1969

Athmanathaswami

D1t10Slhanam

"·

IC. Gof>olasw"'"I

A.iyangar

196J

M.,9

.774 SUPREME COURT REPORTS[l964] VOL.

We therefore dismiss the appeal except in so

far as it relates to the order of the High Court on the

cross-objection filed by the appellant.

We set

aside the order dismissing the cross-objection. We

order the appellants to pay the

costs of the

respon­

dent throughout.

UNION OF INDIA

v.

MADDALA THATHIAH

(K. SUBBA RAO, RAGHUBAR DAYAL and

J. R. MunHOLKAR JJ.)

Oontract-Con•truction--Agreement for supply-Tender­

Acceptance-Formal order for •Upply-Stipulation in the contract

for cancellation

at any stage-If effective

even after formal order

for •upply had been made.

The General Manager of a Railway invited tenders for

the supply

of jaggery to the railway grain shops. Paragraph 2

of the tender set out the quantity required and described

d4tes

of delivery. 'l here was a note in that para that "the Adminis­

tration reserved the right to cancel the contract at any.stage

during the tenure of the contract without calling up the out·

standings on the unexpired portion of the contract· " Under

para 8 the successful tenderer was required to pay security deposit

towards proper fulfilment

of the contract. Paragraph 9 stated

that a formal order for supply would be placed after the security

deposit referred to

in para 8 was made. The respqndent

submitted his tender for the supply

of

14000 maunds as men­

tioned in the tender, and by the letter dated January 29, 1948,

the Deputy General Manager accepted the tender stating that

the official order would be placed on the respondent on receipt

of the remittance of security. In his letter dated February 16,

1948, the Deputy General Manager reiterated the acceptance

of the tender subject to the respondents' acceptance of the

t<rms and conditions printed on the reverse of that letter, under

which 3500 maunds each were to he delivered on March I,

3 S.C.R. SUPREME COURT REPORTS 775

March 22, April 5 and April 21, 1948 respectively. At the

end

of the terms and conditions was a note that the

adminis­

tration reserved the right to c~ncel the contract at any stage

during the tenure of the contract without calling upon the

outstandings on the unexpired portion

of the

coatract. By his

letter dated March 8, 1948, the Deputy General Manager

informed the respondent that the balance quantity

of jaggery.

outstanding on date against the order dated February 16,

1948, be treated as cancelled and the contract closed.

In the

suit instituted by the respondent for the recovery

of damages

resulting from breach

of contract, the appellant relied, by way

of defence, on the stipulation in the contract that the appellant

was

at Jibery to terminate the contract at any stage.

Held that, on the true construction of the contract, the

condition mentioned in the note 2

of the tender or in the letter

dated February 16,

1948 referred to a right in the appellant to

cancel the agreement for such supply

of jaggery about which no

formal order had been passed

by the Deputy General Manager

with the respondent

and did not

•pply to such supplies of

jaggery about which a formal order hau been placed specifying

deimite amount

of jaggery to be supplied and the definite date

or definite short period for its actual delivery.

Once the order

was placed for such supply on such dates, that order amounted

to a binding contract making it incumbent on the respondent

to supply jaggery in accordance with the terms

of the order

and also making it incumbent on the Deputy General Manager

to accept the

jag~ery dehvered in pursuance of that order.

Ohatturbhuj Vithalda" Ja•ani v. Moneshwar Para•hram,

[1954] S.C.R. 817, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal

No. 53 of 1961.

Appeal by special leave from the judgment and

decree dated August

9,

1!156 of the Madras High

Court in O.S. Appeal No. 64 of 1952.

Ii. N. Sanyal, Additionul Solicitor-General of

India, K. L. Gosain and P. D. Menon, for the

appelfant.

A. V. Viswanatha Sastri and M. S. K. Sastri,

for the respondent.

·11.'J

Uoi'!' of I,adio

••

Modl4• I.ful!iiM

. 1963

U•ion of /niia

••

Mali•/• Thathioh

Razhuiar D~1•l J.

