http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7  

PETITIONER: K.   P. CHOWDHARY

       Vs.

RESPONDENT: STATE OF MADHYA PRADESH & ORS.

DATE OF JUDGMENT: 15/03/1966

BENCH: WANCHOO, K.N. BENCH: WANCHOO, K.N. GAJENDRAGADKAR, P.B. (CJ) HIDAYATULLAH, M. SHAH, J.C. SIKRI, S.M.

CITATION:  1967 AIR  203            1966 SCR  (3) 919  CITATOR INFO :  RF         1976 SC1533  (12)  D          1980 SC 680  (24)  R          1984 SC1326  (10,11)

ACT: Constitution of India, 1950, Art. 299(1)-Implied  contracts, If permissible. Madhya  Pradesh Land Revenue Code,  s.155(b)-Recovery  under implied contract.

HEADNOTE: The appellant gave the highest bids for two forest contracts at an auction.  As the amount of the contract was more  than what  the Division Forest Officer could accept.  the  matter was  referred to the Chief Conservation of Forests  who  had the necessary authority to accept the bids.  After the close of the auction the appellant had signed the contract form as required,   and  the  documents  were  seat  to  the   Chief Conservator  of Forests for sanction and signature.   Before the Chief Conservator of Forests could accept the  contract, the  appellant  raised a dispute as to the  marking  of  the trees.  As that dispute was not settled to the  satisfaction of  the appellant ha refused to complete the contract.   The Divisional Forest Officer gave notice to the appellant  that if he did not complete the formalities action would be taken under  the  conditions  of the  auction  to  re-auction  the contract  and  if  there  was any  deficiency  it  would  be recovered from him.  He did not comply and ultimately he was informed that the two contracts had been cancelled and would be  re-auctioned  at  his  risk.   The  contracts  were  re- auctioned  at  which  there was certain  deficiency  in  the amount.    A  letter  was  written  to  the  Tehsildar   for recovering  this  deficient  amount from  the  appellant  as arrears  of land revenue as per the conditions  of  auction. Thereupon,  the appellant filed a writ petition  challenging the recovery of the amount as arrears of land revenue as the contract was not signed or completed by him.  The High Court dismissed the petition.  In appeal to this Court. HELD:     Section 155(b) of the Madhya Pradesh Land  Revenue

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7  

Code  does not assist the State in realising this amount  as arrears of land revenue. What  was  said  in the earlier cases  by  this  Court  with respect  to s. 175 (3) of the Government of India Act,  1935 applies with equal force to Art. 299(1) of the Constitution. Two consequences follow from these decisions.  The first  is that in view of Art. 299(1) there can be no implied contract between the Government and another person, the reason  being that  if such implied contracts between the  Government  and another  person were &Rowed, they would in effect make  Art. 299(1)  useless  for then a person who had a  contract  with Government  which  was  not executed at all  in  the  manner provided  in  Art. 299(1) could get away by saying  that  an implied   contract  may  be  inferred  on  the   facts   and circumstances of a particular cue.  This is of course not to say  that if there is a valid contract as envisaged by  Art. 299(1), there may not be implications arising out of such  a contract.   The second consequence which follows  from  then decisions is that if the contract between the Government and another person is not in full compliance with Art. 299(1) it would be no contract at an and could not be enforced  either by the Government  or by the other person as a contract [924 A-D] 920 State  of Bihar v. M/s.  Karam Chand Thapar [19621 2  S.C.R. 827,  Seth  Bikkraj Jaipuirial v. Union of  India  [1962]  2 S.C.R.  880,  State of the West Bengal v. M/s.  B.K.  Mondal [1962]  Supp.  1 S.C.R. 876, Chaturbhuj Vithaldas Josani  v. Moreshwar Prashram [1954] S.C.R. 817, and (5) Union of India v. A.L. Rallia Pam,[1964] 3 S.C.R. 164, followed. In  the  present  case there was  no  contract  between  the appellant  and the Government before he bid at  the  auction nor  was there any contract between him and  the  Government after  the auction was over as required by Art.  299(1)  of the  Constitution.   As  there can be  no  implied  contract between  the  Government and another person in view  of  the mandatory provision of Art. 299(1) of the Constitution there can be no question of recovery of any money under an implied contract under cl. (b) of S. 155 of the Madhya Pradesh  Land Revenue Code. [924 E-H]

