{"id":110139,"date":"2005-10-07T00:00:00","date_gmt":"2005-10-06T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/assam-small-scale-ind-dev-corp-vs-ms-j-d-pharmaceuticals-anr-on-7-october-2005"},"modified":"2016-03-17T00:19:04","modified_gmt":"2016-03-16T18:49:04","slug":"assam-small-scale-ind-dev-corp-vs-ms-j-d-pharmaceuticals-anr-on-7-october-2005","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/assam-small-scale-ind-dev-corp-vs-ms-j-d-pharmaceuticals-anr-on-7-october-2005","title":{"rendered":"Assam Small Scale Ind. Dev. Corp. … vs M\/S. J.D. Pharmaceuticals & Anr on 7 October, 2005"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Assam Small Scale Ind. Dev. Corp. … vs M\/S. J.D. Pharmaceuticals & Anr on 7 October, 2005<\/div>\n
Author: S.B. Sinha<\/div>\n
Bench: S.B. Sinha, R.V. Raveendran<\/div>\n
           CASE NO.:\nAppeal (civil)  6324 of 2005\n\nPETITIONER:\nAssam Small Scale Ind. Dev. Corp. Ltd.  & Ors.\t\t\n\nRESPONDENT:\nM\/s. J.D. Pharmaceuticals & Anr.\t\t\t\t\n\nDATE OF JUDGMENT: 07\/10\/2005\n\nBENCH:\nS.B. Sinha & R.V. Raveendran\n\nJUDGMENT:\n<\/pre>\n
JUDGMENT
\n[Arising out of  S.L.P. (C) No. 3950 of 2005]<\/p>\n
S.B. Sinha, J :\n<\/p>\n
\tLeave granted.\n<\/p>\n
 \tThe Legislature of State of Assam and the Parliament took legislative
\nmeasures to allay the difficulties faced by the small scale industries.  The
\nState of Assam made rules known as The Assam Preferential Stores
\nPurchase Rules in the year 1972.  The said rules having not served its
\npurpose, the Assam Preferential Stores Purchase Act, 1989 (for short “the
\n1989 Act”) was enacted which received the assent of the Governor on 14th
\nJuly, 1989.  The said Act was enacted for encouraging growth of industries
\nin the State of Assam specially small scale and cottage industries and for
\ntaking measures ancillary thereto.  The State intended to patronize the
\nproducts of the small scale and cottage industries on preferential basis and to
\nrationalize the procedure for purchase of stores required by the State
\nGovernment Institutions, Government companies and State Government
\nundertakings, as would appear from the preamble thereof.\n<\/p>\n
 \tSection 2(d) of the 1989 Act defines “State Board” to mean the Assam
\nState Stores Purchase Board constituted under Section 3 of the 1989 Act.
\n“Small Scale Industry” has been defined in Section 2(f) to mean ‘an
\nindustrial unit in which the capital investment for plant and machinery does
\nnot exceed thirty five lakhs of rupees or any other amount as may be decided
\nby the Central Government from time to time and located in the State of
\nAssam’.  “Registered Industry” has been defined in Section 2(l) to mean an
\nindustrial unit registered under the Directorate of Industries in accordance
\nwith provisions thereof.  “Requiring Authority” has been defined in Section
\n2(r) to mean the State Governments Departments and their subordinate
\nauthorities, State Government Undertaking\/ Corporation\/ Statutory Bodies\/
\nAutonomous Bodies.  Section 2(s) defines “ASIDC” to mean the Assam
\nSmall Industries Development Corporation Limited (for short “the
\nCorporation”, the Appellant herein).\n<\/p>\n
 \tSection 3 of the 1989 Act provides for constitution of the State Store
\nPurchase Board on such term as may be specified in Schedule  1.
\nPreference to the small scale industries is provided in Section 7. Clause (c)
\nof sub-section (1) of Section 7 reads as under:\n<\/p>\n
“(c) Items of stores mentioned in Schedule III shall be
\npurchased by requiring authorities from ASIDC, ASIDC
\nshall follow the guideline regarding fixation of price,
\ncommission, etc. as laid down in office memorandum
\nissued by Notification No. PE-61\/88\/1, dated 28th March,
\n1988 as in Schedule IV.”\n<\/p>\n
 \tThe Purchase Committee is required to be constituted in terms of
\nSection 8 of the 1989 Act consisting of the Head of Department, Director of
\nIndustries, a representative of the Department not below the rank of Under
\nSecretary, Financial Adviser of the Department and Finance and Accounts
\nOfficer of the concerned Directorate.\n<\/p>\n
 \tSection 9 postulates that the Purchase Committee shall include two
\nrepresentatives from the State Government, one of which shall be the
\nDirector of Industries or his representative not below the rank of Deputy
\nDirector and the other representative of the Finance Department in respect of
\neach Government Corporation, Government Undertaking, Assam Electricity
\nBoard.\n<\/p>\n
 \tIn the State Board, amongst others, the Managing Director of the
\nAppellant Corporation is a member.  Schedule  III provides for the
\npreferences to be given as required under Section 7(c).  Item 4 of the said
\nSchedule is ‘drugs and pharmaceuticals and clinical equipments’.\n<\/p>\n
 \tAn office memorandum dated 28th March, 1988 referred to in Section
\n7(1)(c) of the 1989 Act is based on a cabinet decision and issued in the name
\nof the Governor of Assam laid down  guidelines for strict adherence thereof
\nby all government departments, their subordinate authorities, governments
\norganizations and public sector undertakings while making their purchases
\nof any SSI products which are dealt in or manufactured by the Corporation.
