Case: Seth Bikhraj Jaipuria Vs. Union Of India

1. Bhikhraj Jaipuria-hereinafter called the appellants the sole proprietor of a grocery business conducted in the name and style of "Rajaram Vijai Kumar" in the town of Arrah in the State of Bihar. In the months of July and August, 1943, the Divisional Superintendent, East Indian Railway under three "purchase orders" agreed to buy and the appellant agreed to sell certain quantities of food grains for the employees of the East Indian Railway.2. The following table sets out the purchase prices, the commodities the dates of purchase orders, the quantities and the rates and the method of supply.Purchase Order No. Date of purchase orders. Kinds of commodity. Quantity of commodities. Rates.69.20-7-1943.Gram 1st quality1000 maunds.@ Rs.15 Per md. (plus cost of new bags not exceeding Rs. 75 per 100 bags) F. O.R. any E. J. Rly. station in Bihar.7624-7-1943.Rice Dhenki Medium quality.1000 mds.@ Rs. 22-8-0 (plus cost of bags not exceeding Rs. 75 per cent) per md. F. O. R. any station on the division.ii. Wheat white as per sample.5000 mds.@ Rs. 20-8-0 per md. with bags F. O. R. any station on E.I.R. on the Division.106.24-8-1943.Rice medium quality.15000 mds.@ Rs. 24 per md. Without bags F. O. R. E. I. Rly. station in Bihar.3. Purchase orders Nos. 69 and 76 were signed by S. C. Ribbins, Personal Assistant to the Divisional Superintendent and purchase order No. 106 was signed by the Divisional Superintendent. Under the purchase orders delivery of grains was to commence within seven days of acceptance and was to be completed within one month. The appellant delivered diverse quantities of food grains from time to time but was unable fully to perform the contracts within the period stipulated. Between July 20, 1943 and August 24, 1943, he supplied 3465 maunds of rice and between September 1, 1943 and September 19, 1943 he supplied 1152 maunds 35 seers of wheat. In exercise of the powers conferred by cl. (b) of sub-r. (2) of R. 81 of the Defence of India Rules, the Government of Bihar by notification No. 12691 - P.C. dated September 16, 1943, directed that commodities named in column I of the schedule shall not, from and including September 20, 1943, and until further notice, be sold at any primary source of supply or by the proprietor, manager or employee of any mill in the Province of Bihar at prices exceeding those specified in the second column of the schedule. The controlled rate of rice (medium) was Rs. 18 per standard maund, of wheat (red) Rs. 17, of wheat (white) Rs. 18 and of gram Rs. 12-8-0. The Sub-Divisional Magistrate, District Arrah issued on September 21,1943 a price-list of controlled articles fixing the same prices as were fixed for wheat, rice and gram by the notification issued by the Government of Bihar. By cl. (2) of the notification, a warning was issued that in the event of the dealers selling controlled articles at rates exceeding those fixed or with-holding stocks of such articles from sale, "they will be liable to prosecution under R. 81 (1) of the Defence of India Rules."4. By a telegraphic communication dated September 28, 1943, the Divisional Superintendent informed the appellant that under the purchase orders, food grains tendered for delivery will not, unless despatched before October 1, 1943 be accepted, and barring a consignment of 637 maunds 20 seers accepted on October 7, 1943, the Railway Administration declined to accept delivery of food grains offered to be supplied by the appellant after October 1, 1943. The appellant served a notice upon the Divisional superintendent complaining of breach of contract and sold between February 18 and February 23, 1944 the balance of food grains under the purchase orders which were lying either at the various railway stations or in his own godowns. The appellant then called upon the Railway Administration to pay the difference between the price realised by sale and the contract price and failing to obtain satisfaction, commenced an action (Suit No. 359/48A) in the Court of the First Additional Subordinate Judge, Patna for a decree for Rs. 2,89,995-15-3 against the Dominion of India. The appellant claimed Rs. 2,32,665-12-0 being the difference between the contract price and the price realised, Rs. 42,709-10-3 as interest and Rs. 14,620-9-0 as freight, wharfage, cartage, price of packing material, labour charges and costs incurred in holding the sale. The appellant submitted that under the terms of the purchase orders, supply was to commence within seven days of the date of receipt of the orders and was to be completed within one month, but it was not intended that time should be of the essence of the contract, and in the alternative that the Railway Administration had waived the stipulation as to time in the performance of the contracts and therefore he was entitled, the Railway Administration having committed breach of the contracts, to recover as compensation the difference between the contract price and the price for which the grains were sold. The suit was resisted by the Dominion of India contending inter alia