Case: C. V. K. Rao Vs. Dentu Bhaskara Rao

the quantities, at the times in the manner and at the place specified in the notice exercising the said right.(b) Should the right to pri-emption conferred by this present provision be exercised and a vessel chartered to carry the minerals or products thereof procured on behalf of the State Government or the Central Government be detained on demurrage at the port of loading the lessee shall pay the amount due for demurrage according to the terms of the charter party of such vessel unless the State Government shall be satisfied that the delay is due to causes beyond the control of the lessee.(c) The price to be paid for all minerals or products of minerals taken in pre-emption by the State Government in exercise of the right hereby conferred shall be the fair market price prevailing at the time of pre-emption provided that in order to assist in arriving at the said fair market price the lessee shall, if so required, furnish to the State Government for the confidential information of the Government particulars of quantities, descriptions and prices of the said minerals or products for carriage of the same and shall produce to such officer or officers as may be directed by the State Government original or authenticated copies of contracts and charter parties entered into for the sale of freightage of such minerals or products.(d) x x x x"4. Mr. K. R. Chaudhury contended that under this clause there was a standing contract for the supply of goods and all that Government had to do was to send a notice to the respondent and he was compelled to supply the goods to Government. He pointed out that from the time the lease was granted Government was asking the respondent to commence operations to raise the minerals but the respondent avoided working the mine probably to save himself from the disqualification. According to Mr. Chaudhury, it mattered not whether the mine was worked or not, but what mattered was that there was a subsisting contract for the supply of minerals to the appropriate Government. Mr. A. Vishwanatha Sastri in reply,, contended that the mining lease could not be regarded as a contract and further that it was not in the course of the trade or business of the respondent, and finally that, in any event, it was not a contract for the supply of goods. That it was in the course of business of the respondent almost goes without saying. It is not necessary, as Mr. Sastri suggested, that a course of business based upon other transactions must first exist before the offending contract can be said to be in the course of business. The contract may itself be the start of the business and the words in the course of the business would still be apt. As the mining lease was subsisting, the contract, if any there be, was also subsisting, and there is no doubt on that aspect of the matter. The question is whether the provisions of Cl. 21 bring about a contract for the supply of goods. This question can be broken into two which are: (a) whether Cl. 21 can he regarded as a contract and (b) whether it can be regarded as a contract for supply of goods. Clause 21 is invariably inserted in every mining lease. It reserves to the Government the right to the minerals which vest in Government but which are allowed to be raised by the lessee holding the lease. The lease is, in one sense, a contract between the Government and the lessee because there is consideration on both sides and an offer and acceptance. There are obligations created by it, some of which are contractual even though some may be regarded as arising from the conditions of the grant. The mining lease without Cl. 21 cannot possibly be described as a contract for the supply of goods. Without that clause there would neither be a mention of goods nor of their supply. If the lease is to be read as satisfying the disqualification in S. 7(d), Cl. 21 alone can satisfy it. Clause 21 speaks of a right of the Government to pre-empt the minerals and all products thereof lying in or around the land demised or elsewhere under the control of the lessee. There is, however, no concluded contract in respect of any goods because it hardly needs to be said that relying upon this clause the lessee cannot begin delivery of the ore to the Government. He can do so only if the Government serves a notice on him stating the quantity pre-empted and the time within which the supply is to be made. The clause, however, does not make it obligatory on Government to pre-empt any quantity of mineral or at all. There is no obligation to buy nor is there any compulsion on the part of the lessee to sell unless asked. In there circumstances, the clause does no more than to keep intact a right of the Government to obtain the minerals or their products as and when Government requires in preference to others. Till Government makes up its mind and serves a notice there is no obligation to make any deliveries and even though the word subsists is a word of wide import, it cannot be said that a contract for the sale of goods subsists because a contract requires an offer and its acceptance and is not a mere reservation of a right.5. Taking the most liberal view of the matter it is clear that Cl. 21 did not bring into being a contract for the supply of goods. All that it did was to reserve to the Government the right to prior purchase of the minerals raised by the respondent. The reservation of such right does not amount to a contract for the supply of goods which can be said to subsist between the parties. The High Court was, therefore, right in reversing the decision of the Election Tribunal.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]This question can be broken into two which are: (a) whether Cl. 21 can he regarded as a contract and (b) whether it can be regarded as a contract for supply of goods. Clause 21 is invariably inserted in every mining lease. It reserves to the Government the right to the minerals which vest in Government but which are allowed to be raised by the lessee holding the lease. The lease is, in one sense, a contract between the Government and the lessee because there is consideration on both sides and an offer and acceptance. There are obligations created by it, some of which are contractual even though some may be regarded as arising from the conditions of the grant. The mining lease without Cl. 21 cannot possibly be described as a contract for the supply of goods. Without that clause there would neither be a mention of goods nor of their supply. If the lease is to be read as satisfying the disqualification in S. 7(d), Cl. 21 alone can satisfy it. Clause 21 speaks of a right of the Government to pre-empt the minerals and all products thereof lying in or around the land demised or elsewhere under the control of the lessee. There is, however, no concluded contract in respect of any goods because it hardly needs to be said that relying upon this clause the lessee cannot begin delivery of the ore to the Government. He can do so only if the Government serves a notice on him stating the quantity pre-empted and the time within which the supply is to be made. The clause, however, does not make it obligatory on Government to pre-empt any quantity of mineral or at all. There is no obligation to buy nor is there any compulsion on the part of the lessee to sell unless asked. In there circumstances, the clause does no more than to keep intact a right of the Government to obtain the minerals or their products as and when Government requires in preference to others. Till Government makes up its mind and serves a notice there is no obligation to make any deliveries and even though the word subsists is a word of wide import, it cannot be said that a contract for the sale of goods subsists because a contract requires an offer and its acceptance and is not a mere reservation of a right.5. Taking the most liberal view of the matter it is clear that Cl. 21 did not bring into being a contract for the supply of goods. All that it did was to reserve to the Government the right to prior purchase of the minerals raised by the respondent. The reservation of such right does not amount to a contract for the supply of goods which can be said to subsist between the parties. The High Court was, therefore, right in reversing the decision of the Election Tribunal.