\nThe said office memorandum satisfies the requirements of Article 166 of the
\nConstitution of India and has been made a part of the 1989 Act.  In terms of
\nthe said guidelines, the Corporation is required to publish a list of items\/
\nmaterials\/products to be dealt in or manufactured by it as detailed in
\nAnnexure  1 thereof.  The price of such SSI products is to  be fixed by any
\nTechnical Committee constituted by the Corporation with members from
\nneutral organization and concerned departments. As per the said OM,
\npurchasing authorities shall pay to the Corporation upto 5% as commission
\nover the price fixed by the Corporation.  The purchasing authorities shall pay
\nadvance to the extent of 90% of the value of the orders placed with the
\nCorporation.  Annexure  A to the  said guidelines is the marketing
\nassistance scheme wherein ‘drugs and pharmaceuticals and clinical
\nequipments’ had been identified as one of the items, supply of which to the
\nGovernment departments is to be taken over by the Corporation.  The said
\nscheme provides for quality control, pricing, registration of units as also
\nindenting by the Corporation.  The clause relating to indenting of the goods
\nreads as under:\n<\/p>\n
“The purchasing authorities will issue indent to the
\nCorporation for the required products with 90% advance.
\nThe Corporation will immediately allot the work to the
\nmost suitable unit or units to complete supply within
\nstipulated time.  If the supply could not be completed in
\ndue to time by the Corporation, the purchasing authorities
\nwill deduct 1 = p.m. from bills.\n<\/p>\n
 \tThe stores will be dispatched by the units only
\nafter they are given dispatch instruction by the ASIDC.
\nNormally the dispatch will have to commence within the
\nthird day from the date of dispatch instruction, failing
\nwhich the unit may be penalized the extent of bank
\ninterest on the amount.  The stores will be received by
\nthe purchasing authority and the acceptance or rejection
\nnotes will be issued on the challans.\n<\/p>\n
 \tThe Corporation will release payment upto 90% of
\nthe bills to the units on completion of supply.  Any
\nadvance or advances will be deducted fully.  The
\nremaining 10% will be released on receipt of full
\npayment of the bills from the purchasing authority.”\n<\/p>\n
 \tOnly if the Corporation is unable to supply some items and such
\ninability is communicated to it in writing, the  purchasing authority  can
\npurchase them from alternative sources.\n<\/p>\n
 \tIt is not in dispute that the plaintiff is a SSI unit registered with the
\nCorporation and fulfills all the criteria laid down in the 1989 Act and the
\nScheme framed thereunder.  It entered into an agreement with the
\nCorporation on or about 19th October, 1990 wherein the plaintiff
\n(Respondent herein) was termed as a principal and the Corporation as an
\nagent.  The said agreement was entered into in terms of the marketing
\nsupport scheme formulated by the Corporation under the 1989 Act.  Para 3
\nof the preamble and Clauses 1, 4, 6, 7 and 8 of the said agreement read as
\nunder:\n<\/p>\n
“And whereas the Corporation has agreed to act as an
\nAgent to market the goods manufactured by the Principal
\nas specified in the schedule appended to this agreement,
\nunder the marking support scheme formulated by the
\nCorporation under the AP SP Act, 1989..The
\nprincipal hereby covenants with the Corporation  as
\nhereinafter provided :\n<\/p>\n
“1. The Principal shall quote lowest rates in respect of
\n“Scheduled Goods” to the Corporation and shall not
\nquote to any party mentioned above directly or indirectly,
\nrate lower than those quoted to the Corporation in respect
\nof the goods for which competitive rates are being quoted
\nby them.  The rates so quoted to the Corporation by the
\nPrincipal shall be valid for a period of one year from the
\ndate of submission of the quotation.\n<\/p>\n
4. The Principal shall, when advised to do so, supply the
\ngoods wherever required within the stipulated time at his
\ncost.  In event of failure to comply with aforesaid clause,
\nif any penalty is imposed by the actual buyer of the goods
\nin the event of the Principal failing to comply the above
\nprovision of conditions, or if any losses are otherwise
\nincurred, the said penalty or loss is to be borne by the
\nPrincipal by reimbursing the said amount to the
\nCorporation within 15 days from the date of demand.
