REPORTAB LE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICITON

CIVIL  APPEAL NO. 8690 OF 2001

Krishi Utpadan Mandi Samiti Ghaziabad …Appellant and Anr.

Versus

M/s. Metal Craft & Ors. …Respondents

JUDGMENT

Dr. ARIJIT PASAYAT, J.

1. Challenge in this appeal  is to the judgment of a Division

Bench of the Allahabad High Court holding that the appellant

was not entitled to levy market fee under Section 17(iii) (b) of the

U.P.  Krishi  Utpadan  Mandi  Adhiniyam,  1964  (in  short  the

‘Adhiniyam’)  if  the agricultural  produce  is neither brought nor

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taken  out  of  the  market  place,  and  deciding  in  favour  of

respondent no.1.

2. Background facts in a nutshell are as follows:

Respondent  is  a  registered  partnership  firm  having  its

business premises and office at 14, Navyug Market, Ghaziabad,

and it carried on the business of sale and purchase of iron and

steel and also export of rice.  It wanted to purchase broken rice

from the rice millers of U.P. for the purpose of export to foreign

countries  and  accordingly,  made  an  application  on  July  31,

1997, to Krishi Utpadan Mandi Samiti, Ghaziabad, for grant of a

licence.  It was also stated in the application that the respondent

had  exported  rice  in  November,  1996  by  purchasing  it  from

places outside U.P.   Appellant No.1 asked the respondent no.1

to deposit the licence fees for the years 1995-96, 1996-97 and

1997-98,  which was done  as per  the  demand.  Thereafter,  the

appellant no.1 sent a demand notice to the respondent no.1 on

October 12, 1997, demanding market fee at the rate of 2 percent

amounting  to  Rs.12,94,860.00.   The  respondent  no.1  sent  a

reply on October 18, 1997, stating that it had never purchased

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any rice from inside the State of U.P. nor any transaction of sale

or  purchase  of  rice  was  carried  out  within  the  State,  It  was

accordingly  requested  that  the  demand  notice/order  dated

October  12,  1997,  be  rescinded.  The  appellant  no.1,  however,

initiated proceeding for recovery of the amount in question and

issued a citation dated December 6, 1997. The respondent no.1

thereafter, filed C.M. Writ Petition No, 43329 of 1997 in the High

Court  which  was  disposed  of  on  December  17,  1997,  with  a

direction  to  appellant  no.1  to  decide  the  respondent  no.1’s

representation within a month and the recovery proceeding were

suspended for six months. The respondent no.1 appeared before

appellant  no.1  on  the  date  fixed,  namely  January  14,  1998,

along with the relevant records and submitted that the rice had

been purchased from places outside the State of  U.P.  and had

been sent directly to the ports for being exported to South Africa

and  as  such,  it  was  not  liable  to  pay  any  market  fee.  The

appellant passed an order on January 25, 1998, holding that the

transaction of sale of the rice exported by the respondent no.1

firm  took  place  within  the  market  area  of  Ghaziabad,  and,

accordingly, the market fee imposed by the order dated October

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12, 1997 was valid and proper. Feeling aggrieved, the respondent

no.1 preferred a revision under Section 32 of the Act before the

Rajya Krishi Utpadan Mandi Parishad, Lucknow (appellant no.2)

which was  dismissed  by order  dated  March  9, 1998.  The writ

petition under Article 226 of the Constitution of India, 1950 (in

short the ‘Constitution’) was filed for quashing the orders dated

October 12, 1997 passed by appellant no.1 and the order dated

March  9,  1998  passed  by  appellant  no.2.  The  learned  Single

Judge,  who heard the petition, was of the opinion that the con-

troversy raised involved a substantial  question of law of general

importance and made a reference  to  larger Bench.  That is how

the matter came before the Division Bench.