JUDGMENT: CIVIL APPELLATE JURISDICTION : CIVIL APPEAL No. 669 OF 1965. Appeal  by special leave from the judgment and  order  dated October  5, 1961 of the Madhya Pradesh High Court in  M.  P. No. 153 of 1961. J. P. Goyal, for the appellant. L N. Shroff, for the respondents. The Judgment of the Court was delivered by Wanchoo  J. This is an appeal by special leave  against  the judgment of the Madhya Pradesh High Court.  The brief  facts necessary  for  present purposes are these.   A  notice  was issued  by the Divisional Forest Officer, Jabalpur  Division for  auction of various contracts in that division in  July’ 1959.   The conditions of the auction specified  inter  alia (a)  that no person would be allowed to bid for  any  forest contract at the auction unless he had signed the sale notice in token of his agreement to abide by the conditions thereof and deposited a sum of Rs. 5001- as earnest money in respect of  each forest contract before bidding therefore; (b)  that the Divisional Forest Officer reserved to himself the  power without  assigning any reason to accept the highest  or  any bid, (c) that the consideration due under a contract was  to

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7  

be  payable  where it exceeded Rs. 3,000/-,  in  four  equal instalments, the first instalment being payable  immediately at the close of the auction; (d) that the successful  bidder had to sign immediately at the close of the auction the bid- sheet for the contract knocked down in his favour; (e)  that the sales of contracts beyond the power of sanction of  the. Divisional  Forest Officer were subject to the  sanction  of the competent authority and the successful bidder was  bound by  his  bid  until  orders were  passed  by  the  competent authority; (f) that the contract deed and the security  bond were to be executed by the successful bidder and his  surety immediately at the close 921 of  the auction; (g) that if the successful bidder fails  to pay  the  full  amount of the consideration,  or  the  first instalment  or  to  furnish  the  security  required  or  to complete the formalities, the earnest money deposited by him was to be forfeited to Government and the contract would  be re-auctioned  at the risk of the successful bidder  and  any deficiency  happening on such re-sale would  be  recoverable from  the successful bidder as arrears of land revenue;  and (h) that the act of bidding was deemed to be a complete  and unreserved  acceptance of these conditions and others  which are not material for our purposes. The appellant bid for two contracts at the auction and  his- were  he highest bids.  As the amount of the contract  money was  more  than  what the Divisional  Forest  Officer  could accept, the matter was referred to the Chief Conservator  of Forests who had the necessary authority to accept the  bids. After the close of the auction the appellant had signed  the contract  form  and  a surety signed the  security  bond  as required.    These   documents  were  sent  to   the   Chief Conservator  of Forests for sanction and signature.   Before however  the Chief Conservator of Forests could  accept  the contract,  the appellant raised a dispute as to the  marking of the trees according to the material notified at the  time of  the  auction.  As that dispute was not  settled  to  the satisfaction  of  the appellant he refused to  complete  the contract or to pay the first instalment in respect  thereof. Eventually the Divisional Forest Officer gave notice to  the appellant  on July 29, 1959 that if he did not complete  the formalities  within a week, action would be taken under  the conditions  of  auction to re-auction the  contract  and  if there was any deficiency it would be recovered from him  and the  earnest money would be forfeited.  He did  not  however pay the first instalment due and ultimately on November  25, 1959 he was informed that the sale of the two contracts sold in the auction held on July 20, 1959 in his favour had  been cancelled by the Chief Conservator of Forests and the amount of  earnest money had been forfeited.  He was also  informed that  the two contracts would be re-auctioned at  his  risk. Thereafter the contracts were re-auctioned in January  1960. At  the  re-auction  there  was  a  deficiency  in  the  two contracts  together  of  Rs. 51,5001-.   The  appellant  was therefore asked to send this amount to the Divisional Forest Officer.  When he failed to do so, a letter was addressed to the Tehsildar Jabalpur by the Divisional Forest Officer  for recovering this amount as arrears of land revenue under  the conditions of auction. Thereupon  the appellant filed a writ petition out of  which the  present appeal has arisen.  The case of  the  appellant was  that the claim of the respondent-State for recovery  of the deficiency on re-sale was not covered by either s. 82 of the  Indian Forest Act, (No. 16 of 1927) or rules 28 and  29 of the Madhya Pradesh Forest