\nThe Principal shall also be responsible for losses by way
\nof breakages, theft or pilferage etc. during the transit of
\ngoods.\n<\/p>\n
6.  The Principal authorizes the Corporation to raise bills
\nof sale on their behalf, disclosing or without disclosing
\nthe name of the principal, and to collect payment thereon
\nfrom the buyer(s).  On collection of payment from the
\nbuyer(s).  Payment to the principal will be effected by the
\nCorporation deduction the service charges.  Penalty due
\nto delayed supplies, or other dues\/advance, if any.  The
\nCorporation may release 90% value of the materials on
\ndelivery and acceptance of the material by the buyer after
\ndeduction of dues\/advance payment if any subject to
\nreceipt of payment from buyer(s).  The balance 10% less
\npenalty due to the delayed supplies etc. or any other dues
\nwill be paid to the Principal on receipt of full payment
\nfrom the Purchasing Department.\n<\/p>\n
7. The Principal hereby agrees to the terms and condition
\nin the Marketing Support Scheme of the Corporation as
\namended from time to time and agrees to comply with
\ngeneral specific instructions as might be issued by the
\nCorporation regarding the Marketing of “Scheduled
\ngoods”.\n<\/p>\n
8. That in case of any shortage, leakage, damage,
\nbreakage, late supplies, late submission of R\/R\/Motor
\nTransport Receipt, delivery challans, inadequate packing
\netc. or any losses in transit for whatever circumstance or
\nreasons, it shall be on the account of the principal and the
\namount thus involved, shall be deducted from his bills.”\n<\/p>\n
\tA specimen copy of the orders placed by the Corporation on the
\nRespondent  from time to time is extracted below :\n<\/p>\n
“DATED 16.6.1992
\nTo
\nM\/s. J.D. Pharmaceuticals Limited
\nM.C. Road
\nGuwahati  3<\/p>\n
SUB: ORDER FOR SUPPLY OF STORES:\n<\/p>\n
Dear Sir,
\n \tWith reference to above, we have the pleasure to
\norder with you for supply of the under noted articles to
\nthe Sub Divisional Medical and Health Officer, I\/C.
\nD.M.S. Dibrugarh, as per terms and conditions shown
\nover overlead.\n<\/p>\n
S.No.\tName of Item\t\tQuantity\tPrice\n<\/p>\n
1.\tTab Trimetoprim 80 mg\t  75,000 \tRs. 559.35 \/
\n\twith sulphamethoxagole\t\t\tthousand tab
\n\t400 mg.\n<\/p>\n
Delivery period: within 30.6.1992″\n<\/p>\n
 \tSome of the terms and conditions attached to the supply orders are as
\nunder:\n<\/p>\n
“4. The Stores must be supplied through your challan
\nissued in favour of indenting department and should be
\nproperly a\/c Assam Small Industries Development
\nCorporation Limited, marketing Division and will be
\nsubmitted to this office after duly receipted by the
\ndepartment and stamped.\n<\/p>\n
5. The above prices are inclusive of packing\/ forwarding\/
\ntransportation charge, but exclusive of 5% commission
\nand tax as admissible.\n<\/p>\n
8. After execution of the order your bill should be
\nsubmitted for payment.  Payment will be made subject to
\nreceipt of the fund from the indenting department.  No
\ninterest\/ compensation can be claimed for delay in
\npayment.\n<\/p>\n
10. Terms and conditions other than the above, will be as
\nper the deed of agreement executed by you, red with
\nother tenders\/quotations.”\n<\/p>\n
 \tThe Parliament also enacted ‘Interest on Delayed payments to Small
\nScale and Ancillary Industrial Undertakings Act, 1993’ (for short “the 1993
\nAct”) being Act No. 32 of 1993 which came into force with effect from 23rd
\nSeptember, 1992.  “Appointed day” has been defined in Section 2(b) to
\nmean the day following immediately after the expiry of the period of thirty
\ndays from the day of acceptance or the day of deemed acceptance of any
\ngoods or any services by a buyer from a supplier.  Section 3 provides for the
\nliability of buyer to make payment.  Sections 4 and 5 thereof read as under:\n<\/p>\n
“4. Date from which and rate at which interest is
\npayable.–Where any buyer fails to make payment of the
\namount to the supplier, as required under section 3, the
\nbuyer shall, notwithstanding anything contained in any
\nagreement between the buyer and the supplier or in any
\nlaw for the time being in force, be liable to pay interest to
\nthe supplier on that amount from the appointed day or, as
\nthe case may be, from the date immediately following the
\ndate agreed upon, at such rate which is five per cent
\npoints above the floor rate for comparable lending.\n<\/p>\n
5. Liability of buyer to pay compound interest.–
\nNotwithstanding anything contained in any agreement
\nbetween a supplier and a buyer or in any law for the lime
\nbeing in force, the buyer shall be liable to pay compound
\ninterest (with monthly rests) at the rate mentioned in
\nsection 4 on the amount due to the supplier.”\n<\/p>\n
 \tIt is not in dispute that pursuant to the said agreement, the Corporation
\nplaced orders for supply of medicines manufactured by the Respondent
\nherein for the period June, 1991 to June, 1993.  The total price of the
\nmedicines supplied by the Respondent in pursuance of the supply orders of
\nthe Corporation stood at Rs. 20,56,654.13 out of which only a sum of Rs.