The  case  of  the  respondent  no.1  was  that  the  rice  was

exported by it because certain dealers in South Africa wanted to

buy rice from India. The respondent no.1 quoted the rates and

entered into negotiations.  After the deal was settled, the rice was

purchased  from  rice  millers  in  Haryana,  Punjab,  Madhya

Pradesh from where  it  was directly  dispatched  to the  ports  of

Mumbai and Kandla and clearing and forwarding agents of the

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respondent no.1 loaded the same on the ship. After the goods

had been loaded a Bill of Lading was prepared and signed by the

Master of the ship in the capacity of carrier acknowledging the

receipt of the goods.  The Bill of Lading was given to the clearing

and forwarding agents and on receipt of the Bill of Lading by the

buyer  through  the  respondent  no.1’s  bankers,  the  rice  were

retired by the buyer in South Africa.  The sale price of the rice

was  received  by  the  respondent  no.1  through  its  banker  viz.

Oriental Bank of Commerce at Delhi.  It is the specific case of the

respondent no.1 was that the entire quantity of the exported rice

was purchased from places  outside the State  of  U.P.  and was

directly  sent  to  the  ports  without  it  ever  coming  within  the

market area of Ghaziabad or in the State of U.P.   It was also

asserted that the sale was affected only at the ports when the

goods were loaded in the ship and the Bill of Lading was handed

over to the respondent no.1’s clearing and forwarding agents.

The case of the present appellants was that the business

establishment  of  the  respondent  is  at  14,  Navyug  Market

Ghaziabad and the entire  transaction was done  from the said

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place.  The purchase order was received and accepted by it at

Ghaziabad  and  the  sale  price  was  also  received  there  and

therefore the transaction of sale took place in Ghaziabad.  It was

also  pleaded  that  the  transport  of  the  goods  and how it  was

actually  exported  was  wholly  irrelevant  for  ascertaining  where

the transaction of sale took place.   

The High court did not accept the said stand and allowed

the writ petition filed.

3. In support of the appeal, learned counsel for the appellants

submitted  that  since  the  transaction  took  place  within  the

jurisdiction of  the market  area,  the levy was justified and the

High Court was wrong in its view.

4. Learned counsel for the respondent no.1 on the other hand

supported the judgment of the High Court.

5. It  is  to  be  noted  that  before  the  High Court  the  learned

counsel  for  the  appellant  no.1  had  fairly  admitted  that  rice

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exported by the appellant was never brought within the market

area of Mandi Parishad, Ghaziabad within the state of U.P.

6. Section  17(iii)(b)  is  the  charging  section  which  reads  as

follows:

“17.  Powers  of  the  Committee-A Committee  shall, for the purposes of this Act, have the power to –

(i)………………..

(ii)……………….

(iii) levy and collect:

(a) such fees as may be prescribed for the  issue  or  renewal  of  licences, and

(b) market fee, which shall be payable on transactions of sale of specified agricultural produce in the market area at such rates  being not less than one percentum and not more than two percentum of the price of the agricultural produce so sold as the State Government may specify by notification,, and such fee shall be realised in the following manner -

(1) if the produce is sold through a  commission  agent  may  realise the market fee from the purchaser

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and shall be liable to pay the same to the Committee;

(2) if  the  produce  is  purchased directly  by  a  trader  from  a producer the trader  shall  be liable to  pay  the  market  fee  to  the Committee;

(3)  if  the  produce  is  purchased  by  a trader  for  another  trader,  the  trader selling  the  produce  may  realise  it  from the purchaser and shall be liable  to pay the market fee to the Committee : and

(4) in any  other  case  of  sale of  such produce, the purchaser shall be liable to pay the market fee to the Committees :

Provided  that  no  market  fee  shall  be levied or  collected  on  the  retail  sale  of  any specified agricultural produce where such sale is  made  to  the  consumer  for  his  domestic consumption only.”

