MISTRY PREMJIBHAI VITHALDAS A v.

GANESHBHAI KESHA VJI

April 14, 1977

[M. H. BEG, C.J., A. C. GUPTA AND P. S. KAILASAM, JJ..]

Bombay Rents, Hotel and Lodgi11,:: !louse Rates Control Act, 1947-PrQtection against eriction-Prote.ction under sec. 12 (3) ( b), when ava!lab!e-- Statutory powers of the Court under s. 12 of the Act.

Under s. 12(1) of the Bombay Rents. Hotel and Lodging House Rates Control Act, 1947, a tenant is entitled to claim protection from eviction so long as be is willing and ready to pay the standard rent as defined in s. 5(10) C and permitted increases and observes other conditions of the Act.

The prOtection is subject to the limitations contained in s. 12(2) and 12(3). Under s. 12(3 )(a) where the rent is payable by the month and there is no dispute regarding the amount of standard rent or permitted increases, if such rent or increases are in arrears for a period of 6 months or more and the tenant neglects to make payment thereof uµtil the expiration of the period of one month ad'ter notice referred to in sub-section ( 2) , the court may pass a decree for eviction in any such suit for recovery of possession.

Under s. 12(3)(b) no decree for eviction shall be passed in any suit if on the first day 0, of hearing of the suit or on or before such other date as the court may fix, the tenant pay3 or tenders in court the standard rent and permitted increases then due and thereafter continues to pay or tender in court regulairly such rent and pern1itted increases till the suit is finally 'decided and also pays costs of the suit as directed by the court.

The respondent-tenant was in arrears of rent amounting to Rs. 990/ - for the period from 6th March 1967 to 5th December 1969, house tax amounting E to R~. 27.49 and electricity charges amounting to Rs. 210.18.

The appellant- Jandlord served a notice upon him under s. 106 of the Transfer of Property Act terminating the tenancy and filed a suit for eviction.

The respondent filed an application for fixation of the standard rent within a month under

1. 11(2) of the Act.

He also filed an application for fixation of interitn rent on the &round that he being a poor man was unable to pay rent and the total amount due at once.

On these applications, the interim rent wa<> fixed at !ls. 25/- by Ml order dated 3-2-1970 and he was directed to deposit arrears of rent and future rent at this rate on or before 10th of the next F month.

These applications were dismissed for non-prosecution later on.

The trial court helcl that as the respondent-tenant was "ready and willing" to pay the rent to the appellant-landlord, the suit for ejectment could not be decreed in spite of the fact it found that the notice was validly issued and the arrears were true and correct. The appellate court held that the unwillingness of the respo.Qdent to pay the rent which was apparent from the patent focts and admis3ions and conduct disentitled .him from the protection under s. 12 and decreed the suit for ejectment. The High Court. however, relying on an affidavit dated 18-9-75 filed by the respondent allowed the revision application G made by him under s. 29(2) of the Act.

Allo\ving the nppea•l by special leave, the Court.

HELD : (1 )_ Te tatutory !'rotection can only be given in accordance with the terms on which it 18 pernuss1ble. The Bombay Rents, Hotel and Lodging House Rates Control Act, 1947 does not confer a po, ver ur:ion the court to excue a violati_on of the provisions of the Act by making 'vrong assumptions or n compassionate grounds. The Court. could not. therefore, exercise what would H be in effect a power to condone infringement of the Act.

[575F, 576B]

(2) In cases \\here there is no dispute regarding the amount of standard rent if the proYisions of s. 12(3) (a) are not sho, vn to be complied with,

. A

the Court is boud !o pass a de_crec for eviction.

Where ,1 tenant does not

prosecut~ a~ appllcatton for fiaton o.f standard rent and delibe1ately permits lo be dismissed for non-prosecution, 1t could be reasonably inferred that it was not a bona fide application at all. [575 G-H, 576 AJ

. (3) A fixation of. standard. rent can o?IY tak.e place by means of the sr, ec1fied procedure provided for it.

There ts nothing in the instant case whi•:::h could be "deemed" a fiation under the Act.

It being admitted that -the agreed rent was Rs. 30 /- per mensem that would be the standard rent as defined by s. 5(10) of the Act.

ThaL was the rale on which the rent v1as payable.

Non-prosecution of the application for standard rent indicate tbat there was no real dispute regarding standard rent or permitted increases.

[571A 573G, 575FG]

( 4) Section 12 (3) (b) applies only to cases where c; ther on the first hearing of the suit or on such other dates as the court may fix for the purpose, the tenant pa.ys or tenders in court the standard rent with permitted increases.

In the instant case the respondent did not comply with the orders dated 3-2-1970 fixing the interim rent.

Under the order dated 3-2-1970, the tenant had to deposit arrears of rent and in addition he had to deposit future rent at the rate fixed for the interim rent.

The part of the order for future rent could not refer to arrears of rent.

If the tenant was not quite clear about the n1eaning of the order, he could have applied to the court to clarify the orders and could have gone on depositing rent at Rs. 25 /- per month after depositing arrears of rent so clarified.

[575 FG, 574 B-C]

Vora Abbashai Afin1aho111cd v. Hnji Gulan1nabi !Jaji Safibl1ai [1964] 5 S.C.R. 157. referred to.

(5) 'The readiness and willingness of the tenant to pay could be found only if he had complied with the provisions of the Act.

The Act does not cover the asc of a person who is unable to pay O\ving to want of Jneans but is otber, vise "ready and \villing".

The Act, unfortunately, does not enable courts to n1ake speciad. Jaw for such hard cases which fall outside the ' statutory protection.

The instant case is clearly outside the protection con~ E ferred upon tenants under s. 12 of the Act. The tenant could not be said o be "ready and \Villing" to pay the rent so as to avoid passing of a decree for eviction against him, in the face of detailed findings given by the appellate court.

After assuming quite erroneously that the standard rent was fixed for the first time in the appellate court and by accepting the version of the tenant-respondent that his default was due to his difficulty in finding money to pay the rent, the High Court had erroneously condoned all de.faults in payment of rent right upto the time of the making of the application before F

it on 18-9-1975. [576 B-G]

Shah Dhansukhlal Cl1aganlnl v. Dalichand Virchand Shroff & Ors. [19681 3 S.C.R. 346 applied.

C1VIL APPELLATE JURISDICTION : Civil Appeal No. 217 of 1976.

Appeal by Special Leave from the Judgment and Order of the Gujarat High Omrt dt. 18th/19th September, 1975 in Civil Revision Appln. No. 67 of 1973.

P.H. Parekh, Ajit R. Oza, Kai/ash Vasdev and (Miss) Manju Jatley for the Appellant.

M. V. Goswami for the Respondent.

The Judgment of the Court was delivered by

BEG, C.J.

This is a landlord's appeal by special leave against the judgment and order of the High Court ot Gujarat allowing a revision application of the tenant under section 29 (2) of the Bombay Rents.

...

Hotel and Lodging House Rates Control Act, 1947 Qhereinafter refeIT- A ed to as 'the Act')

It appears from the statement of facts in the judgment of the Hig)l Court that there was no dispute that the monthly rent of the premises was Rs. 30 /- and that the tenant had also to pay the charges for electricity consumed by him. It was, however, at first disputed whether the tenant had to pay house tax and the education cess also.

The landlord had brought a suit for arrears of rent amounting to Rs. 990/- from 6-3-67 to 5-12-69 and also to recover a sum of Rs. 27.49 paid as house tax and another sum of Rs. 210.18 paid by the landlord for the electricity consumed by the tenant.

On 5-1-1970, the landlord had served a notice upon the tenant terminating the tenancy on the ground that dues amounting to Rs. 1227.67 had not been paid.

The tenant filed an application for fixation of the standard rent within a month of, the service of the above-mentioned notice. He also filed an application for fixation of interim rent on the ground that he, being a poor man, was unable to pay rent and the total amount due at once.

On these applications, the interim rent was fixed at Rs. 25/- and the applicant was directed "to

deposit 31Tears of rent and future rent at this rate on or bfore 10th of the next month".

D Although, the trial Court held the notice terminating the tenancy to be legally valid and the agreed rate of rent to be Rs. 30/- p.m., so that the plaintiff was entitled to the decree for arrears of rent from 6-3-67 to 5-12-1969 and also the amount of Rs. 27.49 as house tax and Rs. 210.18 towards electricity charges, making up the total of Rs. 1227.67, yet, it held that as the defendant-tenant was "ready and willing" to pay the rent to the plaintiff.

Hence, the suit for ejectment could not be decreed.

E The appellate Co'-'!'t, on the other hand, held that the unwillingness of . the dfendant-respondent to pay the rent, which was apparent from the patent facts and admissions and conduct of the defendant-respondent, disentitled him for protection sought.

It, therefore, decreed the suit for ejectment.

Learned counsel for the appellant has contended that the High Court F had proceeded upon the wrong assumption that the standard rent was

fixed in the lower appellate Court for the first time when the appeal wa's decided.

It is very difficult to find the basis for this opinion of the High Court.

The application for fixing the standard rent, initiating a separate proceeding, was dismissed, as is admitted on behalf of the tenantrespondent, for non-prosecution.

Hence, no standard rent could be fixed u/s. J l. Section 5, sub-s. (10) defines standard rent as G follows:-

5. Definitions.-In this Act unless there is anything repugnant to the subject or context-

(10) "Standard rent" in relation to any premises means--

(a) "Where the standard rent is fixed by the Court and H the Controller respectively under the Bombay Rent Restriction Act, 1939 (Bom. XVI of 1939), or the

Bombay Rents, Hotel and Lodging House Rates (Control) Act, 1944 (Bombay VII of 1944), such standard rent; or

(b) where the standard rent is not so fixed subject to the provisions of section 11,

(i) the rent at which the premises were let on the first day of September 1940, or

(ii) where they were not let on the first day of September 1940, the rent at which they were first let before that day, or

(iii) where they were first let after the first day of September 1940, the rent at which they were first let, or

(iv) in any of the cases specified in section 11, the rent fixed by the Court".

D Both the sides before us are agreed that no question of a standard

rent actually and finally fixed u/s. 11 of the Act arose in the circumstances of this case.

Section 11 of the Act reads as follows :-

"11. Court may fix standard rent and permit increases in certain cases.

