Nanalal Madhavji Varma v. State Of Andhra Pradesh

JUDGMENT

This suit had been filed by Nanalal Madhavji Varma against the State of Andhara Pradesh for recovery of a sum of Rs. 62,887 p. interest and costs. It is the plaintiffs case that on 19th of Aug. 1958 the Official Liquidator of the Barasat Basirhat Light Railway Co. (in liquidation) published an advertisement in the Statesman in Calcutta inviting tenders for the purchase of moveable properties of the said company including rails on various terms and conditions. The maximum selling price of the said rails was fixed by the Iron and Steel Controller at Rs. 700/- per ton. Under the said terms and conditions the purchaser was to sell the said according to the directions of the Official Liquidator. Thereafter several tenders and offers were received by the said Official Liquidator and on 6th of Oct. 1958 the plaintiff was accepted and confirmed by this Court as the highest bidder. The Iron & Steel Controller by letter dated 24th Jan. 1959 arranged for supply of second hand rails to the parties specified in a list at a price not exceeding Rs. 700/- per tons ex-stockyard. By letter dated 24th Jan. 1959 the plaintiff was directed by the Iron & Steel Controller to release to the defendant the State of Andhra Pradesh in the name of its Additional Chief Engineer for Electricity P.W.D Hyderabad division as allottee of 1325 tons of second hand rails of the following kinds:

35 lbs. = 84 tons 35/41¼ lbs. = 23 tons 41 lbs. = 1,218 tons. Total — 1, 325 tons.

2. By letter dated 28th Jan. 1959 addressed from Calcutta to the defendants Additional Chief Engineer, Electricity, Hyderabad the plaintiff asked the defendant for confirmation of the said sale and to take delivery of the allotted goods. By letter dated 2nd of Feb. 1959 the defendant through the said Additional Chief Engineer, Hyderabad desired to purchase 890 tons of the said goods which were allotted and released to the defendant of the following kind:—

35.lbs/yd. = 56 tons. 35/41¼ lbs/yd. = 16 tons. 41.lbs/yd. = 818 tons. Total 890 tons.

3. The price was agreed to be at Rs. 700/- per ton ex-stockyard to be sent on freight to pay basis and all the materials with the railway receipts were agreed to be sent to the parties. It was agreed that the railway receipts and the bills in duplicate would be presented through the plaintiff's bankers at Vijayawada in the name of the defendant's Superintending Engineer and the entire price would be paid within 14 days from the date of the presentation of the bills and railway receipts through the plaintiff's bankers with sight draft. The other terms and conditions agreed upon by and between the parties would appear from the correspondences referred to by and between the parties. The plaintiff accepted those terms by his letter dated 9th of Feb. 1959.

4. It was the plaintiff's case that from time to time pursuant to the arrangement as aforesaid the plaintiff despatched and supplied to the defendants all the contracted goods and sent bills to and drew sight drafts on the defendant's Superintending Engineer and presented such drafts for acceptance and payment by the defendant being the price of the goods so supplied and accepted and honoured such drafts except two drafts for the price of a portion of goods. The said two drafts were duly accepted but dishonoured on presentation on due dates. These were in respect of 43 tons 18 CWT 2 lbs for Rs. 31,538.15/- and 43 tons 11 CWT for Rs. 31,268.90/- totalling Rs. 62,807.5p. Those two despatches were made on 17th of April, 1959 and 22nd of April, 1959 respectively. It was plaintiff's case that there was a valid and binding contract by and between the parties under which the said goods were despatched and the defendant having received the materials should make payment for the same. In the alternative it is the plaintiff's case that the plaintiff was entitled to compensation for the supply of the said goods which the plaintiff did not do gratuitously and the defendant having enjoyed the benefit thereof should compensate for the same.

