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PETITIONER:

THE K.C.P. LTD.

Vs.

RESPONDENT:

STATE TRADING CORPORATION OF INDIA & ANR.

DATE OF JUDGMENT08/08/1995

BENCH:

MANOHAR SUJATA V. (J)

BENCH:

MANOHAR SUJATA V. (J)

PUNCHHI, M.M.

CITATION:

1995 SCC Supl. (3) 466 JT 1995 (6) 83

1995 SCALE (4)697

ACT:

HEADNOTE:

JUDGMENT:

JUDGMENT

Mrs. Sujata V. Manohar. J.

These appeals arise from a common judgment of the

Andhra Pradesh High Court dated 3.2.1976 in O.S. Appeal Nos.

5, 7 and 9 of 1974. Some of the relevant facts for the

purposes of these appeals are as follows:-

The appellant-K.C.P. Limited has a cement factory

situated at Macherla in Guntur District, Andhra Pradesh.

Prior to 1956 the Government of the composite State of

Madras was considering establishment of a cement factory in

Kurnool District of Rayalaseema, by a private enterprise Mr.

V. Ramakrishna, Chairman of the appellant-company offered to

start such a factory and applied for a licence to start the

factory, to the Government of India through the Government

of Madras. At this time there was a proposal to construct a

dam over the River Krishna near Nandikonda. This project

which was intially named Nandikonda Dam Project later came

to be known as the Nagarjunasagar Project. It was proposed

that the appellant would establish a cement factory at

Macherla near the project site and would supply cement to

the said project. The Chairman of the appellant-company

offered to supply cement to the Nagarjunasagar Project at

the rate of Rs.48/- per ton loose from the proposed factory

site at macherla. This is recorded in the letter dated 12th

of April, 1955 from Mr. Ramakrishna to the Secretary to the

Government of India in which he has stated that he was

enclosing the final confirmation to supply cement for the

said project at the rate of Rs.48/- per ton loose ex-

factory. On 31.10.1955 the Government of India wrote a

letter to the appellant saying that they proposed to issue a

licence subject to the condition inter alia that almost the

entire production of the factory shall be used locally by

Nandikonda Dam Project (as it was then known) for the next 4

or 5 years. The Nandikonda Control Board, however, was

desirious of getting the price of cement further reduced.

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It, therefore, continued negotiations with the appellant for

a further reduction in the price of cement which was to be

supplied for the said project. On 30th of April, 1956 there

was a meeting of the Negotiating Committee of the

Nagarjunasagar Control Board with the Chairman of K.C.P.

Limited when it was agreed that the appellant-company would

charge Rs.47.50 per ton of portland cement plus excise duty

and sales tax subject to variations upwards and downwards

due to new taxation. For the supply during the period from

1.10.56 to 31.3.1958, however, the rate charged would be the

flat rate of Rs.47.50 per ton plus excise duty and sales tax

without any variation. Thereafter the Nagarjunasagar Control

Board desired that the draft agreement which was to be

entered into with the appellant-company should be

scrutinised by the two concerned State Governments. It seems

that drafts were exchanged between the parties but no

concluded agreement was arrived at.

While these negotations were going on the Cement

Control Order, 1956 came into effect from 1.7.1956. In view

of the coming into force of the Cement Control Order of

1956, in the draft agreement a clause was added to the

effect that it would be subject to the sanction of the State

Trading Corporation. This was because by virtue of the

Cement Control Order, 1956, the State Trading Corporation

was appointed as a canalising agency for the purchase of

cement at a controlled price fixed under the Cement Control

Order of 1956.

When the Cement Control Order, 1956 came into effect

the appellant had not started production of cement and hence

the factory of the appellant was not mentioned in the

schedule to the Cement Control Order of 1956. The factory

commenced production in February, 1958. By this time the

appellant was brought on the schedule of the Cement Control

Order on 25.1.1958. The appellant informed the State Trading

Corporation on 2nd of February, 1958 that it had entered

into an agreement with Nagarjunasagar Control Board for the

supply of cement for the said project at the concessional

rate of Rs.47.50 per ton loose ex-factory insted of the

controlled price of Rs.54.50 fixed under the Cement Control

Order. The State Trading Corporation by its letter dated 5th

of February, 1958 stated that the rebate of Rs.7/- per ton,

that is to say, the difference between the ex-works price

allowed to the appellant which was fixed by the Government

of India at Rs.54.50, and the concessional rate of Rs.47.50,

would be allowed, and the appellant would be paid by the

State Trading Corporation the ex-works price less rebate.

