Deviprasad Srikrishna Prasad v. Secretary Of State For India

Bajpai and Dar, JJ.:— This is an appeal against the judgment and decree of the Civil Judge of Dehra Dun dated the 26th of March, 1935, by which the plaintiffs' claim for recovery of a sum of money was dismissed. The plaintiff No. 1, Deviprasad Srikrishna Prasad, Ltd., of Delhi, is a limited liability company which was incorporated on the 4th of September, 1931, with the object inter alia “to enter into a contract of sale of forest produce with the Forest Officer, Western Circle”. The plaintiff No. 2, firm Deviprasad Srikrishna Prasad, is a firm of Government contractors in Delhi. The defendant is the Secretary of State for India in Council. On the 21st of May, 1931, a sum of Rs. 25,000 was deposited by the plaintiff No. 2 with Mr. V.A Herbert, Conservator of Forest of the Western Circle who was acting in the transaction on behalf of the defendant, as security money for performance of a contract of lease and sale of forest produce. The plaintiffs, alleging that the contract for the performance of which the said sum was deposited remained incomplete, and as the said sum of money was paid to the plaintiff No. 2 by the plaintiff No. 1, raised an action on the 9th of March, 1933, in the court of the Civil Judge of Dehra Dun for recovery of the said sum with interest due on it against the defendant. The trial Judge, finding that the contract for the performance of which the said sum was deposited having been concluded between the parties and the plaintiffs being in default in not completing the bargain, dismissed the claim, and against the said dismissal the plaintiffs have made this appeal and the main controversy which arises in the case is whether the deposit was made in the midst of the negotiations for contract or at the conclusion of the contract.

The Western Circle of the Forest department of the U.P Government grows a large quantity of bhabar or baib grass which is suitable for manufacturing paper. The Conservator of Forest, Western Circle, is authorised on behalf of the Government to sell the grass and other forest produce and to enter into contracts with regard to it on behalf of the defendant. Prior to the year 1931 a lease and sale of grass and forest produce in Western Circle was executed by the defendant in favour of Hedgerow & Co., a firm of paper manufacturers in Calcutta. This contract had come to an end or was about to come to an end in 1931 when Mr. V.A Herbert, the Conservator of Forests, by a notice dated 10th April, 1931, invited tenders for a fresh lease of the bhabar or baib grass for any number of years up to ten. It was stated in the notice that “The maximum yield of grass in any one year under the last lease was approximately 4,50,000 maunds. This could probably be largely increased, but commercial outturn is dependent on cost of extraction”. It was further stated in the notice that “Exact terms of contract will be subject to settlement with the undersigned later, but approximate terms of contract can be ascertained before submission of tenders.” The tenders were to reach the Divisional Forest Officer, Dehra Dun, before 12 noon on 10th April, 1931. On 8th April, 1931, the plaintiff No. 2 submitted a tender for the lease and sale of the said grass and it offered to take the lease for a period of ten years on payment of “royalty” of Rs. 90,000 per year for the said lease in two equal instalments. The tender further stated that the plaintiff No. 2 was “prepared to agree to any reasonable terms to be finally settled between you and us for the working of the forest”. This tender submitted by the plaintiff No. 2 did not reach in time and there were also other reasons, as a result of which the Conservator of Forests decided to invite fresh tenders up to 30th April, 1931, 12 noon. On 10th April, 1931, Mr. Herbert invited the plaintiff to submit a fresh tender and in doing so he stated as follows: “With regard to terms, I enclose a I copy of the terms of the last lease. Individual terms might be subject to modification, but the general terms would have to be on these lines. If you do submit a fresh tender by the 30th of April, 1931, your tender should include the amount of security which you are willing to deposit. As this circle has, as far as I know, never yet had any business dealings with you, I think the amount of security which you should offer should be one year's royalty, which could of course be in some form of security which paid interest, but it would have to be in some form which was entirely at my disposal, if necessary”. The copy of the last lease which Mr. Herbert had enclosed with his letter dated the 10th of April, 1931, is on the record and it gives full information as to the terms upon which the last lease was granted and it was in contemplation to grant a future lease.

