15 January 1970
Supreme Court


Case number: Appeal (civil) 19 of 1967






DATE OF JUDGMENT: 15/01/1970


CITATION:  1970 AIR 1201            1970 SCR  (3) 415  1970 SCC  (1) 213  CITATOR INFO :  F          1973 SC1174  (7)  RF         1973 SC2724  (12)

ACT: Contract-Formalities-Bombay Provincial Municipal Corporation Act  (59  of 1949), s. 74(2)-Contract  requiring  seal,  and affixture of seal to be attested by two members of Transport Committee-Members   of  Transport  Committee  not   elected- Contract entered into without seal-Enforceability. Indian  Contract  Act (9 of 1872), s.  70-Invoice  value  as compensation-When allowed.

HEADNOTE: The  appellant  was the sole selling agent  of  motor  spare parts  for  the manufacturers in the State of  Bombay.   The respondent-Corporation  was,  constituted under  the  Bombay Provincial Municipal Corporations Act, 1949.  Under s. 74 of Act and the Rules relating to contracts made under the  Act, a  contract  relating  to the purchase  of  goods  exceeding Rupees  five  hundred  is  to be made in  the  name  of  the Corporation by the Transport Manager, and, the contract  has to  be  in  writing and in sealed in  the  presence  of  two members of the Transport Committee who should sign in  token of  the  seal  being affixed in their  presence.   Under  s. 74(2), a contract not made in accordance with the provisions of the Act and the rules is not binding on the  Corporation. The  Transport Manager of the respondent-Corporation  called upon the appellant to supply certain spare parts worth  more than Rupees two lakhs.  A formal contract incorporating  the agreed terms was not and could not be executed and sealed as required by the Act, because, at the time when the  contract was entered into election of councillors to the  Corporation had not been held and no Transport Committee was constituted and  the  powers  of  the  Corporation  and  the   Transport Committee were being exercised by the Commissioner  pursuant to  the  transitory provisions of the  Act.   The  appellant supplied  goods from time to time and the  Corporation  made payments according to the invoices.  One of the invoices was for about Rs. 49,000-00.  The invoice price consisted of  an additional  12-1/2%  on the listed price by  reason  of  the increase  in  the  price made by  the  manufacturers.   With



respect to that invoice, the Transport Manager was satisfied that  the rates quoted were ’proper rates’ and  he  accepted the  goods  delivered  on  behalf  of  the  respondent,  and appropriated  them.   But the respondent failed to  pay  the amount and terminated the contract. The  appellant  filed a suit for a decree  for  the  invoice amount  and for damages.  The respondent contended that  the contract  was not enforceable, because, it was not  executed in the manner prescribed by the Act. On  the question of the amount to which the;  appellant  was entitled, HELD : (1) The contract was not made in accordance with  the provisions  of  the  Act,  for,  it  was  not  sealed,   and therefore,  under s. 74(2) of the Act, the contract was  not binding  upon  the  Corporation, There  is  nothing  in  the transitory  provisions which excludes the operation,  of  s. 74(2).   Hence. even if it was not possible to  comply  with the rules until the elections were held there was no warrant for holding that the- 416 sub-section  did not apply and that the Commissioner or  the Transport  ,Manager could enter into contracts  without  the sea  of the Corporation.  The appellant was accordingly  not entitled  to  maintain  a suit for the price  of  the  goods relying  upon any contractual obligation, nor  maintain  the claim  for  damages  on  the  footing  that  the  respondent committed a breach -of contract. [420 E, 421 B-D] (2)  But  the appellant was entitled to maintain  his  claim for compensation under s. 70 of the Contract Act.  Under the section  compensation would normally be the market price  of the goods. In the circumstances of the; present case, the invoice value was  the  _prevailing  market value of  the  goods  and  the ’appellant  was  entitled  to it.  The  appellant  was  also entitled to interest at 6% till date of payment. [422 E, F] Secretary of State v. G. T. Sarin and Co. 1. L. R. 11  Lah.. 375, approved.