\n46,512.80 was paid to the Respondent.\n<\/p>\n
 \tIt stands admitted that the payments have not been made in relation to
\nthe supplies made for the said indents.  A suit was filed by the Respondent
\nherein on 7.9.1993 claiming the aforementioned amount (Rs.20,56,654.13)
\ntogether with the interest payable thereon in terms of the 1993 Act
\n(Rs.675,881\/45).  In the said suit, the Corporation in its written statement
\ninter alia raised the following plea:\n<\/p>\n
“4. That the suit is bad for non-joinder of necessary party
\nand on the score alone the suit is liable to be dismissed.\n<\/p>\n
10. That with regard the statements made in Para 16 to 46
\nof the plaint, the defendants do not admit anything
\ncontrary to the relevant records of the case.  The
\ndefendants submit that the supply order placed by the
\ndefendants does not relate to a single transaction and as
\nsuch, the plaintiffs cannot claim for recovery of its dues,
\nif any, in one suit.  The defendants have placed orders
\nwith the plaintiff firm as per the APSP Act, 1989 and as
\nper the indent of the Govt. department.  It was agreed in
\nthe terms and conditions of the order that the payment of
\nthe bills would be released to the plaintiffs on receipt of
\npayment by the defendants from the concerned
\nGovernment Department.  This condition of payment has
\nalso been agreed to by the plaintiff and as per the terms
\nand conditions of the agreement executed by the parties.
\nThe defendants submit that it has not received payment
\nagainst the value of the medicines supplied by the
\nplaintiff to the Government department and as such, the
\nbill amount could not be released due to the aforesaid
\nfactor.  The Drug Association, Assam where the plaintiff
\nfirm is also a Member, has informed the defendants by
\nletter that the firm registered under them, are agreeable to
\naccept orders without 90 percent advance payment at the
\ntime of placement of the order and accordingly orders
\nwere placed and as per the terms and conditions of the
\nagreement, the defendants were to release payment on
\nreceipt of the same from the concerned Government
\ndepartment.  As stated earlier since the defendants has
\nnot received any payment from the Government
\nDepartment against the value of the medicines supplied
\nby the plaintiff firm, the required payment could not be
\nreleased to the plaintiff firm.”\n<\/p>\n
 \tThe Trial Judge by a judgment dated 1st August, 1998 passed a decree
\nin favour of the Respondent herein in the following terms:\n<\/p>\n
“In the light of the above discussion and the decisions
\nmade therein, the plaintiffs suit is decreed for Rs.
\n2010141.33 on contest with cost.  The plaintiffs shall be
\nentitled to realize compound interest @ 23% with
\nmonthly rest in  respect of the concerned bill amounts till
\nthe month of June, 1991 and at the rate of Rs. 23.5% with
\nmonthly rest w.e.f. 1.7.1991 till filing of the suit.  The
\nplaintiff shall be entitled to realize compound interest at
\nthe rate of Rs. 23.5% at monthly rest on the decretal
\namount from the date of filing the suit till the date of the
\ndecree and further interest at the said rate from the date
\nof decree till realization.”\n<\/p>\n
 \tAn appeal preferred thereagainst, by the Corporation before the High
\nCourt was dismissed.  The Corporation is, thus, in appeal before us.\n<\/p>\n
 \tMr. R.F. Nariman, learned senior counsel appearing on behalf of the
\nCorporation would raise the following contentions in support of the said
\nappeal:\n<\/p>\n
(i)\tHaving regard to the terms and conditions of supply, the
\nCorporation was to pay unto the Respondent the price for the
\ngoods supplied only as and when the same was received from the
\nrespective departments of the  State Government.  The Corporation
\nis an agent of the Respondent and not the buyer of the goods; and
\nas per clause 6 of the agreement until  payments are received from
\nthe buyers  (Departments of the State), no liability could have been
\nfastened upon the Corporation to pay the said amount.  Clause 8 of
\nthe terms and conditions of the orders for supply also make it clear
\nthat payment will be made subject only to receipt of funds from the
\nindenting department.\n<\/p>\n
(ii)\tThe different departments of the State and other government
\ncorporations and undertakings being the buyers and the
\nbeneficiaries of the supplies only, they were liable to pay the price
\nof the goods supplied over which the Corporation had no control
\nand in that view of the matter the State of Assam was a necessary
\nparty.  In any event, the recipient of goods, namely, the buyer
\nbeing disclosed principal of the Corporation, the Respondent as a
\nprincipal of the Corporation could maintain a suit as against the
\nactual buyer only.\n<\/p>\n
(iii)\tThe provisions of the 1993 Act for payment of interest,  are not
\napplicable in view of the fact that the same applies only to a buyer
\nof any goods or recipient of a service from a supplier for a
\nconsideration.  Further clause 8 of the terms and conditions of the
\norders for supply provide that no interest can be claimed for delay
\nin payment.\n<\/p>\n
(iv)\tIn the entire plaint, the Respondent has admitted that it is bound by
\nthe terms and conditions of supply and in particular clause 8 therof
\nand, thus, it does not lie in its mouth now to contend, as has been
\ndone in the counter-affidavit filed before this Court, that the said
\nclause is illegal and of no effect being opposed to public policy.\n<\/p>\n
 \tMr. Pravir Choudhary, learned counsel appearing on behalf of the
\nRespondent, on the other hand, would submit that both the 1989 Act and the
\n1993 Act are beneficial legislations.  The 1989 Act having been enacted by
\nthe State of Assam for granting certain reliefs to the SSI units as a part of its
\nindustrial policy, the terms and conditions of the agreement as also the
\nconditions of supply shall be subservient thereto and, thus, to the extent the
\nsame is inconsistent with the Scheme, the later will prevail. In view of the
\nprovisions contained in the 1989 Act and the scheme, it will appear that the
\nCorporation exercises a total control – from quality to pricing to indenting
\nand, thus, the expressions used in the agreement as principal and agent will
\nhave no bearing.  An agent as is commonly understood cannot have a control
\nover the principal.  As its agreement was with the Corporation, and the
\norders were all placed by the Corporation and as it had no privity with the
\ndepartments of the State who received delivery of the goods, the Corporation
\nis liable to pay the price with interest.\n<\/p>\n
 \tIn view of the fact that the Respondent had no privity of contract with
\ndifferent departments of the government, they were not necessary parties.
