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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: 07/10/2005

BENCH: S.B. Sinha & R.V. Raveendran

JUDGMENT: JUDGMENT [Arising out of  S.L.P. (C) No. 3950 of 2005]

S.B. Sinha, J :  

       Leave granted.

       The Legislature of State of Assam and the Parliament took legislative  measures to allay the difficulties faced by the small scale industries.  The  State of Assam made rules known as The Assam Preferential Stores  Purchase Rules in the year 1972.  The said rules having not served its  purpose, the Assam Preferential Stores Purchase Act, 1989 (for short "the  1989 Act") was enacted which received the assent of the Governor on 14th  July, 1989.  The said Act was enacted for encouraging growth of industries  in the State of Assam specially small scale and cottage industries and for  taking measures ancillary thereto.  The State intended to patronize the  products of the small scale and cottage industries on preferential basis and to  rationalize the procedure for purchase of stores required by the State  Government Institutions, Government companies and State Government  undertakings, as would appear from the preamble thereof.   

       Section 2(d) of the 1989 Act defines "State Board" to mean the Assam  State Stores Purchase Board constituted under Section 3 of the 1989 Act.   "Small Scale Industry" has been defined in Section 2(f) to mean ’an  industrial unit in which the capital investment for plant and machinery does  not exceed thirty five lakhs of rupees or any other amount as may be decided  by the Central Government from time to time and located in the State of  Assam’.  "Registered Industry" has been defined in Section 2(l) to mean an  industrial unit registered under the Directorate of Industries in accordance  with provisions thereof.  "Requiring Authority" has been defined in Section  2(r) to mean the State Governments Departments and their subordinate  authorities, State Government Undertaking/ Corporation/ Statutory Bodies/  Autonomous Bodies.  Section 2(s) defines "ASIDC" to mean the Assam  Small Industries Development Corporation Limited (for short "the  Corporation", the Appellant herein).

       Section 3 of the 1989 Act provides for constitution of the State Store   Purchase Board on such term as may be specified in Schedule \026 1.  Preference to the small scale industries is provided in Section 7. Clause (c)  of sub-section (1) of Section 7 reads as under:

"(c) Items of stores mentioned in Schedule III shall be  purchased by requiring authorities from ASIDC, ASIDC  shall follow the guideline regarding fixation of price,  commission, etc. as laid down in office memorandum  issued by Notification No. PE-61/88/1, dated 28th March,  1988 as in Schedule IV."

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                The Purchase Committee is required to be constituted in terms of  Section 8 of the 1989 Act consisting of the Head of Department, Director of  Industries, a representative of the Department not below the rank of Under  Secretary, Financial Adviser of the Department and Finance and Accounts  Officer of the concerned Directorate.

       Section 9 postulates that the Purchase Committee shall include two  representatives from the State Government, one of which shall be the  Director of Industries or his representative not below the rank of Deputy  Director and the other representative of the Finance Department in respect of  each Government Corporation, Government Undertaking, Assam Electricity  Board.   

       In the State Board, amongst others, the Managing Director of the  Appellant Corporation is a member.  Schedule \026 III provides for the  preferences to be given as required under Section 7(c).  Item 4 of the said  Schedule is ’drugs and pharmaceuticals and clinical equipments’.

       An office memorandum dated 28th March, 1988 referred to in Section  7(1)(c) of the 1989 Act is based on a cabinet decision and issued in the name  of the Governor of Assam laid down  guidelines for strict adherence thereof  by all government departments, their subordinate authorities, governments  organizations and public sector undertakings while making their purchases  of any SSI products which are dealt in or manufactured by the Corporation.   The said office memorandum satisfies the requirements of Article 166 of the  Constitution of India and has been made a part of the 1989 Act.  In terms of  the said guidelines, the Corporation is required to publish a list of items/  materials/products to be dealt in or manufactured by it as detailed in  Annexure \026 1 thereof.  The price of such SSI products is to  be fixed by any  Technical Committee constituted by the Corporation with members from  neutral organization and concerned departments. As per the said OM,   purchasing authorities shall pay to the Corporation upto 5% as commission  over the price fixed by the Corporation.  The purchasing authorities shall pay  advance to the extent of 90% of the value of the orders placed with the  Corporation.  Annexure \026 A to the  said guidelines is the marketing  assistance scheme wherein ’drugs and pharmaceuticals and clinical  equipments’ had been identified as one of the items, supply of which to the  Government departments is to be taken over by the Corporation.  The said  scheme provides for quality control, pricing, registration of units as also  indenting by the Corporation.  The clause relating to indenting of the goods  reads as under:

"The purchasing authorities will issue indent to the  Corporation for the required products with 90% advance.   The Corporation will immediately allot the work to the  most suitable unit or units to complete supply within  stipulated time.  If the supply could not be completed in  due to time by the Corporation, the purchasing authorities  will deduct 1 = p.m. from bills.

       The stores will be dispatched by the units only  after they are given dispatch instruction by the ASIDC.   Normally the dispatch will have to commence within the  third day from the date of dispatch instruction, failing  which the unit may be penalized the extent of bank  interest on the amount.  The stores will be received by  the purchasing authority and the acceptance or rejection  notes will be issued on the challans.

       The Corporation will release payment upto 90% of  the bills to the units on completion of supply.  Any  advance or advances will be deducted fully.  The  remaining 10% will be released on receipt of full

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payment of the bills from the purchasing authority."

       Only if the Corporation is unable to supply some items and such  inability is communicated to it in writing, the  purchasing authority  can  purchase them from alternative sources.

       It is not in dispute that the plaintiff is a SSI unit registered with the  Corporation and fulfills all the criteria laid down in the 1989 Act and the  Scheme framed thereunder.  It entered into an agreement with the  Corporation on or about 19th October, 1990 wherein the plaintiff  (Respondent herein) was termed as a principal and the Corporation as an  agent.  The said agreement was entered into in terms of the marketing  support scheme formulated by the Corporation under the 1989 Act.  Para 3  of the preamble and Clauses 1, 4, 6, 7 and 8 of the said agreement read as  under:

"And whereas the Corporation has agreed to act as an  Agent to market the goods manufactured by the Principal  as specified in the schedule appended to this agreement,  under the marking support scheme formulated by the  Corporation under the AP SP Act, 1989\005\005..The  principal hereby covenants with the Corporation  as  hereinafter provided :  

"1. The Principal shall quote lowest rates in respect of  "Scheduled Goods" to the Corporation and shall not  quote to any party mentioned above directly or indirectly,  rate lower than those quoted to the Corporation in respect  of the goods for which competitive rates are being quoted  by them.  The rates so quoted to the Corporation by the  Principal shall be valid for a period of one year from the  date of submission of the quotation.

4. The Principal shall, when advised to do so, supply the  goods wherever required within the stipulated time at his  cost.  In event of failure to comply with aforesaid clause,  if any penalty is imposed by the actual buyer of the goods  in the event of the Principal failing to comply the above  provision of conditions, or if any losses are otherwise  incurred, the said penalty or loss is to be borne by the  Principal by reimbursing the said amount to the  Corporation within 15 days from the date of demand.   The Principal shall also be responsible for losses by way  of breakages, theft or pilferage etc. during the transit of  goods.

6.  The Principal authorizes the Corporation to raise bills  of sale on their behalf, disclosing or without disclosing  the name of the principal, and to collect payment thereon  from the buyer(s).  On collection of payment from the  buyer(s).  Payment to the principal will be effected by the  Corporation deduction the service charges.  Penalty due  to delayed supplies, or other dues/advance, if any.  The  Corporation may release 90% value of the materials on  delivery and acceptance of the material by the buyer after  deduction of dues/advance payment if any subject to  receipt of payment from buyer(s).  The balance 10% less  penalty due to the delayed supplies etc. or any other dues  will be paid to the Principal on receipt of full payment  from the Purchasing Department.    7. The Principal hereby agrees to the terms and condition  in the Marketing Support Scheme of the Corporation as  amended from time to time and agrees to comply with

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general specific instructions as might be issued by the  Corporation regarding the Marketing of "Scheduled  goods".

8. That in case of any shortage, leakage, damage,  breakage, late supplies, late submission of R/R/Motor  Transport Receipt, delivery challans, inadequate packing  etc. or any losses in transit for whatever circumstance or  reasons, it shall be on the account of the principal and the  amount thus involved, shall be deducted from his bills."

