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PETITIONER: THE K.C.P. LTD.

       Vs.

RESPONDENT: STATE TRADING CORPORATION OF INDIA & ANR.

DATE OF JUDGMENT08/08/1995

BENCH: MANOHAR SUJATA V. (J) BENCH: MANOHAR SUJATA V. (J) PUNCHHI, M.M.

CITATION:  1995 SCC  Supl.  (3) 466 JT 1995 (6)    83  1995 SCALE  (4)697

ACT:

HEADNOTE:

JUDGMENT:                           JUDGMENT Mrs. Sujata V. Manohar. J.      These appeals  arise from  a  common  judgment  of  the Andhra Pradesh High Court dated 3.2.1976 in O.S. Appeal Nos. 5, 7  and 9  of 1974.  Some of  the relevant  facts for  the purposes of these appeals are as follows:-      The  appellant-K.C.P.  Limited  has  a  cement  factory situated at  Macherla in  Guntur District,  Andhra  Pradesh. Prior to  1956 the  Government of  the  composite  State  of Madras was  considering establishment of a cement factory in Kurnool District of Rayalaseema, by a private enterprise Mr. V. Ramakrishna, Chairman of the appellant-company offered to start such  a factory and applied for a licence to start the factory, to  the Government  of India through the Government of Madras.  At this time there was a proposal to construct a dam over  the River  Krishna near  Nandikonda. This  project which was  intially named  Nandikonda Dam Project later came to be  known as  the Nagarjunasagar Project. It was proposed that the  appellant would  establish  a  cement  factory  at Macherla near  the project  site and  would supply cement to the said  project. The  Chairman  of  the  appellant-company offered to  supply cement  to the  Nagarjunasagar Project at the rate  of Rs.48/- per ton loose from the proposed factory site at  macherla. This is recorded in the letter dated 12th of April,  1955 from Mr. Ramakrishna to the Secretary to the Government of  India in  which he  has stated  that  he  was enclosing the  final confirmation  to supply  cement for the said project  at the  rate of  Rs.48/-  per  ton  loose  ex- factory. On  31.10.1955 the  Government  of  India  wrote  a letter to the appellant saying that they proposed to issue a licence subject  to the condition inter alia that almost the entire production  of the  factory shall  be used locally by Nandikonda Dam Project (as it was then known) for the next 4 or 5  years. The  Nandikonda  Control  Board,  however,  was desirious of  getting the  price of  cement further reduced.

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It, therefore, continued negotiations with the appellant for a further  reduction in  the price of cement which was to be supplied for  the said project. On 30th of April, 1956 there was  a   meeting  of   the  Negotiating   Committee  of  the Nagarjunasagar Control  Board with  the Chairman  of  K.C.P. Limited when  it was agreed that the appellant-company would charge Rs.47.50  per ton of portland cement plus excise duty and sales  tax subject  to variations  upwards and downwards due to  new taxation.  For the supply during the period from 1.10.56 to 31.3.1958, however, the rate charged would be the flat rate of Rs.47.50 per ton plus excise duty and sales tax without any variation. Thereafter the Nagarjunasagar Control Board desired  that the  draft agreement  which  was  to  be entered  into   with   the   appellant-company   should   be scrutinised by the two concerned State Governments. It seems that drafts  were  exchanged  between  the  parties  but  no concluded agreement was arrived at.      While  these  negotations  were  going  on  the  Cement Control Order,  1956 came into effect from 1.7.1956. In view of the  coming into  force of  the Cement  Control Order  of 1956, in  the draft  agreement a  clause was  added  to  the effect that it would be subject to the sanction of the State Trading Corporation.  This was  because  by  virtue  of  the Cement Control  Order, 1956,  the State  Trading Corporation was appointed  as a  canalising agency  for the  purchase of cement at  a controlled price fixed under the Cement Control Order of 1956.      When the  Cement Control  Order, 1956  came into effect the appellant had not started production of cement and hence the factory  of the  appellant  was  not  mentioned  in  the schedule to  the Cement  Control Order  of 1956. The factory commenced production  in February,  1958. By  this time  the appellant was  brought on the schedule of the Cement Control Order on 25.1.1958. The appellant informed the State Trading Corporation on  2nd of  February, 1958  that it  had entered into an  agreement with Nagarjunasagar Control Board for the supply of  cement for  the said  project at the concessional rate of  Rs.47.50 per  ton loose  ex-factory insted  of  the controlled price  of Rs.54.50 fixed under the Cement Control Order. The State Trading Corporation by its letter dated 5th of February,  1958 stated that the rebate of Rs.7/- per ton, that is  to say,  the difference  between the ex-works price allowed to  the appellant  which was fixed by the Government of India at Rs.54.50, and the concessional rate of Rs.47.50, would be  allowed, and  the appellant  would be  paid by the State Trading  Corporation the  ex-works price  less rebate. The rebate  would be passed on to the Nagarjunasagar Control Board, the purchaser.      The  appellant  was  appointed  by  the  State  Trading Corporation as  their  selling  agent  for  the  purpose  of supplying cement  to the Nagarjunasagar Control Board. Hence the appellant,  as the  selling agent  of the  State Trading Corporation started  supplying cement  directly to  the said project from  18.4.1958. As  the  producer  of  cement,  the appellant became  entitled to receive the price of cement so supplied from  the State  Trading Corporation.  It recovered the price  from the  purchaser as agent of the State Trading Corporation. In  the bills  drawn by  the appellant the sale price was  being shown  as fixed by the Cement Control Order and a  rebate of Rs.7/- was shown as being deducted from the ex-works price.  Thus the  appellant as the selling agent of the   State   Trading   Corporation   collected   from   the Nagarjunasagar Control Board/the State of Andhra Pradesh the price of Rs.47.50 per ton. As the selling agent of the State Trading  Corporation   the  appellant   from  time  to  time