On the 29th of April, 1931, the plaintiff No. 2 submitted a fresh tender in which he offered to pay a royalty of Rs. 1,00,000 a year and agreed to take lease for ten years and he further stated as follows: “Terms—That we have noted that the general terms of the lease shall be on the lines of the last lease, a copy of which you have kindly sent to us, but they are subject to modification later on. In this connection we may point out that we are prepared to agree to any reasonable terms to be finally settled between you and us for the working of the said forest. Security—That we are willing to deposit any amount to the extent of the royalty offered by us annually which may be mutually agreed upon acceptance of our tender by you.”

On the 9th of May, 1931, by a letter, exhibit 4 on the record, Mr. Herbert accepted the plaintiffs' tender for a lease of ten years on a royalty of Rs. 1,00,000 subject to deposit of a security of Rs. 1,00,000. This letter further states: “When I saw your Mr. A.J Vanedar on the 1st instant he told me that if your tender was accepted, you would at once deposit security and send an authorised representative to settle final details of the contract with me. Will you, therefore, kindly do this at once?”

On the 12th of May, 1931, a meeting took place at Dehra Dun in which four partners of the firm of plaintiff No. 2, viz. Alopi Prasad, Kishori Saran, Jwala Prasad and Devi Prasad were present and so was Mr. V.A Herbert the Conservator of Forests. At this meeting the terms of the contract of lease and sale which was the subject-matter of tender and correspondence mentioned above were discussed and settled and primarily the negotiations were between the Conservator of Forests Mr. Herbert on one side and the four partners of plaintiff No. 2 on the other side, but Mr. Canning the Chief Conservator of Forests was also present in the house where the meeting took place and at the conclusion of the meeting the four partners were introduced to him and Mr. Canning was informed that the partners were the people who had taken the contract and of its terms generally.

With regard to what was settled in this meeting and what remained to be settled there is a sharp controversy between the parties. Mr. Herbert's version is that the commodity to be sold and the rice for which it was to he sold had all been settled by correspondence and by the tender and its acceptance. The detailed terms of the proposed lease and sale were also known to the plaintiffs and had been studied by them. As they were to be on the lines of the old lease a copy of it had already been supplied to the plaintiffs as stated above. The plaintiffs at the meeting raised four points in modification of the terms of the old lease. One related to the reduction of security from Rs. 1,00,000 demanded by Mr. Herbert to Rs. 50,000 which the plaintiffs wanted to give and again with regard to the security of Rs. 50,000 which Mr. Herbert wanted all in cash the plaintiffs wanted to give half in cash and half in landed security. The second related to the duration of the contract and the option to terminate it; the plaintiffs wanted to give an option to either side to terminate the contract by one year's notice. The third related to a penalty which was provided in the event of non-payment of the instalment due from the plaintiffs in the last lease, from which the plaintiffs wanted to be excused; and the fourth re-lated to the time when goods had to be removed from one portion of the forest to another, with regard to which the plaintiffs wanted a change in date. According to Mr. Herbert these four points which were raised at the meeting were mutually settled with the result that a contract for lease and sale of forest produce was finally concluded between the parties and the only thing which remained to be done was that the plaintiffs should deposit security, should register themselves as a company and should join in the execution of the deed and start working the contract according to its terms. It may be mentioned here that throughout the negotiations Mr. Herbert was acting on behalf of the defendant and the partners of plaintiff No. 2 were acting on behalf of the firm. The firm of plaintiff No. 2 not being a registered firm, at the meeting of the 12th of May it was mutually agreed that the plaintiff No. 2 would get itself incorporated as a limited liability company and the formal deed of lease and sale of forest produce which was to be executed between the parties would be between the plaintiff No. 1, the company, on one side and the defendant No. 1, the Secretary of State for India in Council, on the other.

