K. Perumal Mudaliar vs The Province of Madras

Subba Rao, J.—The only point that arises in this appeal is whether the suit contract is valid, and whether it complies with the provisions of

Section 175 of the Government of India Act, 1935.

The defendant is a merchant carrying on business in Coimbatore. The Government required groundnut oil for use in the Government Oil Factory

at Calicut. The superintendent of the Kerala Soap Institute wrote Ex. P-1 dated.12th May, 1942, to the defendant asking him to quote his lowest

rate for supplying 40 tons of expeller quality groundnut oil for prompt supply. The defendant by his letter, Ex. P-2 dated 15th May, 1942, offered

to supply 40 tons of expeller groundnut oil at the rate of Rs. 369 per nett ton of 2,240 lbs., if barrels were supplied by the Superintendent. He

agreed to deliver the said oil within three months after acceptance. The defendant received the letter, Ex. P-9, dated 21st May, 1942, from the

Superintendent of the Kerala Soap Institute, wherein the latter stated that he tested the sample of oil received and accepted the offer of the

defendant. He also informed the defendant that the oil agreed to be delivered should be sent within three months, and that the bulk supplied Should

be exactly similar to the sample. On 21st May, 1942, the Superintendent again wrote a letter to the defend-ant asking him to supply the groundnut

oil, particulars whereof were given in that letter, within three months as agreed upon between the parties. For one reason or other--it is not

necessary to-go into that question-the defendant did. not supply the oil agreed upon between the parties within the time prescribed.

The Government purchased the oil from a third party, and filed the suit for recovery of damages, the difference between the price at which the

defendant agreed to sell and the price for which they later on purchased from the third party The defendant inter alia contested the suit on the

ground that the contract which afforded the cause of action to the plaintiff was not valid, as it did not comply with the provisions of Section 175 of

the Government of India Act, 1935. The learned Subordinate Judge held that the contract was valid, and that it also complied with the provisions

of Section 175, as the Superintendent, who called for the tender and accepted it took the sanction of the Director of Industries.

Section 175(3) of the Government of India Act, 1935, reads as follows:

Subject to the provisions of this Act with respect to the Federal Railway Authority, all con-tracts made in the exercise of the executive authority of

the Federation or of a Province shall be expressed to be made by the Governor-General, or by the Governor of the Province, as the case may be,

and all such contracts and all assurances of property made in the exercise of that authority shall be executed on behalf of the Governor-General or

Governor by such persons and in such manner as he may direct or authorise.

It is not disputed that the Director of Industries was authorised by the Government to enter into a contract on its behalf. The learned Counsel for

the appellant raised two contentions before us : (1) that u/s 175, Sub-section (3) the contract between the Government and the other party must be

embodied in a formal document, and (2) that even though the contract with the Government might be entered into by correspondence, the

correspondence must show ex facie that the contract was entered into by the Government or the person authorised by the Government to enter

into the contract.

The learned Counsel for the appellant relied upon a long list of decisions in support of his contention. Though the result of those decisions are

different, the principles laid down therein will equally apply to the present case. Municipal Corporation, Bombay v. Secretary of State for India

ILR (1932) Bern. 660 turns upon the construction of Section 30 of the Government of India. Act of 1919. The provisions of Section 30 are similar

in effect to that of Section 175 of the Government of India Act, 1935. Sub-section (2) of Section 30 of that Act reads:

Every assurance and contract made for the purpose of Sub-section (1) of this section shall be executed by such person and in such manner as the

Governor-General in Council by resolution directs or authorises and if so executed may be enforced by or against the Secretary of State in Council

for the time being.

It is unnecessary to state the facts in that case. At page 706 after quoting the section, Mirza, J., observes

It is conceded by Mr. Coltman that the terms of this section are mandatory and not merely directory. It will be observed that a paramount

condition laid down in this section for such a con tract is that the contract should be on behalf and in the name of the Secretary of State in Council.

He further expressed his opinion that Section 30 contemplated a formal deed or instrument in which the contract was set out as being on behalf

and in the name of the Secretary of State in Council. He relied upon the words

that the contract should be on behalf arid in the name of the Secretary of State in Council

as giving an indication that the contract must be embodied in a formal document.

