C. V. K. Rao Vs. Dentu Bhaskara Rao
 INSC 151 (4 May 1964)
04/05/1964 HIDAYATULLAH, M.
GAJENDRAGADKAR, P.B. (CJ) GUPTA, K.C. DAS
CITATION: 1965 AIR 93 1964 SCR (8) 156
Representation of the People Act (XLIII of
1951), s. 7(d)Scope of" In the course of trade or business", Meaning
ofMining lease Right of Government to pre-emption of mineralsIf a contract for
supply of goods by lessee.
The respondent obtained a mining lease from
the State Government. Clause 21 of the lease reserved to the Government the
right to prior purchase of the minerals raised by the lessee. While the lease
was subsisting, the, respondent stood for election to the state Legislative
Assembly and was elected. The appellant, his closest competitor, challenged the
election by an election petition on the ground, inter alia, that the respondent
was disqualified under section 7(d) of the Representation of People Act (XLIII
of 1951), because he had a contract with the Government for supply of goods.
153 HELD: the petition must be dismissed.
The disqualification which results from the
section is conditioned by three circumstances. First, there must be a
subsisting contract between the appropriate Government and the candidate. Then
the contract must be in the course of the trade or business of the candidate
and, finally it must be inter alia for the supply of goods to such Government.
Held in the case that as the mining lease was
subsisting, the contract if any, was also subsisting. Further that the mining
lease, if it was a contract, was in the course of the business of the
respondent. It was not necessary that a course of business based upon other
transactions must have first existed before the offending contract could be said
to be in the course of business. The contract itself could be the start of the
business. Held therefore that the mining lease was not a contract to supply
goods to the Government.
There was only a right in the Government to
pre-empt the minerals and lessee could not begin delivery to the Government
until Government served a notice on him stating the quantity preempted and the
time within which the supply should be made. This was only a reservation of a
right of pre-emption which did not amount to a contract for the supply of goods
which could be said to subsist between the parties.
CIVIL APPELLATE JURISDICTION: Civil Appeal
-No. 1072 of 1963.
Appeal from the judgment and order dated
April 10. 1963 of the Andhra Pradesh High Court in Special Appeal No. 52 of
K. R. Chaudhuri, for the appellant.
A. V. Viswanatha Sastri and T. V. R.
Tatachari, for the respondent.
May 4, 1964. The Judgment of the Court was
delivered by HIDAYATULLAH J.-The respondent Dentu Bhaskara Rao was returned to
the Andhra Pradesh Legislative Assembly from Kakinada constituency at the last
general election. The appellant C. V. K. Rao was his closest competitor. There
were two other candidates but they obtained very few votes and they have not
shown any further interest. The appellant filed an election petition to
question the election of the respondent on many grounds: one such ground was
that the respondent was disqualified 154 under s. 7 (d) of the Representation
of the People Act, 1951 (43 of 1951). The respondent had obtained a mining
lease from the State of Andhra Pradesh on April 13, 1960, though on the date he
filed his nomination paper he had not begun operations under that lease. The
appellant took objection to the nomination of the respondent on the ground that
he held a contract from the Andhra Pradesh Government within the prohibition of
s. 7(d) of the Act, but the Returning Officer over-ruled his objection. The
Election Tribunal later held that he was disqualified under s. 7(d) of Act 43
of 1951 and declared the election void. On appeal, the High Court of Andhra
Pradesh reversed the decision and the present appeal has been filed on a
certificate granted by the High Court.
Section 7(d) reads as follows:-"7. A
person shall be disqualified for being chosen as, and for being, a member of
either House of Parliament or the Legislative Assembly or Legislative Council
of a State(a) (b) (c) (d) if there subsists a contract entered into in the
course of his trade or business by him with the appropriate Government for the
supply of goods to, or for the execution of any works undertaken by, that
Government;" The mining lease was in the standard form and after setting
out the consideration for the lease, it described in Parts I to III, the area
of the lease, the description of the area, liberties, powers and privileges to
be exercised and enjoyed by the lessee and the restrictions and conditions as
to their exercise. In Part IV it described the liberties, powers and privileges
reserved to the State Government and in Parts V and VI the rents and royalties
reserved by the lease and certain other provisions relating to them. Part VII
then dealt with the covenants of the lessee in respect of payment 155 of rents,
royalties, taxes etc. One such covenant was in clause 21 and was headed "Right
of Pre-emption" and it conferred on the State Government a right of
pre-emption of the minerals lying in or upon the land demised or elsewhere
under the control of the lessee. That clause was interpreted by the Tribunal as
a contract entered in the course of' trade or business by the respondent with
the State Government for the supply of goods to that Government.
The High Court held that there was no such
The disqualification which results from s.