JUDGMENT: CIVIL APPELLATE JURISDICTION Civil Appeal No. 19 of 1967. Appeal  from the judgment and decree dated July 23, 24,  and September  26, 1963 of the Bombay High Court in  Appeal  No. 801 of 1957 from Original Decree. J.   C.  Bhatt,  R. A. Gagrat and B. R.  Agarwala,  for  the appellant. R. B. Kotwal and Naunit Lal, for the respondent. The Judgment of the Court was delivered by Shah,  J. Piloo Dhunjishaw Sidhwa--hereinafter  called  ’the plaintiff’-carries on business in the name and style of Hind Motor Corporation at Bombay.  By a letter dated February  1, 1952  the Transport Manager of the Municipal Corporation  of Poona  called  upon  the plaintiff to  supply  "motor  spare parts" described therein of the total value of Rs. 2,71,808- 12-3.   The  plaintiff  by letter dated  February  22,  1952 agreed  to  supply the goods.  The  plaintiff  supplied  the goods  from time to time and the Corporation  made  payments according  to the invoices.  On July 3, 1953  the  plaintiff delivered  certain  goods ’required by the  Corporation  and submitted  an  invoice for Rs.  49,743-6-2.   The  Municipal Corporation  failed  to pay the amount of  the  invoice  and terminated the contract. The plaintiff then instituted an action in the Court of  the ’Civil  Judge, Senior Division, Poona for a decree  for  Rs.



49,743-6-2 being the value of "motor spare parts"  supplied, and for Rs. 39,755-2-4 being damages for breach of contract. The suit was resisted by the Corporation principally on  the ground  that the contract on which the plaintiff relied  was not  executed  in  the  manner  prescribed  by  the   Bombay Provincial Municipal Corporations Act 59 of 1949 and on that ground the contract was not 417 enforceable.   The Trial Court decreed the plaintiff’s  suit for  Rs.  49,743-6-2 being the invoice value  of  the  goods supplied with. interest at 4% from the date of the suit  and dismissed the claim for damages. The  Municipal  Corporation appealed to the  High  Court  of Bombay  against  the  decree  of  the  Civil  Judge,  Senior Division.   The  plaintiff  filed cross  objections  to  the decree   appealed  from.   The  High  Court   rejected   the plaintiffs  claim  for, damages for breach of  contract  and held  that  the plaintiff was entitled only  to;  the  "fair price"  of  the-goods supplied to the Corporation.   In  the view  of the High Court the fair price of the goods was  the "landed  cost  and 40% thereon" beside  freight,  insurance, packing  and  forwarding charges from Bombay to  Poona.   To determine  the  amount  due  to  the  plaintiff  the   Court appointed a Commissioner.  The Commissioner reported that an amount of Rs. 38,010-59 was due to the plaintiff.  The  High Court  disallowed Rs. 2,407-83 and Rs. 6,058/-  being  items respectively  of  commission paid to the  financier  of  the plaintiff  and the customs duty for determining  the  landed cost.   The High Court accordingly decreed in favour of  the plaintiff Rs. 32,121-11  with interest, "at the rate of 6  % from  one  month  after the furnishing of the  bill  by  the plaintiff to the Corporation after the date of the  notice", at the rate of 9% from the date of the notice upto the  date of the suit, and at the rate of 7-1/2 % from the date of the suit  till  the  date of  realization.   The  plaintiff  has appealed to this Court with certificate granted by the  High Court. The Municipal Corporation of Poona was constituted on Febru- ary 15, 1950 under the Bombay Provincial Municipal  Corpora- tions Act 59 of 1949.  The provisions of the Act relating to the making of contracts are contained in ss. 73, 74 & 75  in Ch.   VII  of  the Act insofar as  they  are  relevant  they provide : s.   73-"With  respect to the making of contracts  under  or for any purpose of this Act, including contracts relating to the  acquisition and disposal of immovable property  or  any interest  therein,  the  following  provisions  shall   have effect, namely:- (a)  every  such  contract shall be made on  behalf  of  the corporation by_ the Commissioner; (b)  no  such contract for any purpose which, in  accordance with  any  provision of this Act, the Commissioner  may  not carry  out  without the approval or sanction of  some  other municipal  authority, shall be made by him until  or  unless such approval_ or sanction has first been duly given; 418 (c)  no contract which will involve an expenditure exceeding five   thousand  rupees  or  such  higher  amount   as   the Corporation  may,  with  the  approval  of  the   Provincial Government,  from time to time prescribe, shall be  made  by the  Commissioner unless the same is previously approved  by the Standing Committee. (d) (e)  the foregoing provisions of this section shall, as  far as  may be, apply to every contract which  the  Commissioner



