Case: M/s. Arihant Udhyog Vs. State of Rajasthan &amp; Others

Sale and agreement to sell(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another.(2) A contract of sale may be absolute or conditional.(3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.(4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred." The very distinction between the sale and agreement to sell enumerated in the aforesaid provision points out that a sale takes place when the property in goods is transferred from the seller to the buyer. If transfer of property in the case is to take place at a future time or subject to conditions that are stipulated in the contract of sale of goods, then the contract is merely an agreement to sell. Section 19 is contained in Chapter-III of the Sale of Goods Act, title whereof is "Effects of the Contract (Transfer of Property as between Seller and Buyer)". As per this provision, property passes from seller to buyer when it is intended to pass and such an intention is to be gathered from contract for the sale when it pertains to sale of specific or ascertained goods. To understand fully the implication of this provision, we reproduce hereunder the provisions of Section 19: "19. Property passes when intended to pass(1) 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.(2) 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.(3) Unless a different intention appears, the rules contained in sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer." 16. Sub-section (3) of Section 19 is another significant provision which mentions that rules contained in Sections 20 to 24 are the rules for ascertaining the intention of the parties, unless a different intention appears in the contract for the sale of specific or ascertained goods. It means, if such an intention as to when the parties to the contract intend the property in goods to be transferred cannot be gathered from the contract, rules contained in Sections 20 to 24 would be applied. 17. Section 20 deals with a situation where specific goods are in a deliverable state. In that case property in goods passes to the buyer when the contract is made, even when time of payment of the price or the time of delivery of the goods or both is postponed. In order that Section 20 is attracted, two conditions have to be fulfilled: (i) the contract of sale is for specific goods which are in a deliverable state; and (ii) the contract is an unconditional contract. If these two conditions are satisfied, Section 20 becomes applicable {See - Shalimar Chemical Works Ltd.. 18. However, Section 21 is exception to Section 20 which states that where there is a contract for sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such a thing is done and the buyer has notice thereof. Likewise, Section 22 carves out another exception and mentions that even when the specific goods are in a deliverable state but the seller is bound to weigh, measure, test or do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such Act or thing is done and the buyer has notice thereof. 19. Section 23 deals with sale of uncertain goods and appropriation, with which we are not concerned here. Likewise, Section 24 deals with a situation where goods are sent on approval or `on sale or return basis, which is also not relevant for our purposes. 20. A conjoint reading of the aforesaid provisions makes it clear that title in goods is transferred from the seller to buyer only on the sale of goods. As to when such a sale fructifies and the property passes is to be ascertained from the intention of the parties having regard to the terms of the contract. If no such intention can be gathered from the terms of the contract, the property in goods passes where the goods are in a deliverable state and there is unconditional contract for sale of specific goods.21. In the case of Arihant Udhyog, intention is to be gathered from the terms and conditions, which have already been noted above. It mentions that responsibility of the seller ceases as soon as goods are delivered, which means the seller remained responsible till the delivery of goods. Therefore, intention was to retain the title in the goods till its delivery inasmuch as till that time it is the seller who was responsible for the goods. This condition would clearly spell out that if the goods are destroyed or lost in transit, i.e. before their delivery, responsibility will be that of the seller. Such a responsibility can be only if the ownership remains of the seller. No other document was produced by Arihant Udhoyg which could demonstrate the intention that property in goods passed in their favour before these goods were delivered.

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

Explanation:
0[ds]14. From the aforesaid arguments it becomes clear that applicability of Section 17 of the Act read with Rule 58 of the Rules would depend upon the question as to whether agricultural produce is bought and sold by the licensee in the market area. It is also the common case of the parties that the answer to the aforesaid issue would depend upon the question as to when and at what stage the title in the goods passes. If the entire transaction takes place outside the State of Rajasthan and the ownership in the goods also passes outside Rajasthan, then the market fee is not payable. It is also the common case of the parties that answer to the aforesaid question would depend upon the applicability of Section 4 read with Section 19 of the Sale of Goods Act, 1930, which provisions are to be applied keeping in view the terms and conditions on which the goods are sold. That is the exercise which is done by the High Court by looking into the terms on which the goods were sold by Jawahar Exim Ltd. to Arihant Udyog. Insofar as Arihant Udhyog is concerned, this was the only invoice produced before the High Court and is also made Annexurein the present proceedings. On going through the same, we do not find any fault in the approach of the High Court.A conjoint reading of the aforesaid provisions makes it clear that title in goods is transferred from the seller to buyer only on the sale of goods. As to when such a sale fructifies and the property passes is to be ascertained from the intention of the parties having regard to the terms of the contract. If no such intention can be gathered from the terms of the contract, the property in goods passes where the goods are in a deliverable state and there is unconditional contract for sale of specific goods.21. In the case of Arihant Udhyog, intention is to be gathered from the terms and conditions, which have already been noted above. It mentions that responsibility of the seller ceases as soon as goods are delivered, which means the seller remained responsible till the delivery of goods. Therefore, intention was to retain the title in the goods till its delivery inasmuch as till that time it is the seller who was responsible for the goods. This condition would clearly spell out that if the goods are destroyed or lost in transit, i.e. before their delivery, responsibility will be that of the seller. Such a responsibility can be only if the ownership remains of the seller. No other document was produced by Arihant Udhoyg which could demonstrate the intention that property in goods passed in their favour before these goods were delivered.Having said so, we find that the High Court has passed impugned common judgment deciding as many as fifteen writ petitions. Other writ petitions are also dismissed taking into consideration the terms and conditions of the contract of sale between Arihant Udhyog and its seller. This is clearly a wrong approach. In each case the High Court was supposed to go into the contract for sale between the licensees and their sellers and in view of the terms and conditions contained in each of the case, the High Court was supposed to decide as to whether in their cases also ownership in goods transferred only in the market area within the State of Rajasthan.We have gone through the said judgment and find that no such principle, as sought to be advanced by the appellants, is laid down therein. That was a case where the respondent had purchased castor seeds from suppliers outside the market area but weighment and payment whereof was made at the mill site within the market area. The Court concluded that the respondent company had become owner of the goods only once the exact weight of the castor seeds was ascertained and purchase voucher was obtained and, therefore, the sale had taken place within the market area and the respondent was liable to pay market fee thereon. To that extent, the aforesaid judgment is against the appellants. However, there was one more issue involved in the said case. The respondent industry was using the castor seeds for manufacturing of oil therefrom. In this manufacturing,seed cake emerged as aThe Market Committee wanted to levy market fee on thisalso, which was held to be impermissible. The Court also held that the item mentioned in Schedule to the Act was `oil cake which is different and distinct fromcake.27. This plea of the appellant, therefore, is of no consequence. In the impugned judgment the High Court has rightly repelled this argument by observing that once the goods bought are agricultural produce on which market fee is leviable in terms of Schedule attached to the Act, then the market fee is payable. If it is used as raw material for manufacturing purpose thereafter would be of no consequence.