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submitted its  accounts to  the State Trading Corporation in respect of  the cement  so supplied  to  the  Nagarjunasagar Control Board retaining with itself the price at the rate of Rs.47.50 per ton as the producer of cement.      The  notified   price  of  cement  was  increased  from Rs.54.50  to   Rs.60.50  with   effect  from  1.7.1958.  The appellant, however,  continued to give a rebate of Rs.7/- to the Nagarjunasagar  Board while  supplying  cement.  In  the bills which were drwan by the appellant, the price was shown as the controlled price less rebate of Rs.7/-.      From 1st  of November,  1961,  however,  when  the  new Cement  Control   Order,  1961   came  into  operation,  the appellant did  not show  any rebate in the bills supplied to the Nagarjunasagar  Board and  claimed the  price  as  fixed under the  Cement Control  Order. The  Board (the  State  of Andhra  Pradesh),   however,  paid   to  the  appellant  the controlled price  less a rebate of Rs.7/-. In the statements of accounts,  however, which were submitted by the appellant to the State Trading Corporation, the appellant did not show any rebate  and claimed  the full  amount of  the controlled price from  the State  Trading Corporation which it retained with itself  by debiting the full price to the State Trading Corporation in  the statements  of accounts.  From  1.1.1966 cement was decontrolled.      It is  the contention  of the  State of  Andhra Pradesh that the  price which  the appellant had agreed to charge to the Control  Board for supply of cement for the said project was a  fixed  price  of  Rs.47.50  per  ton,  and  that  the appellant had  recovered excess  amounts from  the State  of Andhra Pradesh  by charging  controlled price less rebate of Rs.7/-. The  State of Andhra Pradesh filed a suit being C.S. No.2 of  1970 against  the appellant  and the  State Trading Corporation praying  that a  formal agreement  embodying the term that  cement would  be supplied by the appellant to the Control Board  at a  fixed price of Rs.47.50, be directed to be executed.  It also  prayed that  cement supplied  by  the appellant to  the Control  Board should  be paid  for at the rate of  Rs.47.50 per ton irrespective of the changes in the controlled price from time to time. In the suit the State of Andhra Pradesh  also claimed  a refund  of the excess amount recovered from  them by  the appellant.  There  was  also  a prayer for  reference  to  arbitration.  The  State  Trading Corporation filed  a suit  against the  appellant being C.S. No.1 of  1970 for the recovery of the rebate of Rs.7/- which the  appellant   had  recovered   from  the   State  Trading Corporation by  reversal of  entries in the accounts for the period after  1.11.1961. Both  these suits  were  tried  and decided by a common judgment. The suit filed by the State of Andhra Pradesh  against the  appellant and the State Trading Corporation was dismissed; while the suit filed by the State Trading Corporation against the appellant was decreed.      Three appeals  were filed from this common judgment and order before  the Andhra  Pradesh High Court under clause 15 of the  Letters patent.  O.S.A. No.7/1974  was filed  by the State of  Andhra Pradesh  against  the  judgment  and  order dismissing their  suit. O.S.A.  No.5/74  was  filed  by  the appellant against  the decree  which was passed against them in C.S.  No.1/70 while O.S.A. No.9/74 was filed by the State Trading Corporation  in respect of the judgment and order in C.S.No.1/70 in  so far  as it  directed  the  State  Trading Corporation to  pay court  fee on its claims separately. The Andhra Pradesh High Court by the impugned judgment and order which is  a  common  judgment  in  the  three  appeals,  has dismissed these  appeals and has awarded costs as set out in the impugment  and order.  The present  appeals are filed by