The plaintiffs' version, on the other hand, is that up to the 12th of May, 1931, the matter was still in the stage of negotiation and the bargain was not finally concluded. According to the plaintiffs it was not settled till then whether the contract would take the form of a lease or would take the form of a sale or would take the form of a combined lease and sale. According to the plaintiffs it was not settled that the plaintiffs were bound to work the contract if they did not want to and according to the plaintiffs the plaintiffs' liability for payment of royalty only arose if the plaintiffs worked the contract and it was at the plaintiffs' option to work the contract or not. The plaintiffs further allege that it was not finally settled whether the option to terminate the contract would be one year's notice or six months' notice, and the time within which landed security was to be deposited was not settled, and some minor details about the working of the contract were not considered and discussed.

The plaintiffs addressed a letter to the Conservator of Forests dated the 21st of May, 1931, with which they also sent a sum of Rs. 25,000 as security for the performance of the Contract. This letter is one of the most important documents in the case and may be quoted in extenso:

“To the Conservator of Forests, Western Circle, U.P

“Subject:—Lease of Bhabar grass in all the accessible areas of the Western Circle, U.P, excluding Dehra Dun Division for a period of ten years commencing from 1st July, 1931, to 30th June, 1941.

“Dear Sir,

“Pursuant to interview granted to the undersigned on 12th instant and in continuation of our tender dated the 29th April, 1931, which you have so kindly accepted subject to the modification agreed upon by you and the Chief Conservator of Forests U.P Government, in our interview on the 12th instant we beg to enclose herewith a fixed deposit receipt No. 14/191, dated the 21st May, 1931, for Rs. 25,000 (Rupees twenty-five thousand) of the Central Bank of India, Ltd., Delhi, in your favour, as security for execution and due fulfilment of the agreement to be drawn for exclusive rights for cutting, collecting and exporting bhabar grass and other minor products as per details given in clause 1 of the draft agreement forwarded by you with your letter No. 724-C/XXII—17(b), dated the 10th April, 1931.

“We shall be obliged if you will now kindly ask the Government Conveyancer to draft an agreement embodying the modifications and send the same to us for our final acceptance.

“We further beg to inform you that as suggested by us in our last interview and approved by you, we are forming ourselves into a registered company under the Indian Companies Act, 1913, under the name and style of Devi Prasad Sri Krishna Prasad, Ltd., and the lease, therefore, be kindly drawn in the name of the company so being formed.

“Since the security deposit as desired by you has now been lodged kindly issue necessary instructions to the District Forest Officers concerned that they may extend all facilities to our nominated representative to inspect different forests under their control.

“Kindly acknowledge receipt of this letter.

Yours faithfully,

For Devi Prasad Sri Krishna Prasad.”

On the 26th May, 1931, Mr. Herbert acknowledged by a letter the receipt of the security of Rs. 25,000 which again may be quoted in extenso:

“To Messrs Devi Prasad Sri Krishna Prasad, Sadar Bazaar, Delhi.

“Dear Sirs,

“I am in receipt of your No. 0/1/3, dated 21st May, 1931, enclosing a fixed deposit receipt No. 14/191, dated 21st May, 1931, with the Central Bank of India Ltd., Delhi, for the sum of Rs. 25,000 in my favour as security for the execution and due fulfilment of the agreement for the bhabar grass. I am not quite sure whether this fixed deposit is intended to be part of the permanent security under the contract or not. As you will remember the arrangement agreed to by the Chief Conservators of Forests and you was that instead of a security of Rs. 1,00,000 as originally offered by you he would accept the security of Rs. 25,000 in fixed deposit, or Government promissory notes, and a further Rs. 25,000 in landed property. I presume that you are making arrangements as regards the latter without delay, but I am not clear whether this fixed deposit receipt is the security you offered for the former part or not. If it is intended to be the security of Rs. 25,000 in fixed deposit, or in Government promissory notes, I do not think that it is really acceptable as it stands, because I notice that the receipt states that the deposit remains “till notice of twelve months on either side expires” and it also states on the top that notice to withdraw was given on 21st May, 1931, and is therefore due to expire on 21st May, 1932. I am writing to the bank to ascertain the exact position, but I am sure you will see that the security deposit for the contract must be absolutely at my disposal. That is an invariable condition of any contract with the Forest department in this province. If, therefore, the fixed deposit receipt is intended to be the actual security of the contract, the condition of the deposit will have to be altered, so that the deposit is with drawable on my request alone. Will you kindly let me know exactly what form you are proposing to furnish the full security for the contract?