       A specimen copy of the orders placed by the Corporation on the  Respondent  from time to time is extracted below :  

"DATED 16.6.1992 To  M/s. J.D. Pharmaceuticals Limited M.C. Road Guwahati \026 3

SUB: ORDER FOR SUPPLY OF STORES:

Dear Sir,         With reference to above, we have the pleasure to  order with you for supply of the under noted articles to  the Sub Divisional Medical and Health Officer, I/C.  D.M.S. Dibrugarh, as per terms and conditions shown  over overlead.

S.No.   Name of Item            Quantity        Price 1.      Tab Trimetoprim 80 mg     75,000        Rs. 559.35 /         with sulphamethoxagole                  thousand tab         400 mg.

Delivery period: within 30.6.1992"

       Some of the terms and conditions attached to the supply orders are as  under:

"4. The Stores must be supplied through your challan  issued in favour of indenting department and should be  properly a/c Assam Small Industries Development  Corporation Limited, marketing Division and will be  submitted to this office after duly receipted by the  department and stamped.

5. The above prices are inclusive of packing/ forwarding/  transportation charge, but exclusive of 5% commission  and tax as admissible.

8. After execution of the order your bill should be  submitted for payment.  Payment will be made subject to  receipt of the fund from the indenting department.  No  interest/ compensation can be claimed for delay in  payment.

10. Terms and conditions other than the above, will be as  per the deed of agreement executed by you, red with  other tenders/quotations."  

       The Parliament also enacted ’Interest on Delayed payments to Small  Scale and Ancillary Industrial Undertakings Act, 1993’ (for short "the 1993  Act") being Act No. 32 of 1993 which came into force with effect from 23rd

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September, 1992.  "Appointed day" has been defined in Section 2(b) to  mean the day following immediately after the expiry of the period of thirty  days from the day of acceptance or the day of deemed acceptance of any  goods or any services by a buyer from a supplier.  Section 3 provides for the  liability of buyer to make payment.  Sections 4 and 5 thereof read as under:

"4. Date from which and rate at which interest is  payable.--Where any buyer fails to make payment of the  amount to the supplier, as required under section 3, the  buyer shall, notwithstanding anything contained in any  agreement between the buyer and the supplier or in any  law for the time being in force, be liable to pay interest to  the supplier on that amount from the appointed day or, as  the case may be, from the date immediately following the  date agreed upon, at such rate which is five per cent  points above the floor rate for comparable lending.

5. Liability of buyer to pay compound interest.-- Notwithstanding anything contained in any agreement  between a supplier and a buyer or in any law for the lime  being in force, the buyer shall be liable to pay compound  interest (with monthly rests) at the rate mentioned in  section 4 on the amount due to the supplier."

       It is not in dispute that pursuant to the said agreement, the Corporation  placed orders for supply of medicines manufactured by the Respondent  herein for the period June, 1991 to June, 1993.  The total price of the  medicines supplied by the Respondent in pursuance of the supply orders of  the Corporation stood at Rs. 20,56,654.13 out of which only a sum of Rs.  46,512.80 was paid to the Respondent.   

       It stands admitted that the payments have not been made in relation to  the supplies made for the said indents.  A suit was filed by the Respondent  herein on 7.9.1993 claiming the aforementioned amount (Rs.20,56,654.13)  together with the interest payable thereon in terms of the 1993 Act  (Rs.675,881/45).  In the said suit, the Corporation in its written statement  inter alia raised the following plea:

"4. That the suit is bad for non-joinder of necessary party  and on the score alone the suit is liable to be dismissed.