The rebate would be passed on to the Nagarjunasagar Control

Board, the purchaser.

The appellant was appointed by the State Trading

Corporation as their selling agent for the purpose of

supplying cement to the Nagarjunasagar Control Board. Hence

the appellant, as the selling agent of the State Trading

Corporation started supplying cement directly to the said

project from 18.4.1958. As the producer of cement, the

appellant became entitled to receive the price of cement so

supplied from the State Trading Corporation. It recovered

the price from the purchaser as agent of the State Trading

Corporation. In the bills drawn by the appellant the sale

price was being shown as fixed by the Cement Control Order

and a rebate of Rs.7/- was shown as being deducted from the

ex-works price. Thus the appellant as the selling agent of

the State Trading Corporation collected from the

Nagarjunasagar Control Board/the State of Andhra Pradesh the

price of Rs.47.50 per ton. As the selling agent of the State

Trading Corporation the appellant from time to time

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submitted its accounts to the State Trading Corporation in

respect of the cement so supplied to the Nagarjunasagar

Control Board retaining with itself the price at the rate of

Rs.47.50 per ton as the producer of cement.

The notified price of cement was increased from

Rs.54.50 to Rs.60.50 with effect from 1.7.1958. The

appellant, however, continued to give a rebate of Rs.7/- to

the Nagarjunasagar Board while supplying cement. In the

bills which were drwan by the appellant, the price was shown

as the controlled price less rebate of Rs.7/-.

From 1st of November, 1961, however, when the new

Cement Control Order, 1961 came into operation, the

appellant did not show any rebate in the bills supplied to

the Nagarjunasagar Board and claimed the price as fixed

under the Cement Control Order. The Board (the State of

Andhra Pradesh), however, paid to the appellant the

controlled price less a rebate of Rs.7/-. In the statements

of accounts, however, which were submitted by the appellant

to the State Trading Corporation, the appellant did not show

any rebate and claimed the full amount of the controlled

price from the State Trading Corporation which it retained

with itself by debiting the full price to the State Trading

Corporation in the statements of accounts. From 1.1.1966

cement was decontrolled.

It is the contention of the State of Andhra Pradesh

that the price which the appellant had agreed to charge to

the Control Board for supply of cement for the said project

was a fixed price of Rs.47.50 per ton, and that the

appellant had recovered excess amounts from the State of

Andhra Pradesh by charging controlled price less rebate of

Rs.7/-. The State of Andhra Pradesh filed a suit being C.S.

No.2 of 1970 against the appellant and the State Trading

Corporation praying that a formal agreement embodying the

term that cement would be supplied by the appellant to the

Control Board at a fixed price of Rs.47.50, be directed to

be executed. It also prayed that cement supplied by the

appellant to the Control Board should be paid for at the

rate of Rs.47.50 per ton irrespective of the changes in the

controlled price from time to time. In the suit the State of

Andhra Pradesh also claimed a refund of the excess amount

recovered from them by the appellant. There was also a

prayer for reference to arbitration. The State Trading

Corporation filed a suit against the appellant being C.S.

No.1 of 1970 for the recovery of the rebate of Rs.7/- which

the appellant had recovered from the State Trading

Corporation by reversal of entries in the accounts for the

period after 1.11.1961. Both these suits were tried and

decided by a common judgment. The suit filed by the State of

Andhra Pradesh against the appellant and the State Trading

Corporation was dismissed; while the suit filed by the State

Trading Corporation against the appellant was decreed.

Three appeals were filed from this common judgment and

order before the Andhra Pradesh High Court under clause 15

of the Letters patent. O.S.A. No.7/1974 was filed by the

State of Andhra Pradesh against the judgment and order

dismissing their suit. O.S.A. No.5/74 was filed by the

appellant against the decree which was passed against them

in C.S. No.1/70 while O.S.A. No.9/74 was filed by the State

Trading Corporation in respect of the judgment and order in

C.S.No.1/70 in so far as it directed the State Trading

Corporation to pay court fee on its claims separately. The

Andhra Pradesh High Court by the impugned judgment and order

which is a common judgment in the three appeals, has

dismissed these appeals and has awarded costs as set out in

the impugment and order. The present appeals are filed by

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appellant from this judgment and order in so far as it

upholds the claim of the State Trading Corporation against

the appellant.