“In the meantime I am, as you request, informing the Divisional Forest Officer concerned that the contract for the bhabar grass has been given to you with effect from the 1st of July next and telling them to allow your authorised representative to inspect the forest at anytime from now onwards in order to see what arrangements they have to make for the contract.

“I have already sent the Government Conveyancer the draft agreement and as soon as I have received it back duly approved, I will at once send you a copy. If it is then in order I will at once arrange to have it printed and send, it to you for final acceptance.

Yours faithfully,

(Sd.) V.A Herbert.”

On the 25th of May, 1931, Mr. Herbert asked the Government Conveyancer to draw a deed of lease and sale of forest produce and on its receipt on the 9th of June, 1931, Mr. Herbert forwarded its copy to the plaintiffs.

The contract of grass was to be worked from 1st July, 1931. This was mutually agreed in the meeting of 12th May, 1931. Soon after the meeting of 12th May, 1931, the plaintiffs had asked Mr. Herbert to issue instructions to Forest department to permit the plaintiffs to examine the forest and such Instructions had been issued. On 9th June, 1931, a draft of the deed was sent by Mr. Herbert to the plaintiffs and the draft deed states that the contract was to begin from 1st July, 1931. The plaintiffs received the draft and acknowledged it on 12th June, 1931, and thereafter for some reason or other their interest in the contract began to decline.

Nearly two months after the delivery of the draft deed and after the third reminder from Mr. Herbert the plaintiffs addressed a letter to Mr. Herbert which on the face of it is dated 5th August, 1931, but which, there is reason to believe, was written after 6th August, 1931, when Mr. Herbert's third reminder had been delivered in which the plaintiffs stated that the draft agreement sent by Mr. Herbert had recently been received back from the plaintiffs' solicitors who had suggested minor alterations which they would place before Mr. Herbert shortly on a personal interview with him. The plaintiffs further pleaded that the delay was due to the proceedings relating to the registration of the company.

On 4th September, 1931, the plaintiff No. 1 was registered as a company and the certificate of registration and the Articles and Memorandum of Association were sent by the plaintiffs to Mr. Herbert on 4th and 10th September, 1931, respectively. On 4th September, 1931, the plaintiffs in continuation of their letter elated 5th August, 1931, sent to Mr. Herbert certain amendments to the draft of lease and sale which they had received from their solicitors and they hoped that the alterations suggested by them would be found reasonable and Mr. Herbert would agree to them.

There is substantially no difference between the draft sale deed sent by Mr. Herbert to the plaintiffs on 9th June, 1931, and the amendments which were suggested by the draft of the plaintiffs dated 4th September, 1931, on the crucial points in the case.