\nReliance in this behalf has been placed on Balvant N. Viswamitra and
\nOthers Vs. Yadav Sadashiv Mule (Dead) Through LRS. And Others [(2004)
\n8 SCC 706].   In view of the statute and the scheme as also the guidelines
\nissued, the question of the Respondent waiving its right thereunder does not
\narise.  The 1993 Act, it was submitted, being also a beneficient statute, the
\nsame should be construed liberally.  The Act, Mr. Choudhary would argue,
\nwill thus, have a retrospective effect.\n<\/p>\n
THE EFFECT OF THE 1989 ACT
\n \tThe 1989 Act indisputably is a beneficient legislation.  There was a
\npurpose behind enacting it.  It was primarily enacted so as to enable the State
\nto effectively perform a sovereign function namely health care.  The
\nMarketing Assistance Scheme being appended to the provisions of the Act
\nand marked as Annexure A thereto forms a part of the Act.  The scheme
\nenvisages pervasive control over the manufacturers including quality control
\nof the production.  Guidelines which were to be strictly adhered to by the
\nauthorities, as noticed hereinbefore, had also been issued by the State.  Such
\nguidelines having fulfilled the requirements of Article 166 of the
\nConstitution of India were required to be followed by the Corporation.\n<\/p>\n
 \tThe order for supply of stores, the provisions of the agreement and the
\nterms and conditions of supply, therefore, cannot be read in isolation.  They
\nmust be read in conjunction with the provisions of the Act, the scheme and
\nthe guidelines issued thereunder.  The provision in the scheme relating to
\nindenting envisages that the purchasing authorities will issue indent to the
\nCorporation for the required products with 90% advance whereupon the
\nCorporation would immediately allot the work to the most suitable unit or
\nunits to complete supply within the stipulated time.  In the event, such
\nsupplies are not made within the specified time, the supplier would be
\nsubjected to penalty.  In view of the fact that the supplying authority will
\nhave to send advance of 90%, the Corporation owes a duty to release
\npayment upto 90% on completion of supply.  If the Corporation had not
\ntaken the advance in terms of the provisions of the scheme, it acted at its
\nown peril.\n<\/p>\n
 \tIt is not disputed that the Respondent did not commit any breach or
\nany irregularity in regard to the supplies.  Once the supply of the goods was
\ncompleted, having regard to the clause aforementioned, the Corporation was
\nbound to release the payment upto 90% in view of the fact that the
\npurchasing authorities were also obligated to issue indent to the Corporation
\nwith 90% advance.  If such advance had not been given, the Corporation in
\nterms of the scheme should not have issued the indent.  It may be true that
\nthe terms and conditions appended with each order of supply stipulate that
\npayment would be made subject to receipt of the fund from the indenting
\ndepartment.  But, the scheme, guidelines, the agreement as also the terms
\nand conditions for supply of stores, if read as a whole, the only meaning
\nwhich can be attributed thereto would be in relation to the 10% of the
\namount which the Corporation was to realize from the supplying authorities
\nupon submission of bill by the manufacturer.   The said term has nothing to
\ndo with payment of 90% advance in accordance with the provision of the
\nScheme.\n<\/p>\n
 \tClause 8 of the terms and conditions of order of supply refers to a
\nstage when after execution of the order a bill is submitted and payment
\nthereof, i.e., 10% of the balance amount only would be subject to the receipt
\nof the fund from the indenting department.\n<\/p>\n
 \tSo read, Clause 8 may not be held to be opposed to public policy but
\nit cannot be read in isolation.  It cannot be read in such a manner so as to
\ndestroy or defeat the very purpose for which the Act or the Scheme was
\nenacted.  It cannot be read as laying down a term which would run contrary
\nto the guidelines.\n<\/p>\n
 \tThe expressions ‘principal’ and ‘agent’ used in a document are not
\ndecisive.  The nature of transaction is required to be determined on the basis
\nof the substance there and not by the nomenclature used. Documents are to
\nbe construed having regard to the contexts thereof wherefor ‘labels’ may not
\nbe of much relevance.  The 1989 Act, the scheme and the guidelines
\npostulate constitution of a State Board for the purpose of monitoring
\nsupplies to various departments of the State, the government corporations
\nand the companies.  The Managing Director of the Corporation is a member
\nof the board in terms of the provisions of the 1989 Act.  The Corporation
\nwas created for the purpose of giving effect to the provisions of the Act and
\nthe scheme framed thereunder.  It is a statutory body and is a ‘State’ within
\nthe meaning of Article 12 of the Constitution of India.  The contract by and
\nbetween the parties being a statutory one, the Corporation was required to
\nact fairly and reasonably.  The principal purpose of the Act was to give
\nencouragement to the growth of industries in the State of Assam and
\npatronizing the products of small scale and cottage industries on preferential
\nbasis.  The 1989 Act contemplates acts which would be for the betterment of