( l) In any of the following cases the Court may, upon an application made to it for that purpose, or in any suit or proceeding, fix the standard rent at such amount as, having regard to the provisions of this Act and the circumstances of the case, the Court deems just-

( a) where any premises are first let after the specified date and the rent at which they are so let L' in the opnion of the Court excessive; or

(b) where the.Court is satisfied that there is no sufficient evidence to ascertain the rent at which the premises were let in any one of the cases mentioned in su!Klauses ( i) to (iii) of clause (b) of sub-section (10) of section 5; or

(c) where by reason of the premises having been let at one time as a whole or in parts and at another tin1e in parts or as a whole, or for any other reasons, any difficulty arises in giving effect to this Part; or ( d) where any premises have been or are let rent.- free or at a nominal rent or for some consideration in addition to rent; or

( e) where there is any dispute between the landlord and the tenant regarding the amount of standard rent..

. J

(2) If there is any dispute between the landlord and the A tenant regarding the amount of permitted increases the court may determine such amount.

( 3) If an application for fixing the standard rent or for determining the permitted increases is made by a tenant who has received a notice from his landlord under subsection (2) of section 12, the Court shall make an order

directing the tenant to deposit in Court forthwith and thereafter monthly or periodically, such amount of rent or permitted increases as the Court considers to be reasonably due to the landlord pending the final decision of the application, and a copy of such order shall be served upon the landlord. Out of the amount so deposited, the Court may make order for the payment of such reasonable sum to the landlord towards payment of rent or increases due to him, as it thinks fit. If the tenant fails to deposit such amount, his application shall be dismissed.

( 4) Where at any stage of a suit for recovery of rent whether with or without a claim for possession of the premises, the Court is satisfied that the tenant is withholding the rent on the ground that the rent is excessive and standard rent should be fixed the Court shall, and in any other case if it appears to the Court that it is just and proper to make such an order the Court may, make an brder directing the tenant to deposit in Court forthwith such amount of rent as the Court considers to oo reasonably due to the landlord.

The Court may further make an order directing the tenant to deposit in Court, monthly or periodically, such amount as it considers proper as interim standard rent during the pendency of the suit.

The Court may also direct that if the tenant fails to comply with any such order within such time as may be allowed by it he shall not be entitled to appear in or defend the suit except with leave of the Court which leave may be granted subject to such terms and conditions as the court may specify.

(5) No appeal shall lie from any order of the Court made under sub-section ( 3) or ( 4) .

( 6) An application under this section may be made jointly by all or any of the tenants interested in respect of the premises situated in the same building".

A "fixation" oJ standard rent can only take place by means of the specified procedure provided for it.

There is nothing in the case before us which could be "deemed" a fixation under the Act.

Apparently, the High Court thought that the dismissal of an application for fixation of rent meant an automatic "fixation" of it at Rs. 30/- p.m.

In the face of detailed findings given by the Appellate Court,, which the. High Court could not upset without a good enough legal ground for

10-502 SCI/77

doing so and did not actually set aside, it is difficult to see haw the tenant could be said to be "ready and willing" to pay the rent so as to avoid passing of a decree for eviction against him.

On behalf of the landlord appellant, it is submitted that, in an affidavit dated 18-9-75, which the respondent himself filed in the High Court, it is admitted that the tenant had not been paying the rent regularly as contemplated by the order of 3-2-70.

Under that order, the tenant had to deposit arrears of rent. In addition, he had to deposit future rent at the rate fixed for the "interim rent". The part of the order for future rent could not refer to arrears of rent.

However, if the tenant was not quite clear about the meaning of the order, he could have applied to the Court to clarify the order and could have gone on depositing rent at Rs. 25 /- p.m. after depositing "arrears of rent" so clarified. Learned counsel for the respondent could only contend that the deposit of future rent on or before the 10th of the next month indicated that the deposit could be made at any time before the rent was due and could . cover subsequent accruals of rent so that it could cover several months if amount deposited was enoug'.: 'x that.

Learned counsel for the appellant points out that the in1erpretation put forward on behalf of the respondent tenant is not only an unreasoTuable one but would not, even if accepted, justify defaults admitted by the respondent tenant even if an advance deposit could wipe off the effects of some defaults.

The High Court had itself not only not set aside the finding relating to the defaults found by the appeilate court, but, after assuming, quite erroneously, that the standard rent was fixed for the first time in the Appeilate Court, it had condoned ail defaults in payment of rent right up to the time of the making of the application before the High Court on 18-9-75 and the acceptance of a fresh deposit in the High Court itself to cover the arrears.

The question is whe:ther the statutory powers of the Court laid down in s. 12 of the Act could be used in this manner.

Section 12 of the Act reads as foilows :-

"12. No ejectment ordinarily to be made if tenant pays or is ready and willing to pay standard rent and permitted increases--(1) A landlord shall not be entitled to the recovery of possession of any premises so long as the tenant pays, or is ready and willing to pay, the amount of the standard rent and permitted increases, if any, and observes and performs the other conditions of the tenancy, in so far as they are consistent with the provisions of this Act.

(2) No suit for recovery of possession shall be institut<:d by a landlord against a tenant on the ground of non-pant of the standard rent or permitted increases due, until the expiration of one month next after notice in writing of the demand of the standard rent or permitted increases has been served upon the tenant in the manner provided in section 106 of the Transfer of Property Act, 1882.

' ..

' •

(3) (a). Where the rent is payable by the month and there is no dispute regardilng the amount of standard rent or permitted increases, if such rent or increases are in arrears for a period of six months or more and the tenant neglects to make payment thereof until the expiration of the period of one month after notice referred to in sub-section (2), the Court may pass a decree for eviction in any such suit for recovery of possession.

(b) In any other case, no decree for eviction shall be passed in any such suit if, on the first day of hearing of the suit or on or before such other date as the court may fix, the tenant pays or tenders in Court the standard rent and permitted increases then due and thereafter continues to pay or tender in Court regularly such rent and permitted increases till the suit is finally decided and also pays costs of the suit as directed by the Court.

( 4) Pending the disposal of any such suit, the Court may out of any amount paid or tendered by the tenant pay to the landlord such amount towards payment of rent or permitted increases due to him as the Court thinks fit.

Explanation-In any case where there is a dispute as to the amount of standard rent or permitted increases recoverable under this Act the tenant shall be deemed to be ready and willing to pay such amount, if, before the expiry of the period of one month after notice referred to in sul>-section (2),, he makes an application to the Court under sub-section (3) of section 11 and thereafter pays or tenders the amount of rent 9r permitted increases specified in the order made by the Court".

In Vora Abbasbhai Alimahomed v.

Haji Gu/amnabi Haji Safibhai,(') it was held that, according to s. 12(3) (a) of the Act, the

Court was bound to pass the decree for eviction if statutory terms are l)Ot complied with.

The answer given on behalf of the respondent• tenant was that the case before us is governed by the provisions at s. 12(3 )(b) of the Act.

But, this section applies only to cases where either on the date of first hearing of the suit or on such other dates as the Court may fix for the purpose, the tenant pays or tenders in Court the standard rent with permitted increases. It was laid down in Abbasbhai's case (supra) that the explanation to s. 12 introduces only a rule of evidence.

It appears to us that where. a tenant does not prosecute. an application for fixation of standard rent and deliberately permits it to be dismissed for non-prosecution it could be rel18Qnably inferred that it was not a bona fide application at all.

In the case before us, it being admitted that the agreed rent was Rs. 301p.m. that should be the "standard rent" as defined by s. 5 (10) of the Act.

That was the rate . at which rent was payable.

Non-prosecution of the application for

(l) [196\] 5 SC.R. 157.

standard rent indicated that there was no real dispute regarding the standard rent or permitted increases. In snch cases, if the provisions of s. 12(3) (a) are not shown to be complied with, the Court is bound to pass a decree for eviction.

The statutory protection can only be given in accordance with the terms on which it is permissible.

The Act certainly does not confer a power upon the Court to excuse a violation of the provisions of the Ac:t by making wrong assumptions or on compassionate grounds.

The Court could not, therefore, exercise what would be, in effect, a power to condone infringement of the provisions of the Act.

In Shah Dhansukhlal Chhaganlal v. Dalichand' Virchand Shroff & Ors.,(') this Court explained the provisions of s. 12 of the Act and laid down that a failure to deposit the rent regularly as required by the Act will take the case out of the provisions of s.12 ( 3) (b).

On facts found, there was such a failure to deposit in the case before us.

The High Court appears to have condoned the defaults by accepting the version of the defendant-respondent that the default was due to his difficulty iu finding money to pay up the rent.

Hence, 0n the admission of the defendantrespondent also, it seems a clear case of defaults which deprive the defendant-respondent of the protection of s. 12 of the Act.

Learned coun.sel for the plaintiff-appellant has, very rightly, pointed out that the High Court had not set aside the findings of the fact arrived at by the appellate Court which took the case of the defendant-respon- dent clearly outside the protection conferred by the Act The High Court seems to have accepted the erroneous view that 'standard rent wa5

actually fixed by the appellate Court for the first time. whereas what had happened was that the application for fixation of standard rent had been dismissed for non-prosecution. This was not "fixation" of standard rent, as already pointed out.

Hence, no question of giving time to pay up arrears after a "fixation" of standard rent arose here. We think that the case is clearly outside the protection conferred upon tenant:; under the Act.

The readiness and the willingness of the tenant to pay could be found only if he had complied with the provisions of the Act. The Act does not cover the case of a person who is unable to pay owing to want of means but is otherwise "ready and willing".

Such a case is no doubt a hard one, bnt, unfortunately, it does not enable Courts to make G a special law for such. hard cases which fall outside the statutory protection.

We understand that the defendant-respondent is a Carpenter. If he is unable to find means to pay rent we cannot dismiss the suit for his eviction on the ground of non-payment of rent.

In view of his disability, on account of alleged illness, we propose to modify the decree of the appellate Court to the extent that he will have four months' time from 5th April 1977 before the eviction order can be executed against him provided he deposits within a month from today all the arrears due

MISTRY PREMJIBHAI v. GANESHBHA! (Beg, C. J.) 57 7

and goes on depositing Rs. 30/- p.m. regularly, in advance, before the A 5th of each month on which his tenancy begins.

He must,, however, vacate the premises before 5th August, 1977, and may leave it earlier if he is unable to pay the required reut regularly in advance.

The decree for eviction will become executable on breach of the conditions laid down, or, after 5th August, 1977.

The result is that we set aside the judgment and order of the High B •.

Court and restore the decree of the appellate Court subject to the modifiction indicated above.