776 SUPREME COURT REPORTS(1964)VOL .

1963. May 9, The Judgment of the Court was

delivered by

RAGHUBAR DAYAL J.-The facts giving rise

to this appeal, by special leave, are these :

. The Dominion of India, as the owner of the

Madras and S0uthern Mahratta Railway, represented

by the General Manager

of that railway, invited

tenders for the supply of jaggery to the railway grain

shops.

The respondent submitted his tender for the

supply

of 14,000 imperial maunds of cane jaggery

duriug the months of February and March 11148.

The tender form contained a note in paragraph 2

which

was meant for the quantity required and the

described dates

of delivery. This note was : "This Administration reserves the right to

cancel the contract at any stage during the

tenure

of the contract without calling up the

outstandings on the unexpired portion

of the

contract."

The Deputy General Manager of the Railways,

by his letter dated January

29,

1948, accepted this

tender.

The letter asked the respondent to remit a

sum

of Rs. 7,900/-for security arid said that on

receipt

of the remittance, official order would

be

placed with the respondent. In his letter dated

February 16, 1948, the Deputy General Manager

reiterated the acceptance

of the tender subject to the

respondent's acceptance

of the terms and

conditions

printed on the reverse of that letter. Among these

terms, the terms

of delivery stated : Programme of

delivery to be 3,500 maunds on March

1, 1948 ;

.3,500 maunds on March 22, 1948; 3,5011 on April

5, 1948; and 3,500 maunds on April

21, 1948. At

the end

of the terms and conditions was a note that

the administration reserved the right to cancel the

contract

at, any stage during the tenure ·of· the

3 S.C.R. SUPREME COURT REPORTS 777

contract without calling up the outstandings on the

unexpired portion of the contract. The date

for the

delivery

of the four instalments were slightly changed

by a subsequent letter dated February

28, 1948.

By his letter dated March 8, 1948, the Deputy

General Manager informed the respondent that the

balance quantity of

jailgery outstanding on date

against the order dated February 16, 1948,

be treated

as cancelled and the contract closed. The protests

of the respondent were of no avail as the railway

administration took its stand against the stipulation

that the right to cancel the contract at any stage

was

reserved to it. Ultimately, the respondent instituted

the suit against the

U a ion of India for recovering

damages resulting

from breach of contract. The

trial

Cot.rt dismissed the suit holding that the railway

administration could cancel the contract without

giving any reason whenever

it liked, without making

itself liable to pay any demages. The High Court

held that the clause reserving the right in the

appel­

lant to cancel the contract was void and in view of

the trial Court having not decided the issue about

damages, remanded the suit for disposal after deal­

ing with that matter. It is against this decree that

the Union of India has filed this appeal after obtain­

ing special leave.

The contentions raised

for the appellant are

two.

One is that on a proper construction of the

terms

of the contract, the appellant had agreed to

but only

sue~ quantity of jaggery as it might require,

up to a maximum

of

14,000 maunds and therefore

there was no enforceable obligation to purchase the

entire quantity. The other contention

is that the

respondent had expressly agreed to the impugned

clause

~nd that therefore the appellant was at liberty

to terminate the contract

at any stage of the duration

o.f the

contr~ct with respect t? th~ outs~anding obliga­

tions under 1t. The stipulation 1s vahd and binding

196$

Union of India

••

Maidal• Tholliiah

Raghuba• Da}Ol J,

1965

U,.io11 of India

v.

Moddola Tna1hiah

Roghobar Da7•1 J.

778 SUPREME COURT REPORTS[l964] VOL.

on the parties and it amounted to a provision in the

contract itself for its discharge or determination. On

the other hand it is contended for the respondent that

the contract

was a complete contract of the supply

of a definite quantity

of jaggery viz.,

14,000 maunds,

on the dates mentioned in the order dated February

lfi, 1948, to start with, and ultimately on the dates

mentioned in the subsequent letter dated February

28, and that the stipulation relied on

was repugnant

to the contract and, even

if valid, the appellant

could

rescind the contract only for good and reasonable

ground and ·not arbitrarily.

To decide the contentions raised it

is necessary

to construe the true nature

of the contract between

the parties which has given

rise to these proceedings.

