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PETITIONER: STATE OF UTTAR PRADESH & ANR.

       Vs.

RESPONDENT: MURARI LAL & BROTHERS LTD.

DATE OF JUDGMENT03/08/1971

BENCH: GROVER, A.N. BENCH: GROVER, A.N. HEGDE, K.S.

CITATION:  1971 AIR 2210            1972 SCR  (1)   1

ACT: Constitution  of India, Art. 299(11)-Contract Act, 1872.  s. 230(3)-Purported  contract  between Government  and  private party not complying with requirements of Art. 299(1)-Whether enforceable-Liability of agent of Government.

HEADNOTE: The respondent company had a cold storage.  It filed a  suit against  the  Government of Uttar Pradesh and three  of  its officials  claming  rent or damages on the  allegation  that under  an  agreement  negotiated by Defendant  No.  3  under instructions  from Defendants Nos. 2 and 4 on behalf of  the State Government (defendant No. (1) space had been  reserved in  its  cold  storage by the company  for  the  storage  of Government  potatoes  but  no potatoes  had  been  sent  for storage.   On behalf of the State Government it was  pleaded that  no contract was entered into in accordance  with  Art. 299(1)  of  the Constitution.  The trial  court  upheld  the objection  of the State and dismissed the suit  against  it, but  it  held the other defendants liable  for  the  storage charges.   The  High Court on appeal by the  defendants  set aside  the  decree  against  defendants Nos.  2  and  4  but maintained it against defendant No. 3. According to the High Court  the entire transaction had been entered into  by  the defendant  No. 3 on behalf of the Government and  since  the State Government was not liable by virtue of Art. 299 of the Constitution  the  said defendant would be liable  under  s. 230(3)  of  the Contract Act.  In appeal to  this  Court  by certificate, HELD : Except in Chatturbhuj’s case which lent some  support to the High Court’s view, this Court has taken the view that the  provisions of Art. 299(1) are mandatory and  contain  a prohibition against a contract being entered into  otherwise than  in the manner prescribed by the aforesaid  provisions. The observations in Chaturbhuj’s case have been regarded  in subsequent  decisions  as  either not laying  down  the  law correctly  or as being confined to the facts of  that  case. The  consensus  of opinion is that a contract  entered  into without  complying,  with the conditions laid down  in  Art. 299(1)  is void.  If there is no contract in the eye of  the law  it is difficult to see how s. 230(3) of  the,  Contract Act would become applicable. (5 D] The appeal must accordingly be allowed.

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Chatturbhuj  Vithaldas Jasani v. Moreshwar Parashram &  Ors, [1954] S.C.R. 817, not followed. State  of West Bengal v. M/s.  B. K. Mondal &  Sons.  [1962] Supp.  1  S.C.R.  876, and Mulamchand  v.  State  o/  Madhya Pradesh, [1968] 3, S.C.R. 214, applied. [For  the reasons stated in the judgment the court  did  not give  any final opinion on the question of applicability  of s. 235 of the Contract 2 Act  to cases when the contract Suffers from  the  infirmity that  the  requirements of Art. 299(1) of  the  Constitution have not been complied with]