5. The main defence on behalf of the defendant was that there was no concluded agreement by and between the parties as the provisions of Art. 299(1) of the Constitution were not complied with and as a result there was no valid and binding contract by and between the parties which could be enforced against the defendant. Secondly the plaintiff did not despatch and supply to the defendant all the contracted goods as according to the defendant rails weighing 1196 maunds 16 seers alleged to have been despatched by the plaintiff covered under the railway receipts Nos. 388867 dated 24th July, 1959 never reached its destination. In respect of the other 21 consignments and/or railway receipts after the arrival of the goods they were weighed by and/or on behalf of the defendant and/or the railway authorities and it was found that although railway receipts contained some figures of weights purported to have been sent by the plaintiff, but on actual weighment being made they were found to be far less than the weights shown in the railway receipts by the plaintiff. In respect of 10 consignments and/or railway receipts, no such weighment could be made as the goods were already unloaded and mixed with other goods. Giving full credit to weight of the goods given in the said 10 railway receipts, the defendant only received 35106 maunds 35 seers which would appear from Annexure ‘A’ to the written statement. Under the Circumstances the defendant wasunder an obligation to pay only for the 35106 maunds 35 seers whereas the defendant in fact had made payment to the plaintiff in respect of 35405 maunds and 9 seers, in the premises the defendant had made over-payment to the plaintiff in respect of 298 maunds and 14 seers representing a sum of Rs. 7869.28/-. The drafts were accepted by the defendant on the belief that the consignor had mentioned the actual weight of the goods as mentioned in the railway receipts but subsequently when the non-delivery and short-delivery were discovered the defendant withheld payment in respect of the two consignments. Under the circumstances the defendant denied its liability to pay any further sum to the plaintiff. On the contrary it is the defendant's case that because of non-supply of the contracted qualities (quantities?) the defendant had suffered damages and reserved its right to institute a suit for recovery of the sum over-paid to the plaintiff with damages suffered by the defendant. The defendant completely denied that it ever enjoyed the benefits of the entire quantity of goods contracted for. Under the circumstances the defendant denied its liability to make any compensation to the plaintiff to the extent of Rs. 62,807.5/-. So far the railway receipt No. 388867 dated 21st Feb. 1959 was concerned the weight stated in the railway receipts was 1196 maunds and 16 seers, the same was not received at all by the consignee as the said wagon was mislaid and/or could not be traced earlier but it was subsequently discovered to have been delivered elsewhere and not to the consignee. Out of the 32 consignments made by the plaintiff to the defendant the defendant paid for the entire consignment save and except the consignment No. 529778 dated 21st April 1959 stated to contain 1185 maunds and 21 seers and railway receipts No. 529755 dated 16th April, 1959 stated to contain 1195.29 seers which on actual reweighment was found by the defendant to be less than what was shown on the R/R receipts as the actual weight found by the defendant in respect of the said consignments was 80 tons less which would be evident from the documents disclosed by the parties and tendered in evidence.

6. The plaintiff examined Sudhir K. Majhi a general assistant of the plaintiff to substantiate the case as made out in the plaint. It was his evidence that so far the two outstanding, bills were concerned the defendants never raised any objection as to the quantity of the goods for which the price remained unpaid. He had admitted that the defendant had paid for the wagon which never reached its destination against which the defendant did not receive any consignment of goods covered by the said railway receipt. The parties mainly relied on the contemporaneous documents that passed by and between the parties. The plaintiff also examined Nanda Kishore Sinha an assistant of the South Eastern Railway for the purpose of proving certain letters. The plaintiff examined Sri Subimal Ghosh, an assistant from the Iron & Steel Controller Office to prove certain letters only. On behalf of the defendant two witnesses were examined from the railways to prove that a wagon containing the consignments as indicated earlier never reached its destination and also to prove that on weighment by the railways it transpired that R/R containing the stated weight did not tally with the actual weight taken by the railways at the destination.