10. That with regard the statements made in Para 16 to 46  of the plaint, the defendants do not admit anything  contrary to the relevant records of the case.  The  defendants submit that the supply order placed by the  defendants does not relate to a single transaction and as  such, the plaintiffs cannot claim for recovery of its dues,  if any, in one suit.  The defendants have placed orders  with the plaintiff firm as per the APSP Act, 1989 and as  per the indent of the Govt. department.  It was agreed in  the terms and conditions of the order that the payment of  the bills would be released to the plaintiffs on receipt of  payment by the defendants from the concerned  Government Department.  This condition of payment has  also been agreed to by the plaintiff and as per the terms  and conditions of the agreement executed by the parties.   The defendants submit that it has not received payment  against the value of the medicines supplied by the  plaintiff to the Government department and as such, the  bill amount could not be released due to the aforesaid  factor.  The Drug Association, Assam where the plaintiff  firm is also a Member, has informed the defendants by  letter that the firm registered under them, are agreeable to  accept orders without 90 percent advance payment at the

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time of placement of the order and accordingly orders  were placed and as per the terms and conditions of the  agreement, the defendants were to release payment on  receipt of the same from the concerned Government  department.  As stated earlier since the defendants has  not received any payment from the Government  Department against the value of the medicines supplied  by the plaintiff firm, the required payment could not be  released to the plaintiff firm."

       The Trial Judge by a judgment dated 1st August, 1998 passed a decree  in favour of the Respondent herein in the following terms:

"In the light of the above discussion and the decisions  made therein, the plaintiffs suit is decreed for Rs.  2010141.33 on contest with cost.  The plaintiffs shall be  entitled to realize compound interest @ 23% with  monthly rest in  respect of the concerned bill amounts till  the month of June, 1991 and at the rate of Rs. 23.5% with  monthly rest w.e.f. 1.7.1991 till filing of the suit.  The  plaintiff shall be entitled to realize compound interest at  the rate of Rs. 23.5% at monthly rest on the decretal  amount from the date of filing the suit till the date of the  decree and further interest at the said rate from the date  of decree till realization."

       An appeal preferred thereagainst, by the Corporation before the High  Court was dismissed.  The Corporation is, thus, in appeal before us.

       Mr. R.F. Nariman, learned senior counsel appearing on behalf of the  Corporation would raise the following contentions in support of the said  appeal:

(i)     Having regard to the terms and conditions of supply, the  Corporation was to pay unto the Respondent the price for the  goods supplied only as and when the same was received from the  respective departments of the  State Government.  The Corporation  is an agent of the Respondent and not the buyer of the goods; and  as per clause 6 of the agreement until  payments are received from  the buyers  (Departments of the State), no liability could have been  fastened upon the Corporation to pay the said amount.  Clause 8 of  the terms and conditions of the orders for supply also make it clear  that payment will be made subject only to receipt of funds from the  indenting department.  (ii)    The different departments of the State and other government  corporations and undertakings being the buyers and the  beneficiaries of the supplies only, they were liable to pay the price  of the goods supplied over which the Corporation had no control  and in that view of the matter the State of Assam was a necessary  party.  In any event, the recipient of goods, namely, the buyer   being disclosed principal of the Corporation, the Respondent as a  principal of the Corporation could maintain a suit as against the  actual buyer only.   (iii)   The provisions of the 1993 Act for payment of interest,  are not  applicable in view of the fact that the same applies only to a buyer  of any goods or recipient of a service from a supplier for a  consideration.  Further clause 8 of the terms and conditions of the  orders for supply provide that no interest can be claimed for delay  in payment. (iv)    In the entire plaint, the Respondent has admitted that it is bound by  the terms and conditions of supply and in particular clause 8 therof  and, thus, it does not lie in its mouth now to contend, as has been  done in the counter-affidavit filed before this Court, that the said

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clause is illegal and of no effect being opposed to public policy.

       Mr. Pravir Choudhary, learned counsel appearing on behalf of the  Respondent, on the other hand, would submit that both the 1989 Act and the  1993 Act are beneficial legislations.  The 1989 Act having been enacted by  the State of Assam for granting certain reliefs to the SSI units as a part of its  industrial policy, the terms and conditions of the agreement as also the  conditions of supply shall be subservient thereto and, thus, to the extent the  same is inconsistent with the Scheme, the later will prevail. In view of the  provisions contained in the 1989 Act and the scheme, it will appear that the  Corporation exercises a total control - from quality to pricing to indenting  and, thus, the expressions used in the agreement as principal and agent will  have no bearing.  An agent as is commonly understood cannot have a control  over the principal.  As its agreement was with the Corporation, and the  orders were all placed by the Corporation and as it had no privity with the  departments of the State who received delivery of the goods, the Corporation  is liable to pay the price with interest.           In view of the fact that the Respondent had no privity of contract with  different departments of the government, they were not necessary parties.   Reliance in this behalf has been placed on Balvant N. Viswamitra and  Others Vs. Yadav Sadashiv Mule (Dead) Through LRS. And Others [(2004)  8 SCC 706].   In view of the statute and the scheme as also the guidelines  issued, the question of the Respondent waiving its right thereunder does not  arise.  The 1993 Act, it was submitted, being also a beneficient statute, the  same should be construed liberally.  The Act, Mr. Choudhary would argue,  will thus, have a retrospective effect.   

