ASSAM SMALL SCALE IND. DEV. CORP. LTD. & ORS Vs. M/S. J.D.
PHARMACEUTICALS & ANR  INSC 562 (7 October 2005)
S.B. Sinha & R.V. Raveendran [Arising out of S.L.P. (C) No. 3950 of 2005] S.B. Sinha, J :
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
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 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."
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
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 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
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 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 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 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..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
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 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 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
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
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
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
"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 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
(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
(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 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
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 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
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 A 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 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
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.
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.
[(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 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 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
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
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
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.
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
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..
Mr. Choudhary has placed reliance upon a Full Bench decision of 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
"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/-.