7. The object for which the Act was enacted is as follows:

“(i) to reduce the multiple trade charges, levies and exactions charged at present from the produce- sellers;  

(ii) to provide for the verification of accurate weight and scales and see that the producer-seller is not denied his legitimate due;

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(iii) to  establish  market  committees  in  which  the agricultural  producer  will  have  his  due representation;

(iv) to ensure that the agricultural producer has his say  in  the  utilization  of  market  funds  for  the improvement of the market as a whole;

(v) to provide for fair settlement of disputes relating to the sale of agricultural produce.

(vi) to provide amenities to the producer-seller in the market;  

(vii) to arrange for better storage facilites;

(vii) to  stop  inequitable  and  unauthorized  charges and levies from the producer-seller; and  

(viii) to  make  adequate  arrangements  for  market intelligence  with  a  view  to  posting  the agricultural producer with the latest position in respect of the markets dealing with his produce.”

As the prefatory note and preamble clearly show the object of the

Act  is  to  save  the  agricultural  producer  from  innumerable

charges,  levies  etc.  and  to  enable  them to  have  a  say  in  the

proper  utilization  of  amounts  paid  by  him to  reduce  multiple

charges levies,  exactions charged from the producer and seller

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and  generally  to  help  the  agricultural  producer  to  sell  his

produce to his best advantage.

8. At  the  end  of  the  Section  there  is  an explanation  which

reads as follows:

“Explanation  –  For  the  purpose  of  clause (iii),  unless  the  contrary  is  proved,  any specified  agricultural  produce  taken  out  or proposed to be taken out of market area by or on  behalf  of  a  licensed  trader  shall  be presumed to have been sold within such area and in such case  the  price  of  such produce presumed  to  be  sold  shall  be  deemed  to  be such reasonable price as may be ascertained in the manner prescribed.”                  

In exercise  of the powers conferred by Section 40, Rules have

been framed, which are known as U.P.  Krishi  Utpadan Mandi

Niyamavali, 1965 (hereinafter referred to as the ‘Niyamavali’) and

Rules 66 and 68 reads as follows:

"(66) Market  Fee (Section  17 (iii)- The Market Committee shall levy and collect market fee in the  Market  Area  in  accordance  with  the provisions  of  sub-clause  (b)  of  clause  (iii)  of Section 17 of the Act at such  rate  as  may be specified in the bye-laws:

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Provided that no market fee shall be levied and  charged  prior  to  the  date  on  which provisions, Section 10 of the Act are enforced :

Provided further that when the specified agricultural produce is presumed to have been sold in accordance  with the explanation given under clause  (viii)  of  Section 17 of the Uttar Pradesh  Krishi  Utpadan  Mandi  Adhiniyam, 1964 the price  of such produce shall  be the price prevailed for that type of produce in that market just on the previous working day.

(68) No market fee shall be levied more than once  on  any  consignment  of  the  specified agricultural  produce  brought  for  sale  in  the Market Yard if the market fee has already been paid  on  it  in  any  Market  Yard  of  the  same Market  Area  and  in  respect  of  which  a declaration  has  been  made  and  a  certificate has been given the seller in Form No. V.”

9. A plain reading of Section 17(iii)(b) of the Act shows that the

Committee  is empowered to levy and collect  market  fee  which

shall be payable on transaction of sale of agricultural produce in

the market area. The words “specified agricultural produce in the

market area” have great relevance.  The manner of realization of

market fee has been enumerated in sub clauses (1), (2), (3) & (4)

of  Section 17(iii)(b).  Reference  is  to “produce”.  This  apparently

shows that physical presence of the agricultural produce within

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the  market  area  is  necessary  for  levy  of  market  fee.   The

explanation  to  Section  17  (iii)(b)  appended  at  the  end  of  the

Section  lays  down  that  unless  the  contrary  is  proved  any

specified agricultural produce taken out or proposed to be taken

out of a market area by or on behalf of the licenced traders shall

be  presumed  to  have  been  sold  within  such  area.   The

explanation has application only  if  the agricultural  produce  is

physically  present  within  the  market  area.    The  explanation

becomes redundant if the stand of the appellant that Section 17

(iii)(b) is applicable even in cases where agricultural produce is

neither physically brought nor is in existence within the market

area.