that the appellant had no cause of action for the claim in the suit, that the contracts between the appellant and the Divisional Superintendent, Dinapur were not valid and binding upon the Government of India and that the contracts were liable to be avoided by the Government, that time was of the essence of the contracts, that stipulations as to time were not waived, and that no breach of contract was committed by the East Indian Railway Administration and in any event, the appellant had not suffered any loss as a result of such breach. By the written statement, it was admitted that the East Indian Railway through the Divisional Superintendent Dinapur had by three orders set out in the plaint agreed to buy, and the appellant had agreed to sell the commodities specified therein, but it was denied that the Divisional Superintendent had been "given complete authority to enter into contracts for the supply of food grains."5. The trial court held that time was not of the essence of the contracts and even if it was, breach of the stipulation in that behalf was waived. It further held that the plea that the contracts were void because they were not in accordance with the provisions of S. 175 (3) of the Government of India Act, 1935 could not be permitted to be urged, no such plea having been raised by the written statement. Holding that the Divisional Superintendent was authorised to enter into the contracts for purchase of food grains, and that he had committed breach of contract, the trial judge awarded to the appellant Rs. 1,29,460-7-0 with interest thereon at the rate of 6% per annum from October 1, 1943 to the date of the institution of the suit and further interest at 6% on judgment. Against that decree, an appeal was preferred by the Union of India to the High Court of Judicature at Patna and the appellant filed cross objections to the decree appealed from. The High Court held that time was of the essence of the contracts, but the Railway Administration having accepted the goods tendered after the expiration of the period prescribed thereby, the stipulation as to time was waived. The High Court further held that by the notification under R. 81 of the Defence of India Rules, performance of the contracts had not been rendered illegal but the Divisional Superintendent had no authority to enter into contracts to purchase food grains on behalf of the Railway Administration and that in any event, the contracts, not having been expressed to be made by the Governor-General and not having been executed on behalf of the Governor-General by an officer duly appointed in that behalf and in manner prescribed, the contracts were unenforceable. The High Court also held that the appellant was not entitled to a decree for compensation because he had failed to prove the ruling market rate on the date of breach viz., October 1, 1943. The High Court also observed that the tria1 court erred in awarding interest prior to the date of the suit and in so holding, relied upon the judgment of the Privy Council in B. N. Ry. Co., Ltd. v. Ruttanji Ramji, 65 Ind App 66 : (AIR 1938 P CEx. M-2 which was in operation at the material time, all instruments relating to purchase or hire, supply and conveyance of materials, stores, machinery, plant, telephone lines and connections, coal, etc., could be executed amongst others by the Divisional Superintendent; but contracts relating to purchase of food grains are not covered by that authority. Under item 34 which is the residuary item, all deeds and instruments relating to railway matters other than those specified in items 1 to 33 may be executed by the Secretary of the Railway Board. It is common ground that there is no other item which specifically authorises the making and execution of contracts relating to purchase of food grains; deeds and instruments relating to purchase of food grains therefore fall within item 34. The Secretary to the Railway Board had not executed these purchase orders : but the trial court held that the Divisional Superintendent was authorised to enter into contracts with the appellant for the supply of food grains. In so holding, the trial judge relied upon the evidence of Ribbins, Grain Supply Officer and Personal Assistant to the Divisional Superintendent, Dinapur. The High Court disagreed with that view. The High Court observed that the authority of the officer acting on behalf of the Governor-General"must be deduced from the express words of the Governor-General himself expressed by rules framed or by notification issued, under S. 175 (3). No notification has been produced in this case showing that the Divisional Superintendent had been authorised by the Governor-General to execute such contracts on his behalf, nor has any rule been produced which conferred authority upon the Divisional Superintendent to make such contracts."10. After referring to paragraph 10 of the notification, Ex. M-2 items 1 to 34, the High Court observed :"Therefore this notification rather shows that the Divisional Superintendent had no authority to execute the contracts for the purchase of food grains."