The parties will bear their own costs.

S.R.

Appeal allowed.

MISTRY PREMJIBHAI VITHALDAS

GANESHBHAI KESHA VJI

April 14, 1977

M. H. BEG, C.J.

A. C. GUPTA

P. S. KAILASAM, JJ.

Rates Control Act, 1947

sec. 12

s. 12

s. 12(1)

s. 5(10)

s. 12(2) and 12(3)

s. 12(3 )(a)

s. 12(3)(b)

s. 106

Transfer of Property Act

s. 12

s. 29(2)

s. 12(3)

s. 5(10)

Section 12

[1964] 5 S.C.R. 157

s. 12

P.H. Parekh

Ajit R. Oza

Kai/ash Vasdev

Manju Jatley

M. V. Goswami

BEG

section 29

Section 5

section 11

section 11

s. 11

Section 11

section 5

section 12

s. 12

Section 12

section 106

Transfer of Property Act, 1882

section 11

s. 12(3)

s. 12(3 )(b)

Abbasbhai

s. 12

s. 5

s. 12(3)

s. 12

s. 12

5th April 1977

5th August, 1977


578 ,

BHOPAL SUGAR INDUSTRIES LTD. v.

SALES TAX OFFICER, BHOPAL

April 14, 1977

[P. N. BHAGWATI, N. L. UNTWALIA, AND S. MURTAZA FAZAL ALI, JJ.J

Sales Tax-Dealer consun1ing goods for his own purposes-If a sale exitible to tax.

The appellant. Vlas a manufacturer of sugar.

It also ran in the mill premises a petrol pump selling high speed diesel oil, petrol and other lubricant oils of Caltex.

A part of these oils was consumed by the appel1'l<lt for its own trucks and other vehicles.

The Sales tax authorities assessed to tax C the petrol consumed by the appellaut for its own use as well.

On appeal the Commissioner of Sales Tax held that since the appellant was an agent of Caltex, title to the property in the goods sold by it remained with the A principal and as such that part of the petrol and other oils consumed by it

was also a sale exigible to tax.

Allowiag the appellant's ppeal

HELD : The petrol consumed by the appellant for its own purposes was not a sale exigible to tax.

A conspectus of the terms of the agreement showed that after taking delivery, the appellaat became the owner of the goods and if it conc; umed the same for its own purposes, it was doing so not as an agent but as owaer. [592 El ·

!(a) In a contract of sale title to property in the goods passes on to the buyer on delivery of the goods for a price paid or promised.

Once this happens the buyer becomes owner of the property and the seller has no vestige of title. left in the property.

Having regard to the complexities of modem times the concept of sale has undergone a change and made a departure fron1 the old doctrine of laissez faire.

Even if the seller, by an agreement, imposed a number of restrictions on the buyer, such for example as, fixing of price, submission of statement of accounts, area. of sale and so On these resµ-ictions would not per se convert a contract of sale into one of agency.

[581 HJ

(b) A contract of agency differs from a contract of sale inasmuch as an agent, after taking delivery of the property, does not sen it a6 his ovm but selbi it as the prope1ty of the principal under his instructions and directiong. [582 Bl

{c) While interpreting the terms of an .agreement, the Court has to look to the substance rather than the form of the agreement.

Use of words like .. agentH or "agency", "buyer" and "seller" is not sufficient to lead to the inference that the parties did in fact intend that the said status would be conferred. In certain trades, the word "agent" is often used v:ithout any reference to the law of principal and agent.

[582 F-G]

Sri Tirtunala Venkates'ltara Tiniber and Ba111boo Finn v. Co111111ercial Tax Officer, Rajahmundry, 21 STC 313, 316 followed.

IV. T. Lam and Sons v. Goring Brick Company Ltd. LR. [1932] 1 KBD 710, 717, Gordon Woodroffe & Co. v. Sheikh M. A.. Ma/id & Co. [1966] Supp. SCR I, 3-4 and Daruvala Bros. (P) Ltd. v. Commissioner of Income-tax (Central) Bombay, 80 !TR 213 referred to.

Foley v. Classigate Coaches Ltd. [1934] 2 K B D 1, Michelin Tyre Company Ltd. v. Macfarlane (Glasgow) Ltd. (in Liquidation), [1917] 2 Scots. L.T. 205, Financings Ltd. v Stimson, [1962] 2 All. ll.R. 386,

Willcox & Gibbs Sewing Machine Co111pany v. Daniel S. Ewing, 35 U.S.

Law. Ed. 882, 884 held inapplicable.

In the instant case, the evidence furnished by the agreement was sufficient to conclude (a) tha.t the goods were supplied not on consignment basis but by way of outright sale; (b) that the agreement was to sell petrol and other oils, after the dealer had bought the property from Ca1teX:, at price<J fiXed

by that company; (c) that stipulation of sale price was to protect the company's

goodwill and to ensure quality of goods to be distributed-in fact stipulation B of price which is generally a common term in all agreements between mono polistic companies &nd their distributors did not detract from the freedom of contract of sale; (d) sale by the apellant to other customers did not dis close that the property belonged to Caltex; (e) it was the appellant that bore losses due to leakage, driage and evaporation in storage and (f) reimbursen1ent by the company of transport charges and handling expenses and also reimbursement of supplies made by the appellant to certain designated custon1ers showed that the agreement was a contract of saJe and not of agency.

. Further, the term requiring the dealer to furnish statements of sales and other matters showed that the company wan!ed to keep itself fully infonne<l of the proper conduct of the business in order to maintain its good\vill an<l to. terminate the agreement in case it found that the appellant was misusing the privilege given to it.

The term "commission and allowadlces" indicated that certain special benefits were conferred by the company on its distributors.

It did not show that it was an agency.

Nor was the term requiring the appellant to furnish security for the due observance and performance of the stipulations an indication that the agreement was an agency.

Belthezar and Son v. E. M.. Abowatlr, AIR 1919 P.C. 166, 167 referred to.

Ganesh Export and Import Cornpany v. Jl..fahadeolal Matf1n1al, AIR 1956 Cal. 188 approved.

CivIL APPELLATE JURISDICTION : Civil Appeals Nos. 1135-1138

Ot 1972.

Appeals by Special Leave from the Judgment and Order dated the 5th May, 1970 of the Commissioner of Sales Tax, Madhya Pradesh 1.1 Revision Case Nos. 2-5/RMS of 1968-1969 respectively.

S. T. Desai, (Mrs.) Anjali K. Varma and Sri Narain for the Appellant.

Ram Panjwani, H. S. Parihar and I. N. Shroff for Respondent.

The Judgment of the Court was delivered by

FAZAL Au, J.-These appeals by special leave are directed against the order of the Commissioner of Sales Tax dated May 5, 1970 rejecting the revision filed by the appellant before him against the order of the Appellate Assistant Commissioner, Sales Tax, imposing sales tax.

The appellant filed an appeal against the order of the respondent- Sales Tax Officer-to the Appellate Authority under the Madhya Pradesh Sales of Motor Spirit and Taxation Act, 1957 hereinafter referred to as 'the Act'-and pari pasu filed a petition under Art. 226 of the Constitution in the High Court of Madhya Pradesh challenging the constitutionality of the Act and the assessments made in pursuance thereof; The High Court, by its judgment dated January 25, 1961, dismissed the petition of the appellant: The appellant then approached this Court through a special leave petition and also a petition

under Art. 32 of the Constitution but without anv success.

Tilis Court by its judgment dated December 21, 1962, held that the High Court had erred in assuming jurisdiction in deciding disputed questions involved in the petition and should have insisted on the appellant to move the Appellate Authority provided under the Act The petition under Art. 32, however, was allowed by this Court and a part of the definition of "sale" in s. 2( 1) of the Act was declared ultra vires.

In the instant case, however, we are not concerned with this aspect of the matter.

In compliance with the orders of this Court, the appellant filed an appeal before the Appellate Assistant Commissioner of Sales .Tax which. was allowed by his order dated March 6, 1963, and the case was remanded to the Sales Tax Officer for fresh assessment after making necessary enquiries.

Thereafter the respondent Sales Tax Officer assessed the appellant afresh by his order dated October 20, 1963, and made similar assessments for the other periods.

Ag; linst this order the appellant moved this Court again bnt ultimately withdrew the petition and filed a revision petition under s. 28 of the Act to the Commissioner of Sales Tax, Madhya Pndesh. The Commissioner, after hearing the arguments of both the parties, invited further documents and after making further queries upheld the order of the Appellate Assistant Commissioner of Sales Tax holding that the appellant was liable to pay sales tax inasmuch as the contract which was entered into between the appellant and Caltex (India) Ltd. was a pure and simple contract of agency and not a contract of sale.

The Commissioner opined that as the contract was one of agency, the title to the property remained in the Caltex (India) Ltd. and if the appellant used the petrol for its own purposes as agent, then such a user would amount to a sale of the property of the Company by the agent to itself so as to be exigible to sales tax.

It is against the order of the Commissioner dated May 5, 1970 that the appellant has c0me up to this Court after obtaining special leave.

We have heard counsel for the parties at very great length and we have also gone through the documents filed by the parties before the Commissioner and incorporated in the Paper Book.

It seems to us that the only point for decision lies within a ve1y narrow compass.

The short point to be decided is whether at the time when the appellant was consuming the high speed diesel oil and petrol for its own purposes, was it doing so as owner of these articles or merely as an agent of Caltex Company ? In other words, if it is held that as a result of the agreement between Caltex and the appellant and the transactions following thereupon the title to the diesel or petrol passed to the appellant by the delivery of these articles, then from that date the appel.lant became owner of these articles and was entitled to use them as he liked, because he had already pa'd the price of the diesel and petrol received by it.

If this be the position, then it is manifestly clear that the user by the appellant for its own purposes may not amount to a sale which had already taken place at a point of time when the goods were delivered by the Caltex Company to the appeJ. lant. On the other hand, if it is held that the appellant was a mere

agent under the agreement and was selling the articles on behalf of its principal-the Cal!ex Company-then any user of these articles or properties may amount to a sale so as to be exig.ble to sales tax. We may add that even then it was contended for the appellant that it would not amount to sale, but it did not press his contention later.

The question, therefore, will have to be determined having regard to the terms and recitals of the agreement, the intention of the parties as may be spelt out from the terms of the documents and the surrounding circumstances and having regard to the course of. dealings between the parties.