The Andhra Pradesh High Court has examined in detail

the entire correspondence which was exchanged between the

appellant and/or its Chairman and the Government of India as

also the Government of the concerned States in connection

with the setting up of the factory of the appellant and the

concessional rate at which the appellant offered to supply

cement for the nagarjunasagar Project. The High Court has

come to the conclusion that there was no concluded contract

between the parties for the supply of cement for the said

project at a fixed price of Rs.47.50. We do not see any

reason to take a different view in the light of the facts

and circumstances which are set out at length in the

judgment of the Division Bench of the High Court of Andhra

Pradesh. In view of this finding the question of the alleged

agreement being drawn up in accordance with the provisions

of Article 299 of the constitution of India, or its non-

enforceability on that count, does not arise.

The High Court has, however,, held that in view of the

facts and circumstances which are set out in the judgment,

the appellant had offered a rebate of Rs.7/- on the Control

Price of cement in respect of the cement supplied for the

Nagarjunasagar Project. It was in the light of this

concessional rate offered by the appellant that licences

were issued from time to time to the appellant for the

Cement factory and for expansion of its capacity. The High

Court has also pointed out that in fact the appellant gave a

rebate of Rs.7/- on the controlled price in respect of the

cement supplied for the said project and it continued to

give this rebate upto 1.11.1961. The appellant also wrote to

the State Trading Corporation informing it that the

appellant had agreed to give a rebate of Rs.7/- on the

Control Price of Cement in respect of the cement which was

to be supplied by it for the Nagarjunsagar Project and the

State Trading Corporation accepted this arrangement. The

appellant also showed this amount as rebate in the bills

which were drawn by it for the supply of cement upto

1.11.1961. It was not entitled to withdraw this rebate after

1.11.1961. In fact, even after 1.11.1961 it continued to

recover only the concessional price. It has not taken any

steps against the State of Andhra Pradesh to recover the

amount of rebate so granted by it although its bills after

1.11.1961 do not show the rebate.

In view of the above the High Court has, in our view,

rightly come to the conclusion that the State of Andhra

Pradesh was entitled to the supply of cement from the

appellant at control Price less a rebate of Rs.7/- during

the period when the Cement Control Orders were in operation.

As the State of Andhra Pradesh has in fact paid this price,

that is to say, Control Price less rebate of Rs.7/-, no

further relief is required to be granted as its claim to

recive cement at the fixed price of Rs.47.50 per ton has

been negatived. Although the appellant declined to give this

rebate in its bills after 1.11.61 it has in fact not filed

any suit for the recovery of this rebate of Rs.7/- as

against the State of Andhra Pradesh. In these circumstances

the High Court has rightly come to the conclusion that the

State of Andhra Pradesh is liable to pay for the cement

supplied, control price less a rebate of Rs.7/-.

The State Trading Corporation was only a canalising

agency and it had agreed to pass on a rebate of Rs.7/- to

the State of Andhra Pradesh in view of the agreement which

was entered into between the appellant and the State of

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Andhra Pradesh. The High Court has rightly observed that it

is difficult to see how the appellant can at all make a

complaint against the State Trading Corporation for the

amount of rebate which was granted by the appellant to the

State of Andhra Pradesh. It has, therefore, held that the

appellant was not entitled, to claim the amount of rebate

from the State Trading Corporation after 1.11.1961 as was

done in the statements of accounts submitted by it to the

State Trading Corporation. It has, therefore, upheld the

claim of the State Trading Corporation for recovery of the

excess amount for which credit was thus taken by the

appellant. It has held that as selling agent, the appellant

was receiving the full price minus Rs.7/- per ton given as

rebate. It is only that price which should have been paid to

the appellant as producer. The reversal of entries in the

accounts made by the appellant as selling agent of the State

Trading Corporation is unwarranted and clearly illegal. The

State Trading Corporation was justified in filing the suit

and claiming the amount of rebate which had been wrongfully

debited to their account by the appellant by making reversal

entries. The High Court has, therefore, dismissed the appeal

filed by the appellant being O.S.A. No.5 of 1974 with costs.

We agree with the reasoning and conclusion of the Andhra

Pradesh High Court for reasons set out above.

no order as to

The appeals are dismissed with no order as to costs.