Reasoning: 7. The finding that the Railway Administration had waived the stipulation as to the performance of the contracts within the time prescribed though time was under the agreement of the essence, is not challenged before us on behalf of the Union of India. If the finding as to waiver is correct, manifestly by his telegraphic intimation dated September 28, 1943, that the food grains not despatched before October 1, 1943, will not be accepted, the Divisional Superintendent committed a breach of the contract.The Federal Railway Authority had not come into being in the year 1943 : it was in fact never set up. The contracts for the supply of food grains were undoubtedly made in the exercise of executive authority of the Federation. The contracts had therefore under S. 175 (3), (a) to be expressed to be made by the Governor-General, (b) to be executed on behalf of the Governor-General, and (c) to be executed by officers duly appointed in that behalf and in such manner as the Governor-General may direct or authorise. But no formal contracts were executed for the supply of food grains by the appellant : he had merely offered to supply food grains by letters addressed to the Divisional Superintendent and that officer had by what are called "purchase orders accepted those offers. These purchase orders were not expressed to be made in the name of the Governor-General and were not executed on behalf of the Governor-General. The purchase orders were signed by the Divisional Superintendent either in his own hand or in the hand of his Personal Assistant.In our view, the High Court was in error in holding that the authority under S. 175 (3) of the Government of India Act, 1935, to execute the contract could only be granted by the Governor-General by rules expressly promulgated in that behalf or by formal notifications. This court has recently held that special authority may validly be given in respect of a particular contract or contracts by the Governor to an officer other than the officer notified under the rules made under S. 175 (3).By Para. 3 of the written statement, the Dominion of India accepted the allegations made in Para. 5 of the plaint. It is true that by Para. 1, the authority of the Divisional Superintendent to enter into contract with trading firms dealing in food grains for the supply of food grains was denied and it was further denied that the Divisional Superintendent "was invested with complete authority to enter into contracts for the purchase of food supplies and to do all that was necessary in that connection." There was some inconsistency between the averments made in Paras. 1 and 8 of the written statement, but there is no dispute that the purchase orders were issued by the Divisional Superintendent for and on behalf of the East Indian Railway Administration. Pursuant to these purchase orders, a large quantity of food grains was tendered by the appellants: these were accepted by the Railway Administration and payments were made to the appellant for the grains supplied. Employees of the Railway Administration wrote letters to the appellant calling upon him to intimate the names of the railway stations where grains will be delivered and about the date when the supply will commence. They fixed programmes for inspection of the goods, kept wagons ready for accepting delivery, held meetings on diverse occasions for settling programmes for the supply for grains, rejected grains which were not according to the contract, entered into correspondence with the appellant about the return of empty bags, accepted bills and railway receipts and made payments, returned certain bills in respect of the grains tendered beyond the period of contract and did diverse other acts in respect of the goods which could only be consistent with the contracts having been made with the authority of the Railway Administration granted to the Divisional Superintendent. There is also the evidence of Ribbins which clearly supports the view that the agreements to purchase food grains by the Divisional Superintendent were part of scheme devised by the Railway Administration at the time of the serious famine in 1943 in Bengal.Ribbins was for some time a Grain supply officer under the East Indian Railway and be admitted that orders similar to the purchase orders in question in this litigation were drawn up in cyclostyled forms "as per orders from the Head Office." The witness stated that the instructions of the Head Office were "in the office file". None of these documents were however produced or tendered in evidence by the Railway Administration.16. The evidence on the whole establishes that with a view to effectuate the scheme devised by the Railway Board for distributing food grains to their employees at concessional rates, arrangements were made for procuring foods grains. This scheme received the approval of the Railway Board and Railway Officers were authorised to purchase, transport and distribute food grains. If, in the implementation of the Scheme, the food grains were received by the Railway Administration, special wagons were provided and goods were-carried to different places and distributed and payments were made for the food grains received by the Railway Administration after testing the supplies the inference is inevitable that the Divisional Superintendent who issued the purchase orders acted with authority specially granted to him. The evidence of Ribbins supported by abundant documentary evidence establishes beyond doubt that the Divisional Superintendent though not expressly authorised by the notification Ex. M-2 to contract for the purchase of food grains, was specially authorised to enter into these contracts for the purchase of food175 (3) plainly requires that contracts on behalf of the Government of India shall be executed in the form prescribed thereby; the section however does not set out the consequences of non-compliance. Where a statute requires that a thing shall be done in the prescribed manner or form but does not set out the consequences of non-compliance, the question whether the provision was mandatory or directory has to be adjudged in the light of the intention of the legislature as disclosed by the object, purpose and scope of the statute. If the statute is mandatory, the thing done not in the manner or form prescribed can have no effect or validity: if it is directory, penalty may be incurred for non-compliance, but the act or thing done is regarded as good.It is clear that the Parliament intended in enacting the provision contained in S. 175 (3) that the State should not be saddled with to liability for unauthorised contracts and with that object provided that the contracts must show on their face that they are made on behalf of the State, i. e. by the Head of