Another matter of controversy between the parties is whether the contract was to be worked for any definite period or not and whether the liability of the plaintiffs arose only if the contract was worked and it was at the option of the plaintiffs to work the contract or not. Here again there is no difference between the draft of the defendant and the amended draft of the plaintiffs. No doubt the plaintiffs in their amended draft suggested-certain alterations but these alterations were not suggested on the ground that they were the terms of the bargain which the defendant's draft had failed to reproduce or had wrongly reproduced. On the other hand, these alterations appear to have been suggested as new alterations which it was hoped that the defendant would find reasonable and would accept. The chief amendments suggested by the plaintiffs related to two of three matters: one was that the plaintiffs wanted the period of notice to terminate the contract to be reduced from one year to six months and the plaintiffs further wanted the time for giving landed security to be extended up to 31st December, 1931, and they wanted some alterations to be made for penalty for not removing goods and some alterations to be made in the plaintiffs' power to transfer their rights under the contract and one other minor matter. Between 4th September, 1931, and 11th September, 1931, several meetings took place at Naini Tal between Mr. Herbert and the plaintiffs' representatives. In some of these meetings the Legal Remembrancer to U.P Government was also present and the plaintiffs had the assistance of their legal advisers. In the last meeting which took place on 11th September, 1931, as a result of mutual discussion all the points of controversy were settled when they raised a new matter upon which the negotiations broke down. The plaintiffs contended that it would be at their option to work the contract or not and they would be liable to pay any instalment only if they worked the contract and not otherwise. It is obvious that the defendant could not possibly accept this proposal. The whole object of the contract was to secure some certainty about the sale of the Government produce. The contract was for a term of ten years and as a matter of concession it was agreed that it would be liable to termination by six months' notice but the Government could not possibly agree to leave to the sole option of the plaintiffs to work the contract or not and to pay the price only if the plaintiffs worked the contract and not otherwise. On 12th September, 1931, the plaintiffs addressed a letter to Mr. Herbert from Naini Tal by which they terminated further negotiations with regard to the contract and in which they set out their own reasons for terminating it, the more prominent reasons being that the bargain settled between the parties was an agreement of lease and not an agreement of sale and that the liability of the plaintiffs under the bargain was for payment of instalment limited to the amount of security deposited by the plaintiffs and not a larger one as it was sought to be made out by the defendant. The plaintiffs in the end after terminating the previous bargain submitted a fresh proposal to the effect that the entire forest area be divided into two divisions, one consisting of Saharanpur proper, and the rest of the remaining area, and the forest relating to Saharanpur division be leased to the plaintiffs on a proportionate reduction of royalty for a period of ten years. On 15th September, 1931, Mr. Herbert addressed a letter to the plaintiffs in which he set out his own version of the negotiations and the reasons for which they broke down and in the end he enclosed with it a copy of the deed incorporating all the amendments suggested in the amended draft of the plaintiffs. The main reason for writing this letter was to give an opportunity to the plaintiffs to consider their position and also to ascertain whether they felt bound by the action of their representatives in the meetings of September, 1931, or whether they wanted to repudiate them. On 25th September, 1931, the plaintiffs acknowleged the above letter and ratified the action of their representatives. On 1st October, 1931, Mr. Herbert closed further negotiations with the plaintiffs and on 11th December, 1931, he informed the plaintiffs “I have confiscated the security of Rs. 25,000 and that I may take such further action as I may be advised to take,” and as a result the plaintiffs raised this action on 9th March, 1933, for recovery of the said Rs. 25,000 with interest due.

The first matter which falls for consideration is whether the bargain between the parties was concluded on 12th May, 1931, or whether it was still at large. All the circumstantial evidence and all the probabilities of the case favour the conclusion that the bargain had been settled. Immediately after 12th May, 1931, security was demanded and was paid and soon after the security was paid the draft deed was sent to the plaintiffs for approval. It is a matter of common experience that the security of a large sum of money—Rs. 25,000—is not paid till the contract is settled. Again it is a matter of common experience that the conveyancers are not asked to draft the deed till the terms of the deed have been settled. Then there are letters which passed between the plaintiffs and defendant dated 16th, 21st and 26th May, 1931, by Which security money was paid and was received which indicate that the contract had been settled and nothing remained further to be done beyond executing the deed and going on with the contract.

The plaintiffs are a commercial firm. Before making their tender they must have settled the old lease. All the essentials of the transaction, namely the commodity which was to be sold and the price which was to be paid for it were settled by the tender and by the acceptance of the tender. The only question which remained was the period of the lease, the notice under which it could be terminated and the amount of security and its manner of payment. These were all admittedly the subject of discussion at the meeting on 12th May, 1931. What was the point in starting a discussion about them and not settling them? If these matters were also settled what remained at large between the parties? The plaintiffs contend that the question of lease and sale was not settled and the further question whether they would have the option to work the contract and to pay for it when they worked it was not settled. We are satisfied that no importance whatever was attached to the form of the transaction whether it was a lease or a sale. We are also satisfied that it was clearly understood that the plaintiffs would have to pay for the contract whether they worked it or not. We are also satisfied that the period of notice and the form of security were all duly settled at the meeting of 12th May, 1931, and such alterations as were suggested by the plaintiffs in their amendment in September, 1931, were new proposals and the defendant accepted them not because these matters had not previously been settled but as a concession to the plaintiffs and to avoid unpleasantness in termination of the contract.