The next decision cited by the learned Counsel is reported in Krishnaji Nilkant Pitkar Vs. Secretary of State, That decision also construes and

expresses the scope of section go of the Government of India Act. The learned Judges accepted and followed the decision reported in Municipal

Corporation, Bombay v. Secretary of State for India I.L.R (1932) Bom. 660 In Secretary of State for India in Council Vs. Bhagwandas

Goverdhandas, the question again arose for consideration. Though the learned Judges in that case held that the provisions of Section 30 were

mandatory, they took the view that the contract with the Government might be entered into by letters, provided that the correspon dence was

carried on on behalf of and in the name of the Secretary of State or that the said contract finally concluded by correspondence was executed by a

person authorised by resolution in that behalf. In Secretary of State v. G.T. Sarin and Co. ILR (1929) Lah. 375 Tek Ghand, J., held that as the

contract in that case was entered into by an Officer Commanding a Depot, not being one authorised by the Governor-General in Council under the

provisions of Section 30 (2) of the Government of India Act to enter into contracts on behalf of the Secretary of State, the contract sued upon was

ultra vires and could not be enforced against the latter. It is not necessary to multiply cases except to cite a decision of this Court reported in The

Sankara Mining Syndicate Ltd. and Another Vs. The Secratery of State for India in Council and Others, In considering Section 30 (2) of the

Government of India Act, Leach, C.J., observed at page 147:

With regard to the contention that a valid contract had been entered into by the Local Government with the appellant company and consequently

the appellant company is entitled to a decree for specific performance, we have seen that by reason of Section 30 (2) of the Government of India

Act, 1919, contracts have to be executed by the person and in the manner directed by the Governor-General in Council and until they are so

executed they cannot be enforced by or against the Secretary of State in Council.

In that case the Governor-General in Council prescribed the rules governing the execution of contracts, with the local Government, and they

required a formal lease to be executed by the Collector. These observations are in accord with the interpretation put upon that section by the other

decisions we have already noticed.

From a consideration of the aforesaid decisions two principles emerge : (1) that the contract by the Government or on behalf of the Government

must be embodied in a formal document, and (2) that even if no formal document is necessary, the correspondence embodying the contract must

ex facie show that the contract was entered by the Government or on behalf of the Government. So far as the first proposition is concerned, there

is a conflict of authority, and it is not necessary in this case to attempt to resolve it. Assuming that no formal document is necessary we are

convinced that in this case neither the Government nor the Director of Industries, who had been authorised by the Government, entered into a

contract with the defendant. The learned Government Pleader argued that the Superintendent of the Kerala Soap Institute entered into this contract

with the defendant with the permission of the Director of Industries, who was authorised by the Government to enter into a contract. He relied

upon the evidence of P.W. I, the Superintendent of the Kerala Soap Institute, who says that he had obtained the permission of the Director of

Industries for calling for quotations and for making the purchase. He also says that:

The Director used to be informed about the progress in respect of the contract.

This evidence itself disclosed that the contract was not entered into by the Director himself but by the Superintendent with the permission of the

Director of Industries. In paragraph 2 of the plaint the Government in clear and unambiguous terms states the persons between whom the contract

was concluded and also the terms of the contract. The plaintiff says that the defendant by his letter, dated 15th May, 1942, made a definite offer

and that the Superintendent of the Kerala Soap Institute, Calicut, accepted the said offer. The correspondence, Exs. P-1, P-2, P-9 and P-10, also

disclosed that the terms of the contract were negotiated between the Superintendent and the defendant, and that the contract also was concluded

between the Superintendent and the defendant. In view of the aforesaid facts it would be impossible to accept the contention of the learned

Government Pleader that the contract was entered into with the Director of Industries.

As the contract was invalid, the suit based upon the same was clearly not maintainable. The learned Counsel for the appellant has no objection

for the giving of the decree in favour of the plaintiff for a sum of Rs. 254-11-0 being the cost of the empty iron drums and the Railway freight and

cart hire. So, that portion of the decree of the lower Court will stand.

The decree of the lower Court is otherwise set aside, and the appeal is allowed with costs throughout.