In all the Sales Tax statutes as also the definition of "sale" in the Act in this case, the definition given in the Sale of Goods Act has been bodily lifted from that Ac~ and inserted in the Tax Statutes. In the instant case under the Madhya Pradesh Sales of Motor Spirit Taxation Act, 1957, "sale" is defined thus :

" "sale" with all its grammatical variations and cognate expressions means transfer of motor spirit for cash or deferred payment or for other valuable consideration and includes transfer of motor spirit by a society or club or any association to its members, but does not include a mortgage by- -

pothecation, charge or pledge; - D Explanation I.-Consumption of motor spirit by a dealer himself or on his behalf shall be deemed to be a "sale";

Explanation II.-A sale of motor spirit deemed to be a sale inside the State within the meaning of sub-section (2) Of section 4 of the Central Sales Tax Act, 1956 (74 of 1956), shall also be deemed to be sale inside the State for the purposes of this clause;"

Thus it would appear that in order to satisfy the conditions of "sale" under the definition of the Act, the following conditions must be satisfied :

(i) that there should be a transfer of motor spirit from the seller to the buyer; •·

(ii) that the transfer must be for valuable consideration which may be either cash or deferred payment; and

(iii) that the transfer must not be in the nature of a mortgage, hypothecation, charge or pledge.

Under Explanation I, consumption of motor spirit by a dealer himself or on his behalf shall be deeme.d to be a sale.

But this Explanation has already been held to be ultra vires by this Court in the previous Bhopal Sugar Industries Ltd's case.

Thus the essence of the matter is that in a contract of sale, title to the property passes on to the buyer 011 delivery of the goods for a price paid or promised. Once this happens the buyer becomes the owner of the property and the seller has no vestige of title left in the property.

The concept of a sale has, however, undergone a revolutionary change, having regard to the complexities of the modem times and tlm expanding needs of the society,

which has made a departure from the doctrine of laissez faire by including a transaction within the fold of a sale even though the seller may by virtue of an agreement impose a number of restrictions on the buyer, e.g. fixation of price, submission of accounts, selling in a particular area or territory and so on.

These restrictions per se would not convert a contract of sale into one of agency, because in spite of these restrictions the transaction would still be a sale and subject to all the incidents of a sale.

A contract of agency, however, differs essentially from a contract of sale inasmuch as an agent after taking delivery of the property does not sell it as his own property but sells the same as the property of the principal and under his mstructions and directions.

Furthermore, since the agent is not the owner of the goods, if any Joss i.9 suffered by the agent he is to be indenmified by the prir.cipai. This is yet another dominant factor which distinguishes an agent from a buyer-pure and simple.

In Halsbury's Laws of England, Vol. l, 4th Edn., in para 807 at p. 485, the following observations are made :

"The relation of principal and agent raises by implication a contract on the part of the principal to reimburse the agent in respect of all expenses, and to indemnify him against all liabilities, incurred in the reasonable performance of the agency, provided that such implication is not excluded by the express terms of the contract between them, and provided that such expenses and liabilities are in fact occasioned by his employment."

We have mentioned this fact, particularly because under the agreement between the Caltex Company and the appellant the Joss sustained by the buyer has to be borne by it after delivery of the goods and the seller is not responsible for the same.

Such a special arrangem.ent between the parties is a factor which taken along with other circumstances points towards the agreement being one of sale.

It is well settled that while interpreting the terms of the agreement, the Court has to look to the substance rather than the form of it.

The mere fact that the word 'agent' or 'agency' is used or the words 'buyer' and 'seller' are used to describe the status of the parties concerned is not sufficient to lead to the irresistible inference that the parties did in fact intend that the said status would be conferred.

Thus the mere formal description of a person as an agent or buyer is not conclusive, unless the context shows that the parties clearly intended to treat a buyer as a buyer and not as an agent.

Learnl>.d. coonsel for the appellant relied on several circumstances to show that on a proper construction of the agreement it could no~ but be he!~ .to be a contract of sale.

Learned counsel strongly relied on a dec1s1on of this Court in Sri Tirumala Venkateswara Timber and Bamboo Firm

v. Commercial Tax Officer, Rajahmundry,(') where this Court held the transaction to be a sale in almost similar circumstances. Speaking for the Court, Ramaswami; T, observed as follows:

(I) 21 S.T.C. 313, 316

t )

"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 princpal. The

c>Seuce of a contract of sale is the transfer of tJ.lle tu the gco<b 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 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 relatiorn; hip.

This Court relied on a decision in W. T. Lamb and Sons v. Goring Brick Company Ltd. (1) where despite the fact that the buyer was designated

as sol" sd\ing agent, the Court held that it was a contract of sale.

Lord Scrutton, with whom other Lords agreed, observed as follows :

"Now it is well known that in certain trades the word "agent" is often used without any reference to the law of principal and agent.

The motor trade offers an obvious example, where persons described as "agents" are not agents in respect of any principal, but are purchasers who buy from manufacturers and sell independently of them; and many difficulties have arisen from this habit of describing a purchaser, sometimes a purchaser upon terms, as an agent."

In a earlier decision of this Court in Gordon Woodroffe & Co. v.

Sheikh M. A. Majid & Co. (2) it was observed thus :

"The essence of sale is the transfer of the title to the goods for price paid or to be paid.

The transferee in such case F becomes liable to the transferor of the goods as a debtor for the price to be paid and not as agent for the proceeds of the sale.

On the other hand, 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 who is therefore liable to account for the proceeds." G

The Bombay High Court in Daruvala Bros (P) Lta., v. Co1r.missiotier of Income-tax (Central) Bombay(') had, in almost similar facts, held that even though there were restrictions on the assessee the agreement being one of distribution was to be treated 1s a contract of sale and not an agreement of agency. It would thus appear that

(I) CR. [1932] l K.R.D. 710, 717.

(2) [1966] Supp. S.C.R. I, J-4. (J) 80 l.T.R. 213

even if a party is described as agent in the agreement he may not be an agent bul a buyer though described as an agent. h1 fact we feel that there may be agreements which may contain some elements of agency but may be contracts of sale in other respects.

Learned counsel for the respondent then relied on the decision in Foley v. Classique Coaches Ltd. (1) This authority does not appear to be of any assistance to the respondent because in that case the court came to a finding of fat that there was no concluded contract at all and the agreement was merely an executory one and, therefore, the question of determining the relationship between the parties did not naturally arise.

Similarly reliance was placed on Michelin Tyre Company Ltd. v.

Macfarlane (Glasgow) Ltd. (in Liquidation).(2) Here also the question was decided on the peculiar terms of the agreement in question and this authority cannot be called into aid for the purpose of deciding the present case.

Learned counsel for the respondent also relied on Financings Ltd.

v. Stimson(•) but the facts in the aforesaid case appear to be quite different from the facts of the present case.

Strong relianet was also placed by Mr. Panjwani counsel for the respondent on Willcox & Gibbs Sewing Machine Companv v. Daniel S. Ewing,(') where the Court observed as follows :

"And it is agreed and understood that this appointment or. agency is not saleable or transferable by second party without obtaining the written consent of first party, but such consent is to be given providing the purchaser or other person is acceptable to said first party."

"There was some discussion at the bar as to whether Ewing was, strictly, an agent of the company.

We think he was.

He was none the less an agent because of his appointment as "exclusive vendor" of the defendant's machines within a particular territory, or because of the peculiar previleges granted to or the peculiar restrictions imposed upon hlin."

It seems to us that the law on the subject has been state:l by the Court in a different context and, therefore, this case does not appear to us to be of any assistance in determining the question at issue in the instant case.

The Court in the aforesaid case had inferred agency from the mere fact that under the agreement the sale was to operate in a limited trritory.

This by itself, in our opinion, is not sufficient to lead to the inference that the agreement was one of agency. rt is

(1) [1934] 2 K.B.D. l.

(2) [1917] 2 Scots. L.T. 205. <3) [1962] 3 All E.R. 386. (4) 35 U.S. Law. Ed .. 882,884.

t .,

. ·-.r

' j

always open to the buyer to purchase goods for a limited purpose and within the field of that limited purpose the buyer has absolute title to the property once it is delivered to him by the seller.

Learned counsel for the respondent then relied on a decision of the Keralai High Court in Goverdhan Hathibhai & Co. v. Appellate ; Assistant Commissioner of Agricultural lllcome-tax and Sales Tax, Trivandrum,(').

But that decision is contrary to the principles B enunciated by this Court in Sri Tirumala Venkaeswara Timber and Bamboo Firm's case (supra) and Gordon Woodroffe & Company's case (Supra).

Moreover, as pointed out by the Kerala High Court in that case there were special terms and stipulations in the contract which persuaded the Court to hold that it was a contract of agency. We would, therefore, like to confine the ratio of that case to the peculiar facts of that case.

Further, it appears that while the C Kerala High Court had expressly dissented from a decision of the Palna High Court in Rohtas Industries Ltd. v. State of Bihar(2 ) and did not accept the propositions laid down by the said Court, this Court had affirmed the aforesaid Patna High Court decision in Rohtas Industries Ltd. v. State of Bihar(3 ) where it was observed thus :

"We therefore agree with the view of the High Court that clause 24 does not qualify the legal effect of the other im- D portant clauses of the agreement, and that the cement delivered, despatched or consigned by the manufacturing companies to the Marketing Company or to its orders or in accordance with its directions was sold by the manufacturing companies to the Marketing Company ...... "

In view of the observations of this Court, therefore, the Kerala High E Court decision referred to above must be held to have been impliedly overruled.

Having discussed the law on tl1e subject, we shall now analyse the agreement in the present case and interpret the same m accordance with the principles laid down by the various authorities referred to above.

To begin with, clauses 1 and 2 express in absolutely catei:orical terms that the nature of the agreement is to sell the property in question and nothing else.

Clause 2 runs thus :

"The Company shall sell to the dealer and the dealer shall buy from the Company the said products at the prices preestablished by the Company therefor and which are in effect on the date on which the Diesel Oil is despatched/or delivered by the Company."

Clause 2 expressly states that Hispeedol was to be sold and the dealer was buying tl1e property from the Company at prices to be fixed by the Company.

The terms "buying" and "selling" have not been used by way of a routine or formal description of the status of the parties

(1) 12 S.T.C. 464,

(21 9 S.T.C. 248.

(3) 12 S.T.C. 615, 622.