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7  

922 Contract Rules or under any other provision of the law,  and the  amount therefore could not be recovered as  arrears  of land revenue as the contract was not signed or completed  by him.  He therefore claimed the issue of an appropriate  writ quashing   the  notice  issued  to  him  and  stopping   the respondent  from recovering as arrears of land  revenue  the sum  of  Rs.  51,500/-.  The State contested  the  case  and contended  that recovery of the amount could be effected  as arrears  of land revenue under s. 82 of the Indian Act  read with  rr. 28 and 29 of the Forest Contract Rules in view  of the conditions of auction, which the appellant had accepted. The  petition was heard finally by a Full Bench of the  High Court  in  view of a reference by a Divisional  Bench.   The Full,  Bench  seems to have held that rr. 28 and 29  of  the Forest  Contract  Rules did not apply to the  case  as  they dealt  with breaches arising after the contract  in  writing had  been executed.  In this case the admitted position  was that  the contract in writing had never been signed  by  the Chief  Conservator  of Forests and  therefore  the  question which  fell to be considered, according to the  Full  Bench, was  whether the liability arising under the  conditions  of auction  could be enforced and the deficiency on  re-auction recover  as  arrears  of  land  revenue  even  without   the execution of a valid contract in writing.  On this  question the  Full Bench went on to hold that this was a case  of  an implied  contract resulting from the  appellant’s  accepting the conditions of auction and that such an implied  contract was not hit by Art. 299 of the Constitution as that  applied plainly  to  contracts which are required to be  reduced  to writing  and an implied contract in its very nature was  not such a contract.  Finally the full Bench held that s. 155(b) of  the Madhya Pradesh Land Revenue Code, 1959,  applied  to this  case  of  implied contract and  the  amount  could  be recovered  thereunder as arrears of land revenue.   On  this view  the  petition was dismissed.  The  High  Court  having refused  to grant a certificate, the appellant  applied  for and obtained special leave from this Court; and that is  how the matter has come before us. Two questions arise for decision in this appeal.  The  first is  whether  the  High Court’s view that  Art.  299  of  the Constitution ,does not hit an implied contract and therefore the amount could be recovered under s. 155(b) of the  Madhya Pradesh Land Revenue Code is correct.  The second is that if that  view  is  not  correct,  whether  the  amount  can  be recovered  as  arrears  of  land  revenue  under  any  other provision of law. It  may  be mentioned that Art. 299(1) of  the  Constitution with which we are concerned is practically in the same terms as  S.  175(3) of the Government of India Act,  1935.   This Court had occasion to deal with s. 175 in The State of Bihar v. Messrs.  Karam 923 Chand  Thapar(1)  It  held  that  under  S.  175(3),   three conditions  had  to be satisfied before a  binding  contract against the Government could arise.  These three  conditions are:  (1) the contract must be expressed to be made  by  the Governor  or the Governor-General, (ii) it must be  executed in  writing,  and  (iii) the execution  should  be  by  such persons and in such manner as the Governor or the  Governor- General might direct or authorise.  This Court further  held in that case that S. 175(3) did not prescribe any particular mode  in which the authority must be conferred and where  an ad   hoc  authority  was  conferred  on  any   person,   the requirement must be held to be satisfied.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7  

The  matter  was  again considered by  this  Court  in  Seth Bikhrai  Jaipuiria  v.  Union  of  India(2)  It  was   again emphasised  that S. 175(3) of the Government of  India  Act, 1935,  required  that  a contract, if it  was  to  bind  the Government,  had  (a)  to be expressed to  be  made  by  the Governor  or Governor General, (b) to be executed on  behalf of the Governor or Governor General, and (c) to be  executed by  an  officer duly appointed in this behalf  and  in  such manner  as the Governor or the Governor General directed  or authorised.   It  was also held that the  provisions  of  s. 175(3)  were  mandatory,  as the object  of  enacting  these provisions  was  that the State should not be  saddled  with liability for unauthorised contracts. The  matter was considered again by this Court in  State  of West Bengal v. Messrs.  B. K. Mondal and Sons(3) It was held that  the provisions contained in S. 175(3) were  mandatory. The  intention of Parliament in enacting the  provision  was that  the State should not be burdened with liability  based on unauthorised contracts.  The provision was made in public interest  and so the word "shall" used therein must be  held to  make it obligatory and not directory.  Further the  case of Chaturbhuj Vithaldas Jasani v. Moreshwar Prashram(4)  was explained in that decision and it was held that it should be confined   to   its  own  facts  in  the  context   of   the Representation  of the People Act.  Finally it was  held  in that  case that S. 70 of the Indian Contract Act (No.  9  of 1872) could be invoked against the Government if the  person invoking  it could show that he had acted lawfully  and  had not  intended to act gratuitously and the State had  enjoyed the benefit. Lastly this court had occasion to consider the matter  again in  Union of India v. A. L. Rallia Ram,(5) and it  was  held that  so  long as all the requirements of S. 175(3)  of  the Government  of India Act were fulfilled and were clear  from the  correspondence, S. 175(3) did not  necessarily  require the execution of any formal document. (1) [1962] 1 S.C.R. 827.    (2) [1962] 2 S.C.R. 8 80. (3) [1962] Supp.  1 S.C.R. 876.   (4) [1954] S.C.R. 817. (5)  [1964] 3 S.C.R. 164. 924 What  was said in these cases with respect to S.  175(3)  of the Government of India Act, 1935, applies with equal  force to  Art.  299  (1) of the  Constitution.   Two  consequences follow  from these decisions.  The first is that in view  of Art.  299(1)  there can be no implied contract  between  the Government and another person, the reason being that if such implied contracts between the Government and another  person were allowed, they would in effect make Art. 299(1) useless, for  then a person who had a contract with Government  which was  not  executed  at all in the manner  provided  in  Art. 299(1) could get away by saying that an implied contract may be  inferred on the facts and circumstances of a  particular case.  This is of course not to say that if there is a valid contract  as  envisaged  by Art. 299(1), there  may  not  be implications  arising  out of such a contract.   The  second consequence  which follows from these decisions is  that  if the contract between Government and another person is not in full compliance with Art. 299(1) it would be no contract  at all and could not be enforced either by the Government or by the  other person as a contract.  In the present case it  is not  in dispute that there never was a contract as  required by  Art. 299(1) of the Constitution.  Nor can the fact  that the appellant bid at the auction and signed the bid-sheet at the close thereof or signed the declaration necessary before he could bid at the auction amount to a contract between him