shall have occasion to make in the execution of this Act; S.   74-"(1) The mode of executing contracts under this  Act shall be as prescribed by rules. (2)  No  contract  which  is  not  made  in  accordance  the provisions of this Act and the rules shall be binding on the               Corporation." S.   75-"For  the purpose of contracts relating  exclusively to  the Transport Undertaking the provisions of  section  73 and those of Chapter V of the Schedule shall apply as if for the  word  ’Commissioner’  wherever  it  occurs  the   words ’Transport  Manager’ and for the words ’Standing  Committee’ wherever they occur the words ’Transport Committee’ had been substituted." By the terms of s. 74(1) contracts with the Corporation  had to  be in the manner prescribed by rules.  By Ch.  V of  the Schedule rules relating to contracts are prescribed.  By  r. 1, it is provided, insofar as it is relevant "(1)  Every  contract entered into by  the  Commissioner  on behalf  of  the Corporation shall be entered  into  in  such manner  and  form  as would bind the  Commissioner  if  such contract were on his own behalf, and may in the like  manner and form be varied or discharged Provided that- (a)  any such contract which would require to be under  seal if it were entered into by the Commissioner shall be  sealed with the-common seal of the Corporation; and (b)  every  contract  for the execution of any work  or  the supply  of  any  materials or goods which  will  involve  an expenditure  exceeding  five hundred rupees or  such  higher               amount  ... shall be in writing and be  sealed               with the common seal of the Corporation in the               manner prescribed in sub-rule (2) . . . . . . 419 (2)  The  common  seal of the Corporation . . . .  shall  be affixed  in  the  presence of two members  of  the  Standing Committee to every contract or other instrument required  to be  under  seal  and such contract or  instrument  shall  be signed by the said two members of the Standing Committee  in token    that    the    same    was    sealed    in    their presence............. Rule 4 of Ch.  V, insofar as it is relevant, provides "The  provisions  of this Chapter shall, so far as  may  be, apply to contracts relating to the Transport Undertaking : Provided  that the functions to be performed  thereunder  by the  Standing  Committee  or the  members  thereof  and  the Commissioner  shall be performed by the Transport  Committee or  the  members thereof and the Transport Manager,  as  the case may be." Transitory   provisions  were  made  in  the  Act  for   the administration  of  the  affairs of  the  Corporation,  till elections  of  the  Councillors  were held.   By  s.  15  of Appendix IV to the Act, it Was provided "Notwithstanding   anything  contained  in  this  Act,   the Commissioner  shall  exercise  the powers  and  perform  the duties  of the Corporation and the Standing Committee  under this Act and under any other law for the time being in force until  general  ward  elections  shall  have  been  held  in accordance  with  the provisions of this Act and  the  first meeting of the Corporation shall have been held." By  s.  23 Appendix IV the State Government  was  given  the power to make orders for removing difficulties.  It provided : "If any difficulty arises in giving effect to the provisions of this Act or, by reason of anything contained in this Act, to  any  other enactment for the time being  in  force,  the



