# A. VENKATA SUBBA RAO v. STATE OF ANDHRA PRADESH

- **Citation:** [1965] 2 S.C.R. 577
- **Court:** Supreme Court of India
- **Decided:** 1964-12-14
- **Bench:** A. K. SARnll, N. Ra.Jagopala Ayyangar, R. S. Bachawat
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/a-venkata-subba-rao-v-state-of-andhra-pradesh-3427
- **Pages:** 45

## Headnote

577
&1ential Supplle• (Temporary Powers) Act (XXIV
of 1946)-
Procuring ag<nts--Appointed for procuring foodgraiM-lf agents of
Government-Profit of procuring agent-Increased by action of Goventment in ••ttl(ng pricu--Obligation of procuring agent to
pay ovu lo
Government.
In the years 1947 and 1948 there WS! rice scarcity in certain distridl
in Madras and Government took action under the Essential Supplies (Temporary Powers) Act, 1946, and passed various Orders for procurement
and distribution.
The appellants were appointed procuring agents under
that system. Their duty was to procure rice from specified areas at pricet
D
apecificd by the Government and to deliver it to the Government, or to
per10ns nominated or to other licensed purch&!ers.
The procurement
price was lower than the selling price and the appellants were entitled to
the difference between the two prices, under a contract entered into between the appellants and the Government. Io July and December 1947
and in November 1948, the Government passed
orders
increasing the
prcies of sale. On the dates on which those orders came into force, the
appellants had with them stocks of rice procured by them earlier and which
I: they could aell at the higher sale price.
Government thought that the
appellants were not entitled to the increased profit derived on the sale ol
111ch stocks at the increased sale price, because the enhancement in the
appellants' profit was entirely due to Government action; and Government
insisted that the excess awns which they deocribed .., "surcharges" lhould
be paid over to the Government by the appellants. The Government
employed three methods for realising the excess amounts.
They were
11
(i) threat of cancellation of the licences, (ii) deduction of the amounts
from moneya payable by the Government to the appellants and (iii) in
the case of the incre&!e in November 1948, by requisition of the stock of
rice lying with the appellants on the day
immediately preceding
the
coming into force of the increased price, at the rate then obtaining, and
releasing the stocks to the appellants upon their paying the surcharae or
executing an agreement to pay it.
G
II
Having paid the amounts under protest, the appellants filed suits for
their recovery. Some of the suits were decreed and others dismissed. On
appaal to the High Court by the aggrieved parties, the High Court decided
all the appeals in favour of the State. In appeal to the Supreme Court,
the appellants contended that the amounts collected by the respondentState were in the nature of an unlawful tax imposed by the executive. The
res~ndeirt sought to support the judgment of the High Court, contending
that (i) the appellants were agent• of the Government and liable to
~unt for the profits; (ii) ihe appellants, if not-agents, stood in a fiduciary capacity to the Government with the obligation to account; (iii)
The Government W8! authorised to issue the direction to pay the sur-
.chargea to ii; (iv) in those cues where the amounts were realised by re-
578
SUPRBMB
COURT
REPORTS
(1965] 2 S.C.R.
quisitioning and release, the appellants could not recover because, (a)
the Government had the power to requisition the stock and direct the sale.
and (b) by reason of the agreements to pay, the payments were \"Oluntary;
and (v) some of the suits and claims were barred by limitation.
HELD (Per Ayyangar and Bachawat, JJ) : (i) The appellants w~re
not the agents of the Government and were
therefore, not liable
to
account to the Government for the profits which they derived over and
above those fixed for them by the relevant notifications of the Government.
[604-EF]
The purchases were made by the appellants out of their own funda;
stored at their own cos~ any deterioration, driage or shortfall fell on them,
and they were the full owners of the paddy procured. The basis' of the
agreement to sell the rice which was with them, at the controlled price, was
that they were the full owners of paddy. Sales-tax was payable by t

## Text

_Characters 0–39,773 of 116,887. This is a partial read: ask again with offset=39773 for what follows._

B
c
A. VENKATA SUBBA RAO
v.