7. From, the series of correspondences that have been referred to by and between the parties and from the letters, stated by the plaintiff to form the agreement by and between the parties, were mostly signed by the Additional Chief Engineer Electricity of the State of Andhra Pradesh and in one of such letters the signatory whose name could not be deciphered signed for and on behalf of the State of Andhra Pradesh. It was the definite case of the defendant that these letters on which the plaintiff relied on for the purpose of coming to the conclusion that there was a valid and binding agreement by and between the parties it would appear that the agreement was not entered into in the name of the Governor of the State of A.P nor it was signed for and on behalf of the Governor of A.P nor did it disclose that the person who signed the said document was duly authorised by the Governor of A.P From the State of A.P Financial Code. Vol. I under the Expenditure General Principles and Rules under Art. 51(b) at page 20 under appendix 4, a list of the authorities empowered to enter into contracts on behalf of the Governor had been given. Even for the purpose of any material variation under the terms of an existing contract made on, behalf of the Government it was directed that the matter should be referred to the Government for orders. From the appendix Item No. 27 it would appear that all contracts, deeds and other instruments connected with the administration and working of Electricity Department must be done by the Chief Engineer, Electricity, Chief Electrical Inspector to Government subject to any limits and conditions fixed by the departmental orders by the Chief Operation Engineers and Chief Construction Engineers and the Superintending Engineer in charge of power systems. In the A.P Electricity Department Manual Vol. 2. Appendix page 22 under Item No. 46 the details of the persons such as Chief Engineer, Chief Operation Engineer, Chief Construction Engineer, Superintending Engineer have been given with the powers of entering into contracts. The Chief Engineer has been given unlimited power, Chief Operation Engineer has been given powers up to three lakhs. Chief Construction Engineers up to 1 lakh and Superintending Engineer up to Rs. 15,000/- only. Full particulars of such powers and/or limits and/or authorities would appear from Item No. 46 of the appendices page 22. It would be abundantly clear that the Additional Chief Engineer who had signed the letters had no authority under the said rules to enter into any contract for and on behalf of the State of A.P Under the circumstances the provisions of Art. 299(1) of the Constitution of India had not been complied with which provides that:—

“299. Contracts — (1) All contracts made in the exercise of the executive power of the Union or of a State shall be expressed to be made by the President, or by the Governor of the State, as the case may be, and all such contracts and all assurances of property made in the exercise of that power, shall be executed on behalf of the president or the Governor by such persons and in such manner as he may direct or authorise.”

Under the circumstances it appears that the contract did not comply with Art. 299(1) of the Constitution of India. As a result, there was no valid and binding contract by and between the plaintiff and the defendant. In a case reported in AIR 1977 SC 2149, The Bihar Eastern Gangetic Fishermen Co-operative Societies Ltd. v. Sipahi Singh it had been held (at P. 2152) that:—

“The provisions of Art. 299 of the Constitution which are mandatory in character require that a contract made in the exercise of the executive power of the Union or of a State must satisfy three conditions viz.

(i) it must be expressed to be made by the President or by the Governor of the State, as the case may be;

(ii) it must be executed on behalf of the President or the Governor, as the case may be and (iii) its execution must be by such person and in such manner as the President or Governor may direct or authorise. Failure to comply with these conditions nullifies the contract and renders it void and unenforceable. There is no question of estoppel or ratification in a case where there is contravention of the provisions of Art. 299(1) of the Constitution.”

8. It would appear that under the common publication Andhra Pradesh Financial Code, Appendix 4 Vol. 2 Item No. 26 it would appear that in view of the present contract being for Rs. 9 lakhs the Chief Engineer alone had the power to enter into the contract but from the letters dated 28th Jan. 1959 2nd Feb. 1959 and 9th Feb. 1959 which had been pleaded in para 7, 8 and 9 of the plaint it would appear that these letters were written for and on behalf of the Additional Chief Engineer. Moreover the letter dated 2nd Feb. 1959 was signed not even by the Additional Chief Engineer but by someone on his behalf. Under the circumstances it appears that the Chief Engineer, Electricity of the State of Andhra Pradesh had nothing to do with the said letters. As indicated earlier that the three conditions as set down under Art. 299(1) of the Constitution are mandatory provisions and they should be complied with for the purpose of forming a valid and binding contract by and between the parties. Under the circumstances the contract was void and it was unenforceable by the plaintiff against the defendant.

