Case: State Of Madhya Pradesh Vs. Kaluram

2. At an auction held on July 20, 1954 by the Divisional Forest Officer, Hoshangabad Division, for sale of "felled trees" in Coupe No. 66. Dhekna, Range Seoni, one Jagatram was declared the highest bidder and the trees were sold to him for Rs. 12,100. The amount of the bid was payable in four instalments of Rs. 3,025 each; the first instalment to be paid immediately on acceptance of the bid, the second on December 1, 1954, the third on February 1, 1955 and the fourth on May 1, 1955. Jagatram executed a contract in favour of the Governor of Madhya Pradesh in which were incorporated the terms and conditions of the sale. The following are the material terms of the contractThe quantity of the said forest produce to be sold under this contract shall be the quantity which may exist at the time of executing this indenture or may come into existence thereafter in the contract area all of which forest contractor may collect and remove from it in accordance with the conditions herein contained during the period from the date the forest contractor furnishes the necessary coupe boundary certificate after inspection of the contract area to the 30th day of June 1955, * * *3. The forest contractor shall commence his work of Collecting and removing the said forest produce within one month after furnishing the necessary certificate mentioned in Clause 2 above, * *The said forest produce shall be removed by the forest contractor from the contract area by the routes specified in the following table and shall be presented by him for examination at one or other of the depots specified in that table :-(Table omitted).6. The Forest contractor shall be subject to the Forest Contract Rules as amended from time to time * * * and the Rules shall be deemed to be part of this contract in so far as they are applicable thereto: * * *".Jagatram paid the first instalment due under the contract on July 28, 1954, and subscribed his signature to the terms of the contract. Nathuram and Kaluram stood sureties for him and executed the followingthe Governor in order to secure the due performance of conditions of the above contract demanded security from the forest contractor, I (1) Nathuram son of Kashiram resident of Chaterkheda, (2) Kaluram son of Jhandusingh resident of Pipaliya-Kalan, by occupation Agriculturists, surety on behalf of the forest contractor, undertake to discharge the liability of the forest contractor in case of any act. omission, negligence or default on the part of the forest contractor for any sum which may become payable by the forest contractor to the Governor by or under the conditions of the above contract.I also agree that any sum which may be payable by me to the Governor under the terms of this bond shall be recoverable in the same manner as an arrear of land revenue.Jagatram removed almost the entire quantity of trees sold to him, but since he did not pay the remaining three instalments of the price, the State of Madhya Pradesh took proceedings to recover from Kaluram the amount due by Jagatram as arrears of land revenue.5. Kaluram then commenced an action against the State of Madhya Pradesh for a declaration that he was not liable to pay the arrears of forest dues recoverable from Jagatram and for an injunction restraining the State from realising or from continuing the recovery proceedings with regard to those forest dues from him. The principal ground in support of the claim was that the forest authorities gave time to Jagatram and omitted to take steps which their duty to the surety required them to take i. e. prompt seizure and sale of the trees after the second instalment had fallen due, and since on that account his eventual remedy against Jagatram was impaired, he Kaluram stood discharged from liability as surety.6. The Trial Court held that the fore officers were negligent in allowing the contractor Jagatram to remove the trees sold, and on that account the security of the surety was impaired, and the surety stood discharged for the whole amount recoverable from the contractor. The High Court of Madhya Pradesh confirmed the decree of the Trial Court.