7(d) is conditioned by a number of circumstances. First, there must be a
subsisting contract (this is to say in actual existence) between the
appropriate Government and the candidate. Then the contract must be in the
Course of the trade or business of the candidate and, finally, it must be inter
alia for the supply of goods to such Government The appropriate Government
according to the definition of the expression is the Government of Andhra
Pradesh. Tile High Court in reaching its conclusion interpreted cl. 21 of Part
VII of the lease and held that the mining lease was not a contract, that clause
21 did not amount to a contract and that cl. 21 even if a contract was not a
contract for the supply of goods to the Government. This conclusion is assailed
by the appellant. It is convenient. to quote the clause at this stage:
"21. (a) The State Government shall from
time to time and at all times during the said term have the right (to be
exercised by notice in writing to the lessee) of pre-emption of the said
minerals (and all products thereof) lying in or upon the said lands hereby
demised or elsewhere under the control of the lessee and the lessee shall with
all possible, expedition deliver all minerals of products or minerals purchased
by the State Government under the power conferred by this provision in the
quantities, at the times in the manner and at the plate specified-in the notice
exercising the said right.
156 (b) Should the right to pre-emption
conferred by this present provision be exercised and a vessel chartered to
carry the minerals or products thereof procured on behalf of the State
Government or the Central Government be detained on demurrage at the port of
loading the lessee shall pay the amount due for demurrage according to the
terms of the charter party of such vessel unless the State Government shall be
satisfied that the delay is due to causes beyond the control of the lessee.
(c) The price to be Paid for all minerals or
products of minerals taken in pre-emption by the State Government in exercise
of the right hereby conferred shall be the fair market price prevailing at the
time of pre-emption provided that in order to assist in arriving at the said
fair market price the lessee shall, if so required, furnish to the State
Government for the confidential information of the Government particulars of
quantities, descriptions and prices of the said minerals or products for
carriage of the same and shall produce to such officer or officers as may be
directed by the State Government original or authenticated copies of contracts
and charter parties entered into for the sale of freightage of such minerals or
(d) Mr. K. R. Chaudhury contended that under
this clause there was a standing contract for the supply of goods and all that
Government had to do was to send a notice to the respondent -and he was
compelled to supply the goods to Government. He pointed out that from the time
the lease was granted Government was asking the respondent to commence
operations to raise the minerals but the respondent avoided working the mine
probably to save himself from the disqualification.
According to Mr. Chaudhury, it mattered not
whether the mine was worked or not, but 157 what mattered was that there was a
subsisting contract for the supply of mineral, to the appropriate Government.
A. Vishwanatha Sastri, in reply, contended
that the mining lease could not be regarded as a contract and further that it
was not in the course of' the trade or business of the respondent, and finally
that, in any event, it was not a contract for the supply of goods. That it was
in the course of business of the respondent almost goes without saying.
It is not necessary, as Mr. Sastri suggested,
that a course of business based upon other transactions must first exist before
the offending contract can be said to be in the course of business. That
contract may itself be the start of the business and the words 'in the course
of the business' would still be apt. As the mining lease was subsisting, the
contract, if any there be, was also subsisting and there is no doubt on that
aspect of the matter. The question is whether the provisions of cl. 21 bring
about a contract for the supply of goods. This question can be broken into two
which are: (a) whether cl. 21 can be regarded as a contract and (b) whether it
can be regarded as a contract for supply of goods. Clause 21 is invariably
inserted in every mining lease. It reserves to the Government the right to the
minerals which vest in Government but which are allowed to be raised by the
lessee holding the lease. The lease is, in one sense, a contract between the
Government and the lessee because there is consideration on both sides and an
offer and acceptance. There are obligations created by it. some of which are
contractual even though some may be regarded as arising from the conditions of
the -rant. The mining lease without cl. 21 cannot possibly be described as a
contract for the supply of goods. Without that clause there would neither be a
mention of goods nor of their supply. If the lease is to be read as satisfying the
disqualification in s. 7(d), cl. 21 alone can satisfy it. Clause 21 speaks of a
right of the Government to pre-empt the minerals and all products thereof lying
in or around the land demised or elsewhere under the control of the lessee.
There is, however, no concluded contract in respect of any goods because it
hardly needs to be said that relying upon this clause the lessee cannot begin
delivery of the ore to the Government. He can do so only if the Government 158
serves a notice on him stating the quantity pre-empted and the time within
which the supply is to be made. The clause, however, does not make it
obligatory on Government to preempt any quantity of mineral or at all. There is
no obligation to buy nor is there any compulsion on the part of the lessee to
sell unless asked. In these circumstances, the clause does no more than to keep
intact a right of the Government to obtain the minerals or their products as
and when Government requires in preference to others. Till Government makes up
its mind and serves a notice there is no obligation to make any deliveries and
even though the word ',subsists' is a word of wide import, it cannot be said
that a contract for the sale of goods subsists because a contract requires an
offer and its acceptance and is not a mere reservation of a right.
Taking the most liberal view of the matter it
is clear that cl. 21 did not bring into being a contract for the supply of
goods. AR that it did was to reserve to the Government the right to prior
purchase of the minerals raised by the respondent. The reservation of such
rights does not amount to a contract for the supply of goods which can be said
to subsist between the parties. The High Court was, therefore, right in
reversing the decision of the Election Tribunal.
The appeal fails and is dismissed with costs.