State of Gujarat Vs. Dhrangadhra
Chemical Works Ltd. [1985] INSC 79 (9 April 1985)
ERADI, V. BALAKRISHNA (J) ERADI, V.
BALAKRISHNA (J) DESAI, D.A.
SEN, A.P. (J)
CITATION: 1985 AIR 609 1985 SCR (3) 630 1985
SCC Supl. 1 1985 SCALE (1)639
ACT:
Royalty , claim for-Constitution of India
Article 229 - Government for right to manufacture salt Agreement dated 29.1.
1937 as modified by a further agreement dated 4.1.1950. Clauses 1 to 5
Interpretation of Whether clauses 3 and 5 obligate payment of royalty for minimum
50,000 tons.
HEADNOTE:
On January 29, 1937 an agreement had been
entered into between the Dhangadhra Chemical Works Ltd. and the Maharaja of
Dhrangadhra whereunder the company purchased from the Government of Maharaja
Shakti Alkali Works in Dhrangadhra and the Salt Works at Kuda with exclusive
rights to manufacture salt at the Kuda Works on certain conditions. In April
1948 , the princely State of Dhrangadhra got merged in the newly formed State
of Saurashtra. By a further agreement dated January 4 , 1950 entered into
between the company and the Government Saurashtra , the company agreed to ply
to the Government of Saurashtra royalty at the rate of Rs. 0-2-3 (2 annas , 3
pies) per Bengal Maund on the total quantity of salt sold by them every year. The
payment of royalty was to be made as and then delivery was given by the
respondent company to the purchaser Under clause 3 of the said agreement the
respondent company agreed to manufacture a minimum quantity of at least 50,000
tons of salt every year in addition to the quantity required by the respondent
company for consumption in their Alkali factory.
Clause 5 of the agreement provided for the
payment of a minimum royalty equivalent to an amount chargeable on the minimum
quantity to be manufactured by the respondent company in accordance with clause
3.
For the years 1950-53 , there was a short
fall in the production of salt by the respondent company aggregating to
27300-0-54 tons , and the respondent company made payments of royalty in terms
of clause 2 of the agreement and refused to pay the minimum guaranteed royalty
on 50,000 tons taking the stand that clause 3 of the agreement was void due to
vagueness and uncertainty and since clause 5 was dependent for its operation on
clause 3 the said clause 5 was also void due to vagueness. In spite of repeated
demands the respondent company persisted in its stand , 631 The State of Bombay
, which became the successor State to the State of Saurashtra in 1956 therefore
, instituted the suit in the court of Civil Judge , Senior Division ,
Surendranagar seeking to recover a sum of Rs. 506, 959-5-O with interest at 6
per cent per annum from the date of suit by way of royalty payable by the
respondent company. The trial court , after a careful and detailed consideration
of the terms of the agreement as well as all the relevant aspects of the case
came to the conclusion that the respondent company was liable to pay royalty on
the minimum quantity of 50 , 000 tons in respect of each year in which the
production of salt was less than 50,000 tons after excluding the quantity
required for consumption in their own factory and that for the years during
which the production exceeded the stipulated minimum of 50,000 tons, royalty
was chargeable only on the quantity of salt sold and delivered by the company
and not on the total quantity manufactured by it. In this view it passed a
decree in favour of the appellant which during the tendency of the trial became
the successor Government to State of Bombay on bifurcation of the State for a
sum of Rs. 2,66,462-0-9 and dismissed the appellants' claim.
While , concurring with the trial court the
view taken by it that under clause 2 charge to royalty wound get attracted not
by mere manufacture alone but only at the point of sale and delivery of the
salt to the purchasers , the High Court of Gujarat took the view in the two
first and cross Appeals , that clause 5 could not be regarded as controlling
clause 2 and the liability of the respondent company to pay royalty to
government rested solely upon the terms of clause 2 and had that merely on
account of the fact that the respondent company had during certain years failed
to manufacture the minimum quantity of salt stipulated in clause 3 , it could
not be saddled with liability for payment of royalty during those years since
under clause 2 royalty was to be paid only on the quantity of salt actually
sold and delivered. The High Court . accordingly set aside the decree passed by
the trial court and dismissed the appellant's suit , except regarding an amount
of Rs. 16 , 631 which had been admitted by the respondent company to be payable
by it to the appellant. Hence the two State appeals by certificate granted by
the High Court under Article 133 (1) (c) of the Constitution , as it stood
prior to the Amendment of 1972.