A but appear to us to form an integral part of the contract clearly exhibiting an intention of the nature of transaction which the parties intc:ided this document to be, namely, that it is a contract for sale and nuthmg eise. We must remember that the agreement in question is a contract for distribution of Hispeedol produced by tb Caltex Com- . ,.. pany which has a monopoly for producing a particular type or oil which it sells. A common feature of any distribution agreement is that B the seller i:J.sists on a particular price at which the property is to be sold and impose certain restrictions in order to protect his goodwill and ensure the quality of his goods to be distributed through sljle.

The chart filed by the appellant at p. 191 of the Paper Bo0k would -. f clearly show that the appellant paid the price of the bulk supplies

almost within a month of the date of delivery of the goods.

This chart runs thus :

"A. H. Bhiwandiwalla & Co. (Bombay) Pnvate Ltd., Managing Agents, The Bhopal Sugar Industries Ltd., Sehore, Cash Debit voucher No. 2011, dt. 1-7-1958.

"Please pay to M/s. Caltex (India) Ltd., Account : Petrol D Diesel Oil & lubricants.

In full payment of the following bills No.19232 dt. 9-4-58 for 1000 Gs. petrol No. 19283 dt. 8-5-58 for 1000 Gs. petrol No. 19321dt.29-5-58 for 1000 Gs. petrol No.17586 dt.1-5·58 for 1000 Gs. Hispe<dol No. 17598 dt. 7-5-58 for 1000 Gs.

No.17610 dt.14·5-58 for 1000 Gs.

No.17621 dt. !8-5-58 for 860 Gs. " R•1pees fifteen thousand six hundred ten only.

Rs. 2920-CO Rs. 2920-00 Rs. 2920-00

Rs.1770-CO

Rs.1770·00 Rs.1770-00 Rs. 1540--00

Rs.llp.

8760-00

6850-00 15610·00

For the Bhopal Sugar Industries Ltd.

Sd/- Illegible Manager. "

This chart also reveals a crucial fact, namely, that the supply of the products by the Company was made to the appellant not on consignment basis but by way of outright sale.

It appears from the documents produced by the appellant before the Commissioner tbat on .G inquiries made from the seller,. namely, the Caltex Company, they confirmed the fact that the goods were sent to the buyer on the basis of outright sale. In this connection, the relevant portion of the Jetter read thus ;

"We refer to the discussion your Mr. Mody had this forenoon with our M/s. G. H. Sani and M. R. Pata1tlrnr ..... .

In this connection we would like to confirm as under : "1. Since. the inception of your dealership, clause No. 4 of

our Standard Petrol Dealer Agreement does not apply to A you.

2. Supplies of Petroleum Products ex Bombay or ex our Depots in Madhya Pradesh have been made to you on the basis of outright sale."

This letter also shows that clause 4 of the Standard Petrol Dealer Agreement did not apply to the appellant.

Similarly another letter at P. 167 of the Paper Book written by the Manager of the appellant to the Commissioner of Sales Tax clarified the position that the appellant had purchased the gocds on outright basis.

The relevant portion of this letter may be extracted thus :

"Mis Caltex (India) Ltd., never supplied goods i.e. petrol & Hispeedol on consigrunent basis.

We had always purchased the goods from them on out-right purchases against our orders placed with them from time to time.

Sample copies of our correspondence relating to placement of orders in respect of petrol & hispeedol are enclosed herewith for your perusal."

The appellant had filed detailed correspondence to prove the facts clarified before the Commissioner. This aspect of the matter was turt11er reiterated by the appellant in his letter to the Commissioner dated November 7, 1969, the relevant portion of which may be extracted as follows :

"M/s Caltex (India) Ltd. supplied us petrol & hispeedol

against our orders placed with them from time to time and they billed us immediately thereafter at the bulk rates prevailing from time to time ....... Payments were also made to M/s. Caltex (India) Ltd. on outright basis immediately after receipt of the goods. . .....

All books of account, all files containing orders, bills, payment vouchers and correspondence are produced before you for your verification."

This letter further shows that all the vouchers, correspondence etc. bad been produced by the appellant in proof of the recitals mentioned

in the letter. It is, therefore, clear that the moment the appellant G received the supplies of Hispeedo! from the seller, the Hispeedol became the property of the appellant and the appellant was absolutely free to sell the Hispeedol and petrol to any one it liked at the prices fixed within the territory specified in the agreement.

Thus the title to the property passed to the appellant the moment it took delivery of the same. It is, therefore, manifest that having taken delivery of the property if the appellant was using it for its own consumption it was H using its own property in which the Company had no title at all and such a user therefore could not, by any stretch of imagination, be treated as a sale.

A Another very important circumstance which clearly shows that the contract was one of sale and not of agency is the fact that after having taken delivery of the petrol and Hispeedol the appellant sold the same to its various customers, not even mentioning that the property oelong- ed to Caltex Company but issued cash memos in its own name which clearly indicates that after taking delivery of the property the appell~.nt became the absolute owner thereof and represented itself to be the B owner of the property and sold it not as the property of the Company but as its own property.

This fact is clearly proved' by the cash memos and credit vouchers produced by the appellant at pp. 195-197 of the Paper Book. The cash memo describes the Bhopal Sugar Industries Ltd. as the owner of the goods and so does the credit voucher.

This, therefore, conclusively shows that the agreement could not have been an agreement of agency because the essential distinction between an C agreement of sale and agreement of agency is that in the former case the property is sold by the seller as his own property and in the latter case the property is sold by the agent not as his own property but as the property of his principal and on his behalf.

Another important circumstance which indicates that the goods were sold to the appellant is that the appellant in his letters produced on further queries made by the Commissioner of sales Tax made a clear statement that the appellant had borne the losses due to leakage, driage, evaporation etc. during the course of storage at the pumps of the appellant and the seller Caltex Company did. not. reimburse the appellant for such losses.

The relevant portion of this letter may be extracted thus :

"As we had purchased petrol & hispeedol on out-right purchase and sale basis from M/s Caltex (India) Ltd., we borne the entire losses arising out of entire expenses or handling at our receiving point. We also borne the losses due to leakages, driage and driage and/or evaporation during the course of storage at our pumps. M/s Caltex (India) Ltd., did not reimburse us for any loss."

If the appellant would have been agent of the Caltex then under the law of agency the agent had an indefeasible right to be reimbursed @r indemnified by the principal for the losses caused.

But as the appellant bore the losses personally, this clearly indicates that the properties after being sold to it were its absolute properties and if any losses occurred they were borne by the appellant as owner and not by the seller.

Another important condition in the agreement was clause 23 at ~. p. 130 of the Paper Book which runs thus :

"The dealer shall at any time, upon request of the Company make from his stocks, deliveries of reasonable quantities of said products for account of the Company, to consumers at such points wi.thin t)ie territ?ry as _the Compay n; iay designate. In cons1derat10n of his makmg such dehvenes, the -

BHOPAL SUGAR INDUSTIUES LTD. v. s.T.O. (Fazal Ali, ].) 589

dealer shall be reimbursed in full for all transportation expenses, and receive in addition thereto, such allowances for handling as may then currently be in effect under this agreement"

Under this clause the appellant was required to deliver reasonable quantities of products at the request of the Company to consumers designated by the Company at such points within the territory as may be specified. In consideration of complying with the request, the seller Company agreed to reimburse the appellant in full for the supplies and the appellant was also entitled to be paid transportati()n expenses and handling allowances as nmy have been incurred by ii.

This is another decisive factor which negatives the theory that the agreement could be one of agency.

Indeed such a stipulation in the agreement is wholly inconsistent with the position of the appellant lfeing an agent for in that case thre was absolutely no scope for such a stipulation and the seller Company as a principal of the agent could have instructed it to supply the goods or petrol to designated customers am! there was no question of the agent being reimbursed, because the property supplied belonged to the principal and was delivered to certain persons on the instructions of the principa, l.

This cfause, therefore, is yet another important factor which shows that the agreement was intended to be a contract of sale rather than a contract of agency.

Furthermore, the agreement contains a clear and unequivocal declaration by the seller Company that the status of the appellant would not be that of an agent.

In this connection, clause 15 of the agreement runs thus :

"Nothing in this agreement contained shall in any way operate by implication or otherwise to constitute the dealer as agent of the Company in any respect and for any purpose .whatsoever, and the dealer shall have no right or authority to assume or create any obligation of any kind express or implied on behalf of the Company in any other respect whatsoever. "

This clear declaration on the part of the parties leaves no room for F doubt that the agreement was intended to be a contract for sale and that the appellant was not only not regarded as an agent but was expressly excluded from the category of an agent.

The cumulative effect of the circumstances mentioned above leads to the inescapable conclusion that the Hispeedol had been sold to the appellant and not held by it merely as an agent of the Caltex Company.

The petrol agreement also which has been placed before us contains similar stipulations and it was not disputed by counsel for the respondent that if the" Hispeedol Agreement is held to be a contract of sale, then the same would have to be said of the Petrol Agreement also.

Thus the principles which would rnake the contract of the purchase of Hispeedol a contract of sale would apply mutati~ mu!andis to the Petrol Agreement also.

Learned counsel for the respondent, as also the Commissioner, have relied on certain stipulations in the agreement which show that the

11-502 SC!/77

agreemnt was one of agency.

The Jirst circumstance relied in this connection. wa~ that under. clause 12 _of the agreement, the appellant was to mamtam sale, ser.v1ce and other record as may be considered necessary and was to furmsh the Company when called upon staiments of sales, financial and other matters as and when required by the Company.

Clause 12 runs thus :

"The dealer shall maintain sales, service and other record as n_iay be considered necessary by the Cmpany and shall furmsh the Company when called upon with all such sales financial nd other statements as may be required by and i~ forms satisfactory to the Company. "

In our opinion this clause does not at all conclusiyeJy show that the appellant was an agent of the C"mpany.

The obiect of inserting this clause in the agreement appears to M that during the term of the agreement the appellant undertook to maintain proper sales, service and other record so that the Company's reputation may not suffer and if any statement regarding the sales or other matter were rejjuired by the Company, they were not required because the appellant was the agent of the Company but it was because the Company wanted to keep itself fully informed of the proper conduct of the business by the appellant in order to maintain its goodwill. It is manifest that if during the period of the agreement there were serious complaints against the appellant regarding the misuse of the privileges given to it under the agreement, the Company could under the terms of the agreement terminate the agreement so as to save its reputation. Read as a whole, this stipulation does not amount to make the appellant liable to render regular accounts to the Company inasmuch as the statemenfi': called for were required only for a very limiled purpose, viz., to prevent the ai;>pellant from misusing his privileges and thereby jeopardising or harmmg the reputation of the Company. In these circumstances, therefore, the argument based on this clause appears to be of no assistance to the counsel for the respondent.

