Case: Kil Kotagiri Tea and Coffee Estates Company, Limited and Others Vs. State of Kerala

that condition 11 has referred to the chests as having been purchased by the buyer; and that would be clearly against Mr. Menons case. So, it would be reasonable not to base our decision principally on the words used by the conditions, such as "purchased" or "accepted", but to take into account the substance of these conditions.8. It may be stated at this stage that after the public auction takes place, claims have to be made by the buyer not later than the third day before the prompt day, or 24 hours before removal of goods, whichever event happens earlier. The prompt day is the 10th day on or before which payment has to be made by the buyer, and possession has to be taken by him before 5 P.M. on the fifth day after the prompt day (condition No. 22). The goods continue to be at the sellers risk to the extent of the sale price only until 5 P.M. on the fifth day after the prompt day or until removal by the buyer if removed earlier (condition No. 23).Condition 12 clearly shows that the buyer has a right to make claims either on the ground of difference or inferiority in quality disclosed or inspection, or as a result of a defect in packing or any other ground whatsoever. After the time specified by this condition has expired, the buyer cannot make a claim to reject the goods, nor can he ask for any allowance or damages in respect thereof.Condition 13 is also important. It reads thus -"Each chest comprised in a lot shall be treated as the subject of a separate contract of sale; but this condition shall not entitle the buyer to require the seller to give part delivery of less than the full number of chests sold; and in the event of the buyer claiming to reject the lot purchased by him, the Arbitrators or Umpire, if satisfied that the lot was not a good tender, shall be entitled to award rejection of the entire lot, and not only the particular chests found on examination to be defective".9. It would be noticed that the first part of condition 13 corresponds to section 64(1) of the Act. It, however, adds that though each chest shall be treated as the subject-matter of a separate contract of sale, the buyer cannot claim delivery of less than the full number of chests sold. If the buyer makes a claim for rejecting the contract, the Arbitrators or Umpire may, if satisfied that the lot was not a good tender, hold that the buyer is entitled to reject either the entire lot or in a proper case even particular specified chests constituting the lot. Like the word "accepted" in condition 12, the word "tender" in condition 13 cannot, however, materially affect the nature of the transaction. Condition 13 makes it clear that in case the buyer finds a substantial defect in the quality of the goods sold to him, he cannot reject the contract of his own; all he can do is to make a claim in that behalf before the Arbitrator; and this condition is consistent only with the view that the goods have already been purchased by the buyer and the claim which he is allowed to make is as a result of the breach of the contract of sale.Mr. Menon attempted to argue that condition 13 merely enables the buyer to move the Arbitrator. According to him, the buyer can reject the contract of his own, or file a claim for damages in a civil court without having recourse to arbitration. In our opinion, condition 13 is not merely an enabling condition; it is an obligatory condition and it gives the buyer only one remedy, and that is to move the Arbitrator for appropriate relief.Condition 13 is also relevant. It reads thus :-"If the buyer shall fail to pay for the tea or any part thereof on the due date for payment, the goods may be resold, either by auction or private sale, at the option of the seller. Any loss arising on such resale together with interest at 6 per cent. per annum from the due date and all charges incurred, shall be paid by the buyer to the seller, and the buyer shall not be entitled to any profit, which may accrue from such resale".10. This condition is consistent with the provisions of section 64(2) of the Act, and it cannot be said to support Mr. Menons contention that the title in the goods does not pass to the buyer until he has inspected them and indicated his acceptance.Condition 16 is a general condition as to arbitration and it provides that any disputes or differences which may arise between the parties shall be referred to arbitration as therein indicated. Reading conditions 13 and 16 together, there can be no doubt that all claims which the buyer is entitled to make must be made to the arbitrators and it is the decision of the arbitrators that will determine the dispute between the buyer and the seller.11. We have carefully considered all the rules under which sales in question have been held by public auction, and we are satisfied that title to the goods passed to the buyer under section 64(2) of the Act as soon as the sale was completed by the auctioneer announcing its completion by the fall of the hammer. The initial auction cannot, in our opinion, be treated as an executory contract which became a conditional contract on the fall of the hammer. The auction was an auction sale in respect of ascertained goods and it was concluded in every case on the fall of the hammer. On that view of the matter, we must hold that the High Court was in error in coming to the conclusion that the Sales Tax Authorities were justified in imposing sales tax against the appellants in regard to the transactions which have given rise to the present appeals.