9. Lyonel Moore was examined on behalf of the defendant and also proved the shortage in weight and difference between the wright given by the consignor in the railway receipts with the weighments which were made actually by the railway on receipt of the goods which fact would appear from Exhibit ‘I’ tendered on commission. It was agreed by and between the parties that the payment would be made on actual weighment basis which would appear from the letter dated 9th March, 1959 appearing at page 56 of Exhibit ‘A’. From Page 206 of Exhibit ‘A’ the letter dated 13th Nov. 1959 it would appear that there had been 80 tons shortage in weight in respect of the total consignments received by the defendant. From the order it would appear that it was agreed that party was entitled to charge Rs. 700/- per ton ex-stockyard and not on the basis of length or section weight. Under Clause 8 it was provided that a clear receipt for each piece and weight should be specifically given. But what the plaintiff tried to do instead of giving the actual weight on tonnage basis, gave the weight on section and length basis. In view of the fact that these rails were second hand rails being used and operated by the Barasat and Basirhat Railway when in existence their actual weight deteriorated due to wear and tear. Under the circumstances calculating the weight on section basis as also length basis was not only contrary to what was agreed upon by and between the parties but that was also erroneous. The price could only be charged at Rs. 700/- per ton on actual weightage and not on the basis of section weight. Although the plaintiff has claimed for two consignments in respect of which goods had been supplied and no shortage has been detected by the Railways as such it would not appear from exhibit ‘L’ tendered on commission while Lyonol Moore was being examined but it was the case of the defendant as made out in the written statement that such weight was taken by the defendant itself upon receipt of the goods. However, the defendant did not choose to examine any witnesses' on its behalf to substantiate the same but the fact remains that taken all the consignments together the defendant did not receive the total quantity of the goods contracted. The defendant had fully paid for the total quantity of goods supplied by the plaintiffs to the defendant. In fact it was the case of the defendant which would appear from the series of correspondences passed by and be-ween the parties and admitted in evidence by consent of the parties that in effect there had been overpayment made by the defendant to the plaintiff. However, no claim so far had been preferred by the defendant against the plaintiff for the same. The question of payment for the supplies would only arise after the actual weight was found out on re-weighment. It was an admitted fact which would appear from the correspondence that the plaintiff could charge Rs. 700/- per ton on actual weight basis and not on the basis of section weight or long weight. Under the circumstances it would be extremely unfair to allow the plaintiff to get any unjust enrichment under Sec. 70 of the Contract Act it is true that so far the plaintiff's claim in respect of the two consignments referred to in the plaint are concerned the goods had been supplied and in view of no evidence being led that there was any shortage. In weight it would be admitted to be correct, that the defendant had received the goods as per the consignment but no piece-meal case could be made in respect of the said two consignments in view of the fact that the entire consignments made by the plaintiff to the defendant arose in respect of the same arrangement, which although did not form a contract in view of the violations of the provisions of Art. 299(1) of the Constitution of India, but they were part of the same transaction.

The whole purpose of giving benefit to a party under Sec. 70 is on the basis of the principles of equity and good conscience when on admitted facts it would appear that there had been shortage of weight in respect of other supplies for which the plaintiff had been fully paid and in respect even of the wagon which was mislaid and the defendant did not get any benefit of the goods sent by the plaintiff in the said wagon against the said railway receipt. The defendant in fact paid for the entire quantity of the goods actually received by the defendant. Under these circumstances it could not be held that the defendant No. 1 had unjustly enriched itself at the cost of the plaintiff, on the contrary it is the plaintiff who had been paid more than what the plaintiff was entitled to. Even after giving credit to the value of the goods as claimed in the plaint there would be a surplus payment to the tune of Rs. 7000/-,

