certain observations that it appeared to be an implied
term of the contract that the buyer would be ready and willing to give the
declaration at the time of actual sale and it also appears that the learned
Judge thought that it was not open to the respondent to take up the defence
about the invalidity of the agreement to sell. It is difficult to see how these
observations can be reconciled with the concession made by the appellant's
counsel even before the trial Court; but we have referred to these observations
because it is on these observations that Mr. Agarwala wanted to build up an
argument that the respondent is precluded from disputing the validity of the
agreement to sell and so his default in giving a declaration should be taken
into account in dealing with the point of law urged by him. In our opinion,
apart from the fact that in view of the concession made by the appellant's
counsel this argument cannot be raised, we are satisfied that there is no
substance in it. As we have just indicated the scheme of ss. 4(1)(c) and 5 is
clear and so any distinction between a sale and an agreement to sell is
obviously invalid. That is why we have no doubt that Mr. Mistree was perfectly
justified in making the concession that he did.
In the result the appeal fails but there
would be no order as to costs.