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7  

and  the  Government satisfying all the conditions  of  Art. 099(1).   The  position  therefore  is  that  there  was  no contract between the appellant and the Government before  he bid  at the auction, nor was there any contract between  him and the Government after the auction was over as required by Art.  299(1) of the Constitution.  Further, in view  of  the mandatory terms of Art. 299(1), no implied contract could be spelled out between the Government and the appellant at  the stage  of  bidding  for Art. 299 in  effect  rules  out  all implied  contracts  between Government and  another  person. The  view  taken by the High Court that s. 155  (b)  of  the Madhya Pradesh Land Revenue Code which provides for recovery of money as arrears of land revenue would therefore enure in favour  of  the  Government and enable  it  to  recover  the deficiency  cannot be sustained.  That clause  provides  for recovery  of all moneys falling due to the State  Government under any grant, lease or contract and says that they  shall be  recoverable  in  the  same manner  as  arrears  of  land revenue.   The  High  Court was of the view  that  the  word "contract" in this clause includes an implied contract.  But if  there can be no implied contract between the  Government and  another  person in view of the mandatory  provision  of Art. 299(1) of the Constitution there can be no question  of recovery  of any money under an implied contract  under  cl. (b)  of s. 155.  The view therefore taken by the High  Court that  this amount could be recovered under s. 155(b) is  not correct. 925 This  brings us to the second question, namely, whether  the amount can be recovered under any other provision of law  as arrears of land revenue.  In this connection learned counsel for  the  State has referred us to s. 82 and s.  85  of  the Indian  Forest Act.  The question whether the amount can  be recovered  either under s. 82 or under s. 85 of  the  Indian Forest  Act  read with the rules framed thereunder  has  not been  investigated by the High Court.  The view of the  High Court that rr. 28 and 29 of’ the Forest Contract Rules apply after a contract in writing has been executed appears to  be correct.   But  the  question whether the  State  can  still recover  the amount as arrears of land revenue by virtue  of the conditions of auction, even though rr. 28 and 29 do  not apply has not been investigated.  This question will require investigation  before the petition can be  finally  disposed of.  The  appellant had claimed in para 17 of  the  petition that  the claim of the State for recovery of the  deficiency on re-sale was not covered under any other provision of  law so  as  to make it recoverable as arrears of  land  revenue. That  question has still to be investigated and it would  be for  the State to show whether the amount can  be  recovered under  any  provision  of law or rules  relating  to  forest contracts.   So  the  matter will have to  be  remanded  for further investigation on these lines. We therefore allow the appeal and hold that s. 155(b) of the Madhya  Pradesh Land Revenue Code does not assist the  State in  realising  this amount as arrears of land  revenue.   We however remand the matter to the High Court for  determining after  hearing  both  parties whether  there  is  any  other provision of law or rules which would permit the recovery of this  amount in view of the conditions of auction.   In  the circumstances  we order parties to bear their own  costs  of this Court. Appeal allowed. 926

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7