THE EFFECT OF THE 1989 ACT         The 1989 Act indisputably is a beneficient legislation.  There was a  purpose behind enacting it.  It was primarily enacted so as to enable the State  to effectively perform a sovereign function namely health care.  The  Marketing Assistance Scheme being appended to the provisions of the Act  and marked as Annexure \026A thereto forms a part of the Act.  The scheme  envisages pervasive control over the manufacturers including quality control  of the production.  Guidelines which were to be strictly adhered to by the  authorities, as noticed hereinbefore, had also been issued by the State.  Such  guidelines having fulfilled the requirements of Article 166 of the  Constitution of India were required to be followed by the Corporation.

       The order for supply of stores, the provisions of the agreement and the  terms and conditions of supply, therefore, cannot be read in isolation.  They  must be read in conjunction with the provisions of the Act, the scheme and  the guidelines issued thereunder.  The provision in the scheme relating to  indenting envisages that the purchasing authorities will issue indent to the  Corporation for the required products with 90% advance whereupon the  Corporation would immediately allot the work to the most suitable unit or  units to complete supply within the stipulated time.  In the event, such  supplies are not made within the specified time, the supplier would be  subjected to penalty.  In view of the fact that the supplying authority will  have to send advance of 90%, the Corporation owes a duty to release  payment upto 90% on completion of supply.  If the Corporation had not  taken the advance in terms of the provisions of the scheme, it acted at its  own peril.   

       It is not disputed that the Respondent did not commit any breach or  any irregularity in regard to the supplies.  Once the supply of the goods was  completed, having regard to the clause aforementioned, the Corporation was  bound to release the payment upto 90% in view of the fact that the  purchasing authorities were also obligated to issue indent to the Corporation  with 90% advance.  If such advance had not been given, the Corporation in  terms of the scheme should not have issued the indent.  It may be true that  the terms and conditions appended with each order of supply stipulate that  payment would be made subject to receipt of the fund from the indenting  department.  But, the scheme, guidelines, the agreement as also the terms  and conditions for supply of stores, if read as a whole, the only meaning

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which can be attributed thereto would be in relation to the 10% of the  amount which the Corporation was to realize from the supplying authorities  upon submission of bill by the manufacturer.   The said term has nothing to  do with payment of 90% advance in accordance with the provision of the  Scheme.   

       Clause 8 of the terms and conditions of order of supply refers to a  stage when after execution of the order a bill is submitted and payment  thereof, i.e., 10% of the balance amount only would be subject to the receipt  of the fund from the indenting department.   

       So read, Clause 8 may not be held to be opposed to public policy but  it cannot be read in isolation.  It cannot be read in such a manner so as to  destroy or defeat the very purpose for which the Act or the Scheme was  enacted.  It cannot be read as laying down a term which would run contrary  to the guidelines.

       The expressions ’principal’ and ’agent’ used in a document are not  decisive.  The nature of transaction is required to be determined on the basis  of the substance there and not by the nomenclature used. Documents are to  be construed having regard to the contexts thereof wherefor ’labels’ may not  be of much relevance.  The 1989 Act, the scheme and the guidelines  postulate constitution of a State Board for the purpose of monitoring  supplies to various departments of the State, the government corporations  and the companies.  The Managing Director of the Corporation is a member  of the board in terms of the provisions of the 1989 Act.  The Corporation  was created for the purpose of giving effect to the provisions of the Act and  the scheme framed thereunder.  It is a statutory body and is a ’State’ within  the meaning of Article 12 of the Constitution of India.  The contract by and  between the parties being a statutory one, the Corporation was required to  act fairly and reasonably.  The principal purpose of the Act was to give  encouragement to the growth of industries in the State of Assam and  patronizing the products of small scale and cottage industries on preferential  basis.  The 1989 Act contemplates acts which would be for the betterment of  the SSI units and not acts which would be detrimental to their interest.  The  terms used in the agreement must, therefore, be understood in that  perspective.