10. Mr. Roy's submission that there had been substantial compliance of Art. 299 sub-clause (1) cannot be accepted although he relied on the case reported in AIR 1971 SC 141 at p. 142 to that effect. In that case it was held that there was sufficient compliance as the officer entrusted to enter into the contract on behalf of the Government entered into the contract but did not mention that he was so doing in the contract itself on behalf of the Government. Under the circumstances as the Officer concerned had authority to enter into the contract on behalf of the Government, the mere non-mention that the contract was being entered into on behalf of the government did not render the contract invalid as the learned Judges came to the conclusion that there had been substantial compliance with the requirement of law. The principles as laid down in the said case could not be applied to the facts of the present case. In view of the fact that there had been no formal agreement in the instant case nor it was mentioned that the contract was being entered into on behalf of the Government of Andhra Pradesh on the contrary the Additional Chief Engineer under the rules referred to above had no authority whatsoever to enter into any contract for and on behalf of the Governor of Andhra Pradesh. The other case referred to by Mr. P.K Roy reported in AIR 1981 NOC 82 (Cal) is of no assistance as there it was held that the authority to deal with the original contract would automatically include the authority to enter into any addendums or supplementary contracts. There in that particular case the person had the authority to deal with the original contract but here in the instant case the Additional Chief Engineer Electricity had no authority whatsoever to enter into the contract on behalf of the Governor of Andhra Pradesh. From the facts it would appear that in total the plaintiff supplied 32 consignments to the defendant, out of which one consignment was misled and it never reached the destination — Out of the balance 31 consignments no weighment could be made in respect of the 10 consignments which were mixed up with other materials. Out of the balance 21 consignments 17 consignments were weighed by the railways and found to be short in weight. The balance four consignments were weighed by the defendant out of which payment had been made in respect of the two consignments but no payment had been made rather payments were withheld in respect of the balance two consignments. The present suit had been filed for recovery of the price in respect of the said balance two consignments.

11. Although there was no evidence tendered on behalf of the defendants to indicate that in respect of these consignments, for which this suit had been filed by the plaintiff, there had been any shortage in the weight of the goods than the weight mentioned in the R/R railway receipts, but taking the entire consignment of goods made by the plaintiff to the defendant it would appear that there had been shortage in weight off the rails supplied by the plaintiff to the defendant as a result not only the plaintiff had been paid in toto for the total amount of goods supplied by the plaintiff to the defendant but in fact there had been an over-payment made by the defendant to the plaintiff. Under those circumstances it would be extremely difficult to come to a finding that the defendants had unlawfully or unjustly enriched themselves with the rails supplied by the plaintiff to the defendant. The basis for compensation under Section 70 is not the same as on contractual rights, but it is granted in proportion to the benefit enjoyed by the party for whom a thing was done or to whom a thing was delivered. Under this section a person receiving a benefit is deemed to have impliedly agreed to pay compensation or to return the thing delivered to him. A person whose contract is void for non-compliance with Art. 299(1) of the Constitution is entitled to compensation under Sec. 70 of the Contract Act it is, however, his duty to account to the other party for what he has received in the transaction before his right to restitution arises. If he fails to do so his claim for compensation or refund for deposit will be dismissed. In the case reported in AIR 1968 SC 1218 Mulamchand v. State of Madhya Pradesh it had been held (at p. 1222) that:

“The provisions of Sec. 175(3) of the Government of India Act 1935 or the corresponding provisions of Art. 299(1) of the Constitution of India are mandatory in character and the contravention of these provisions nullifies the contracts and makes them void. There is no question of estoppel or ratification in such a case.

These provisions have not been enacted for the sake of mere form but they have been enacted for safeguarding the Government against unauthorised contracts. They are based on the ground of public policy, on the ground of protection of general public, and these formalities cannot be waived or dispensed with. If the plea of estoppel or ratification is admitted that would mean in effect the repeal of an important constitutional provision intended for the protection of the general public.

The provisions of Sec. 70 can be invoked by the aggrieved party to a void contract. The first condition to be satisfied under the section is that a person should lawfully do something for another person or deliver something to him; the second condition is that in doing the said thing or delivering the said thing he must not intend to act gratuitously; and the third condition is that the other person for whom something is done or to whom something is delivered must enjoy the benefit thereof. If these conditions are satisfied Sec. 70 imposes upon the latter person the liability to make compensation to the former in respect of, or to restore the thing, so done or delivered.

In a case falling under Sec. 70 the person doing something for another or delivering something to another cannot sue for the specific performance of the contract, nor ask for damages for the breach of the contract, for the simple reason that there is no contract between him and the other person. So where a claim for compensation is made by one person against another under Sec. 70, the juristic basis of the obligation is not founded upon any contract or tort but upon a third category of law namely, quasi-contract or restitution.