State  Government  may, as occasion requires,  by  order  do anything  which appears to it necessary for the  purpose  of removing the difficulty : In  exercise  of this power the State Government  issued  an order on May 6, 1950, authorising the Municipal Commissioner of  the  City of Poona-(1) to exercise all  the  powers  and perform  all  the duties, which are exercisable  and  to  be performed  by  the Transport Committee under the  said  Act, until  the  first  meeting of  the  Transport  Committee  as constituted  under the Act shall have been held; and (2)  to exercise all the powers and perform all the duties, 420 which are exercisable or to be performed by the  Corporation in  respect  of a Transport Committee under  the  said  Act, until  the  general ward elections shall have been  held  in accordance  with  the provisions of the Act  and  the  first meeting of the Corporation shall have been held. A  contract  relating to the purchase of  "goods"  exceeding rupees  five hundred in value is to be made in the  name  of the  Corporation by the Transport Manager.  It has to be  in writing and has to be sealed in the presence of two  members of  the Transport Committee who sign in token of  the,  seal being affixed in their presence. A formal contract incorporating the agreed terms between the plaintiff  and  the  Corporation was not and  could  not  be executed  and  sealed as required by the Act,  for,  at  the relevant  time elections of councillors to  the  Corporation had   not  been  held,  and  no  Transport   Committee   was constituted  as required by s. 25 of the Act and the  powers of the Corporation were being exercised by the  Commissioner pursuant  to  the transitory provisions.   The  Commissioner was,  it is true, competent to exercise all the  powers  and perform  all  the duties of the, Transport  Committee.   But under the rules in Ch, V the seal of the Corporation must be affixed  in  the presence of two members  of  the  Transport Committee  who  signed  in token of  the  seal  having  been affixed  to  the contract.  The Act clearly provided  by  s. 74(2)  that  the contract which was not made  in  accordance with  the provisions of the Act and the rules shall  not  be binding  on the Corporation.  The contract was not  made  in accordance with the provisions of the Act, for-, it was  not sealed, and was by virtue of s. 74(2) of the Act not binding upon the Corporation. Mr.  Bhatt urged that the formalities relating to  execution of  the contract with the Corporation could not be  complied with  until  a  Transport Committee  was  constituted  after election  of  Councillors  of the Corporation  and  on  that account  the provisions relating to the form and  manner  of execution of the contract had no application to the contract in dispute.  Any other view, counsel contended, rendered the Corporation incompetent to make contracts essential for  the administration  of the Corporation.  Counsel also  contended that  the  Corporation had not even a seal  which  could  be affixed, because the form of the seal had not been  approved by  the  Councillors.  Counsel again said that even  if  the functions  of the Transport Committee could be exercised  by the  Commissioner,  a seal affixed in the  presence  of  the Commissioner  and  attested  by  him  would  not  amount  to compliance  with the rules. in view of these  provisions  it was contended that the provisions of the Act relating to the form and mariner of execution of contracts could only  apply after  the  elections  are held and  the  Corporation  could comply with the provisions. 421 By  s.  5  of the Act the Corporation is  a  body  corporate