The relevant conditions

of tender are described in

paragraphs

2, 8 and 9 and are set out below :

"2. Qpantity required and described dates of

delivery.-14,000 imperial maunds of cane

jaggery are required for the months

of

Decem­

ber 1947 and January 1948 and should be'deli­

vered in equal lots of 1, 750 imperial maunds

each commencing from 10th December 1947

and completed on 31st January 1948.

Note : This Administration reserve~ the right

to cancel the contract at any stage during the

tenure

of the contract without calling up the

outstandings on the unexpired portion

of the

contract.

8. Security

deposit.-Five percent of the tender

value will

be required to be paid by the

success­

ful tenderer as security deposit towards proper .

fulfilment of the contract. This amount will

carry no interest. This should be paid in cash·

in addition to the earnest money already paid

, to the Paymaster and Cashier of this .Railway,

3 S.C.R. SUPREME COURT REPORTS 779

Madras, and

his official receipt obtained

there­

for. Cheques and drafts will not be accepted

in pa) ment of security deposit. In the case of

contracts or the supply of gingelly oil, the secu­

rity deposit will be arranged only after 90 days

have elapsed

from the

1late of the last supply

against the order. ·

9. Placing of order.-A formal order for

supply will be placed

on the successful tenderer

only on the undersigned being furnished with

the receipt issued

by the

Paymaster and Cashier

of this Railway for

the security deposit referred

to in paragraph

8."

Paragraph 12 provides for the rejection of supplies if

they be of unacceptable quality. Paragraph lJ deals

with penalties and reads thus :

"13. Penalties.-When supplies are not effected

on the dates

as

laid down in the Official Order

or when acceptable replacement of the whole

or part

of any consignment which is rejected in

accordance with paragraph

12 is not made

with­

in the time prescribed the administration will

take penal action against the supplier

in one or

more of the following ways

:-

(a)

Purchase in the open market at the risk

and expenses of the supplier goods of

quality contracted for, to the extent due ;

(b) Cancel any outstandings on the contract

and;

(c) Forfeit the security deposit."

The respondent made an offer to supply the

• necessary quantity of jaggery during the period it

·. was wanted and expressed its readiness to abide by

1963

Union of Indi•

••

M•ddala rhathiah

R•zhubar il•y•I /.

1963

Union of India

••

MaddAla Thathiah

Rag/iubar Dayal J.

780 SUPREME COURT REPORTS (1964] VOL.

the terms and conditions of the tender. He agreed

to supply the jaggery at the rate mentioned in his

letter. This tender

was accepted by the letter dated

January 29,

1948. So far, the offer of a supply of

a definite quantity of jaggery during a specified

period at a certain· rate and the acceptance of the

· offer would constitute an agreement, but would fall

short

of amounting to a legal contract inasmuch as

the date of delivery of the j aggery was not specified. Only the period was mentioned. The agreement

arrived

at therefore could be said, as urged for the

appellant, to be a contract in a popular

sense with

respect to the terms which would govern the order

for supply

of j aggery. The acceptance of the tender

did not amount to the placing

of

the order for any

definite quantity

of jaggery on a definite date. Paragraph 9 of the tender referred to the placing of

a formal order for the supply of jaggery, after the

respondent had not only made a security deposit

as

required by the provisions of paragraph 8 but had

also furnished a receipt

issued for that deposit to the

Deputy

General Manager, Grain Shops. So constru­

ed, the note in paragraph 2 of the tender would

refer to cancel this agreement,

loosely called a

con­

tract, at any stage during the tenure of that agree­

ment without calling up the outstandings on the

unexpired portion

of the contract.

The various expressions used in this note point

to the same conclusion. The expression 'tenure

of

the contract' contemplates the contract being of a

continuing nature.

It is only a contract with a sort

of a tenure. The contract is to be cancelled at any

stage during such a tenure, that

is, it could be

can­

celled during the period between the acceptance of

the tender and March 31, 1948, the last date for the

delivery

of the jaggery under the contract. The

note further provided that

as a result of the

cancella•

tion, the appellant will not call up the outstandings

. on the unexpired portion of the ·contract. This

3 S.C.R. SUPREME COURT REPORTS 781

expression can only mean "without ordering the

supply

of jaggery which was to be delivered within

the rtmaining period

of the

contract", that is, the

period between the date o,f cancellation and March

31, 1948.