Allowing the appeals , the Court F ^
HELD: 1. On a combined reading of clauses 2
to 5 of the Agreement dated 4. 1. 50 it is clear , that while clause 2 was
intended to operate and govern the right , and liabilities of the parties in
respect of payment of royalty during years when the company maintained its
normal scale of production , clauses 3 and 5 had been deliberately inserted
with the object and purpose of ensuring that even in respect of lean year when
the production of salt by the company fell short of the stipulated minimum of
50,000 tons after excluding the quantity required for the consumption in the
company's own factory, the government was to be paid a minimum guaranteed
royalty equivalent to the amount chargeable on 50,000 tons of salt which is
stipulated as the minimum quantity to be manufactured under clause 3. The
interpretation put on clause 2 by the High Court the result of completely
rendering clause 3 and 5 otiose. [637B-D] 632
2. No doubt clause 2 is the principal clause
providing for the payment of royalty but it was to be operative in respect of
years when the production of salt by the company fell within the normal limits
, that is above the stipulated minimum Clause 5 is a special provision for
payment of a minimum guaranteed royalty in respect of periods when the
production of salt by the company fell short of the quantity stipulated in
clause 3. Hence there is no conflict between clauses 2 and 5; on the contrary ,
they supplement each other. [637E-F3
3. The terms of clause 2 are absolutely clear
and provide for levy and collection of royalty only when the salt is sold and
delivered by the company to the purchasers.
This obviously means that royalty can be
charged thereunder only on the quantity actually sold and delivered by the
company and not on the total quantity manufactured by it during the particular
years. [638A-B]
CIVIL APPELLATE JURISDICTION: Civil APPEAL
NOS. 2144- 2145 of 1970 From the Judgment and Decree . 13/14/24.3.69 of the
High Court of Gujarat in First Appeal Nos. 981/60 & 270/61.
M.N. Phadke , Girish Chandra , C. V. Subba
Rao and R.N Poddar for the Appellant.
Mr. V. Gouri Shankar. K.L. Harhi , M.K. Arora
and Ms. II Wahi , for the Respondent.
The Judgment of the Court was delivered by ,
BALAKRISHNA ERADI , J. These two appeals have been filed by the State of
Gujarat on the strength of a certificate granted by the High Court of Gujarat
under Article 133 (1) (c) of the Constitution of India as it stood prior to the
Amendment of 1972.
Dhrangadhra was a princely State in Kathiawar
region ruled by a Maharaja , until April , 1948 , when pursuant to the covenant
entered into by the Maharaja with the Government of India it became merged in
the newly formed State of Saurashtra On January 29 , 1937 , an agreement had
been entered into between the Dhrangadhra Chemical Works Ltd. , (hereinafter
called the 'defendant company' ) and the Maharaja of Dhrangadhra where under
the defendant company purchased from the Government of Maharaja , Shree Shakti
Alkali Works in Dhrangadhra and the Salt Works at Kuda with exclusive rights to
manufacture salt at the Kuda Works on certain conditions. That agreement was
subsequently modified as per the Minutes of the Board of Directors of the
defendant company recorded on April 5 , 1953. After the 633 merger of the
Dhrangadhra State in the State of Saurashtra , the aforesaid agreement was
further modified by an agreement dated January 4 , 1950 entered into between
the defendant company and the Government of Saurashtra. It is with that
agreement alone that we are concerned with in these appeals.
Under that agreement , the defendant company
agreed to pay to the Government of Saurashtra royalty at the rate of Rs. 0-2-3
(2 annas , 3 pies) per Bengal Maund on the total quantity of salt sold by them
every year. The payment of royalty was to be made as and when delivery was
given by the defendant company to the purchaser. Under clause (3) of the said
agreement the defendant company agreed to manufacture a minimum quantity of at least
50 , 000 tons of salt every year in addition to the quantity required by the
defendant company for consumption if there Alkali factory. Clause (5) of the
agreement provided for the payment of a minimum royalty , equivalent to an
amount chargeable on the minimum quantity to be manufactured by the defendant
company in accordance with clause (3).
There was a short fall in the production of
salt by the company for the years 1950-53 aggregating to 27300-0 54 tons. The
royalty payable in respect of the said quantity of salt calculated at the
agreed rate of 2 annas , 3 pies per Bengal Maund amounted to Rs. 1,07,
495-10-0. Differences arose between the Government of Saurashtra and the
defendant company with respect to the royalty payable under the agreement. The
said dispute mainly centered round two points. According to the Government ,
irrespective of the quantity of salt actually sold by the company during any
year , the company was bound to pay a minimum guarantee royalty in 1 respect of
50,000 tons of salt by virtue of the combined operations of clauses (3) and (5)
of the agreement- The stand taken by the defendant company that clause (3) of
the agreement was void due to vagueness and uncertainty and since clause (5)
was dependent for its operation on clause (3) , the said clause (5) was also
vide due to vagueness.
