Case: Assam Small Scale Ind. Dev. Corp.  Vs. M/S. J.D. Pharmaceuticals

were the tenants of the plaintiffs. They are claiming through Papamiya. At the most, therefore, they can be said to be sub-tenants i.e. tenants of Papamiya. There was no privity of contract between the landlord and the respondents. In our opinion, therefore, it was not necessary for the plaintiffs to join the respondents as defendants in the suit nor to give notice to them before initiation of the proceedings. The respondents cannot be said to be “necessary party” to the proceedings.26. As held by this Court in Udit Narain Singh Malpaharia v. Addl. Member, Board of Revenue, Bihar-8, there is a distinction between “necessary party” and “proper party”. In that case, the Court said: (SCR p. 681)“The law on the subject is well settled: it is enough if we state the principle. A necessary party is one without whom no order can be made effectively; a proper party is one in whose absence an effective order can be made but whose presence is necessary for a complete and final decision on the question involved in the proceeding.” (Emphasis supplied) We respectfully adopt the same. 37. The Corporation for all intent and purport having undertaken the liability of the purchasing authorities would also be liable for all consequences arising from non-payment of the price of the goods supplied. 38. We may summarise the effect of the 1989 Act, the marketing support scheme of the Corporation, the O.M. dated 28.3.1988 referred to in Section 7(1)(iii) of the 1989 Act, and the agreement between the Corporation and the respondent, as follows : (i) The Corporation had to collect 90% of the value of the orders placed by the purchasing departments, in advance, and release the said 90% to the respondent on supply. This obligation is a statutory obligation having regard to the provisions of Section 7(1)(c) of the 1989 Act read with Clause 4 of the O.M. dated 28.3.1988 and the Clause relating to ‘indenting’ contained in the Marketing Assistance Scheme. This would mean that if the Corporation accepts indents from Government departments without 90% advance and chooses to place corresponding supply orders on the respondent, it (the Corporation) is liable to pay the said 90% to the respondent on supply whether the Corporation chose to receive payment from the indenting departments or not. (ii) Though the respondent is described as the ‘principal’ and the Corporation is described as the ‘agent’ in the agreement dated 19.10.1990 between the respondent and the Corporation, the Corporation was not entitled to receive any commission or remuneration or consideration from the respondent for the orders procured/placed. It is entitled to receive the commission (at the rate of 5% of the price) only from the indenting departments. The Corporation, thus, acted as the ‘agent’ of both the respondent-supplier and the Indenting Government Departments and took the responsibility of paying the price to the respondent. In fact, under Clause 6 of the agreement, the respondent specifically authorised the Corporation to raise bills of sale on behalf of the respondent, either disclosing or without disclosing the name of the respondent, and collect the payment from the buyer department. The said Clause also specifically contemplates the Corporation releasing 90% of the value of the material on delivery and acceptance, and payment of balance of 10% after receipt of full payment from the purchasing department. As noticed above, the statutory scheme and the O.M. required the Corporation to receive the 90% payment in advance along with the indents from the purchasing departments and any relaxation by the Corporation of that provision was done at its own risk. APPLICABILITY OF THE 1993 ACT: 39. We have held hereinbefore that Clause 8 of the terms and conditions relate to the payments of balance 10%. It is not in dispute that the plaintiff had demanded both the principal amount as also the interest from the Corporation. Section 3 of the 1993 Act imposes a statutory liability upon the buyer to make payment for the supplies of any goods either on or before the agreed date or where there is no agreement before the appointed day. Only when payments are not made in terms of Section 3, Section 4 would apply. The 1993 Act came into effect with effect from 23.9.1992 and will not apply to transactions which took place prior to that date. We find that out of the 71 suit transactions, Sl. Nos.1 to 26 (referred to in penultimate para of the Trial Court judgment), that is supply orders between 5.6.1991 to 28.7.1992, were prior to the date of 1993 Act coming into force. Only the transactions at Sl. No. 27 to 71 (that is supply orders between 22.10.1992 to 19.6.1993). will attract the provisions of the 1993 Act.40. The 1993 Act, thus, will have no application in relation to the transactions entered into between June, 1991 and 23.9.1992. The Trial Court as also the High Court, therefore, committed a manifest error in directing payment of interest at the rate of 23% upto June, 1991 and 23.5% thereafter. 41. Mr. Choudhary has placed reliance upon a Full Bench decision of Guwahati High Court in Assam State Electricity Board & Ors. v. M/s. Shanti Conductors (P) Ltd. & Anr., 2002 (1) GLT 547 , which having regard to the non obstante Clause contained in Sections 4, 5 and 10 of the 1993 Act opined that interest payable thereunder shall embrace within its fold even the contracts which might have been entered into prior to the enforcement of the Act stating: “However, in such a case interest on the delayed payment which is made after the coming into force of the Act of 1993 would be calculated under the Act from the date of the enforcement of the Act and not from the date of payment prescribed under the agreement.” 42. With respect, we do not subscribe to the said view as payment of interest at an enhanced rate cannot be made in relation to the transactions where Section 3 will have no role to play.