STATE OF ANDHRA PRADESH
(With Connected Appeals)
December 14, 1964
[A. K. SARnll, N. RA.JAGOPALA AYYANGAR AND
R. S. BACHAWAT, JJ.)
577
&1ential Supplle• (Temporary Powers) Act (XXIV
of 1946)-
Procuring ag<nts--Appointed for procuring foodgraiM-lf agents of
Government-Profit of procuring agent-Increased by action of Goventment in ••ttl(ng pricu--Obligation of procuring agent to
pay ovu lo
Government.
In the years 1947 and 1948 there WS! rice scarcity in certain distridl
in Madras and Government took action under the Essential Supplies (Temporary Powers) Act, 1946, and passed various Orders for procurement
and distribution.
The appellants were appointed procuring agents under
that system. Their duty was to procure rice from specified areas at pricet
D
apecificd by the Government and to deliver it to the Government, or to
per10ns nominated or to other licensed purch&!ers.
The procurement
price was lower than the selling price and the appellants were entitled to
the difference between the two prices, under a contract entered into between the appellants and the Government. Io July and December 1947
and in November 1948, the Government passed
orders
increasing the
prcies of sale. On the dates on which those orders came into force, the
appellants had with them stocks of rice procured by them earlier and which
I: they could aell at the higher sale price.
Government thought that the
appellants were not entitled to the increased profit derived on the sale ol
111ch stocks at the increased sale price, because the enhancement in the
appellants' profit was entirely due to Government action; and Government
insisted that the excess awns which they deocribed .., "surcharges" lhould
be paid over to the Government by the appellants. The Government
employed three methods for realising the excess amounts.
They were
11
(i) threat of cancellation of the licences, (ii) deduction of the amounts
from moneya payable by the Government to the appellants and (iii) in
the case of the incre&!e in November 1948, by requisition of the stock of
rice lying with the appellants on the day
immediately preceding
the
coming into force of the increased price, at the rate then obtaining, and
releasing the stocks to the appellants upon their paying the surcharae or
executing an agreement to pay it.
G
II
Having paid the amounts under protest, the appellants filed suits for
their recovery. Some of the suits were decreed and others dismissed. On
appaal to the High Court by the aggrieved parties, the High Court decided
all the appeals in favour of the State. In appeal to the Supreme Court,
the appellants contended that the amounts collected by the respondentState were in the nature of an unlawful tax imposed by the executive. The
res~ndeirt sought to support the judgment of the High Court, contending
that (i) the appellants were agent• of the Government and liable to
~unt for the profits; (ii) ihe appellants, if not-agents, stood in a fiduciary capacity to the Government with the obligation to account; (iii)
The Government W8! authorised to issue the direction to pay the sur-
.chargea to ii; (iv) in those cues where the amounts were realised by re-
578
SUPRBMB
COURT
REPORTS
(1965] 2 S.C.R.
quisitioning and release, the appellants could not recover because, (a)
the Government had the power to requisition the stock and direct the sale.
and (b) by reason of the agreements to pay, the payments were \"Oluntary;
and (v) some of the suits and claims were barred by limitation.
HELD (Per Ayyangar and Bachawat, JJ) : (i) The appellants w~re
not the agents of the Government and were
therefore, not liable
to
account to the Government for the profits which they derived over and
above those fixed for them by the relevant notifications of the Government.
[604-EF]
The purchases were made by the appellants out of their own funda;
stored at their own cos~ any deterioration, driage or shortfall fell on them,
and they were the full owners of the paddy procured. The basis' of the
agreement to sell the rice which was with them, at the controlled price, was
that they were the full owners of paddy. Sales-tax was payable by them
on the sales, which would not have been the case if they were merely
holding the foodgrains as commission agents on behalf of the Government;
Further, the licence granted to them referred to the foodgrains in their
possession as their stocks.