According to the defendant company their
liability to pay royalty was only under clause (2) , whereunder royalty was
realizable by the Government only on the total amount of salt actually sold and
delivered by the defendant company in each year. In spite of repeated demands
made by the Government of Saurashtra , the defendant company persisted in its
aforesaid stand. While matters stood thus , that as a result of the State
reorganization of 634 1956 , the State of Bombay became the successor state to
the State of Saurashtra.
The State of Bombay instituted the suit out
of which these two appeals have arisen in the Court of Civil Judge , Senior
Division , Surendranagar seeking to recover Rs. 506,959-5-0 with interest at 6
per cent per annum from the date of suit by way of royalty claimed to be
payable by the defendant company on the terms of the aforesaid agreement of
1950. In defence to the suit , the defendant company reiterated the position it
had taken in response to the claims made on it by the Government of Saurashtra
namely , that clauses (3) and (5) of the agreement were vague and void and that
under clause (2) its liability was to pay royalty only on the actual amount of
salt sold by the company during each year:
The basis of the claim put-forward by the
plaintiff was that during the years when there was a short fall in the
production , the company was bound to pay royalty on the minimum guaranteed
quantity of 50,000 tons of salt and that a sum of Rs. 1,07,495-10-0 was due on
this account. It was further urged on behalf of the plaintiff that on a proper
construction of clause (2) of the agreement , the liability of the company was
to pay royalty not on the quantity of salt sold and delivered by them during
the years when more than the minimum quantity stipulated in clause (3) had been
manufactured but on the actual quantity manufactured by the company
irrespective of whether any portion thereof remained unsold .
The Trial Court after a careful and detailed
consideration of the terms of the agreement as well as all the relevant aspects
of the case to the conclusion that the defendant company is liable to pay
royalty on the minimum quantity of 50,000 tons in respect of each year in which
the production of salt was less than 50,000 tons after excluding the quantity
require(l for consumption in their own factory.
For the years during which the production
exceeded the stipulated minimum of 50,000 tons, the Trial Court held that
royalty was chargeable only on the quantity of salt sold and delivered by the
company and not on the total quantity manufactured by it. In this view it
passed a decree in the plaintiff favour for a sum of Rs. 2,66,462-0-9 and
dismissed the suit in respect of the remaining part of the plaintiff's claim.
635 While the matter was pending in the Trial
Court , the bifurcation of the State of Bombay had taken place and the area in
question became the part of the territory of the State of Gujarat and the State
of Gujarat bad been substituted as plaintiff the suit.
Both the defendant company as well as the
State of Gujarat filed appeals in the High Court questioning the correctness-of
the aforesaid judgment and the decree of the learned Civil Judge. First Appeal
No. 981 of 1960 was appeal filed by the defendant company and First Appeal
No.270 of 1961 was State's appeal. Both these appeals were heard together by
the Division Bench of the High Court and they were disposed of under the
judgment now impugned before us.
The High Court on a consideration of clauses
(2) , (3) and (5) of the agreement was of opinion that even though clause (5)
dealt with a particular contingency namely , the failure of the defendant
company to manufacture minimum quantity of salt as specified in clause (3) , it
was "introduced by way of abundant caution and not by way of limiting the
ambit and scope of the operative part of the agreement namely , clause 2. In
the view of the High Court , clause (5) could not be regarded as controlling
clause (2) and the liability of the defendant company to pay royalty to
Government rested solely upon the terms of clause (2). In this view the High
Court held that merely on account of the fact that the defendant company had
during certain years failed to manufacture the minimum quantity of salt
stipulated in clause (3) , it could not be saddled with liability for payment
of royalty during those years since under clause (2) royalty was to be paid
only on the quantity of salt actually sold and delivered. The Division Bench of
the High Court concerned with the Trial Court in the view taken by it that
under clause (2) the charge to royalty would get attracted not by mere
manufacture alone but only at the point of sale and delivery of the salt to the
purchasers. On the basis of the foregoing conclusions reached by it , the High
Court set aside the decree passed by the learned Civil Judge and dismissed a
suit except regarding an amount of Rs. 16,631 which had been admitted by the
defendant company to be payable by it to the plaintiff Aggrieved by the said
decision of the High Court , the State of Gujarat has preferred these two
appeals before this Court.