\nthe SSI units and not acts which would be detrimental to their interest.  The
\nterms used in the agreement must, therefore, be understood in that
\nperspective.\n<\/p>\n
 \tIn Chairman, Life Insurance Corporation and others Vs. Rajiv Kumar
\nBhasker [2005 AIR SCW 3636], a bench of this Court opined:
\n“39. Agency as is well-settled, is a legal concept which is
\nemployed by the Court when it becomes necessary to
\nexplain and resolve the problems created by certain fact
\nsituation. In other words, when the existence of an
\nagency relationship would help to decide an individual
\nproblem, and the facts permits a court to conclude that
\nsuch a relationship existed at a material time, then
\nwhether or not any express or implied consent to the
\ncreation of an agency may have been given by one party
\nto another, the court is entitled to conclude that such
\nrelationship was in existence at the time, and for the
\npurpose in question. [See “Establishing Agency” by GHL
\nFridman – 1968 (84) Law Quarterly Review 224 at p
\n231].”\n<\/p>\n
 \tIt is no longer in doubt or dispute that while interpreting the terms of
\nagreement, it is necessary to look to the substance of the matter rather than
\nits form.  Use of a terminology may not be sufficient to lead to a conclusion
\nthat the parties to the contract in fact intended that the said status would be
\nconferred.\n<\/p>\n
 \tIn The Bhopal Sugar Industries Ltd. Vs. Sales Tax Officer, Bhopal
\n[(1977) 3 SCC 147], a 3-Judge Bench of this Court referred to the dicta laid
\ndown by this Court in Sri Tirumala Venkateswara Timber and Bamboo Firm
\nVs. Commercial Tax Officer, Rajahmundry [(1968) 2 SCR 476] wherein the
\nlaw has been laid down in the following terms:\n<\/p>\n
“As a matter of law there is a distinction between a
\ncontract of sale and a contract of agency by which the
\nagent is authorised to sell or buy on behalf of the
\nprincipal. The essence of a contract of sale is the transfer
\nof title to the goods for a price paid or promised to be
\npaid. The transferee in such a case is liable to the
\ntransferor as a debtor for the price to be paid and not as
\nagent for the proceeds of the sale. The essence of agency
\nto sell is the delivery of the goods to a person who is to
\nsell them, not as his own property but as the property of
\nthe principal who continues to be the owner of the goods
\nand will therefore be liable to account for the sale
\nproceeds.”\n<\/p>\n
 \tIt was opined:\n<\/p>\n
“It is clear from the observations made by this Court that
\nthe true relationship of the parties in such a case has to be
\ngathered from the nature of the contract, its terms and
\nconditions, and the terminology used by the parties is not
\ndecisive of the said relationship. This Court relied on a
\ndecision in W.T. Lamb and Sons v. Goring Brick
\nCompany Ltd. where despite the fact that the buyer was
\ndesignated as sole selling agent, the Court held that it was
\na contract of sale.”\n<\/p>\n
 \tIn certain circumstances, even an agent can become a purchaser where
\nan agent pays to the principal on its own responsibility. [See Gordon
\nWoodroffe and Co. (Madras) Ltd. Vs. Shaik M.A. Majid and Co. [AIR 1967
\nSC 181]<\/p>\n
 \tLaw contemplates different types of agency.  Under the Contract Act,
\nthe concept of del credere agent is well-known.  A del credere agent assumes
\nresponsibility for the solvency and performance of their contract by the
\nvendees and, thus, indemnifies his employer against loss.  He gives an
\nadditional security to the seller.  [See Bowstead & Reynolds on Agency, 17th
\nEdition, para 1-038].  However, it is not necessary to dilate thereupon as the
\nstatus of the parties herein must be determined in terms of the provisons of
\nthe 1989 Act.\n<\/p>\n
 \tThe 1989 Act  makes a statutory provision beyond the concept of
\nagency as contained in the Contract Act.  It is a special statute.  In terms
\nthereof the Respondent was not required to pay any commission to the
\nCorporation, though the Corporation was described as ‘agent’ of the
\nRespondent under the agreement.  5% commission was to be paid to the
\nCorporation by the purchasing authorities.  The provisions of the 1989 Act,
\nthus, should be given full effect.  The status of the parties must not, thus, be
\ndetermined as to how they have described themselves but having regard to
\nthe substance of the transaction as envisaged under the Act and the scheme
\nframed, which as noticed hereinbefore, is as a part of the Act.\n<\/p>\n
 \tAs a statutory agency came into being by and between the purchasing
\nauthorities and the Corporation in terms whereof the Corporation not only
\nexercised the control in relation to the entire supply of materials, as a part of
\nthe statutory scheme, it also undertook to collect the price of the goods
\nsupplied from the purchasing authorities and pay the same to the
\nmanufacturers subject, of course, to the payment of its commission which
\nwould be a substantial amount.  Under the scheme, the purchasing
\nauthorities had a duty to pay 90% of the price before the Corporation makes
\nan indent and, thus, the latter had a statutory duty to realize the same before
\nan indent is made, as also the remaining 10% when supplies are completed.