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appellant from  this judgment  and order  in so  far  as  it upholds the  claim of  the State Trading Corporation against the appellant.      The Andhra  Pradesh High  Court has  examined in detail the entire  correspondence which  was exchanged  between the appellant and/or its Chairman and the Government of India as also the  Government of  the concerned  States in connection with the  setting up of the factory of the appellant and the concessional rate  at which  the appellant offered to supply cement for  the nagarjunasagar  Project. The  High Court has come to  the conclusion that there was no concluded contract between the  parties for  the supply  of cement for the said project at  a fixed  price of  Rs.47.50. We  do not  see any reason to  take a  different view  in the light of the facts and circumstances  which  are  set  out  at  length  in  the judgment of  the Division  Bench of the High Court of Andhra Pradesh. In view of this finding the question of the alleged agreement being  drawn up  in accordance with the provisions of Article  299 of  the constitution  of India,  or its non- enforceability on that count, does not arise.      The High  Court has, however,, held that in view of the facts and  circumstances which  are set out in the judgment, the appellant  had offered a rebate of Rs.7/- on the Control Price of  cement in  respect of  the cement supplied for the Nagarjunasagar  Project.   It  was  in  the  light  of  this concessional rate  offered by  the appellant  that  licences were issued  from time  to time  to the  appellant  for  the Cement factory  and for  expansion of its capacity. The High Court has also pointed out that in fact the appellant gave a rebate of  Rs.7/- on  the controlled price in respect of the cement supplied  for the  said project  and it  continued to give this rebate upto 1.11.1961. The appellant also wrote to the  State   Trading  Corporation   informing  it  that  the appellant had  agreed to  give a  rebate of  Rs.7/-  on  the Control Price  of Cement  in respect of the cement which was to be  supplied by  it for the Nagarjunsagar Project and the State Trading  Corporation accepted  this  arrangement.  The appellant also  showed this  amount as  rebate in  the bills which were  drawn by  it  for  the  supply  of  cement  upto 1.11.1961. It was not entitled to withdraw this rebate after 1.11.1961. In  fact, even  after 1.11.1961  it continued  to recover only  the concessional  price. It  has not taken any steps against  the State  of Andhra  Pradesh to  recover the amount of  rebate so  granted by it although its bills after 1.11.1961 do not show the rebate.      In view  of the  above the High Court has, in our view, rightly come  to the  conclusion that  the State  of  Andhra Pradesh was  entitled to  the  supply  of  cement  from  the appellant at  control Price  less a  rebate of Rs.7/- during the period when the Cement Control Orders were in operation. As the  State of Andhra Pradesh has in fact paid this price, that is  to say,  Control Price  less rebate  of Rs.7/-,  no further relief  is required  to be  granted as  its claim to recive cement  at the  fixed price  of Rs.47.50  per ton has been negatived. Although the appellant declined to give this rebate in  its bills  after 1.11.61 it has in fact not filed any suit  for the  recovery of  this  rebate  of  Rs.7/-  as against the  State of Andhra Pradesh. In these circumstances the High  Court has  rightly come to the conclusion that the State of  Andhra Pradesh  is liable  to pay  for the  cement supplied, control price less a rebate of Rs.7/-.      The State  Trading Corporation  was only  a  canalising agency and  it had  agreed to  pass on a rebate of Rs.7/- to the State  of Andhra  Pradesh in view of the agreement which was entered  into between  the appellant  and the  State  of

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Andhra Pradesh.  The High Court has rightly observed that it is difficult  to see  how the  appellant can  at all  make a complaint against  the State  Trading  Corporation  for  the amount of  rebate which  was granted by the appellant to the State of  Andhra Pradesh.  It has,  therefore, held that the appellant was  not entitled,  to claim  the amount of rebate from the  State Trading  Corporation after  1.11.1961 as was done in  the statements  of accounts  submitted by it to the State Trading  Corporation. It  has, therefore,  upheld  the claim of  the State  Trading Corporation for recovery of the excess amount  for  which  credit  was  thus  taken  by  the appellant. It  has held that as selling agent, the appellant was receiving  the full  price minus Rs.7/- per ton given as rebate. It is only that price which should have been paid to the appellant  as producer.  The reversal  of entries in the accounts made by the appellant as selling agent of the State Trading Corporation  is unwarranted and clearly illegal. The State Trading  Corporation was  justified in filing the suit and claiming  the amount of rebate which had been wrongfully debited to their account by the appellant by making reversal entries. The High Court has, therefore, dismissed the appeal filed by the appellant being O.S.A. No.5 of 1974 with costs. We agree  with the  reasoning and  conclusion of  the Andhra Pradesh High Court for reasons set out above. no order as to      The appeals are dismissed with no order as to costs.