All that the Government desired and implemented by its several orders was mere regulation and control of the
trade in foodgrains by rendering every activity connected with it in the
ordinary trade channels, subject to licensing and to
directions to be
issued. [601 B-F; 602 DJ
(ii) In the circumstances there is no basis for the suggestion of a
fiduciary obligation de hors a principal and agent relationship. [605 FJ
(iii) The direction to pay the amounts was not a direction contem·
plated by the Procurement Scheme, nor was it a direction as regards the
sale, and so, the direction to pay "surcharges" was illegal. [606 H; 607BJ
(iv) If the theory that the appellants WC1'e the agents of the Govern·
ment be discarded as untenable, there would be no legal basis at all for
the "surcharge".
It would be then in effect a tax imposed by an executive fiat without any legislative sanction. They were imposed compulsorily by the executive and sought to be collected inter alia by coercive
statutory powers. It could hardly be contended that the payments were
voluntary in the sense understood, and the fact that agreements were taken
would be no defence to the claim for refund. [612 B-DJ
Attorney General (N.S.W.) v. Homebush Flour Mill• Ltd. 56 C.L.R.
390, Attorney General v. Wills United Dairies, 127 L.T. 822 and Lower
Mainland Dairy Products Sales Adjustment Committee v. Crystal Dairy,
Limited, [1933J A.C. 168, referred to.
B
c
D
E
r
(v) The period of limitation for a suit for making a claim for recovery of a tax illegally collected is governed by Art. 62 of the LimitaG
tion Act, 1908, and as the period of limitation is three years from the date
of the receipt of the money by the respondent, the claims would not be
barred in those cases where the suits in respect of them were filed within
the time specified. [619 B; 621 B, DJ
It is not necessary in order to attract Art. 62, that at the moment
of the receipt, the defendant should have actually intended to receive it
for the use of the plaintiff and it is sufficient if the receiot was in such
H
circumstances that the law would impute to him an obligation io retain
~-t'J' the use of the plaintiff and refund to him when demanded.
[616
A
B
c
D
A. v. SUBBA RAO v. STATE (Sarkar, J.)
579
Mahomed Wahib v. Mohomed Ameer (1905) I.L.R. 32 Cal, 527,
Rajputana Malwa Railway Cooperative Stores Ltd. v. The Ajmer Municipal Board, (1910) 1.L.R. 32 All, 491, Municipal Council, Dindigul v.
The Bombay Co. Ltd. Madras. (1929) I.L.R. 52 Mad. 207, India Sugar
cl Refinery Ltd. v. The Municipal Council. Hospet. (1920)
I.L.R. 43
Mad. 521, The Municipal Committee, Amritsar v. Amar Dass. A.I.R.
1953 Punj. 99 and The State of Madras v. A.M.A.A. Abdul Kader, A.I.R.
1953 Mad. 905. approved.
Anantram Bhattacharjee v. Hem Chandra Kar. (1923) I.L.R. SO Cal.
475 and Lingangouda v. Lingandouda. I.L.R. [1953] Bom.
214, disapproved.
Per Sarkar, J : (i) No relationship of principal and agent or of a
llduciary character bad ever come into existence between the appellants
and the Government.
Even if the appellants were the Government's
agents the appellants would under the contract be entitled to keep the
larger difference caused by the selling price having been increased after
the procurement. [582 E-F, HJ
(ii) The question of limitation with respect to the claims where the
moneys were collected by Government by methods other than by requisition and release, has to be decided under Art. 62 of the Limitation Act
only. (583 A]
Mahamed Wahib v. Mohomed Ameer. (1905) I.L.R. 32 Cal. 527,
approved.
(iii) (Dissenting) : Where, as a result of the requisition and release,
Government had obtained moneys from the appellants, the realisation was
E
legal and did not amount to unauthorised levy of tax, and the appellants
were not entitled to recover the amounts from the Government.