\nIf the payment was to be made by the Corporation to the Respondent both
\nunder the contract as also in terms of the statutory provision, it cannot now
\nturn round and contend that it was not part of its duty and leave the matter at
\nthat.  It was obligated having regard to the statutory scheme on the part of
\nthe Corporation to realize the price for the consideration of the goods
\nsupplied.  It was not constituted merely to act as a conduit pipe.  It was
\nbound to perform its statutory duties envisaged under the 1989 Act.\n<\/p>\n
 \tFurthermore, it is one thing to say that the Respondent delivered
\ngoods without receiving 90% of the indented amount but it is another thing
\nto say that it has waived its right.  No case of waiver of statutory duty has
\nbeen made out.  Nothing has been pointed before us that the Respondent
\ngave up its claim to receive the amount directly from the Corporation.  Its
\nconduct suggests contra.  The Respondent for a period of about two years
\nmade those supplies and had been asking the Corporation to make its
\npayment and, as noticed hereinbefore, the Respondent filed a suit at the
\nearliest possible opportunity.  Even during last 12 years, the Corporation
\nmade no effort to realize the amount from the State and pay the same to a
\nsmall scale industry for whose benefit the 1989 Act was enacted.  It had
\nshown utter despondency and behaved in a cavalier manner taking umbrage
\nunder specious plea that the State was a necessary party.  There was no
\nprivity of contract between the Corporation and the purchasing authorities.
\nAll payment of the purchasing authorities were to be channelised through the
\nCorporation.  Having regard to the transactions between the parties as also
\nthe Scheme and the Act, we are of the opinion that the State of Assam was
\nnot a necessary party.\n<\/p>\n
 \tIn terms of the agreement between the parties hereto, the State of
\nAssam would not be a necessary party but merely be a proper party.\n<\/p>\n
 \tIn Balvant N. Viswamitra (supra) a distinction has been made
\nbetween a proper party and a necessary party in the following terms:\n<\/p>\n
“25. It was contended by learned counsel for the
\nrespondents that the respondents were not made the
\nparty-defendants in the suit and hence no decree could
\nhave been passed nor could be executed against them.
\nWe are afraid we cannot uphold the contention. It is the
\ncase of the plaintiffs that the property was let to
\nPapamiya. It is not even the case of the respondents that
\nthey were the tenants of the plaintiffs. They are claiming
\nthrough Papamiya. At the most, therefore, they can be
\nsaid to be sub-tenants i.e. tenants of Papamiya. There was
\nno privity of contract between the landlord and the
\nrespondents. In our opinion, therefore, it was not
\nnecessary for the plaintiffs to join the respondents as
\ndefendants in the suit nor to give notice to them before
\ninitiation of the proceedings. The respondents cannot be
\nsaid to be “necessary party” to the proceedings.\n<\/p>\n
26. As held by this Court in Udit Narain Singh
\nMalpaharia v. Addl. Member, Board of Revenue, Bihar<\/a> 8
\nthere is a distinction between “necessary party” and
\n“proper party”. In that case, the Court said: (SCR p.\n<\/p>\n
\t681)
\n“The law on the subject is well settled: it is enough
\nif we state the principle. A necessary party is one
\nwithout whom no order can be made effectively; a
\nproper party is one in whose absence an effective
\norder can be made but whose presence is necessary
\nfor a complete and final decision on the question
\ninvolved in the proceeding.”\t(emphasis supplied)”\n<\/p>\n
 \tWe respectfully adopt the same.\n<\/p>\n
 \tThe Corporation for all intent and purport having undertaken the
\nliability of the purchasing authorities would also be liable for all
\nconsequences arising from non-payment of the price of the goods supplied.\n<\/p>\n
We may summarise the effect of the 1989 Act, the marketing support
\nscheme of the Corporation, the O.M. dated 28.3.1988 referred to in Section
\n7(1)(iii) of the 1989 Act, and the agreement between the Corporation and the
\nrespondent, as follows :\n<\/p>\n
i)\tThe Corporation had to collect 90% of the value of the orders
\nplaced by the purchasing departments, in advance, and release the
\nsaid 90% to the respondent on supply. This obligation is a statutory
\nobligation having regard to the provisions of Section 7(1)(c) of the
\n1989 Act read with Clause 4 of the O.M. dated 28.3.1988 and the
\nclause relating to ‘indenting’ contained in the Marketing
\nAssistance Scheme. This would mean that if the Corporation
\naccepts indents from Government departments without 90%
\nadvance and chooses to place corresponding supply orders on the
\nrespondent, it (the Corporation)  is liable to pay the said 90% to the
\nrespondent on supply whether the   Corporation chose to receive
\npayment from the indenting departments or not.\n<\/p>\n
ii)\tThough the respondent is described as the ‘principal’ and the
\nCorporation is described as the ‘agent’ in the agreement dated
\n19.10.1990 between the respondent and the Corporation, the