Paragraph 13 dealing with penalties draws a.

distinction between outstandings on the contract and

the purchase

of the goods to the extent not supplied

by

the respondent. The provision about penalty

comes into operation when the supplies are not effec­

ted on the dates laid down in the officia I order, or

when acceptable replacement of the whole or part

of

any consignment which is rejected

is not made within

the time prescribed. Clause (a) of para 13 contem­

plates penal action by purchasing in the open market

at the risk and expenses of the supplier, goods of the

quality contracted for to the extent due, either due

to the failure

to supply or due to failure to replace

rejected goods which had been supplied in

compli­

ance of an order. Clauqe (b) of para 13 contemp­

lates a further penal action in the form of cancella­

tion of any outstandmgs on the contract. Such a

cancellation could only

be of the balance of the

supplies

agreed upon but not yet supplied. If this

expression

was meant to cover the goods for which

order had been placed but whose date

of deli very

had not arrived, a different expressin would have

been more appropriately used.

The appellant's letter dated January 29, 1948,

which conveyed the acceptance

of the tender,

direct­

ed the respondent to remit a certain sum for the

security deposit and stated that

on receipt of advice

of remittance official order would be placed. This

is the order contemplated by para 9 of the tender.

By his letter dated February 16,

1948, the

Deputy General Manager repeated in paragraph 1

of the letter

that the tender dated January

~7, 1948,

llflion of l•dia

••

Madd'li• Thathiah

Raghuli•1 Day•l J;

196!

Union of lntlia

••

Madda/a Thoth/ah

/laghub.r Dayal I.

782 SUPREME COURT REPORTS (1964] VOL.

was accepted for the supply of jaggery, only subject

to the respondent's acceptance

of the terms and

con·

ditions printed on the reverse. The tender had

already been accepted. There

was no occasion to re-open the question of the acceptance of the tender

or to re-inform the respondent about the accepta'Jce

of the tender or to obtain a second acceptance of the

respondent to the terms and conditions

of the tender.

No occasion could have arisen for imposing any

fresh conditions for the acceptance

of the tender

which had been accepted earlier.

Paragraph 2

of the Jetter contains a definite

order for despatching and delivering

of t:1e

consign·

ment to the Assistant Controller of Grain Shops.

The details given in the letter provided for the entire

supply

of 14,000 maunds to be in four equal

instal­

ments, each instalment to be delivered on a particular

date. The only other condition or term in this

letter

is : "This administration reserves the right to

cancel the contract

at any stage during the

tenure

of the contract without calling up the

outstandings on the unexpired portion

of the

contract."

This is identical in terms with the note in paragraph

2 of the tender and can bear the same construction

with respect

to that portion of the goods to be

sup·

plied for which no formal order had been placed.

If this note had a particular reference to the cancel·

lation of the orders, if that was possible in law, its

language would have been different.

It would have

referred to the

right to cancal the orders about the

delivery

of the consignments and would have

pro·

vided that the orders for such supplies which were

to be made on dates subsequent to the date of

cancellation would stand cancelled or that the appel­

lant would not be bound to take delivery of such

'3. S.C.R. SUPREME COURT"REPORTS 783:

1961, consignments which were to be delivered on dates·

· subsequent to the cancellation of the orders .. There

Union of ladia ·

v. is nothing in this letter. that the formal order placed

is subject to this condition.

The condition governed

the acceptance

of the tender according to the content

.

of para 1 of this letter. . . . · . · · • . ·

/l[ad<iala Ththiah

,

R1gliu/uzr Dayd J.

· It appears that the order has been. placed on a

printed form which could be used also for placing an,.

order 'for delivery, of part of the commodity which

the tenderer has agreed to supply. ' That seems to·

be the reason why that particular recital appears

in the letter.

It cannot

possibly' have any .bearing ' ·

on a case like the present where the railway <>.dmillis'

tration has definitely placed an order for the supply

of the entire quantity of the commodity for which

a tender

had been called.