Applying these principles, it is manifest that a person whose contract is void for non-compliance with Art. 299(1) of the Constitution would be entitled to compensation under Sec. 70 of the Contract Act if he had adduced evidence in support of his claim.

It is well established that a person who seeks restitution has a duty to account to the defendant for what he has received in the transaction from which his right to restitution arises. In other words, an accounting by the plaintiff is a condition of restitution from the defendant.

12. Applying the said test as laid down in the case referred to above it would appear that although a person who seeks restitution has a duty to account to the defendant for what he received from transaction from which his right to restitution arises which is a condition of restitution and the plaintiff must comply with such condition of accounting to the defendant for the total amount received by him in the transaction before he can claim his right under Sec. 70. In the instant case the plaintiff has failed to account for the total amount of money received from the defendant in the transaction. The plaintiff failed to give any evidence with regard thereto. In the absence of any evidence on this point tendered by the plaintiff the plaintiff is not entitled to restitution or payment in respect of the two consignments for which the present suit has been filed. Under these circumstances the plaintiff is not entitled to any benefit under Sec. 70 of the Contract Act.

13. In the case reported in AIR 1962 SC 779 State of West Bengal v. B.K Mondal & Sons it was held (at p. 789) that:

“The whole powers of granting relief under Sec. 70 is the relationship arising not because the party claiming compensation has done something for the party against whom the compensation is claimed but because what has been done by the former has been accepted and enjoyed by the latter.”

“What Sec. 70 prevents is unjust enrichment and it applies as much to individuals as to corporations and Governments.”

14. The underlying principle of granting a relief under Sec. 70 is based on the principle that the defendant must have enjoyed the benefit or use of the goods so supplied. Taking into consideration the entire facts of this case it would be extremely difficult to come to the conclusion that the State of Andhra Pradesh had the full enjoyment and/or use of the materials for which it had made the payments. It is true that there was no evidence that the goods covered by these two consignments had not been received by the defendant but these two consignments cannot be considered disjunctively by segregating the same from the other consignments in respect of which the defendant did not receive the entire quantity of goods mentioned in the, Railway receipt,

15. Under the circumstances and in view of the facts and law indicated above I answer the issues in the manner following:

16. I answer issue No. 1(a) in the negative. In view of the fact that the three mandatory conditions under Article 299(1) had not been complied with by the parties as a consequence I answer issue No. 1(b) in the negative. So far issues Nos. 2(a) and 2(b) are concerned the defendant did not dispute the fact of sale by the Official Liquidator in favour of the plaintiff. Under the circumstances I answer issues Nos. 2(a) and 2(b) in the positive. In view of no dispute being raised by the defendant I answer issue No. 3 in the positive. I answer issue No. 4 in the negative. I answer issue No. 5 in the negative, as it would appear from the admitted facts that although the plaintiff is stated to have despatched the goods but the defendant did not receive all the goods agreed to be supplied by the plaintiff to the defendant. I answer issue No. 6(a) in the positive. I answer issue No. 6(b) in the negative. Out of 21 consignments 17 consignments had been weighed by the railways and found to be short in weight which would be supported by exhibit ‘L’ tendered in commission at the time of examination of Lyonel Moore. So far the balance four wagons were concerned, although those were weighed by the defendant but the defendant failed to tender any evidence in support of the same. Under the circumstances I answer issue No. 7 in the positive. In view of no claim having been made and no submission having been made in terms of issue No. 8(a) I need not answer the same. Although no counterclaim had been made in the suit nor any suit has been filed by the defendant for the excess payment made by the defendant but from the correspondence ft would appear that the defendant had not been supplied the total quantity of the goods as a result there had been excess payment made by the defendant. As no evidence has been led sofar issue No. 9(a) and 9(b) is concerned I answer the same in the negative. I answer Issue No. 10(a) in the negative as the defendant had not enjoyed the benefit of all the goods delivered by the plaintiff to the railways. As discussed above I am of the view that the defendant was under no obligation to make any compensation. Hence I answer issue No. 10(b) in the negative. Issue No. 11 had not been pressed. Under the circumstances I do not answer the same. So far issue No. 12 is concerned I dismiss the plaintiff's suit with cost.

Suit dismissed.