The conclusion at which we have reached is that on 12th May, 1931, the contract for lease and sale of forest produce was concluded between the plaintiffs and the defendant and it was further agreed on that date that the plaintiffs would deposit a temporary security of Rs. 25,000 and later on a permanent security of Rs. 50,000 when the former security of Rs. 25,000 would be returned and that a formal deed would be executed later on and that the security money deposited by the plaintiffs would be security money both for the execution of the deed and for the fulfilment of the terms of the contract and in the event of failure of execution of the deed or in the event of breach of terms of the contract the security would be liable to be forfeited and in pursuance of this agreement the plaintiffs deposited the security of Rs. 25,000 with the defendant. Later on, without any valid reason the plaintiffs refused to execute the lease and sale.

The plaintiffs contend that, even if the contract was completed on the 12th of May, 1931, and even if the plaintiffs are in default in not carrying out the contract, still they are entitled to recover the sum of Rs. 25,000, the security money, because it was a condition of the contract that a formal deed would be executed later on, embodying the contract, and, until such deed was executed, the contract was not complete and they had an option not to go on with it. The plaintiffs further contend that the law does not recognize a contract or making a contract, and the agreement which was reached on the 12th of May, 1931, between the parties provided that a formal deed would be executed later on embodying the contract, and in that sense the agreement of the 12th of May was nothing but a contract for making another contract. It is further contended that the agreement of the 12th of May, 1931, was an oral agreement or, at best, evidenced by a series of letters and documents, whereas section 30 of the Government of India Act requires that the agreement should have been by a formal deed. It is further contended that the agreement was that a formal deed would be executed between the Secretary of State and plaintiff No. 1, a limited liability company, and, so far as the Secretary of State was concerned, it failed because the terms of section 30 of the Government of India Act were not complied with, and so far as the company was concerned, it failed because it was a pre-incorporation agreement and it was at the option of the company to accept it or not.

There is no doubt that, at the time when the agreement was reached on the 12th of May, 1931, the parties contemplated execution of a formal deed of lease and sale of the forest produce, but the mere fact that the parties contemplated execution of such a deed would not per se make the agreement of the 12th of May incomplete. The law on the subject is well settled and has been stated in a famous passage by Lord Parker in Von Hatzfeldt-Wildenburg v. Alexander(1). His Lordship said: “It appears to be well settled by the authorities that if the documents or letters relied on as constituting a contract contemplate the execution of a further contract between the parties, it is a question of construction whether the execution of the further contract is a condition or term of the bargain or whether it is a mere expression of the desire of the parties as to the manner in which the transaction, already agreed to, will in fact go through. In the former case there is no enforceable contract either because the condition is unfulfilled or because the law does not recognize a contract to enter into a contract. In the latter case there is a binding contract and the reference to the more formal document may be ignored.”

This statement of law was approved by the Judicial Committee in three cases: Hukum Chand v. Ram Bahadur Singh(2), Harichand Mancharam v. Govind Luxman(3) and Currimhhoy & Company v. Creet(4). In Hukum Chand v. Ram Bahadur Singh Lord Shaw observed: “The cases upon the subject are legion and one citation very properly noted in the judgment of Mullick, J., may be here repeated, namely, that made from the judgment of Lord Parker (as he afterwards was) in the case of Von Hatzfeldt-Wildenburg v. Alexander.” And after this observation he quoted in extenso the passage which we have also quoted above.

In Harichand Mancharam v. Govind Luxman Mr. Ameer Ali delivering the judgment of their Lordships of the Privy Council observed as follows:

“Whether an agreement is a completed bargain or merely a provisional arrangement depends on the intention of the parties as deducible from the language used by the parties on the occasion when the negotiations take a concrete shape. As observed by the Lord Chancellor (Lord Cranworth) in Ridgway v. Wharton the fact of a subsequent agreement being prepared may be evidence that the previous negotiations did not amount to an agreement, but the mere fact that persons wish to have a formal agreement drawn up does not establish the proposition that they cannot be bound by a previous agreement.”