· · · · ·

In this connection we may refer to the language·

of the letter of the Deputy General Janager dated

!\!arch 8, 1948, which informed the respondent

about

the cancellation of the contract. The letter

states that the balance quantity

of

jaggery_ outstand­

ing on date against the above order, ,i.e., the order

dated February 16, Hl48, is treated as'cancelled and

the contract closed. Thls letter itself draws a dis­

tinction between the order and the contract. The

contract has a reference to the agreement . consist­

ing of the offer of supply of jaggery and acceptance

of the offer by the Deputy General Manager.

\Ve are therefore of the view that the condition

mentioned in the note to

para 2 of the tender or in

the letter dated February 16, 1948, refers to a

right.

in the appellant to cancel the agreement for such

supply

of jaggery about which no formal order had

been placed by the Deputy General

Manager· with .

the respondent and does not apply to such· supplies

of jaggery ·about which a formal order had been·

placed specifying definite amount of jaggery to be

/96J.

Union of /MUI

v.

Maadd• T/i41hia~

P.aghuh.r D•;pll J. ·

,

784. SUPREME COURT REPORTS (1964] VOL.

supplied and the definite date or definite short period

for its actual delivery.. Once the order is placed

for such supply on such dates.;

that order amounts

to a binding contract making

it incumbent on the

respondent to supply jaggery in accordance with the

terms

of the order and also making it incumbent on

the Deputy General lanager to accept the jaggery

delivered in pursuance of that order. .

We may refer to what was. said by this Court in

Chatturbhuj Vithaldaa Jasani · v. jforeshwar

Parashram ('), in connection with an arrangement

arrived

at between the

Central Government and a

firm of bidi manufacturers, l\:foolj i Sickka &

Company. The arrangement under which the firm

was to sell

and the Government was to buy from the

firm from time to time two brands

of bid is

manufac­

tured by it. The contention raised before the Court was

that this arrangement amounted to a contract for the

supply

of goods within the meaning of that section.

The contract was said to be embodied in four letters.

This

Court said :

"But except for this the letters merely set out

the terms on which the parties were ready to do

business with each other

if and when orders

were placed and executed.

As soon as an

order

was placed and accepted a contract arose.

It is true this contract would be governed by

the term set

out in the letters but until an

order was placed

and accepted there was no

contract.''

Reference

may also be made to what is said in

'Law of Contract', by Cheshire & Fi foot (5th Edition)

at p. 36.

·

"There is no doubt, of course, that the tender

is

an offer. The question, however, is whether

its

'?.cceptance' by the corporation is an accep­

tance in the legal sense so as to produce a

•n 11954] s.c.R. 817.

3 S.C.R. SUPREME COURT REPORTS 785

binding contract. This can be answered only by

examining the language of the original invita­

tion to tender. There are at least two possible

cases. First, the corporation may have stated

that it will definitely require a specified

quan·

tity of goods, no more and no less, as, for ins­

tance, where it advertises for 1,000 tons of coal

to

be supplied during the period January !st to

December 31st. Here the 'acceptance'

o( the

tender is an acceptance in the legal sense, and

it creates an obligation. The trader is bound

to deliver, the corporation

is bound to accept,

1,000 tons, and the fact that delivery is to be

by instalments as and when demanded doe1

not disturb the existence of the obligation."

On the basis of this note, the acceptance of the res·

pondent's tender by the Deputy General Manager

may even amount to a contract in the strict sense of

the term, but we do not consider it in that sense in

view

of the provisions of paragraphs 8 and 9 of the

tender requiring a deposit

of security and the

plac­

ing of the formal order.

The other case illustrated by Cheahire and

Fifoot is :

"Secondly, the corporation advertises that it

may require articles of a specified description

up to a maximum amount, as, for instance,

where

it invites tenders for the supply during

the coming year

of coal not exceeding

1,000

tons altogether, del~veries to be made if and

when demanded. the effect of the so.called

'acceptance'

of the tender is very different.

The trader has made what is called a standing

offer.