       In Chairman, Life Insurance Corporation and others Vs. Rajiv Kumar  Bhasker [2005 AIR SCW 3636], a bench of this Court opined: "39. Agency as is well-settled, is a legal concept which is  employed by the Court when it becomes necessary to  explain and resolve the problems created by certain fact  situation. In other words, when the existence of an  agency relationship would help to decide an individual  problem, and the facts permits a court to conclude that  such a relationship existed at a material time, then  whether or not any express or implied consent to the  creation of an agency may have been given by one party  to another, the court is entitled to conclude that such  relationship was in existence at the time, and for the  purpose in question. [See "Establishing Agency" by GHL  Fridman - 1968 (84) Law Quarterly Review 224 at p  231]."

       It is no longer in doubt or dispute that while interpreting the terms of  agreement, it is necessary to look to the substance of the matter rather than  its form.  Use of a terminology may not be sufficient to lead to a conclusion  that the parties to the contract in fact intended that the said status would be  conferred.

       In The Bhopal Sugar Industries Ltd. Vs. Sales Tax Officer, Bhopal  [(1977) 3 SCC 147], a 3-Judge Bench of this Court referred to the dicta laid  down by this Court in Sri Tirumala Venkateswara Timber and Bamboo Firm  Vs. Commercial Tax Officer, Rajahmundry [(1968) 2 SCR 476] wherein the

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law has been laid down in the following terms:

"As a matter of law there is a distinction between a  contract of sale and a contract of agency by which the  agent is authorised to sell or buy on behalf of the  principal. The essence of a contract of sale is the transfer  of title to the goods for a price paid or promised to be  paid. The transferee in such a case is liable to the  transferor as a debtor for the price to be paid and not as  agent for the proceeds of the sale. The essence of agency  to sell is the delivery of the goods to a person who is to  sell them, not as his own property but as the property of  the principal who continues to be the owner of the goods  and will therefore be liable to account for the sale  proceeds."

       It was opined:

"It is clear from the observations made by this Court that  the true relationship of the parties in such a case has to be  gathered from the nature of the contract, its terms and  conditions, and the terminology used by the parties is not  decisive of the said relationship. This Court relied on a  decision in W.T. Lamb and Sons v. Goring Brick  Company Ltd. where despite the fact that the buyer was  designated as sole selling agent, the Court held that it was  a contract of sale."

       In certain circumstances, even an agent can become a purchaser where  an agent pays to the principal on its own responsibility. [See Gordon  Woodroffe and Co. (Madras) Ltd. Vs. Shaik M.A. Majid and Co. [AIR 1967  SC 181]

       Law contemplates different types of agency.  Under the Contract Act,  the concept of del credere agent is well-known.  A del credere agent assumes  responsibility for the solvency and performance of their contract by the  vendees and, thus, indemnifies his employer against loss.  He gives an  additional security to the seller.  [See Bowstead & Reynolds on Agency, 17th  Edition, para 1-038].  However, it is not necessary to dilate thereupon as the  status of the parties herein must be determined in terms of the provisons of  the 1989 Act.

       The 1989 Act  makes a statutory provision beyond the concept of  agency as contained in the Contract Act.  It is a special statute.  In terms  thereof the Respondent was not required to pay any commission to the  Corporation, though the Corporation was described as ’agent’ of the  Respondent under the agreement.  5% commission was to be paid to the  Corporation by the purchasing authorities.  The provisions of the 1989 Act,  thus, should be given full effect.  The status of the parties must not, thus, be  determined as to how they have described themselves but having regard to  the substance of the transaction as envisaged under the Act and the scheme  framed, which as noticed hereinbefore, is as a part of the Act.                  As a statutory agency came into being by and between the purchasing  authorities and the Corporation in terms whereof the Corporation not only  exercised the control in relation to the entire supply of materials, as a part of  the statutory scheme, it also undertook to collect the price of the goods  supplied from the purchasing authorities and pay the same to the  manufacturers subject, of course, to the payment of its commission which  would be a substantial amount.  Under the scheme, the purchasing  authorities had a duty to pay 90% of the price before the Corporation makes  an indent and, thus, the latter had a statutory duty to realize the same before  an indent is made, as also the remaining 10% when supplies are completed.   If the payment was to be made by the Corporation to the Respondent both