Court's reasoning:
Beside the contractual right which is conferred upon the State by Rule 8 to stop removal of goods in value exceeding the amount already paid by the contractor, where the consideration is payable in instalments the statute has imposed a charge upon the goods sold, inter alia, for the price thereof, and has authorised the Forest Officer to take possession of the goods until such amount is paid. If the amount is not paid when due, the Forest Officer may sell the produce by public auction. The State Government has therefore under the terms of the contract and by virtue of the statute, even though the property in the goods has passed to the contractor, the right to stop removal of the goods and take possession thereof till the amount due is paid and to sell the goods if the amount is not paid when due; the State has also the power to prohibit removal of the goods when the value of the forest produce removed by the contractor exceeds the amount of instalments already paid, to check and examine the goods and to terminate the contract in case of default in payment of the amount due and to take possession of the goods either in the contract area or in the depots of the contractor.10. The contract between Jagatram and the State was in respect of "felled trees" and the area and denomination of the coupe were set out. The trees agreed to be sold being in a deliverable state, by virtue of S. 20 of the Sale of Goods Act, the property in the goods sold passed on the production of the "coupe boundary certificate". It is true that because of the diverse covenants contained in the contract and the provisions of the Rules which formed part of the contract, certain restrictions were imposed upon the contractor. Rule 8 authorised the forest authorities to stop removal of the goods sold if it was found that the contractor had removed goods of value exceeding the amount of instalments already paid. Again the contractor was required to take the goods to the depots and to get the same checked and examined. But on that ground it cannot be said that the contractor did not become the owner of the goods when the "coupe boundary certificate" was produced. The "coupe boundary certificate" is not on the record, and we are unable to hold that any goods were removed or permitted to be removed without the production of the coupe boundary certificate. That is not the case of the State and we will not be justified in so assuming. The terms of Rr. 29 and 33 also abundantly support the view that on the production of the "coupe boundary certificate" the contractor becomes the owner of the goods. Under Cl. (2) of R. 29 when a contract is terminated for reasons mentioned in Cl. (1) all forest produce remaining within the contract area or at the depots specified under U. 1.3 becomes the absolute property of the Government. It is implicit in the rule that till the eventuality contemplated by R. 29(1), property in the forest produce is in the contractor. The terms of R. 33 (2) which authorise the forest contractor to assign any forest produce also support that inference. The right to assign the forest produce not removed from the contract area predicates title to the forest produce. The argument of the State that the property in the goods had not passed to the forest contractor till they were removed, and on that account the statutory charge under S. 83 of the Forest Act did not attach to the goods sold, has therefore no force. As soon as the contract was entered into and the coupe boundary certificate was produced, and we assume in this case that it was so produced, the property in the goods passed to Jagatram. But for the contract price there was a first charge on such produce in favour of the State of Madhya Pradesh under S. 83(1).The Divisional Forest Officer had authority to stop removal of those goods until the amount of instalments payable by the contractor was paid and even to sell the goods for recovery of the amount which had fallen due. The forest authorities however allowed Jagatram to remove the goods sold before the instalments due on December 1, 1954 and thereafter wereState had as already observed, a first charge over the goods. The State was also entitled to prevent the goods from being removed without payment of the instalments due. The expression "security" in S. 141 is not used in any technical sense; it includes all rights which the creditor had against the property at the date of the contract. The surety is entitled on payment of the debt or performance of all that he is liable for, to the benefits of the rights of the creditors against the principal debtor which arise out of the transaction which gives rise to the right or liability: he is therefore on payment of the amount due by the principal debtor entitled to be put in the same position in which the creditor stood in relation to the principal debtor. If the creditor has lost or has parted with the security without the consent of the surety, the latter is, by the express provision contained in S. 141, discharged to the extent of the value of the security lost or parted with.12. The State had a charge over the goods sold as well as the right to remain in possession till payment of the instalments. When the goods were removed by Jagatram that security was lost and to the extent of the value of the security lost the surety stood discharged. In the present case the State has not produced the accounts furnished under R. 16 by the contractor relating to the quantity of goods removed by Jagatram. We must in the circumstances hold that the entire quality contracted to be sold to Jagatram had been removed, and the surety is, because the State has parted with the security which it held, discharged from liability to pay the amount payable under the terms of thethe terms of the statute do not apply only to cases in which by positive action on the part of the creditor the security is parted with. Even if the security is lost by the creditor, the surety is discharged. In any event the facts in the present case make it abundantly clear that it was on account of the conduct of the forest authorities that the security was lost. The goods sold were under the control of the Forest Officers, when they were in the coupe and even when they were in the depot of the contractor. The goods could be removed on the production of a pass from the coupe, and even after the goods were removed, unless they were examined and checked they were not at the disposal of the contractor. It is not pleaded by the State that the trees sold were not checked and examined at the depot of the contractor. Knowing that the goods were removed without payment of the instalments, if the Forest authorities checked and examined the goods and took no action for recovery of the amount payable, and did not enforce the charge, it would be difficult to say that there was mere inaction on the part of the forest authorities.