In res·
pect of such requisitions and release, where the appellants had not paid
the moneys but entered into engagements to pay,
those
engagements
would be legal and enforceable. (584 G-H]
Government could requisition the stock of rice in possession of a
F
procuring agent at the price previously prevailing and have done so, it
could sell the rice so requisitioned back to the same procuring agent at
the price subsequently fixed.
The Governrmnt's acts would be perfectly
within its statutory powers and legal, as the appellants were free not to
pay and to obtain or not to obtain the release. [584 B-D]
Attorney General v. ·Wilts United. Dairies, 127 L.T. 822, Attorney
General v. Homebush Flour Mills Ltd. 56 C.L.R. 390 and Lower Main·
G land Dairy Products Sales Adjustment Committee v. Crystal Dairy Ltd.
(1933] L.R. A.C. 168. distin11Uished.
H
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos.
101,
131, 168 to 171, 259 to 260, 302 to 303, 306 to 309, 310, ~44
and 837 to 857 of 1962 and 325, 437 to 441 and 996 of 1963.
Appeals from the Judgments and Decrees dated 8.3.58
18.2.59, 15.7.58, 22.2.60, 22.8 .. 58, 25.8.58 and 1.7.59 of the
Andhra Pradesh High Court in Appeal Suits Nos. 33 and 62 of
580
.nl'lll!Mll COUllT REPORTS
(1965] 2 S.C.R .
1953, 672 to 675 of 1954, 29 and 30 of 1953, 956 of 1953, A
551 of 1954, 201, 45, 822, 823 and 54 of 1953, 470 of 1955,
368, 34, 821, 766, 650, 764, 769, 631, 646, 647, 648, 649, 765
and 892 of 1953, 352, 353, 354 and 346 of 1954, 644, 700 and
701 of 1953 and 321 of 1954 respectively.
K. R. Chaudhuri, for the appellants (in C. As.
Nos. 101,
168, 169, 171and310 of 1962 and 438 of 1963).
A. V. Viswanatha StLftri, A. R. Vedavalli and A. V. Rangam,
for the appellants (in C.A. Nos. 131 and 170 of 1962).
T. V. R. Tatachari, for the appellants (in C.A. Nos. 259 to
260 of 1962, 325, 437, 349, 440, 441 and 996 of 1963).
R. Gopalakrishnan, for the appellants (in C.A. Nos. 302 and
303 of 1962).
B
c
A. V. Viswanatha Srutri and T. V. R. Tatachari, for
the D
appellants (in C.A. Nos. 306 to 309 of 1962).
Lakshmi Devi and T. Satyailarayana, for the appellants (in
C.A. No. 644 of 1962).
E
A. V. Viswanatha StLffri, N. R. Rao and B. Parthruarathy, for
the appellants (in C.A. No. 837 to 857 of 1962>.
C. B. Agarwala, R. Ganapathy Iyer and B. R. G. K. Achar,
for the respondents (in C.A. No. 306 to 309 and 837 to 857 of
1962).
R. Ganapathy Iyer, Yogeshwar PrtLfad and B. R. G. K. Achar,
for the respondents (in C.A. Nos. 101, 131, 168 to 171, 259260, 302 and 303, 310 and 644 of 1962 and 325, 437 to 441
and 996 of 1963).
Sarkar J. delivered a separate Opinion.
The Judgment of
Rajagopala Ayyangar and Bachawat JJ was delivered by Ayyangar J.
Sarkar, J. These appeals arise out of suits filed for recovery
of money from the Government. The appellants were the plainti1fs and the respondent in each appeal is a State, the defendant
in the suits.
F
G
A. v. SUBBA RAO v. STATE (Sarkar, I.)
581
A
In the years 1947 and 1948 there was rice scarcity in certain
distincts in Madras as it was then constituted.
These districts
are now in Andhra Pradesh.
The Government of Madras took
action under the Essential Supplies (Temporary Powers) Act,
1946 and passed various orders for the procurement and distri·
bution of rice.
Rice thereafter could be procured only by the
B Government or by the procuring agents appointed by it and disposed of according to the orders of the Government. Under these
orders licensed wholesalers and retailers were also appointed.