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under the contract as also in terms of the statutory provision, it cannot now  turn round and contend that it was not part of its duty and leave the matter at  that.  It was obligated having regard to the statutory scheme on the part of  the Corporation to realize the price for the consideration of the goods  supplied.  It was not constituted merely to act as a conduit pipe.  It was  bound to perform its statutory duties envisaged under the 1989 Act.

       Furthermore, it is one thing to say that the Respondent delivered  goods without receiving 90% of the indented amount but it is another thing  to say that it has waived its right.  No case of waiver of statutory duty has  been made out.  Nothing has been pointed before us that the Respondent  gave up its claim to receive the amount directly from the Corporation.  Its  conduct suggests contra.  The Respondent for a period of about two years  made those supplies and had been asking the Corporation to make its  payment and, as noticed hereinbefore, the Respondent filed a suit at the  earliest possible opportunity.  Even during last 12 years, the Corporation  made no effort to realize the amount from the State and pay the same to a  small scale industry for whose benefit the 1989 Act was enacted.  It had  shown utter despondency and behaved in a cavalier manner taking umbrage  under specious plea that the State was a necessary party.  There was no  privity of contract between the Corporation and the purchasing authorities.   All payment of the purchasing authorities were to be channelised through the  Corporation.  Having regard to the transactions between the parties as also  the Scheme and the Act, we are of the opinion that the State of Assam was  not a necessary party.

       In terms of the agreement between the parties hereto, the State of  Assam would not be a necessary party but merely be a proper party.  

       In Balvant N. Viswamitra (supra) a distinction has been made  between a proper party and a necessary party in the following terms:

"25. It was contended by learned counsel for the  respondents that the respondents were not made the  party-defendants in the suit and hence no decree could  have been passed nor could be executed against them.  We are afraid we cannot uphold the contention. It is the  case of the plaintiffs that the property was let to  Papamiya. It is not even the case of the respondents that  they were the tenants of the plaintiffs. They are claiming  through Papamiya. At the most, therefore, they can be  said to be sub-tenants i.e. tenants of Papamiya. There was  no privity of contract between the landlord and the  respondents. In our opinion, therefore, it was not  necessary for the plaintiffs to join the respondents as  defendants in the suit nor to give notice to them before  initiation of the proceedings. The respondents cannot be  said to be "necessary party" to the proceedings. 26. As held by this Court in Udit Narain Singh  Malpaharia v. Addl. Member, Board of Revenue, Bihar 8  there is a distinction between "necessary party" and  "proper party". In that case, the Court said: (SCR p.          681) "The law on the subject is well settled: it is enough  if we state the principle. A necessary party is one  without whom no order can be made effectively; a  proper party is one in whose absence an effective  order can be made but whose presence is necessary  for a complete and final decision on the question  involved in the proceeding."    (emphasis supplied)"

       We respectfully adopt the same.

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       The Corporation for all intent and purport having undertaken the  liability of the purchasing authorities would also be liable for all  consequences arising from non-payment of the price of the goods supplied.

We may summarise the effect of the 1989 Act, the marketing support  scheme of the Corporation, the O.M. dated 28.3.1988 referred to in Section  7(1)(iii) of the 1989 Act, and the agreement between the Corporation and the  respondent, as follows :