\nCorporation was not entitled to receive any commission or
\nremuneration or consideration from the respondent for the orders
\nprocured\/placed. It is entitled to receive the commission (at the rate
\nof 5% of the price) only from the indenting departments. The
\nCorporation, thus, acted as the ‘agent’ of both the respondent-
\nsupplier and the Indenting Government departments and took the
\nresponsibility of paying the price to the respondent. In fact, under
\nclause 6 of the agreement, the respondent specifically authorized
\nthe Corporation to raise bills of sale on behalf of the respondent,
\neither disclosing or without disclosing the name of the respondent,
\nand collect the payment from the buyer department. The said
\nclause also specifically contemplates the Corporation releasing
\n90% of the value of the material on delivery and acceptance, and
\npayment of balance of 10% after receipt of full payment from the
\npurchasing department.  As noticed above, the statutory scheme
\nand the O.M. required the Corporation to receive the 90% payment
\nin advance along with the indents from the purchasing departments
\nand any relaxation by the Corporation of that provision was done
\nat its own risk.\n<\/p>\n
 APPLICABILITY OF THE 1993 ACT:\n<\/p>\n
 \tWe have held hereinbefore that Clause 8 of the terms and conditions
\nrelate to the payments of balance 10%.  It is not in dispute that the plaintiff
\nhad demanded both the principal amount as also the interest from the
\nCorporation.  Section 3 of the 1993 Act imposes a statutory liability upon
\nthe buyer to make payment for the supplies of any goods either on or before
\nthe agreed date or where there is no agreement before the appointed day.
\nOnly when payments are not made in terms of Section 3, Section 4 would
\napply.  The 1993 Act came into effect with effect from 23.9.1992 and will
\nnot apply to transactions which took place prior to that date.  We find that
\nout of the 71 suit transactions,  sl. Nos.1 to 26 (referred to in penultimate
\npara of the Trial Court Judgment), that is supply orders between 5.6.1991 to
\n28.7.1992, were prior to the date of 1993 Act coming into force.  Only the
\ntransactions at sl. no. 27 to 71 (that is supply orders between 22.10.1992 to
\n19.6.1993). will attract the provisions of the 1993 Act.\n<\/p>\n
 \tThe 1993 Act, thus, will have no application in relation to the
\ntransactions entered into between June, 1991 and 23.9.1992.  The Trial
\nCourt as also the High Court, therefore, committed a manifest error in
\ndirecting payment of interest at the rate of 23% upto June, 1991 and 23.5%
\nthereafter..\n<\/p>\n
 \tMr. Choudhary has placed reliance upon a Full Bench decision of
\nGuwahati High Court in Assam State Electricity Board & Ors. Vs. M\/s.
\nShanti Conductors (P) Ltd. & Anr. [2002 (1) GLT 547] which  having regard
\nto the non-obstane clause contained in Sections 4, 5 and 10 of the 1993 Act
\nopined that interest payable thereunder shall embrace within its fold even the
\ncontracts which might have been entered into prior to the enforcement of the
\nAct stating:\n<\/p>\n
“However, in such a case interest on the delayed payment
\nwhich is made after the coming into force of the Act of
\n1993 would be calculated under the Act from the date of
\nthe enforcement of the Act and not from the date of
\npayment prescribed under the agreement.”\n<\/p>\n
 \tWith respect, we do not subscribe to the said view as payment of
\ninterest at an enhanced rate cannot be made in relation to the transactions
\nwhere Section 3 will have no role to play.\n<\/p>\n
 \tWe, therefore, are of the opinion that in relation to the transactions
\nmade prior to coming into force of the said Act, simple interest at the rate of
\n9% per annum, which was the bank rate at the relevant time, shall be
\npayable both prior to date of filing of the suit and pendente lite and as future
\ninterest in terms of Section 34 of the Code of Civil Procedure.  Interest,
\nhowever, will be payable in terms of the provisions of the 1993 Act
\n(compound interest at the rate of 23.5.% per annum) in relation to the
\ntransactions made after coming into force of the Act, both in respect of
\ninterest payable upto the date of institution of the suit and pendente lite and
\ntill realisation.  The judgment and decree to that extent requires to be
\nmodified.  It is directed accordingly.\n<\/p>\n
 \tThe appeal is, therefore, allowed in part in regard to interest and to the
\nextent mentioned hereinbefore.  The Corporation shall bear the costs of the
\nRespondent in this appeal.  Counsel’s fee is assessed at Rs. 25,000\/-.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Assam Small Scale Ind. Dev. Corp. … vs M\/S. J.D. Pharmaceuticals & Anr on 7 October, 2005 Author: S.B. Sinha Bench: S.B. Sinha, R.V. Raveendran CASE NO.: Appeal (civil) 6324 of 2005 PETITIONER: Assam Small Scale Ind. Dev. Corp. Ltd. & Ors. RESPONDENT: M\/s. J.D. Pharmaceuticals & Anr. DATE OF JUDGMENT: […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-110139","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nAssam Small Scale Ind. Dev. Corp. ... vs M\/S. J.D. 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