State Of Uttar Pradesh And Another v. Murari Lal And Brothers Ltd.

A.N Grover, J.— This is an appeal by certificate from the judgment of the Allahabad High Court decreeing the suit filed by the respondent company for recovery of a sum of Rs 21,000 on account of rent or damages in respect of strorage charges for 4000 maunds of potatoes for which space had been reserved in the cold storage by the company.

2. The plaintiff-respondent brought a suit against the State of Uttar Pradesh and impleaded three other defendants who were at the material time, in the service of the State. Defendant 3 was a Horticulturist in the Department of Agriculture. He negotiated with the plaintiff for storing Government potatoes in a cold storage which belonged to the plaintiff. It was agreed that the Government potatoes would be sent for storage and the plaintiff would be entitled to charge at a certain rate per maund. It was understood that 4000 maunds of potatoes would be sent for storage. However, no potatoes were sent although the plaintiff had reserved the requisite space in the storage which remained unoccupied during the season. It appears that Defendant 3, A.P Gupta was acting on behalf of Srivastava Defendant 2 who was Deputy Director, Horticultre. Both these defendants were acting upon instructions from Sri Ram Krishna Defendant 4 who was Assistant Development Commissioner, Planning, Lucknow. The suit was therefore filed against the State and the other three defendants to recover the storage charges amounting to Rs 21,000.

3. Although all the defendants raised a common plea that there was no contract between the parties for the storage of potatoes and that the entire matter remained at the stage of negotiations the real plea taken on behalf of the State was that no contract had been entered into in accordance with Article 299(1) of the Constitution. The trial court upheld the objection of the State and dismissed the suit against it but it held the other defendants jointly liable for the storage charges. The High Court on appeal by the defendants set aside the decree against Defendants 2 and 4 but maintained it against Defendant 3. No appeal, however, was filed by the plaintiff against the State. As the judgment of the High Court proceeded mainly on the provisions of sub-section (3) of Section 230 of the Contract Act the whole of that section may be set out:

“230. In the absence of any contract to that effect, an agent cannot personally enforce contracts entered into by him on behalf of his principal, nor is he personally bound by them.

Such a contract shall be presumed to exist in the following cases:

(1) where the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad;

(2) where the agent does not disclose the name of his principal;

(3) where the principal, though disclosed, cannot be sued.”

According to the High Court the entire transaction had been entered into by the defendant on behalf of the Government. As the State Government was not liable by virtue of Article 299 of the Constitution Section 230(3) would be applicable and Defendant 3, who was apparently acting as an agent of the State Government, would become personally liable under the contract. Certain observations in Chatturbhuj Vithaldas Jasani v. Moreshwar Parashram AIR 1954 SC 236, (1954) SCR 817 appear to lend support to this view. In that case also no formal contract had been entered into as required by Article 299(1) of the Constitution. The Court observed that the Chairman of the Board of Administration had acted on behalf of the Union Government and his authority to contract in that capacity had not been questioned. Both sides acted in the belief and on the assumption that the goods were intended for Government purposes. The only flaw was that the contracts were not in proper form and because of this technical difficulty the principal could not have been sued. But that was just the kind of case that Section 230(3) of the Indian Contract Act was designed to meet. The Government might not be bound by the contract but it was very difficult to say that such contracts were void and of no effect. There would be nothing to prevent ratification especially if that was for the benefit of the Government. However, in a subsequent decision in State of West Bengal v. B.K Mondal AIR 1962 SC 779, (1962) Supp 1 SCR 876, (1962) 2 SCA 375 Gajendragadkar, J., as he then was, delivering the majority judgment of the Constitution Bench said at p. 885 with reference to the above observation:

“The contract which is void may not be capable of ratification, but, since according to the Court the contract in question could have been ratified it was not void in that technical sense. That is all that was intended by the observation in question. We are not prepared to read the said observation or the final decision in the case of Chatturbhuj as supporting the proposition that notwithstanding the failure of the parties to comply with Article 299(1) the contract would not be invalid. Indeed, Bose, J., has expressly stated that such a contract cannot be enforced against the Government and is not binding on it.”

4. The effect of the reference to Section 230(3) of the Contract Act in Chatturbhuj case was not directly considered but in a large number of subsequent decisions this court has taken the view that the provisions of Article 299(1) [corresponding to Section 175(3) of the Government of India Act, 1935] are mandatory and contain a prohibition against a contract being entered into except in the manner prescribed by the aforesaid provisions. We need only refer to the recent judgment in Mulamchand v. State of Madhya Pradesh AIR 1968 SC 1218, (1968) 3 SCR 214, (1968) 2 SCJ 924 After referring to the earlier decisions Ramaswami J., observed at p. 221:

“The principle is that the provisions of Section 175(3) of the Government of India Act, 1935 or the corresponding provisions of Article 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.”

It is clear that the observations in Chatturbhuj case have been regarded either as not laying down the law correctly or as being confined to facts of that case. The consensus of opinion is that a contract entered into without complying with the conditions laid down in Article 299(1) is void. If there is no contract in the eye of the law it is difficult to see how Section 230(3) of the Contract Act would become applicable.

5. Although the High Court did not rely on Section 235 of the Contract Act the trial court had held that the defendants had no authority to enter into a contract on behalf of the State Government but still they purported to do so. There was an implied warranty of authority which had to be presumed and the plaintiff was entitled to receive compensation for breach of that warranty under Section 235 of the Contract Act. Section 235 provides that a person untruly representing himself to be the authorised agent of another, and thereby inducing a third person to deal with him as such agent, is liable, if this alleged employer does not ratify his acts, to make compensation to the other in respect of any loss or damage which he has incurred by so dealing. The High Court did not base its decision on the above section. But it seems that Section 235 also can become applicable only if there is a valid contract in existence. This appears to follow from the words “if his alleged employer does not ratify his acts”. The contract should thus be such that it is capable of ratification. In the present case where the contract was entered into without complying with the requirements of Article 299(1) of the Constitution the question of ratification could not arise because on the view which has already been followed such a contract is void and is not capable of ratification. However, we do not wish to express any final opinion on the applicability of Section 235 of the Contract Act to cases where the contract suffers from the infirmity that the requirements of Article 299(1) of the Constitution have not been complied with. The reason is that before the High Court no contention appears to have been advanced on behalf of the plaintiff based on Section 235 of the Contract Act nor has the plaintiffs counsel chosen to satisfy us that even if Section 230(3) was not applicable the decree should be sustained on the ground that relief could be granted by virtue of Section 235 of the Contract Act.

6. The appeal thus succeeds and the judgment and decree of the courts below are hereby set aside and the suit of the plaintiff is dismissed. In the circumstances of the case the parties are left to bear their own costs throughout.