i)      The Corporation had to collect 90% of the value of the orders  placed by the purchasing departments, in advance, and release the  said 90% to the respondent on supply. This obligation is a statutory  obligation having regard to the provisions of Section 7(1)(c) of the  1989 Act read with Clause 4 of the O.M. dated 28.3.1988 and the  clause relating to ’indenting’ contained in the Marketing  Assistance Scheme. This would mean that if the Corporation  accepts indents from Government departments without 90%  advance and chooses to place corresponding supply orders on the  respondent, it (the Corporation)  is liable to pay the said 90% to the  respondent on supply whether the   Corporation chose to receive  payment from the indenting departments or not.  ii)     Though the respondent is described as the ’principal’ and the  Corporation is described as the ’agent’ in the agreement dated  19.10.1990 between the respondent and the Corporation, the  Corporation was not entitled to receive any commission or  remuneration or consideration from the respondent for the orders  procured/placed. It is entitled to receive the commission (at the rate  of 5% of the price) only from the indenting departments. The  Corporation, thus, acted as the ’agent’ of both the respondent- supplier and the Indenting Government departments and took the  responsibility of paying the price to the respondent. In fact, under  clause 6 of the agreement, the respondent specifically authorized  the Corporation to raise bills of sale on behalf of the respondent,  either disclosing or without disclosing the name of the respondent,  and collect the payment from the buyer department. The said  clause also specifically contemplates the Corporation releasing  90% of the value of the material on delivery and acceptance, and  payment of balance of 10% after receipt of full payment from the  purchasing department.  As noticed above, the statutory scheme  and the O.M. required the Corporation to receive the 90% payment  in advance along with the indents from the purchasing departments  and any relaxation by the Corporation of that provision was done  at its own risk.                APPLICABILITY OF THE 1993 ACT:         We have held hereinbefore that Clause 8 of the terms and conditions  relate to the payments of balance 10%.  It is not in dispute that the plaintiff  had demanded both the principal amount as also the interest from the  Corporation.  Section 3 of the 1993 Act imposes a statutory liability upon  the buyer to make payment for the supplies of any goods either on or before  the agreed date or where there is no agreement before the appointed day.   Only when payments are not made in terms of Section 3, Section 4 would  apply.  The 1993 Act came into effect with effect from 23.9.1992 and will  not apply to transactions which took place prior to that date.  We find that  out of the 71 suit transactions,  sl. Nos.1 to 26 (referred to in penultimate  para of the Trial Court Judgment), that is supply orders between 5.6.1991 to  28.7.1992, were prior to the date of 1993 Act coming into force.  Only the  transactions at sl. no. 27 to 71 (that is supply orders between 22.10.1992 to  19.6.1993). will attract the provisions of the 1993 Act.

       The 1993 Act, thus, will have no application in relation to the  transactions entered into between June, 1991 and 23.9.1992.  The Trial  Court as also the High Court, therefore, committed a manifest error in  directing payment of interest at the rate of 23% upto June, 1991 and 23.5%  thereafter..

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       Mr. Choudhary has placed reliance upon a Full Bench decision of  Guwahati High Court in Assam State Electricity Board & Ors. Vs. M/s.  Shanti Conductors (P) Ltd. & Anr. [2002 (1) GLT 547] which  having regard  to the non-obstane clause contained in Sections 4, 5 and 10 of the 1993 Act  opined that interest payable thereunder shall embrace within its fold even the  contracts which might have been entered into prior to the enforcement of the  Act stating:

"However, in such a case interest on the delayed payment  which is made after the coming into force of the Act of  1993 would be calculated under the Act from the date of  the enforcement of the Act and not from the date of  payment prescribed under the agreement."

       With respect, we do not subscribe to the said view as payment of  interest at an enhanced rate cannot be made in relation to the transactions  where Section 3 will have no role to play.

       We, therefore, are of the opinion that in relation to the transactions  made prior to coming into force of the said Act, simple interest at the rate of  9% per annum, which was the bank rate at the relevant time, shall be  payable both prior to date of filing of the suit and pendente lite and as future  interest in terms of Section 34 of the Code of Civil Procedure.  Interest,  however, will be payable in terms of the provisions of the 1993 Act  (compound interest at the rate of 23.5.% per annum) in relation to the  transactions made after coming into force of the Act, both in respect of  interest payable upto the date of institution of the suit and pendente lite and  till realisation.  The judgment and decree to that extent requires to be  modified.  It is directed accordingly.

       The appeal is, therefore, allowed in part in regard to interest and to the  extent mentioned hereinbefore.  The Corporation shall bear the costs of the  Respondent in this appeal.  Counsel’s fee is assessed at Rs. 25,000/-.