Supreme Court Upholds Respondent in Supply and Prices of Goods Act Case; Agreement to Sell Excess Non-Ferrous Metal Held Void. Contract for 300 Tons of Zinc Violated Notification Under Section 4(1)(c) and Section 5(1)(c), as Purchaser Declaration Was Not Obtained, Rendering Agreement Unenforceable.

Case Note & Summary

The dispute arose from a civil suit filed by M/s. Binani Commercial Co., Ltd., a Bombay-based metal merchant, against Ramanlal Maganlal Mehta, a trader, for breach of a contract for the sale of 300 tons of Electrolytic Zinc. The agreement was entered in January 1952 at the rate of Rs. 171 per cwt. for delivery on January 12, 1952. The respondent paid Rs. 1,56,000 as deposit. The appellant tendered the goods, but respondent took delivery of only 160 tons and failed to take the balance of 140 tons. The appellant then sold the balance at Rs. 81 per cwt. in a falling market, claiming loss of Rs. 93,053-3-0 or alternatively damages of Rs. 88,229-3-0. The respondent resisted on the principal ground that the contract was illegal and void because it contravened the Supply and Prices of Goods Act, 1950 and the notification issued under Section 4(1)(c), as the sale of more than one ton of non-ferrous metal without a buyer's declaration was prohibited. Procedurally, the suit was tried by Coyajee, J. on the Original Side of the Bombay High Court. The trial judge held the preliminary issue in favour of the appellant, finding the contract valid, and referred the matter to a Commissioner for accounts to assess damages. On appeal by the respondent, the Division Bench of the Bombay High Court reversed that finding, held that the defence of illegality was good, declared the contract invalid, and dismissed the suit with costs. The appellant then obtained a certificate of fitness and appealed to the Supreme Court. The Supreme Court examined the scheme and purpose of the Supply and Prices of Goods Act, 1950, enacted under Article 249 of the Constitution for control of prices, supply and distribution of goods essential to national economy. Section 4(1)(c) empowered the Central Government to fix the maximum quantity which may be sold in one transaction. Section 4(2)(a) allowed such orders to fix maxima differently in different localities or for different classes of dealers or producers. Section 5(1)(c) prohibited dealers and producers from selling or agreeing to sell or offering to sell any quantity exceeding the maximum fixed under Section 4(1)(c). The notification in question provided that no dealer or producer shall sell any non-ferrous metals exceeding one ton unless the dealer obtained a declaration in writing from the buyer that the quantity did not exceed his requirements for consumption or normal trade for three months. The appellant argued that the notification was invalid because it did not fix an immutable arithmetical maximum and because it did not differentiate maxima by classes or localities as required by Section 4(2)(a). The appellant also contended that the notification applied only to actual sale and not to an agreement to sell. The respondent maintained that the agreement violated Section 5(1)(c) and was void. The Supreme Court rejected the appellant's contentions. It held that Section 4(1)(c) did not require an immutable arithmetical maximum, as the Act's object of controlling diverse goods required flexibility. The notification imposed two ceilings: up to one ton without declaration, and beyond one ton with a purchaser's declaration. Since no declaration was obtained, the agreement to sell 300 tons exceeded the permitted quantity and contravened Section 5(1)(c). Section 4(2)(a) was merely enabling and did not oblige the Government to fix different maxima. The expression 'sell or agree to sell or offer for sale' in Section 5(1)(c) clearly included agreements to sell. Consequently, the contract was void and unenforceable. The Supreme Court dismissed the appeal, affirming the High Court's decision and upholding the dismissal of the appellant's suit with costs.

Headnote

Issue of Consideration

Final Decision

The Supreme Court dismissed the appeal, affirming the Division Bench of the Bombay High Court. The notification under Section 4(1)(c) was held valid; Section 4(2)(a) was enabling only; Section 5(1)(c) covered agreements to sell. The contract for 300 tons of Electrolytic Zinc was void as it contravened Section 5(1)(c) read with the notification. The appellant's suit for damages was dismissed with costs.

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