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 15 of 1968. Appeal from the judgment and decree dated August 11, 1964 of the Allababad High Court in first Appeal No. 11 of 1957. C.   B.  Agrawala,  O.  P.  Rana  and R.   Bana,  for  the appellants. S.   P.  Sinha,  O.  P.  Gupta and M.  L  Khowaja,  for  the respondent The Judgment of the Court was delivered by. Grover,  J.-This  is  an  appeal  by  certificate  from  the judgment  of  the Allahabad High Court  dacreeing  the  suit filed by the respondent company for recovery of a sum of Rs. 21,000/- on account of rent or damages in respect of storage charges  for  4,000 Maunds of potatoes for which  space  had been  reserved  in  the  cold storage  by  the  company  The plaintiff  respondent brought a suit against the State  of Uttar  Pradesh  and impleaded three  other defendants  who were,  at  the material time. in the service of  the  State. Defendant  No. 3 was a Horticulturist in the  Department  of Agriculture.   He negotiated with the plaintiff for  storing Government potatoes in a cold storage which belonged to  the plaintiff.  It was agreed that the Government potatoes would be  sent for storage and the plaintiff would be entitled  to charge at a certain rate per maund.  It was understood  that 4,000  maunds of potatoes would be sent for  storage.   How- ever,  no  potatoes  were sent although  the  plaintiff  had reserved the requisite space in the storage which  remained unoccupied during the season.  It appears that defendant No. 3  A. P. Gupta was acting on behalf of Srivastava  defendant No.  2  who was Deputy Director, Horticulture.   Both  these defendants  were  acting  upon  instructions  from  Sri  Ram Krishna  defendant  No.  4  who  was  Assistant  Development Commissioner,  Planning  Lucknow.  The  suit  was  therefore filed  against the State and the other three  defendants  to recover the storage charges amounting to Rs. 21,000/-.                              3 Although, all the defendants raised a common plea that there was  no  contract  between the parties for  the  storage  of potatoes and that the entire matter remained at the stage of negotiations the real plea taken on behalf’ of the State was that  no contract had been entered into in  accordance  with Art.  299 (1) of the Constitution.  The trial  court  upheld the objection of the State and dismissed the suit against it but  it  held the other defendants jointly  liable  for  the storage charges.  The High Court on appeal by the defendants set  aside  the decree against defendants Nos. 2 and  4  but maintained  it against defendant No. 3. No appeal,  however, was  filed  by  the plaintiff against  the  State.   As  the judgment   of  the  High  Court  proceeded  mainly  on   the provisions of sub-s.. (3) of S. 230 of the Contract Act  the

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whole of that section may be set out :-               S. 230.    "In the absence of any contract  to               that effect an agent cannot personally enforce               contracts entered into by him on behalf of his               principal, now is he personally bound by them.               Such a contract shall be presumed to exist  in               the following cases:-               (1)   Where  the contract is made by an  agent               for  the  sale  or purchase  of  goods  for  a               merchant resident abroad;               (2)   Where  the agent does not  disclose  the               name, of his principal;               (3)   where        the        principal,though               disclosed,cannot be, sued. According to the High Court the entire transaction had  been entered into by the defendant on behalf of the,  Government. As the State Government was not liable by virtue of Art. 299 of  the  Constitution  S. 230 (3) would  be  applicable  and defendant  No. 3, who was apparently acting as an  agent  of the  State Government, would become personally liable  under the contract.  Certain observations in Chatturbhuj Vithaldas Jasani  v.. Moreshwar Parshrain & Others (1) appear to  lend support to this view.  In that case also no formal  contract had been. (1)  [1954] S.C.R. 817. 4 entered  into  as  required by Art. 299  (1)  of  the  Cons- titution.  The court observed that the Chairman of the Board of   Administration  had  acted  on  behalf  of  the   Union Government  and his authority to contract in  that  capacity had  not been questioned.  Both sides ,acted in  the  belief and  on  the  assumption that the goods  were  intended  for Government  purposes.  The only flaw was that the  contracts were  not  in  proper form and  because  of  this  technical difficulty the principal could not have been sued.  But that was  just  the kind of case that S. 230 (3)  of  the  Indian Contract Act was designed to meet.  The Government might not be  bound by the contract but it was very difficult  to  say that such contracts were void and of no effect.  There would be  nothing to prevent ratification especially if  that  was for the benefit of the Government  However, in a  subsequent decision  in  State of West Bengal v. M/s B. K.  Mondal  and sons,   (1)  Gajendragadkar  J.,  delivering  the   majority judgment of Bench said at page 885 with reference as he then was, the Constitution  to the above observation:               "The contract which is void may not be capable               of  ratification, but, since according to  the               Court the contract in question could have been               ratified  it  was not void in  that  technical               sense.   That is all that was intended by  the               observation in question.  We are not  prepared               to  read  the said observation  or  the  final               decision   in  the  case  of  Chatturbhuj   as               supporting the proposition that  notwithstand-               ing the failure of the parties to comply  with               Art.  299  (1)  the  contract  would  not   be               invalid.   Indeed,  Bose,  J.,  has  expressly               stated that such a contract cannot be enforced               against  the Government and is not binding  on               it." The  effect of the reference to S. 230 (3) of  the  Contract Act in Chatturbhui"s case(2)was not directly considered ’but in  a  large number of Subsequent decisions this  Court  has taken  the  view  that  the  provisions  of  Art.  299   (1) (corresponding to S. 175 (3) of the Government of India’ Act