10. In  Ram  Chander  kailash  Kumar  &  Co. v.  State  of  U.P.

(AIR1980 SC 1124) it was inter alia observed as follows:

“This point urged on behalf of the appellants is well founded and must be accepted as correct. On the very wordings of Clause (b) of Section 17(iii) market fee is payable on transactions of sale  of  specified  agricultural  produce  in  the market area and if no transaction of sale takes place in a particular market area no fee can be charged by the Market Committee of that area.

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If goods are merely brought in any market area and  are  dispatched  outside  it  without  any transaction of sale taking place therein, then no market fee can be charged. If the bringing of the goods in a particular market area and their  despatch  therefrom  are  as  a  result  of transactions of purchase and sale taking place outside the market area, it is plain that no fee can be levied.”

11. In  P.S.N.S.  Ambalavana  Chettiar  and  Company  Ltd.  v.

Express newspapers Ltd. (AIR 1968 SC 741) it was observed as

follows:

“Section 18 of the Sale of Goods Act provides that where there is a contract for the sale of unascertained goods no property in the goods is transferred to the buyer unless and until the goods  are  ascertained.  It  is  a  condition precedent to the passing of property under a contract of sale that the goods are ascertained. The condition is not fulfilled where there is a contract  for  sale  of  a  portion  of  a  specified larger stock. Till  the portion is identified and appropriated  to  the  contract,  no  property passes to the buyer. In Gillett v. Hill [(1834) 2 C&M. 535: 149 E.R. 871, 873], Bayley, B. said:

"Where  there  is  a  bargain  for  a  certain quantity ex a greater quantity, and there is a power of selection in the vendor to deliver which he thinks fit, then the right to them does not pass to the vendee until

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the  vendor  has made his selection, and trover is not maintainable before that is done.  If  I  agree  to  deliver  a  certain quantity of oil as ten out of eighteen tons, no one can say which part of the whole quantity I  have agreed to deliver until a selection  is  made.  There  is  no individuality until it has been divided."  

12. Similarly,  in  Jute  and gunny brokers  Ltd.  & Ors.  v.  The

Union of India and Ors. etc. (AIR 1961 SC 1214) it was held as

follows:

“The contention on behalf of the Union of India is that property in the goods cannot pass in law to the holders of the pucca delivery orders till the goods are actually appropriated to the particular order; therefore, as in this case it is not  in  dispute  that  no  goods  were  actually appropriated  towards  the  pucca  delivery orders  concerned,  the  property  in  the  goods did  not  pass  to  the  holders  thereof  but  was still in the mills. Reliance in this connection is placed on s.  18 of  the Indian Sale  of  Goods Act,  No  III  of  1930.  That  section  lays  down that "where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained." In the present case, as we have already said it is not in dispute that the goods covered by the pucca delivery orders are not ascertained at the time such orders are issued  and ascertainment  takes  place  in the shape  of  appropriation  when  the  goods  are

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actually  delivered  in  compliance  therewith. Therefore,  till  appropriation  takes  place  and goods  are  actually  delivered,  they  are  not ascertained.  The  contract  therefore represented by the pucca delivery orders is a contract  for  the  sale  of  unascertained  goods and no property in the goods is transferred to the buyer in view of s. 18 of the Indian Sale of Goods  Act  till  the  goods  are  ascertained  by appropriation, which in this case takes place at the time only of actual delivery. The appeal court  in  our  opinion  was  therefore  right  in holding  that  the  property  in  the  goods included in the pucca delivery orders did not pass to the holders thereof in view of s. 18 of the Sale of Goods Act in spite of the decision in the  case  of  the  Anglo-India  Jute  Mills  Co. [(1910)  I.L.R.  38  Cal.  127].  What  that  case decided was that in a suit between a holder of a pucca delivery order - be he the first holder or  a  subsequent  holder  who  has  purchased the pucca delivery order in the market - and the mills, there will be an estoppel and the mill will  be estopped from denying that cash had been paid for the goods to which the delivery order related and that they held the goods for the  holder  of  the  pucca  delivery  order.  That case  therefore  merely  lays  down  the  rule  of estoppel as between the mill and the holder of the pucca delivery order and in a suit between then the mill will be estopped from denying the title of the holder of pucca delivery orders; but that does not mean that in law the title passed to  the  holder  of  the  pucca  delivery  order  as soon as  it  was  issued  even  though it  is  not disputed that  there  was no ascertainment  of goods at that time and that the ascertainment only  takes  place  when  the  goods  are appropriated  to  the  pucca  delivery  orders  at