It is true that the parties on the 12th of May, 1931, contemplated that a formal deed of lease and sale would be executed later on, embodying the terms of the agreement which was settled between them on the 12th of May, 1531, but the execution of the deed was not made a condition of the contract and the contract had become fully complete without it. Indeed, it was distinctly provided that the plaintiffs would execute a deed and after the execution of the deed fulfil the terms of the contract and for the due performance of this obligation of execution of the deed and of fulfilling the terms of the contract the sum of Rs. 25,000, which is now in dispute, was deposited as security money. One of the main objects of this deposit was its liability of forfeiture in case the plaintiffs: without any justifiable reason, refused to execute the deed; and this is not a case where the contract was for making a contract, but the contract had already been made and there was nothing more to settle; only a formal deed was to be executed, and in order to prevent its non-execution without any justifiable reason security money was wanted and was given.

There was no written record or memorandum made of the agreement which was reached on the 12th of May, 1931. The terms of the agreement on the 12th of May, 1931, are to be gathered from the copy of the lease which was given to the plaintiffs in April, 1931, and from the plaintiffs' tender and its acceptance and from the letter by which the security money was deposited and was accepted and from other correspondence and draft leases in the case. Relevant provisions of section 30 of the Government of India Act, 1915, which was the Act applicable to the transaction, are as follows:

“30. (1) The Governor-General in Council and any Local Government may, on behalf and in the name of the Secretary of State …… sell and dispose of any real or personal estate whatsoever in British India, within the limits of their respective Governments, for the time being vested in His Majesty for the purposes of the Government of India … and make any contract for the purposes of this Act.

“(2) Every assurance and contract made for the purposes of sub-section (1) of this section shall be executed by such person and in such manner as the Governor-General in Council by Resolution directs or authorises, and if so executed may be enforced by or against the Secretary of State in Council for the time being.”

It is generally agreed that the provisions of section 30 of the Government of India Act are mandatory and for a contract to be enforceable by or against the Secretary of State the terms of this section must be complied with. It is also a matter of general agreement that an oral contract is not within the purview of section 30, and sub-section (2) of this section implies execution of a document and excludes oral contracts, but there is a controversy on the question whether the contract should be expressed by a formal deed or whether it is a sufficient compliance of the statute if the agreement is in writing, though not expressed by a formal deed. In Municipal Corporation of Bombay v. Secretary of State for India, Secretary of State for India v. Yadavgir Dharmgir and Krishnaji Nilkant Pitkar v. Secretary of State the view was expressed that to comply with the provisions of section 30 of the Government of India Act a formal deed was necessary and a contract within the terms of that section cannot be spelt out of correspondence or out of a series of letters and other informal documents; and this Bombay view has also been followed in Sankara Mining Syndicate v. Secretary of State, Secretary of State for India v. The Chettyar Firm of S.R.M.M.R.M(5) and Secretary of State v. G.T Sarin and Company(6).

On the other hand, in Secretary of State v. Bhagwandas(7) it was held that a contract to satisfy the conditions of section 30 of the Government of India Act need not be incorporated in a formal deed or be under seal, and that it may well be entered into by correspondence and by less formal documents. A good deal of Government business is being done in the form of tenders and acceptance of tenders in which, till a very late stage, formal deeds are not drawn up. However much desirable it may be to have a formal deed with regard to all the agreements made by the Government, we are not prepared to hold, as a matter of law, that an agreement evidenced by tenders and acceptance of tenders or an agreement evidenced by correspondence or other documents of informal nature, though fully established by evidence, must fail and be said to offend the terms of section 30 of the Government of India Act. In our opinion, it is a sufficient compliance with the terms of section 30 if the agreement is expressed in writing, and this writing may comprise of a series of letters or a series of informal documents.