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(1935)  are  mandatory and contain a prohibition  against  a contract being entered into (1) [1962] Supp.  1 S.C.R. 876. (2) [1954] S. C. R. 817, 5 except in the manner prescribed by the aforesaid provisions. We  need only refer to the recent judgment in Mulamchand  v. State of Madhya Pradesh (1).  After referring to the earlier decisions Ramaswami, J. observed at page 221 :-               "The  principle is that the provisions  of  S.               175  (3) of the Government of India Act,  1935               or  the corresponding provisions of  Art.  299               (1) of the Constitution of India are mandatory               in  character and the contravention  of  these               provisions  nullifies the contracts and  makes               them  void.  There is no question of  estoppel               or ratification in such a case." It  is clear that the observations in Chatturbhuj’s  case(2) have  been  regarded  either  as not  laying  down  the  law correctly  or as being confined to facts of that case.   The consensus of opinion is that a contract entered into without complying  with the conditions laid down in Art. 299 (1)  is void.   If there is no contract in the eye of the law it  is difficult  to see how S. 230 (3) of the Contract  Act  would become applicable. Although  the  High  Court did not rely on  S.  235  of  the Contract  Act the trial court bad held that  the  defendants had  no authority to enter into a contract on behalf of  the State  Government but still they purported to do  so.  There was  an  implied  warranty  of authority  which  had  to  be presumed   and  the  plaintiff  was  entitled   to   receive compensation for breach of that warranty under s. 235 of the Contract  Act.  Section 235 provides that a  person  untruly representing himself to be the authorised agent of  another, and thereby inducing a third person to deal with him as such agent,  is liable, if his alleged employer does  not  ratify his  acts, to make compensation, to the other in respect  of any loss or damage which he has incurred by so dealing.  The High  Court did not base its decision on the above  section. But it seems that s. 235 also can become applicable only  if there  is  a valid contract in existence.  This  appears  to follow  from  the words "if his alleged  employer  does  not ratify his acts."’ The contract should thus be such that  it is (1) [1968] 3 S.C.R. 214. (2) [1954] S.C.R. 817. 6 capable of ratification. ;In the present case where the con- tract  was  entered  into ’Without complying  with  the  re- quirements of Art. 299 (1) of the Constitution the  question of  ratification could not arise because on the  view  which has already been followed such a contract is void and is not capable  of  ratification.   However, we  do  not wish  to express any final opinion on the applicability of S. 235  of the  Contract Act to cases where the contract  suffers  from the  infirmity that the requirements of Art. 299 (1) of  the Constitution  have  not been complied with.  The  reason  is that  before  the High Court no contention appears  to  have been advanced on behalf of the plaintiff based on S. 235  of the  Contract Act nor has the plaintiff’s counsel chosen  to satisfy  us that even if S. 230 (3) was not  applicable  the decree  should be sustained on the ground that relief  could be granted by virtue of S. 235 of the Contract Act. The appeal thus succeeds and the judgment and decree of  the courts  below  are  hereby set aside and  the  suit  of  the

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plaintiff  is dismissed.  In the circumstances of  the  case the parties are left to bear their own costs throughout. G.C.                                         Appeal allowed 7