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the time of  actual  delivery.  The appeal  court was in our opinion right in  holding  that  the effect of the decision in the case of Anglo-India Jute Mills Co. [(1910) I.L.R. 38 Cal. 127], was not that the property in the goods passed by estoppel and that that case only decided that as  between  the  seller  and  the  holder  of  the pucca  delivery  order,  the  seller  will  not  be heard  to  say  that  there  was  no  title  in  the holder of the deliver order. That case was not dealing with the question of title at all as was made  clear  by  Jenkins  C.J.  but  was  merely concerned with estoppel.  In the present case the question whether the Government of India will  be  estopped  is  a  matter  which we  shall consider  later;  but  so  far  as  the  question  of title  is  concerned  there  can  be  no  doubt  in view of s. 18 of the Sale of Goods Act that title in these cases had not passed to the holders of the  pucca  delivery  orders  on  September  30, 1946,  for  the goods were not ascertained till then,  whatever  may  be  the  position  of  the holders of the pucca delivery orders in a suit between them and the mills to enforce them.”

13. Under Section 17(iii)(b) the measure of levy of the fee is on

the price of the goods sold. It obviously means that there must

be a complete transaction of sale or a concluded sale. If there is

only an agreement and the agreement fails, the remedy for the

aggrieved party is to suit for damages.  Obviously, no fee can be

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charged on damages.  The action for levy of fee can arise only on

a concluded sale and as the sale has not taken place within the

market area of Ghaziabad, no mandi fee can be levied.   

14. The stand of the appellant is that the market fee is levied on

“transaction of sale” and not on “sale” only and, therefore, what

is to be seen is where the transaction took place and not the

situs  of  the  sale.  If  this  argument  is  accepted  then  even  an

agreement  to  sale  without  the  presence  or  existence  of  the

agricultural produce will come within the ambit of the charging

provision.  It would also mean that if the agreement takes place

outside the boundaries of State of Uttar Pradesh, the provisions

would still become applicable.

15. It is to be noted that the challenge in the writ petition was

essentially  to  the  revisional  order  passed  by  the  revisional

authority under the Act.  The revision was filed against the order

passed by the Mandi Samiti in respect of rice exported.  A bare

perusal of the revisional order shows that the Samiti as well as

the revisional  authority proceeded  on the basis  that since the

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contract for goods was entered into Ghaziabad and then goods

were sent through transport from Punjab, Haryana and Madhya

Pradesh  directly  through  ports,  therefore,  the  market  fee  was

leviable.

16. The High  Court  rightly  noted  that  the  admitted  position

was that the rice was never brought or was in existence within

the  market  area,  Mandi  Samiti,  Ghaziabad  or  for  that  matter

within the State  of  Uttar Pradesh.  The High Court recorded a

categorical  finding that the sale took place only when the rice

was loaded on the sea at the port  in terms of  the agreement.

That being so, there was no transaction of sale within the market

area of the Mandi Samiti, Ghaziabad.  Therefore, the High Court

rightly held that the Mandi Samiti was not entitled to levy any

market fee.  There is no merit in the appeal, which is accordingly

dismissed.

………………………….. J. (Dr. ARIJIT PASAYAT)

……………………...…..J.

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(P. SATHASIVAM)

…………………………..J. (AFTAB ALAM)

New Delhi, July 7, 2008

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