In the trial court no question was raised about the incompleteness of the contract or want of compliance with the provisions of section 30 of the Government of India Act. Mr. Kunzru, who has argued the case of the plaintiffs before us with ability, strongly contended before us that he had raised the points in the trial court and by some oversight the trial court has failed to notice them in its judgment. On the pleadings in the court below the case was fought out on pure questions of fact, namely whether the agreement was in fact completed between the parties or not or whether it remained throughout in a stage of negotiations. To avoid any possible grievance in the matter, we have permitted all the questions of law to be discussed before us which the plaintiffs wanted to do. It is not disputed that the Conservator of Forests, Mr. V.A Herbert, who conducted the negotiations with the plaintiffs, was authorised to enter into contracts on behalf of the defendant. The previous lease, a copy of which was given to the plaintiffs in April, 1931, was executed by the Conservator on behalf of the Secretary of State. It is also not disputed that the proposed lease and sale which was to be executed between the plaintiffs and the Secretary of State was also to be executed by the Conservator, as will appear from the drafts on the record. On page 194 of the General Rules and Orders made under enactments in force in British India, issued by the Legislative department of the Government of India, the authority of the Conservator to enter into “contracts or other instruments in matters connected with the adminisration and working of forests and with the business of the Forest department generally” is set out. It is also not disputed that throughout the negotiations Mr. Herbert was acting on behalf of the Secretary of State and the correspondence and documents on the record show that he was so doing. So far as the authority of the person making the contract was concerned, there is no difficulty; but it is contended that the agreement which was finally reached on the 12th of May, 1931, was not reduced into writing and was an oral agreement only, and, as such, it is ineffective against the Secretary of State and it is ineffective against plaintiff No. 1, the company, because the company had not come into existence. It would have been more desirable if the discussion and settlement at the, meeting of the 12th of May, 1931, had been reduced into writing at the time when the meeting took place and should have been signed by the parties. It will be in the public interest and desirable from every point of view if the Government officers, after an agreement is reached, take the precaution of preparing a memorandum signed by both parties, setting out the terms which are reached. The practice of leaving the agreement in the form of correspondence and tenders in anticipation of a formal deed to be executed later on is irregular and has nothing to recommend it. The proper procedure should be that after an agreement is reached, a memorandum of the agreement should be contemporaneously prepared and signed by the parties as evidence of the agreement, to be followed later on by a formal document drawn up by a Government conveyancer; but we do not think—whatever may be said from the point of view of expediency and public interest—that the law requires that contemporaneously with an oral agreement a document should also be prepared or signed, and it is permissible to record the agreement, arrived at orally, later on by correspondence. We, therefore, think that the agreement in this case, though it was not recorded on the 12th of May, 1931, was subsequently recorded in the correspondence and documents which we have referred to above and that the agreement between the parties was not an oral agreement but an agreement in writing, though not expressed by a formal deed which, however, desirable, was not legally essential.

There is one other aspect of the case which might at this stage be considered. This is not an action for specific performance of contract either by or against the Secretary of State or against the company. The plaintiff's in this action are seeking to recover a sum of Rs. 25,000, which plaintiff No. 2 had deposited with the Conservator of Forests as security money for execution of a contract of lease and purchase of grass and other forest produce and for fulfilment of its terms. This deposit was made by a letter of the plaintiff, dated the 21st of May, 1931, and was accepted by a letter of the Conservator, dated the 26th of May, 1931. The security money was thus deposited by plaintiff No. 2 with the defendant under an agreement in writing. The very fact that it was security money implies that it was given as a guarantee for the performance of an obligation and was liable to he forfeited if the obligation was not performed. One of the obligations for which the security money was deposited was the execution of a formal deed of lease and sale by the plaintiff. If plaintiff No. 2, or, for the matter of that, plaintiff No. 1, has unjustifiably refused to execute the deed, on what ground of law and equity can they ask for the return of the deposit money? Their agreement, as expressed in the letter of the 21st of May, 1926, is, in our view, a complete answer to this action, and we need not consider the difficulty which might have arisen if the suit had been brought, by any party to specifically enforce the contract of the 12th of May, 1931; and this also disposes of the remaining contention of the plaintiffs that the agreement of the 12th of May was a pre-incorporation agreement and was not binding on the company. Nobody is enforcing a contract against the company. It is the company which is seeking to recover a deposit which was not made by it but by plaintiff No. 2 in the circumstances mentioned above, and the company therefore has no right to recover this money.

The appeal fails and is dismissed with costs.