the State and executed on his behalf and in the manner prescribed by the person authorised. The provision, it appears, is enacted in the public interest, and invests public servants with authority to bind the State by contractual obligations incurred for the purposes of the State.19. It is in the interest of the public that the question whether a binding contract has been made between the State and a private individual should not be left open to dispute and litigation; and that is why the legislature appears to have made a provision that the contract must be in writing and must on its face show that it is executed for and on behalf of the head of the State and in the manner prescribed. The whole aim and object of the legislature in conferring powers upon the head of the State would be defeated if in the case of a contract which is in form ambiguous, disputes are permitted to be raised whether the contract was intended to be made for and on behalf of the State or on behalf of the person making the contract. This consideration by itself would be sufficient to imply a prohibition against a contract being effectively made otherwise than in the manner prescribed. It is true that in some cases, hardship may result to a person not conversant with the law who enters into a contract in a form other then the one prescribed by law. It also happens that the Government contracts are sometimes made in disregard of the forms prescribed; but that would not in our judgment be a ground for holding that departure from a provision which is mandatory and at the same time salutary may be permitted.The principle of J. K. Gas Plant Manufacturing Co. s case, 1947 FCR 141: (AIR 1947 F C 38) has therefore no application in the interpretation of S. 175 (3) of the Government of India Act, 1935.32. Reliance was also placed upon Dattatreya Moreshwar v. State of Bombay, 1952 SCR 612   : (AIR 1952 SC 181  ) and State of Bombay v. Purushottam Jog Naik, 1952 SCR 674   : ( AIR 1952 SC 317  ). In both these cases, orders made by the Government of Bombay under the Preventive Detention Act were challenged on the ground that the orders did not comply with the requirements of Art. 166 of the Constitution. Article 166 substantially prescribes the same rules for authentication of the orders of the Governor of a State as S. 40 to the 9th schedule of the Government of India Act, 1935 prescribed for the authentication of the orders of the Governor-General and the Governors. In the former case, this court observed that the Preventive Detention Act contemplates and requires the taking of an executive decision for confirming a detention order under S. 11 (1) and omission to make and authenticate that decision in the form set out in Art. 166 will not make the decision itself illegal for the provisions in that article are merely directory and not mandatory. In the latter case, an order which purported to have been made in the name of the Government of Bombay instead of the Governor of Bombay as required by Art. 166 was not regarded as defective and it was observed that in any event, it was open to the State Government to prove that such an order was validly made. The court in those cases therefore held that the provisions of Art. 166 are directory and not mandatory.33. These cases proceed on substantially the same grounds on which the decision in J. K. Gas Plant Manufacturing Cos case, 1947 FCR 141 : (AIR 1947 FC 33) proceeded, and have no bearing on the interpretation of S. 175 (3) of the Government of India ActThe fact that certain other provisions in the Constitution are regarded as merely directory and not mandatory, is no ground for holding that the provisions relating to the form of contracts are not mandatory. It may be said that the view that the provisions in the Constitution relating to the form of contracts on behalf of the Government are mandatory may involve hardship to the unwary. But a person who seeks to contract with the Government must be deemed to be fully aware of statutory requirements as to the form in which the contract is to be made. In any event, inadvertence of an officer of the State executing a contract in manner violative of the express statutory provision, the other contracting party acquiescing in such violation out of ignorance or negligence will not justify the court in not giving effect to the intention of the legislature, the provision having been made in the interest of the public. It must therefore be held that as the contract was not in the form required by the Government of India Act, 1935, it could not be enforced at the instance of the appellant and therefore the Dominion of India could not be sued by the appellant for compensation for breach of contracts.36. We are also of the view that the High Court was right in holding that the appellant failed to prove that he was entitled to compensation assuming that there was a valid and enforceable contract. The appellant claimed that he was entitled to the difference between the contract price and the price realised by sale of the food grains offered after October 1,1943, but not accepted by the Railway Administration. The High Court rightly pointed out that the appellant was, if at all, entitled only to compensation for loss suffered by him by reason of the wrongful breach of contract committed by the State, such compensation being the difference between the contract price and the ruling market rate on October 1, 1943 and that the appellant had failed to lead evidence about the ruling market rate on October 1, 1943, The trial judge held that the "control price list....was reliable for ascertaining the measure of damages in the case. This document was a notification relating to the controlled rates in operation in the district of Arrah, by which the sale of food grains at prices exceeding the rates prescribed was made an offence. The appellant had obviously the option of delivering food grains at any railway station F. O. R. in the Province of Bihar, and there is no evidence on the record whether orders similar to Ex. M-2 were issued by the authorities in other districts of the Bihar State. But if the grains were supplied in the district of Arrah, the appellant could evidently not seek to recover price for the goods supplied and accepted on and after October 1,1943, at rates exceeding those fixed by the notification; for, by the issue of the control orders, on the contract must be deemed to be super-imposed the condition that food grains shall be sold only at rates specified therein. If the grains were to be supplied outside the district of Arrah, the cast of the appellant suffers from complete lack of evidence as to the ruling rates of the food grains in dispute on October 1,1943. The High Court was therefore right in declining to award damages.