Oause 8 of the agreement clearly shows that the appellant had been loaned properties belonging to the Company like petrol pumps and their accessories etc. and it was in respect of these properties which had been given to the dealer for working the petrol pumps that the statements of account were called for from the appellant.

This appears to be the modus operandi adopted by the seller Company in respect of all its distributors.

There is no stipulation in the agreement which requires or enjoins on the appellant to submit accounts of the Hispeedol or petrol which he may have sold to various customers, after having taken delivery of the same from the Company.

In these circumstances, therefore, this argument of the learned counsel for the respondent mnst be overruled.

Another circumstance relied upon by the respondent was the fact that the appellant was nnder the terms of the agreement to sell lhe goods at a price fixed and not higher or lower. than ha~. yve have already indicated that when a Company enters mto a d1stnb:ition agreement it always fixes a particular price in order to protect its gooclwJll

and in order to control the market. Such fixation of the price by itself would not be a restriction which would take away the freedom of contract of sale.

Such a stipulation is found in almost all the agreements entered into between the monopolist Companies and their distributors. The respondent would not, therefore. be justified in treating this circumstance in order to show that the agreement was one ot agency.

Similarly the argument that the appellant was to sell the goods in a territory fixed by the Company does not show that the agreement was not of sale because this is also one of the common features of a distribution agreement.

The question to be determined is not what was the territory fixed by the seller Company but whether there was any limitation to sell to any particular person within the territory for which the properties were sold to the appellant.

On this point there is absolutely no restriction.

It was further contended that under clause 26 of the agreement the Company agreed to pay a commission and certain allowances to the appellant which shows that the appellant was an agent.

The relevant portion of clause 26 runs thus :

"In consideration of the dealer undertaking faithfully, to carry out their part of the Agreement as set for the above, the Company undertakes to pay the dealer such commission and allowances as the Company in its sole discretion shall think fit.

The rate of commission and allowances that are current at the time are setforth in the schedule attached hereto, but the Company reserve the right to alter such commission and allowances as and when they think fit without any previous notice to the dealer and without assigning any reason therefor."

A perusal of this clause as a whole would show that the use of the words "commission and allowances" is not to indicate agency, but to indicate certain special benefits which the Company wanted to confer on its distributors.

Furthermore, then payment of commission by itself is not conclusive to show that the agreement was one of agency.

In Belthezar and Son v. E. M. Abowath, (1) Lord Dunedin observed as follows :

"It comes to this, that all the documents show on the face of them a contract as between principals.

The mere mention of commission in the contract as signed is not in any way, as pointed by the learned Judges of the Court of Appeal, inconsistent with the relation being between principal and. principal."

This decision was followed by the Calcutta High Court in Ganesh Export and Impot Company v. Mahadeolal Nathmal( 2) and we find ourselves in complete agreement with the view taken by the Calcutta

11) A.LR. (1919) P.C.166, 167.

12) A.LR. (1956) car. 188

High Court.

For these reasons, therefore, the argument by learned counsel for the respondent is not tenable in law.

Finally, reliance was placed on clause 18 of the agreement appearing at p. 126 of the Paper Book which requires the dealer to furnish security for the due observance and performance of the stipulations contained therein.

Such a stipulation also does not by itself show that the agreement was one of agency. .

The present agreement undoubtedly contains some elements ot agency also, but the main question which has to be determined in this case is whether or not at the point of time when the appellant was consuming the Hispeedol or petrol for its own purposes it was acting as an owner of the goods or as agent of the seller Company.

From the facts and circumstances discussed above, we have shown that the appellant, after taking delivery of the goods, was the owner of tile goods and if it consumed the same for its own purposes it was not doing so as agent but as owner which it was fully entitled to do. ln this view of the matter, :be quantities of petrol consumed by the appellant for its own purposes would not constitute a sale so as to be exigible to sales tax.

We have carefully perused the order of the Commissioner and find that the Commissioner has taken an erroneous view of the law and has drawn legally wrong inferences from the various stipulations contained in the agreement.

The Commissioner has also not given effect to well established legal principles in interpreting the agreement.

For the reasons given above, we are unable_ to maintain the order of the Commissioner which suffers from manifest errors of law apparent on the face of the record.

We, therefore, allow these appeals, set aside the order of tho Commissioner dated May 5, 1970, and hold that the use of the Hisp_eedol and petrol by the appellant for its own purposes is not exigible to sales tax and the proceedings for imposing sales tax on the appellant are hereby quashed.

The appellant will be entit:ed to its costs throughout.

P.B.R.

Appeal allowed.

BHOPAL SUGAR INDUSTRIES LTD

SALES TAX OFFICER, BHOPAL

April 14, 1977

P. N. BHAGWATI

N. L. UNTWALIA

S. MURTAZA FAZAL ALI, JJ

Caltex

CivIL APPELLATE JURISDICTION

S. T. Desai

Anjali K. Varma

Narain

Ram Panjwani

H. S. Parihar

I. N. Shroff

FAZAL Au

Art. 226

High Court of Madhya Pradesh

January 25, 1961

Art. 32

December 21, 1962

Art. 32

s. 2( 1)

October 20, 1963

s. 28

Madhya Pndesh

Caltex (India) Ltd.

May 5, 1970

Caltex Company

Cal!ex Company

Sale of Goods Act

section 4

Central Sales Tax Act, 1956

Bhopal Sugar Industries Ltd

England

Ramaswami

Scrutton

Bombay High Court

Panjwani

Ewing

Keralai High Court

Gordon Woodroffe & Company

Kerala High Court

C Kerala High Court

Palna High Court

Patna High Court

clause 24

Kerala High E Court

Clause 2

Clause 2

Caltex Com-

Bhopal Sugar Industries Ltd.

Mody

G. H. Sani

M. R. Pata1tlrnr

Madhya Pradesh

clause 4

Mis Caltex (India) Ltd.

November 7, 1969

clause 23

clause 15

clause 12

Clause 12

clause 26

clause 26

Dunedin

Calcutta High Court

clause 18


C'f

• 593

STATE OF HARYANA A v.

N.C.TANDON

April 14, 1977 rv. R. KRISHNA IYER, R. s. SARKARIA AND JASWANT SINGH, JJ.] B

Prevention of Corruption Act, Section 6( 1) (2 )-Sanction for prosecution- Validity of-Authority empowered to sanction-Delegation of po1ver to sanction.

Centtal Civil Services (Classification, Control and Appeal) Rules 1965- Rule 10-Power delegated to the Chief Engineer of Con11nand-Whethcr can be exercised by the zonal Chief Engineer.

The respondent v.as convicted for an offence under section 5(2) read with s. 5(1) (d) of the Prevention of Corruption Act, 1947 and section 161 of the

I.P.C. The conviction was set aside by the High Court on the sole ground that the sanction for his prosecution was not accorded by a competent authority.

The respondent Vias a Civilian in the Defence Services in the rank of temporary Superintendent, Building and oRads Grade I. The prosec11tion case was that he had accepted illegal gratification of Rs. 300/- from one Brij Bhushan Lal, Contractor, as a motive or reward for doing an official act. The snnc.tion for the prosecution of the respondent was accorded by Brig.

Naresh Prasad, Chief Engineer, North Western Zone, Chandigarh.

The 1-ligh Court held that Brig. Naresh Prasad bad no authority under the relevant rules either plenary or delegated to appoint a person to a post in dass III service at the time when he passed the order for sanction of prosecution. That such a po\ver \Vas delegated to him subsequently. The learned Judge held that the authority was the Chief Engineer, Western Command and no1 the Zonal Chief Engineer.

Section 6(1) of the Prevention of Corruption Act provides that no Court shall take cognizance of the offence in question alleged to have been committed by a public servant except with the previous sanction of the officer enumerated in clauses (a), (b) and (c) of that section.

Sub-section 2 of section 6 further provides that where for any rea6on \Vhatsoever any doubt arises whether the previous sanction as required under sub-section ( 1) should be given by the Central or State Government or any other authority such sanction shall be given by that Government or authority which would_ have been competent to remove the public servant from his office at the time \vhen the offence was alleged to have been committed.

The appellant contended that by a.n order communicated by letter dated 27-4-1956 (subsequently reiterated in letter dt. 23-1-1963) made under rule 10, the pngineerin-Chief had. empO\Vered all Chief Engineers in Military Engg.

Service to make first appointments and that the operation of the said order \Vas preserved by the saving clause in rule 34(1) of the 1965 Rules. The appellant further contended tha-t the fetter placed on the power given to the Chief Enaieers in the matter of removal or dismissal of Class III servants operates o; iy in case of persons appointed by the Engineer-in-Chief and not \vhere he was appointed by the Chief Engineer of a Command.

In the present case, the respondent was appointed not by Engineer-in-Chief but by the Chief Engineer, Western Command.

The respondent contended that the order dated 27-4-1956 expressly delegates H the power of inaking first appointments only to the Chief Engineers of the three commands then in existence and of the other departments specified therein.

Jn 1956, when the order was made there \Vere no zonal Chief Enginers, which

came into existence in December, 1962 as a class apart working under the overall administrative control of the Chief Engineers of Commands. A general delegation of the power in favour of the Chief Engineers of Commands as a class cannot by any reckoning amount to a delegation in favour of the Zonal Engineers also Vr'Orking under the control of the Chief Engineers of Commands.

Secondly, the letter dated 23·1·1963 wais not issued uhder the signature of the Engineer-in-Chief nor can it be construed as a delegation of the powcr of appointment under rule 10.

Alternatively, the power delegated by the Engineer-in-Chief to the Chief Engineers was a qualified one inasmuch as no power was given to them to dismiss or remove a Government servant of Class 111 service.

Dismissing the appeal,

HELD : ( 1) Unless a different intention appears the power to appoint to an office includes the power to dismiss or remove from that office as provided in s. 16 of General Clauses Act. The post which the respondent was holding is a post of Class III service and the members of the service are governed by Central Civil Services (Classification, Control and Appeal) Rules. 1965. 1965 Rules repeal the earlier 1952 Rules and any notification or orders issued there under in so far as. they were inconsistent with the 1965 rules. Under rule 10, appointments to Class III and Class IV Civilian Service are to be made by the officers empowered by the Engineer-in-Chief. Thus the appointing authority is competent to delegate the power of appointment. [596 B, C, G-H, 597D]

(2) A perusal of the letter dated 27-4-1956 communicMing the order of the Engineer-in-Chief shows that it is addressed to the Chief Engineers, Southern Command, .Eastern Command and Western Command.