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

Explanation:
1[ds]3. It appears that in the two decisions of this Court to which we have just referred, this point has not been considered.would be noticed that the whole of the argument thus presented by Mr. Menon proceeds on the assumption that the contract of sale by sample in the present proceedings was a contract of goods which were in a sense unascertained and it could be concluded only when the buyer inspected the goods and accepted them.The position in regard to the relevant provisions of the Act bearing on the question as to when title in the goods sold passes, is not in doubt. If the contract of sale is for ascertained goods which are actually described in the list prepared before the sales are held and it appears that all material particulars about the goods are shown in the list, then the question as to when title passes would depend essentially upon the intention of the parties expressed in the terms of the contract. Section 19(1) of the Act provides that where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. Section 19(2) adds that for the purpose of ascertaining the intention of the parties, regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. Under section 19(3) it is provided that unless a different intention appears, the rules contained in sections 20 to 24 would be relevant to decide this question. One thing is clear in the present case, viz., that the goods in question were not unascertained goods, nor were they not in existence; goods were clearly in existence, they had been graded, weighed and packed in numbered chests and a list was prepared in respect of the contents of these chests separately. It is true that what the buyers are shown at the time of sale by public auction are samples and the rules authorise the buyer to inspect the goods; but that is not to say that the sale is a sale of unascertained or non-existingdo not think that such importance can be attached to the expression "to have been accepted by the buyer" on which Mr. Menon rests his argument. We have already seen that condition 11 has referred to the chests as having been purchased by the buyer; and that would be clearly against Mr. Menons case. So, it would be reasonable not to base our decision principally on the words used by the conditions, such as "purchased" or "accepted", but to take into account the substance of these conditions.8. It may be stated at this stage that after the public auction takes place, claims have to be made by the buyer not later than the third day before the prompt day, or 24 hours before removal of goods, whichever event happens earlier. The prompt day is the 10th day on or before which payment has to be made by the buyer, and possession has to be taken by him before 5 P.M. on the fifth day after the prompt day (condition No. 22). The goods continue to be at the sellers risk to the extent of the sale price only until 5 P.M. on the fifth day after the prompt day or until removal by the buyer if removed earlier (condition No. 23).Condition 12 clearly shows that the buyer has a right to make claims either on the ground of difference or inferiority in quality disclosed or inspection, or as a result of a defect in packing or any other ground whatsoever. After the time specified by this condition has expired, the buyer cannot make a claim to reject the goods, nor can he ask for any allowance or damages in respectour opinion, condition 13 is not merely an enabling condition; it is an obligatory condition and it gives the buyer only one remedy, and that is to move the Arbitrator for appropriate relief.This condition is consistent with the provisions of section 64(2) of the Act, and it cannot be said to support Mr. Menons contention that the title in the goods does not pass to the buyer until he has inspected them and indicated his acceptance.Condition 16 is a general condition as to arbitration and it provides that any disputes or differences which may arise between the parties shall be referred to arbitration as therein indicated. Reading conditions 13 and 16 together, there can be no doubt that all claims which the buyer is entitled to make must be made to the arbitrators and it is the decision of the arbitrators that will determine the dispute between the buyer and the seller.11. We have carefully considered all the rules under which sales in question have been held by public auction, and we are satisfied that title to the goods passed to the buyer under section 64(2) of the Act as soon as the sale was completed by the auctioneer announcing its completion by the fall of the hammer. The initial auction cannot, in our opinion, be treated as an executory contract which became a conditional contract on the fall of the hammer. The auction was an auction sale in respect of ascertained goods and it was concluded in every case on the fall of the hammer. On that view of the matter, we must hold that the High Court was in error in coming to the conclusion that the Sales Tax Authorities were justified in imposing sales tax against the appellants in regard to the transactions which have given rise to the present appeals.