636 After hearing arguments on both sides and
scrutinizing the terms of the agreement dated January 4, 1950 , we have
unhesitatingly come to the conclusion that the High Court was not right
interfering with the decree passed by the learned Civil Judge.
Since the points raised in the appeals turn
on the interpretation to be placed on the clauses (2) to (5) , we shall
reproduce those clauses in full.
They read- "2. The company shall pay a
royalty to the Government at the rate of 0-2-3 per Bengal maund on the total
quantity a of salt sold by them every year. The amount of royalty under this
clause shall be paid by the company as and when delivery is given by the
company to the purchaser , and for the purposes of ascertaining the royalty
chargeable under this clause the company shall produce the sale notes ,
delivery notes and such other documents or records as may be required by an
Officer authorized by Government in this behalf.
3. The company shall manufacture at least
50,000 tons of salt in addition to the quantity required for consumption in
their works. However , if it become impossible to produce the minimum quantity
of salt required to be produced by this clause on account of natural
circumstances beyond the control of the company Government may relax this
requirement to such extent as may be deemed fit by Government in view of such
circumstances.
4. The company shall make all efforts to
raise the production of salt above the minimum specified in clause 3 above.
5. In case company fails to manufacture the
minimum quantity of salt as specified in clause (3) above and Government do not
think it fit to relax the requirements of the said clause in accordance with
the pro visions mentioned therein , then notwithstanding any thing contained in
clause 2 above the company shall 637 pay the minimum royalty equivalent to an
amount chargeable on the minimum quantity to be manufactured in accordance with
clause (3) of this agreement." We do not find possible to agree with the
High Court that clause (3) was only 'introduced by way of abundant caution' and
that clause(5) does not create any liability for payment of a minimum royalty.
On a combined reading of clauses (2) to (5) , it appears to us to be clear that
while clause (2) was intended to operate and govern the rights and liabilities
of the parties in respect of payment of royalty during years when the company
maintained its normal scale of production , clauses (3) and (5) had been
deliberately inserted with the object and purpose of ensuring that even in
respect of lean years when the production of salt by the company fell short of
the stipulated minimum of 50,000 tons after excluding the quantity required for
the consumption in the company's own factory , the Government was to be paid a
minimum guaranteed royalty equivalent to the amount chargeable on 50,000 tons
of salt which is stipulated as the minimum quantity to be manufactured under
clause (3). The interpretation put on clause (2) by the High Court has the
result of completely rendering clauses (3) and (5) otiose and such
interpretation does not commend itself to us. We do not also find it possible
to agree with the view expressed by the High Court that the liability for
payment of royalty emanated only from clause (2). No doubt clause (2) is the
principal clause providing for the payment of royalty but it was to be
operative in respect of years when the production of salt by the company fell
within the normal limits , that is above the stipulated minimum. Clause (S) is
a special provision for payment of a minimum guaranteed royalty in respect of
periods when the production of salt by the company fell short of the quantity
stipulated in clause (3).
Hence there is no conflict between clauses
(2) and (5); on the contrary , they supplement each other. We are , therefore ,
constrained to hold that the High Court was in error in its conclusion that in
respect of years when the company failed to produce the minimum quantity of
salt stipulated in clause (3) , it was under no liability at all to pay any
royalty to the Government under clause (5). The Trial Court was , in our
opinion , perfectly right in granting a decree to the plaintiff for the amount
of royalty payable in respect of the short fall in production during the years
1950-53.
There remains only the further question ,
whether under the 638 terms of clause (2) , the royalty payable thereunder is
to be computed on the total amount of salt manufactured by the company or on
the quantity sold and delivered. In our opinion , the terms of the clause are
absolutely clear and provide for levy and collection of royalty only when the
salt is sold and delivered by the company to the purchasers.
This obviously means that royalty can be
charged only on the quantity actually sold and delivered by the company and not
on the total quantity manufactured by it during the particular year. The
concurrent findings recorded on this point by the High Court and the learned
Civil Judge do not , therefore , call for any interference.
In the result , we allow these appeals , set
aside the judgment of the High Court and restore the judgment and decree of the
learned Civil Judge subject to the modification that the rate of interest
payable to the plaintiff on the decree amount shall be 12 per cent from the
date of the trial Court. The costs incurred by the appellant in this Court in
these appeals will be paid by the respondent. The appellant will also get its
full costs from the respondent in the High Court in First Appeal No.981 of
1960. The defendant company will bear its own costs in the Trial Court as well
as in the High Court. The plaintiff will get proportionate costs in the Trial
Court while the defendant will bear its own costs.
S.R. Appeals allowed.
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