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

Explanation:
1[ds]26. The expressionsused in a document are not decisive. The nature of transaction is required to be determined on the basis of the substance there and not by the nomenclature used. Documents are to be construed having regard to the contexts thereof whereformay not be of much relevance. The 1989 Act, the scheme and the guidelines postulate constitution of a State Board for the purpose of monitoring supplies to various departments of the State, the Government Corporations and the companies. The Managing Director of the Corporation is a Member of the Board in terms of the provisions of the 1989 Act. The Corporation was created for the purpose of giving effect to the provisions of the Act and the scheme framed thereunder. It is a statutory body and is awithin the meaning of Article 12 of the Constitution of India. The contract by and between the parties being a statutory one, the Corporation was required to act fairly and reasonably. The principal purpose of the Act was to give encouragement to the growth of industries in the State of Assam and patronizing the products of small scale and cottage industries on preferential basis. The 1989 Act contemplates acts which would be for the betterment of the SSI units and not acts which would be detrimental to their interest. The terms used in the agreement must, therefore, be understood in that perspective.It is no longer in doubt or dispute that while interpreting the terms of agreement, it is necessary to look to the substance of the matter rather than its form. Use of a terminology may not be sufficient to lead to a conclusion that the parties to the contract in fact intended that the said status would be conferred.Law contemplates different types of agency. Under the Contract Act, the concept of del credere agent isA del credere agent assumes responsibility for the solvency and performance of their contract by the vendees and, thus, indemnifies his employer against loss. He gives an additional security to the seller. [See Bowstead & Reynolds on Agency, 17th Edition, paraHowever, it is not necessary to dilate thereupon as the status of the parties herein must be determined in terms of the provisons of the 1989 Act.32. The 1989 Act makes a statutory provision beyond the concept of agency as contained in the Contract Act. It is a special statute. In terms thereof the respondent was not required to pay any commission to the Corporation, though the Corporation was described asof the respondent under the agreement. 5% commission was to be paid to the Corporation by the purchasing authorities. The provisions of the 1989 Act, thus, should be given full effect. The status of the parties must not, thus, be determined as to how they have described themselves but having regard to the substance of the transaction as envisaged under the Act and the scheme framed, which as noticed hereinbefore, is as a part of the Act.33. As a statutory agency came into being by and between the purchasing authorities and the Corporation in terms whereof the Corporation not only exercised the control in relation to the entire supply of materials, as a part of the statutory scheme, it also undertook to collect the price of the goods supplied from the purchasing authorities and pay the same to the manufacturers subject, of course, to the payment of its commission which would be a substantial amount. Under the scheme, the purchasing authorities had a duty to pay 90% of the price before the Corporation makes an indent and, thus, the latter had a statutory duty to realize the same before an indent is made, as also the remaining 10% when supplies are completed. If the payment was to be made by the Corporation to the respondent both under the contract as also in terms of the statutory provision, it cannot now turn round and contend that it was not part of its duty and leave the matter at that. It was obligated having regard to the statutory scheme on the part of the Corporation to realize the price for the consideration of the goods supplied. It was not constituted merely to act as a conduit pipe. It was bound to perform its statutory duties envisaged under the 1989 Act.34. Furthermore, it is one thing to say that the respondent delivered goods without receiving 90% of the indented amount but it is another thing to say that it has waived its right. No case of waiver of statutory duty has been made out. Nothing has been pointed before us that the respondent gave up its claim to receive the amount directly from the Corporation. Its conduct suggests contra. The respondent for a period of about two years made those supplies and had been asking the Corporation to make its payment and, as noticed hereinbefore, the respondent filed a suit at the earliest possible opportunity. Even during last 12 years, the Corporation made no effort to realize the amount from the State and pay the same to a small scale industry for whose benefit the 1989 Act was enacted. It had shown utter despondency and behaved in a cavalier manner taking umbrage under specious plea that the State was a necessary party. There was no privity of contract between the Corporation and the purchasing authorities. All payment of the purchasing authorities were to be channelised through the Corporation. Having regard to the transactions between the parties as also the Scheme and the Act, we are of the opinion that the State of Assam was not a necessary party.35. In terms of the agreement between the parties hereto, the State of Assam would not be a necessary party but merely be a proper party.We have held hereinbefore that Clause 8 of the terms and conditions relate to the payments of balance 10%. It is not in dispute that the plaintiff had demanded both the principal amount as also the interest from the Corporation. Section 3 of the 1993 Act imposes a statutory liability upon the buyer to make payment for the supplies of any goods either on or before the agreed date or where there is no agreement before the appointed day. Only when payments are not made in terms of Section 3, Section 4 would apply. The 1993 Act came into effect with effect from 23.9.1992 and will not apply to transactions which took place prior to that date. We find that out of the 71 suit transactions, Sl. Nos.1 to 26 (referred to in penultimate para of the Trial Court judgment), that is supply orders between 5.6.1991 to 28.7.1992, were prior to the date of 1993 Act coming into force. Only the transactions at Sl. No. 27 to 71 (that is supply orders between 22.10.1992 to 19.6.1993). will attract the provisions of the 1993 Act.40. The 1993 Act, thus, will have no application in relation to the transactions entered into between June, 1991 and 23.9.1992. The Trial Court as also the High Court, therefore, committed a manifest error in directing payment of interest at the rate of 23% upto June, 1991 and 23.5% thereafter.With respect, we do not subscribe to the said view as payment of interest at an enhanced rate cannot be made in relation to the transactions where Section 3 will have no role to play.