Until revocation he stands ready and

willing to deliver coal up to 1,000 tons at the

agreed . price when the cor,poration from time

to time <lemands a pl"et1se quantity. The

,,.,

-

U•IMlofl""-

•·

Millitifo 1/iotltW

a.,, ... ~,.

196J·

Un•Oll oj !Nii• .

••

.'lfoJJa/a T.lathid

Roiho~or D•yol 11

788 SUPREME COURT REPORTS (1964] VOL.

'acceptance' of the tender, however, does not

convert the offer into a binding contract, for a

contract

of sale implies that the buyer has

agreed

to accept the goods. In the present

case the corporation has not agreed

to

t3,ke

1,000 tons, or indeed any quantity of coal.

It has merely stated that it may require sup·

plies up to a maximum limit."

"In this latter case the standing offer may be

revoked at any time provided that it has not

been accepted in the legal

sense; and

accep­

tance in the legal sense is complete as soon as

a requisition for a definite quantity of goods

is made. Each requisition by the offeree is an

individual act

of acceptance which creates a

separate

contract."

We construe the contract between the parties

in the instant case to be

of the second type.

The

note below para 2 of the tender form, reserving a

right to cancel an outstanding contract

is then

con­

sistent with the nature of the agreement between the

parties

as a result of the offer of the respnndent

accepted by the appellant and a similar note in the

formal order dated February 16, 1948, had

no

refe­

rence to the actual orders but could refer only to

such contemplated supplies of goods for wh:ch no

orders had been placed,

In view of the construction we have placrd on

the contract between the parties it jg not necessary

to decide the other contention urged for the appel­

lant that the stipulation. in the not amounted to a

term in the contract itself for the discharge

of the

contract and therefore

was valid, a contention to

which the reply

of the respondent is that any such

term in a contract which destroys the contract

it!ielf

according to the earlier terms is void as in that case

there would

be nothing in the alleged contract which

would

ha•e been binding on the appellant.

3 S.C.R. SUPREME COURT REPORTS 787

We are of opinion that the order of the High

Court is correct and therefore dismiss the appeal

with costs.

u.i. ... 1 '""' •

••

M "'41• T.lal.llc.

Appeal dismissed. &1Ji.Hr D,,,,J J •

IN RE. THE BILL TO AMEND S. 20 OF THB

SEA CUSTOMS ACT, 1878, AND S. 3 OF THE

CENTRAL EXCISES AND SALT

ACT, 1944

(B. P. SINHA c. J., s. K. DAS, P. B. GAJENDIU.·

G.olDKAR, A. K. SARKAR, K. N. WANCHOO,

M. HIDAYATULLAH, K.C. DAS GUPTA, J.C. SHAJI,

and N. RAJAGOPALA AYYANGAR JJ.)

Pre6ident'• Reference-Ouatom., dutiea and dutiea of e11:ci1t­

Parliamenl'• power to levy such dutiea on the property of Btolt•­

Direct and indirect taxes-Distinction, if valid under 00111-

titution-·Ouatoms duties and duties of exciBe, if ta:u1 Oii

properly-"Taxation", Definition-Bea Oustoma Act, 1878

(8 of 1878), s 20-0entral Excises and Bait Act, 1944 (1 of

1944). •· 3 (11-Go•vernment of India Act, 1935 (25 It 25

Geo. Ii, Oh. 42), as. 154, llili-Oon•titution of India, .frll. 246,

246, 285, 289, 366 \28).

As a result of a proposal to introduce in Parliament a

Bill to amend

s.

20 of the Sea Customs Act, 1878, ands. 3 of

the Central Excises and Salt Act, 1944, with a view to apply·

ing the provisions of the ·said two Acts to goods belonging to

the State Governments, in regard to which certain doubts arose

as to whether the provisions of the Bill were inconsistent with

Art.

289 of the Constitution of India, the President of India

referred under Art.

143 of the Constitution certain questio111

for the opinion of the Supreme C mrt to ascertain if the pro­

posed amendment• would be constitutional. The question

was whether the provisions of Art. 289 of the Constitution

precluded the Union from imposing, or authorising the impo1i•

tion of (a) custom• duties on the import or export, or (b)

excise duties on the production or manufacture in India, of 1he

/HJ

M9 II