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

2. The Legislature of State of Assam and the Parliament took legislative measures to allay the difficulties faced by the small scale industries. The State of Assam made rules known as The Assam Preferential Stores Purchase Rules in the year 1972. The said rules having not served its purpose, the Assam Preferential Stores Purchase Act, 1989 (for shortwas enacted which received the assent of the Governor on 14th July, 1989. The said Act was enacted for encouraging growth of industries in the State of Assam specially small scale and cottage industries and for taking measures ancillary thereto. The State intended to patronize the products of the small scale and cottage industries on preferential basis and to rationalize the procedure for purchase of stores required by the State Government Institutions, Government Companies and State Government Undertakings, as would appear from the preamble thereof.It is not in dispute that the plaintiff is a SSI unit registered with the Corporation and fulfils all the criteria laid down in the 1989 Act and the Scheme framed thereunder. It entered into an agreement with the Corporation on or about 19th October, 1990 wherein the plaintiff (respondent herein) was termed as a principal and the Corporation as an agent. The said agreement was entered into in terms of the marketing support scheme formulated by the Corporation under the 1989 Act.It is not in dispute that pursuant to the said agreement, the Corporation placed orders for supply of medicines manufactured by the respondent herein for the period June, 1991 to June, 1993. The total price of the medicines supplied by the respondent in pursuance of the supply orders of the Corporation stood at Rs. 20,56,654.13 out of which only a sum of Rs. 46,512.80 was paid to the respondent.15. It stands admitted that the payments have not been made in relation to the supplies made for the said indents. A suit was filed by the respondent herein on 7.9.1993 claiming the aforementioned amount (Rs.20,56,654.13) together with the interest payable thereon in terms of the 1993 Act (Rs. 675,881.45). In the said suit, the Corporation in its written statement inter alia raised the followingThat the suit is bad forof necessary party and on the score alone the suit is liable to be dismissed.The Trial Judge by a judgment dated 1st August, 1998 passed a decree in favour of the respondent herein in the followingthe light of the above discussion and the decisions made therein, the plaintiffs suit is decreed for Rs. 20,10,141.33 on contest with cost. The plaintiffs shall be entitled to realize compound interest @ 23% with monthly rest in respect of the concerned bill amounts till the month of June, 1991 and at the rate of Rs. 23.5% with monthly rest w.e.f. 1.7.1991 till filing of the suit. The plaintiff shall be entitled to realise compound interest at the rate of Rs. 23.5% at monthly rest on the decretal amount from the date of filing the suit till the date of the decree and further interest at the said rate from the date of decree till realization.An appeal preferred thereagainst, by the Corporation before the High Court was dismissed. The Corporation is, thus, in appeal before us.

Court's reasoning:
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.