On the date of this letter there were only 3 Commands; two Commands were created subsequeiltly.

There were no Zones or Zonal Chief Engineers at that time. Therefore, the Chief Engineers to whom the powers have been delegated under this letter could only be the Chief Engineers of the Commands a6 a class and it would cover Chief Engineers of the Commands which were subsequently created. But it would not include the Chief Engineers of Zone.

Zonal Chief Engineers have to work under the Command and technical control of Chief Engineers of Com mands.

Zonal Chief Engineers are a class apart from the Chief Engineers of Commands. They are under the administrative control of the Chief Engineers of Comn1and.

Thus the delegation is to the Chief Engineers of Commands and not to the Zonal Chief Engineers. [600 A-B, F-H 601 A-Bl

(3) The letter dated 23-1-1963 is not signed by the Engineer-in-Chief. It appears to have been signed by some other person for Engineer-in-Chief. Nor does it purport to have been issued pursuant to any separately passed order of the Engineer-in-Chief expressly delegating the powers of appointment to posts in Class III service under Rule 10.

There is nothing in the Jetter to show that the delegation was to the Zonal Chief Engineers.

On the contrary, paira 8 of the letter talks of tQe Command Chief Engineers.

The way in \vhich the Engineer-in-Chief has construed the letter is not relevant.

[601 G-H, 602AB]

(4) Brig. Naresh Prasad, Zonal Chief Engineer was not competent to remove the respondent and as such, the order sanctioning the prosecution of the respondent was bad in law. [602 CJ

CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No. 126 Of 1977.

Appeal by Special Leave from the Judgment and Order dated the 12-1-1976 of the Punjab and Haryana High Court in Crl.A. No. 583/ 72

R. N. Sachthey and H. s. Marwah for the Appellant.

HARYANA v. N. c. TANDON (Sarkaria, !.)

Hardyal Hardy and S. K. Sabbarwal for Respondent.

The Judgment of the Court was delivered by

SARKARIA, J .-This appeal by the State is directed against a judgment of the Punjab and Haryana High Court setting aside the conviction o! the respondent herein in respect of offences under ss.5 (2) read with s.5{1){d) of the Prevention of Corruption Act, 1947 and 161, Penal B Code on the sole ground that the sanction for his prosecution had not been accorded by a competent authority.

N. C. Tandon, respondent was a civilian in the defence service in the rank of temporary Superintendent Building and Roads, Grade 1.

It was alleged that he had accepted illegal gratification of Rs. 300 / - from one Brij Bhushan Lal, Contractor on 11-3-1971 as a motive or reward for doing an official act.

The Contractor was at the material time doing the construction of main sewers in Chandigarh Cantonment near Panchkula.

The respondent's duty was to supervise that construction.

The respondent, it is alleged, demanded the bribe as a reward for recording correct measurements. Brij Bhushan Lal did not, in fact, want to pay the gratification. He therefore informed the Special Police Establishment authorities who on 10-11-1971 trapped the accused and allegedly recovered the tainted money from his possesion.

The sanction for the prosecution of the accused was accorded by Brig. Naresh Prasad, Chief Engineer, North Western Zone, Chandigarh on 24-6-1971.

The Special Judge, Ambala tried and convicted the accused on the aforesaid charges and sentenced him to one year's rigorous imprisonment and a fine of Rs. 1.000/-.

Tandon appealed to the High Court.

The appeal was heard by a learned Single Judge who held that on 24-6-1971, when Brig. Naresh Prasad Chief Engineer, North Western Zone passed the order of sanction for prosecution, he had under the relevant Rules, no plenary or delegated power to appoint to a post in Class III Service and that such

a power was delegated to Chief Engineers of Zones for the first time on 14-1-1972. The learned Judge noted that the authority competent to appoint the accused-respondent on 24-6-71, was the Chief Engineer Western Command, Simla, and not the Zonal Chief Engineer. He therefore concluded that the sanction for prosecution of the accused had not been given by the competent authority.

On this short groun_d, the High Court allowed Tandon's appeal, without going into the merits

of the case.

At the outset, we may notice the general principles which govern the sanction for prosecution in such cases.

Sub-section(!) of s. 6 of the Prevention of Corruption Act says:

"No court shall take cognizance of an offence punishable nnder s. 161 (or sec. 164) or section 165 of the Indian Penal Code, or under sub-section (2) (or sub-section (3A) of section 5 of this Act, alleged to have been committed by a pub- H lie servant, except with the previous sanction of the authorities enumerated in clauses (a), (b) and ( c) of that section."

Sub-section_ (2) of the section provides :

"Where for any reason whatsoever any doubt arises whether the previous sanction as required under sub-section ( 1) should be given by the Central or State Government or any other authority, such sanction shall be given by that Government or authority "which would have been competent to remove the public servant from his office at the time when the offeni:e w.aa all€ged to have been committed."

(emphasis added)

Thus the test as indicated in this sub-section, for judging the competency of the authority giving the sanction is, whether at the time of the alleged commission of the offence, it had the power to remove the public servant from his office.

Another principle to be borne in mind is, that unless a differ•ent intention appears, the power to appoint to an office includes the power to dismiss or remove from 'that office ( vide s. 16, General Clauses Act).

_We may further clear the ground and have a short, swift look at the relevant statutory rules- It is common ground that the post ol Superintendent, Grade I (B & R) which the accused was temporarily holding, is a post of Class III Services, and the members of this Service are governed by Central Civil Services (Classification, Control and Appeal) Rules, 1965 (for short, hereinafteu called 1965 Rules).

The 1965 Rules were promulgated on November 20, 1965. Rule 34 of the 1965 Rules repealed the earlier Rules of 1952 and any notification or orders issued thereunder "in so far as they are inconsistent with (the 1965 Rules)".

One of the provisions of the 1952 Rules, which is relevant for our purpose, and which has substantially been rt:produced in the 1965 Rules, is Rule 10. It reads as under :

"10. All first appointments to Class I and Class II Services shall be made by the Government.

Ali first appoint· ments to Class III and Class- IV services shall be made by the authorities specified in column 3 of Schedule N in respect of posts mentioned against them or by officers empowered in this behalf by such authorities:"

(emphasis added).

Schedule IV referred to in the Rule ran as follows :

"Schedule IV (Vide Rules, 10, 11, 12, 14 and 19).

SI.

Posts Appointing Autho- No. rities in resPect 0f Class !II and Class IV posts (vide rule 10).

I to 7

8. PQsts in lower formatiQn under

E-in-C's l3r•nch

E-in-C'

Authority 1~.nwowert d to 1rnpC'lse penalties (i), (ii\

(iv) rnd (v) of 1 ule 13 for Class II Officers (Vid1! r. 14)

C. Es. of th•o Commands. x ."

HARAYANA v. N. c. TANDON (Sarkaria, J.) 597

The former Rule 10 as recast into Rule 9 of the 1965 Rules reads A as below :

"9 ( 1) All appointments to Central Civil Services (other than General Civil Service) Class II, Class III and Class IV shall be made by the authorities specified in this behalf in the Schedule.

Provided that in respect of Class Ill and Class IV Civilian Services, or civilian posts in the Defence Services appointments may be made by officers empowered in this behalf by the aforesaid authorities. (emphasis added)

(2) AU appointments to the Central Civil Posts, Class II, C Class III and Class IV included in the General Central Civil Service shalJ be made by the authorities specified in this behalf by a general or special order made, by the authorities specified in this behalf in the Schedule."

It may be noted that both under the old Rule 10 and the Proviso to D new Rule 9 (1), the appointing authority is competent to delegate the power of appointment in respect of Class III Service.

Rule 13 enumerated. these penalties which could be impoBed upon the servants subject to the Rules :

(i) Censure.

(ii) Withholding of increments or promotion.

(iii) Reduction to a lower post or time-scale or to a lower stage in a time-scale.

(iv) Recovery from pay of the whole or part of any pecuniary loss caused to Government by .negligence or breach of orders; F

(v) Suspension.

(vi) Removal from the civil service of the Government, which does not disqualify from future employment.

(vii) Dismissal from the civil service of the Government which ordinarily disqualifie;; from future employ- G ment.

(viii) Compulsory retirement .... "

Rule 14 of 1952 Rules specified who could impose these penalties It provided : ·

"14(1) Any of the penalties specified in rule 13 may be im-

µ01; ed on any person subject to these rules by the Government or by the appointing authority.

(2)

(a)

(bl

Without prejudice to the provisions of sub-rule (I), any of the penalties specified in clauses (i), (ii),

(iv) or (v) of rule 13 may be imposed.

in the case of members of Class III and IV services by the authority empowered in this behalf by the appointing authority.

Explanation.-In this rule the expression "appointing

authority" includes an officer empowered under Rule 10 to make first appointments to Class III and Class IV Services."

Rules 11 and 12 of the 1965 Rules correspond to Rules 13 and 14 of 1952 in all material aspects, excepting two, nameey, (1) Su!spension

has been taken out of the category of penalties, and (2) the Explanation appended to Rule 14 has been omitted because in the 1965 Rul,; s, the subject matter of that Explanation has been made a part of the definition of "Appointing Authority" given in Rule 2(a).

The mafa submission of Mr. Sachthey, learned Counsel for the appellant is that by an order communicated per letter, dated 27-4-1956, made under Rule 10 of the 1956 Rules, (subsequently reiterated in letter dated 23-1-1963) the Engineer-in-Chief had empowered all Chief Engineers in Military Engineering Service to make first appointments, inter alia, to posts in Class III Service, and that the operation of the aforesaid order was preserved and continued by the saving clause in Rule 34(1) of the 1965 Rules.

On these premises, it is maintained, that the High Court was wrong in holding that the Chief Engineer of the North-Western Zone, Chandigarh was not the 'appointing authority competent to remove the accused from service.