having  a  perpetual  succession and  a  common  seal.   Our attention  has not been invited to any provision which  even by implication suggests that the Corporation may have a seal only  after elections are held and the form of the  seal  is approved  by  the  members  of  the  Corporation.   But  the argument  whether  the Corporation had at the  date  of  the contract a seal is not relevant.  We are unable to hold that the  provisions of ss. 73 and 74 and the relevant rule:;  in Ch.  V ,did not apply before the elections were held and the statutory Committees were constituted.  There is nothing  in the transitory provisions which excludes the operation of s. 74(2)  of  the  Act.  Granting that it is  not  possible  to comply  with the rules, until the elections are held,  there is  no warrant for holding that the provisions of  s.  74(2) will not apply and the Commissioner or the Transport Manager may enter into contracts without seal which are  enforceable at  law, Notwithstanding the absolute terms of the Act.   In our  judgment there was no enforceable contract between  the plaintiff  and the Corporation.  The claim for,  damages  on the  footing  that  the Corporation committed  a  breach  of contract was, therefore, rightly rejected by the Trial Court and the High Court. The  plaintiff is not entitled to maintain a suit for  price of the goods relying upon any contractual obligation of  the Corporation.  But the plaintiff may still maintain his claim for compensation under s.     70  of the Contract Act  which provides "Where  a person lawfully does anything for another  person, or  delivers  anything  to  him,  not  intending  to  do  so gratuitously,  and  such  other person  enjoys  the  benefit thereof,  the  latter is bound to make compensation  to  the former  in  respect of or to restore, the thing so  done  or delivered." That  is not disputed by the Corporation.  The  Trial  Court awarded  to  the plaintiff the invoice  value_of  the  goods delivered  by him.  The learned Judge was of the  view  that the  plaintiff  as the sole selling agent  of  "motor  spare parts"  for  the  manufacturers in  the  Bombay  State,  was entitled to the listed price with 12-1/2% thereon because of the  increase notified by the manufacturer.  In the view  of the learned Judge the price for which the plaintiff made out an invoice was "reasonable and proper".  The High Court held that  the  plaintiff may recover compensation equal  to  the "fair price" of the goods. In our view the High Court was in error in holding that  the plaintiff is entitled not to the invoice value of the goods, but  only to "the fair price" of the goods.  Under s. 70  of the  Contract  Act, a person lawfully  delivering  goods  to another,  and  not  intending  to  do  so  gratuitously,  is entitled  to  demand that the goods delivered  7  Slip.   Cl (NP)70-12 422 shall be returned, or that compensation for the goods  shall be  made Compensation would normally be the market price  of the  goods.  By refusing to return the goods, the person  to whom  the  goods  have been  delivered  cannot  improve  his position  and seek to pay less than the market value of  the goods.   The High Court of Lahore in Secretary of State  and Another  v.  G.  T. Sarin & Company(1) held  that  a  person without  an  enforceable contract in  his  favour  supplying goods  to  a Government Department is entitled  to  a  money equivalent  of  the goods delivered assessed at  the  market rate prevailing on the date on which the supplies were made. The  plaintiff  had made out an invoice in  respect  of  the goods -delivered.  The Transport Manager accepted the  goods



on behalf of the Corporation and appropriated them.  He  had satisfied  him-self  that  the  rates  quoted  were  "proper rates".   The plaintiff was paid in respect of  other  goods supplied  at  the rates quoted in the  _price-list  together with incidental charges.  The plaintiff was the sole selling agent in the Bombay State and the additional 12-1/2 %  which the  plaintiff claimed on the listed price was by reason  of the -increase in the price made by the manufacturers.  There is  no reason to hold that the invoice price was  more  than the market value of the goods.  If it was the contention  of the  Corporation  that  the market rate was  less  than  the invoice  price  it  was  open to  the  Corporation  to  lead evidence  about the ruling rates at which the  spare  -parts were  sold  in India by other agents of  the  manufacturers. But  no  such  attempt  was made.   The  plaintiff,  in  our judgment, was ,entitled to the market value of the goods  at the date of supply, and, in our judgment, the invoice  value was the prevailing market value -of the goods. The plaintiff is also entitled to interest at the rate of 6% per annum from "the date one month after the date of supply" till  the  date  of institution of the suit, and  at  6%  on judgment from the ,date of the suit till payment. We accordingly set aside the decree passed by the High Court and  restore the decree passed by the Trial Court  with  the modification  in the rate of interest set out  earlier.   In view of the partial success of the parties, there will be no order as to costs in this ,Court and in the High Court.   In the   Trial  Court  the  plaintiff  will  be   entitled   to proportionate   costs  for  the  amount  decreed  and   the, Corporation will bear its own costs. R.K.P.S.                    Appeal dismissed. (1) I.L.R. 11 Lah. 375. 423