As against this, Mr. Hardyal Hardy, learned Counsel for the respondent submits that thfl order, dated 27-4-56, expressly delegat~. the power of making first appointments,, only to the Chief Engineers of the three Commands, then in existence, and to the other authorities spedfied therein. It is pointed out that in 1956 when this order was made, there were no Zonal Chief Engineers which came into existence on reorganization in December 1962, as a class apart, working under the overall administrative control of the Chief Engineers of Commands. The point pressed into arguments is that a general delegation of the power in favour of Chief Engineers of Commands, as a class, cannot, by any reckoning, amount to a delegation in favour of the Zonal Chief Engineers, also, working under the control of the Chief Engineers of Commands.

Mr. Hardy has further submitted that the letter dated 23-1-1963 has not been issued under the signature of the Engineer-in-Chief, nor can it, by any; stretch of language, be construed as a delegation of the power of appointment under Rule 10. In the alternative, it is submitted the power delegated by the Engineer-in-Chief to the Chief Engineers was a qualified one inasmuch as no power was given to them to dismiss

HARYANA v. N. c. TANDON (Sarkaria, !.) 599

or remove a Government servant of Class III Service.

It is maintained that by the aforesaid letter, the Chief Engineers were empowered to impose only minor penalties other than that of dismissal aad removal. It is urged, in view of this restricted delegation in the matter of infilcting penalties, it cannot he said that on the principle underlying Sec. 16 of the General Clauses Act power of appointment will automatically include the power to remove the person appointed from his office.

In reply, Mr. Sachthey has pointed out that the fetter placed on the power given to the Chief Engineers by the letter dated 27-4-56, in the matter of removal or dismissal of Class III servants, operates only in case of persons appointed by the Engineer-in-Chief, and not where he was appointed by the Chief Engineer of a Command.

It is pointed out that in the instant case, the accused was appointed not by E-in-C but by the Chief Engineer, Western Command, Simla.

The main question that falls to be considered is, whether the E-in-C's order communicated through letter, dated 27-4-1956, can be construed as a valid delegation of the power of appointment to posts in Class III Service to Zonal Chief Engineers, which came into existence on re-organization in December, 1962?

The material part of this letter reads as under :

"To

The Chief Engineer, Southern Command, Poona Eastern Command, Lucknow Western Command, Simla x x

Subject : Civilians in Defence Services (Classification, Control and Appeal Rules, 1962).

With reference to Rule 10 of the Civilians in Defence Services (Classification, Control and Appeal) Rules, 1962, I hereby authorise the authorities mentioned hereunder to make first appointments to Class III and IV Services to the extent indicated below :

Authority Posts

(a) Chief Engineers

(b) CWO, NDES All posts with the exception of permanent appointments to the follow ing categories : G

(i) SuPerintendent, BIR Grade I. • * •

2. Under Rule 14(b) of CDS (Cc&A) Rules, 1952 the undermentioned authorities are empowered to impose penalties referred to in Rule 13 ibid, to the extent indicated below :-

(a) CbiefEngineers and CWO, NDES Penalties at (i), (ii), (iv) and (v) of Rule 13 on Class Ill employees in respect of whom Ein.c is the appoint. ing authority."

A perusal of this letter will show that it is (among others) addressed to the Chief Engineers, Southern Command, Eastern Command, Lucknow, and Western Command, Simla.

On the date o:f this letter there were only three Commands; two commands wem created subsequently.

There were no Zones or Zonal Chief Engineers at tl\at time.

Therefore, the Chief Engineers to whom the powers have been delegated under this letter could only be the Chief Engineers of the Commands, as a class.

Since the delegation lias been to the Chief Engineers of the Commands, as a class, it will cover the Chief Engineers of these Commands, also, which were subsequently created.

But, the question is will it take in Chief Engineer o~ :ZOru:s and amount to a delegation of power in their favour, too, on their creation six years later in 1962 ? Answer to this question will depend on whether the Chief Engineers of Zones belong to the same

class holding the same rank and exercising same administrative powers and control as the Chief Engineers of Commands ?

At the final bearing, we bad asked Shri Sacbtbey, to make ava, ilable to us the official order, regulations and like material throwin& light on this aspect of the problem.

From the material furnished by him, it appears that the decision to reorganize the Military Engineering Service was taken by the Government in December, 1962. Pursuant to that decision, the Zones were created and Engineering Services in each Zone were placed under the charge of a Chief Engineer, of that Zone.

Chandigarh area was also made North-Western Zone, for this purpose.

This reorganisation took effect from January 1, 1963. The main object of creation of Zonal Chief Engineers as stated in C-in-C's letter No. 66161/Il/E2A, dated 13-12-1962, was to "effect maxinmm possible decentralisation and thereby achieve speed and efficiency in the planning and execution of work services."

As is apparent from the letter dated 22/26-12-1962 from the Engineer-in-Chief, the Zonal Chief Engineers have to work "under the command and technical control of CEs Commands for the planning and execution of works." E-in-C's letter, No. 6161/Il/E2A, dated December 13, 1962 addressed to the Chief Engineers, Commands and others, also, makes it clear that nnder the re-organized set up, "C.E. located at each Command H.Q. will be responsible for all engineer matters in the Command, administration and training of engineer troops and for the coordination of works. Under the Command and technical control of this Chief Engineer there will be number of CEs/CsWE ... on zonal basis."

These two letters unmistakably show that the zonal Chief Engineers are a class apart from the Chief Engineers of Commands.

Although extensive financial powers have been delegated to the Zonal

Chief Engineers, which are almost the same as that of the Chief Engineers of the Commands, the fact remains that they are under the overall administrative control of the Chief Engineer of tlie Commands concerned.

HARYANA v. N. c. TANDON (Sarkar/a, J.) 601

In this view of the matter the scope of the delegation of the powers made under the letter dated 27-4-1956, must be construed as a delegation only to the Chief Engineers of Commands, as distinguished from the Chief Engineers of Zones which were then not even in embryo.

This takes us to the letter dated January 23, 1963 from the Army H.Qrs., E-in-C's Branch. In the first place, this letter is not signed by the E-in-C. It appears to have been signed by some other i:>erson

"for E-in-Chief'; secondly it does not purport to have been issued pursuant to any separately passed order of the E-in-C expressly delegating under Rule 10; the powers of appointment to posts in Class III Service.

The opening sentence of this letter, no doubt, refers to HQ Letters No. 66161/II-E2A, dated 8 Dec. 1962, para 4 and even No. of 22 Dec. 1962, which we. have already noticed.

There is nothing in them which delegates the powers of appointment to any posts to the Zonal Chief Engineers.

On the contrary, para E of this letter says "All Class III and IV personnel will be provided by the

Command CE and will continue to be borne on the strength of that Command for purposes of (a) All documentation (b) Temporary promotion (c) Permanency

(d) Retrenchment and reversion (e) Pension-progress by the Unit but overall control by the Commarid CE."

(Emphasis added)

Mr. Sachthey has placed great stress on para 12 of this letter which says :

"The normal powers of Chief Engineer in all matters

relating to appointments, punishments etc. vest with each .E Zonal Chief Engineer in accordance with this HQ letter No. 27304/EID(2) dated 27th April 1956. In exercising these powers it will be necessary to consult CE Command prior to recruitment and replacements."

The argument advanced on behalf of the appellant is that the very authority that had issued the letter dated April 27, 1956 has construed F it as delegating the powers of appointment, punishment etc. to the Zonal CEs. also, and therefore, the Court should accept that interpretation.

We are unable to accept this argument. We have already pointed . out that this letter, dated 23-1-63, has not been issued under the signature of the same authority from which the order, dated 27-4-56, G had emanated. It does not ex facie show that any order, apart from that dated 27-4-56, had been passed by the Engineer-in-Chief under Rule 10.

For reasons given earlier, we have no hesitation in holding that, the assumption made in Paragraph 12 of this letter extracted above, to the effect that the Zonal Chief Engineers were vested with powers of appointments, punishments etc. in accordance with H.Q. letter dated 27 April 1956 was clearly incorrect, Perhaps, thai was H why on 14-1-1972, the necessity of making a proper order delegating such powers to Zonal Chief Engineers and others, under Rule 9 was felt by the Engineer-in-Chief.

A No other order of the Engineer-in-Chief made prior to 24-6'-197 l under Rule 10 of 1952 Rules or under Rule 9(1) of the 1965 Rules delegating the power of appointment to posts in Class Ill Services, has been placed before us.

We have therefore no alternative but to hold that on 24-6-1971, Brig.

Naresh Prasad, Zonal Chief Engineer, North Western Zone, Chandigarh, was not competent to remove the accused-respondent, Tandon, from the post of Superintendent, B&R B Grade I, Chandigarh and as such, the order sanctioning the prosecution of the respondent was bad in law.

In view of this finding, we do not think it necessary to examine the alternative contention advanced by Shri Hardy.

The case fa'i!s because there is no valid sanction, as required by the law.

Obviously, this does not preclude a fresh prosecution for the same offence-but C 1d't is ahmthatter for the 1 . Stateh, in 1 dthbe c 1 ircumhstdances. of thhe case, todconsier w e er prosecu ion s ou e aunc e agamst t e respon ent or not. We make this observation only to remove a possible misapprehension.

In the result, the appeal fails and is dismissed.

iP.H.P.

Appeal dismissed.

593

STATE OF HARYANA

C.TANDON

1977 rv. R. KRISHNA IYER

R. s. SARKARIA

JASWANT SINGH, JJ.

Prevention of Corruption Act

Section 6( 1)

section 5(2)

s. 5(1)

Prevention of Corruption Act, 1947

section 161

I.P.C

Brij Bhushan Lal

Naresh Prasad

Chandigarh

Section 6(1)

Prevention of Corruption Act

section 2

section 6

s. 16

General Clauses Act

R. N. Sachthey

H. s. Marwah

Hardyal Hardy

S. K. Sabbarwal

SARKARIA

Prevention of Corruption Act, 1947

Penal B Code

N. C. Tandon

Chandigarh Cantonment

Panchkula

Special Judge, Ambala

Tandon

Simla

Tandon

s. 6

Prevention of Corruption Act

s. 161

sec. 164

section 165

Indian Penal Code

section 5

Central or State Government

s. 16

General Clauses Act

November 20, 1965

Schedule IV referred to in the Rule

Schedule IV

Sarkaria

Sachthey

Hardyal Hardy

Hardy

Sec. 16

General Clauses Act

Control and Appeal Rules, 1962

Lucknow

Sacbtbey

January 1, 1963

December 13, 1962

January 23, 1963

8 Dec. 1962

27th April 1956

April 27, 1956

24-6'-197 l

Tandon