The appellants were procuring agents and wholesalers under this
system.
They entered into various agreements with the Government for the purpose. Their duty was to procure rice from specie fied areas at prices specified by the Government from time to
time and to deliver it at prices so specified, to the Government or
to persons nominated by it or to other licensed purchasers. The
procurement price was in each case lower than the selling price
and the procuring agents were under the contract entitled to the
D difference between the two prices.
During the period with which we are concerned,
three
successive orders were made by the Government specifying the
prices and in each case there was an increase. The first increase
in prices took effect on July 27, 1947, the second on or about
E December 6, 1947 and the third on November 21, 1948.
On
the dates on which each of these orders came into force, each
appellant had lying with him in stock certain quantity of rice.
This had been procured by the agents earlier and therefore at the
then prevailing lower purchase price.
The appellants had to sell
this rice at the new increased price and hence became
autoF matically entitled to a larger sum than they were before the
increase.
The enhancement of the procuring agents' profit was
entirely due to the Government action in increasing the prices
and the Government thought that they were not entitled to it and
insisted that the excess sums should be paid to it by them.
The
appellants paid these moneys to the Government under protest
G and it is for the recovery of the moneys so paid that, broadly
speaking, the suits were filed.
Now various methods had been employed by the Government
for realising these excess amounts which have been described in
these proceeding as 'surcharges'.
Thus in some cases the proH curing agents or wholesalers refusing to pay were threatened with
cancellation of their licences and to avoid this they made the
payments. In other cases, these surcharges were deducted from
582
SUPREME
COURT
REPORTS
(1965] 2 S.C.R.
moneys payable by the Government to them for rice supplied by
them. The third method which concerned the increase made in
November 1948 was to requisition the stock of rice lying with
the procuring agents on the day immediately preceding the com·
ing into force of the increased price at the rate then obtaining
and thereafter releasing such rice to the procuring agents only
upon their paying the surcharge or on their executing an agreement to pay the same.
It is clear that if the Government was not entitled to the
amount of the surcharge, it could not retain the moneys paid by
A
B
the appellants to it on that account. The principal question is,
C
Was the Government entitled to those moneys ? In regard to the
moneys collected cxc~pt by the method of requisition and release,
the Government's contrn<ion was that the appellants were its
agents and that being so, any excess amount which was coming
to them as a remit of the . orders was profit made by them in
connection with the business of the agency for which they were D
liable to account to the Government. It was also said that if the
appellants were not the Government's agents strictly speaking,
they at least stood in a fiduciary relationship to it which made
them liabl0 to account for the extra profit. My learned brother
Ayyangar has dealt with this question and there is nothing that
I have to add to that. I am in full agreement with his view that E
no relationship of principal and agent or of a fiduciary character
had eve.r come into existence between the appellants and the
Government. I wish, however, to observe that I do not see how,
even if the appellants were the Government's agents, Government was entitled to the extra profit. Admittedly under the
contract between a procuring agent and the Government, even F
if that contract was of agency, the procuring agent was to
procure and sell rice at the prices fixed and prevailing at the
time respectively of the procurement and sale. It is not disputed
that the difference belonged to him. It was in fact said that was
the commission to which he was entitled under the contract as an
agent. If this is so, the procuring agent would under the contract
be entitled to keep the larger difference caused by the selling price
having been increased after his procurement. Hence it seems to
me that under the contract, irrespective of whatever kind it was,
the difference. even though it became larger, belonged to the
proc\iring agent and the Government had no right to it.
/Another question that arises in these appeals in regard to the
moneys collected by the methods other than requisition and
G
H
A. v. SUBBA RAO v. STATE (Sarkar, /.)
583
A releases is whether the claims of the appellants for the refund
were not barred. I agree with my brother Ayyangar that Art. 62
of the Limitation Act governed the case· and the claims were not
barred if the suits in respect of them were filed within the time
there specified.
With regard to the meaning of the words
"Money received by the defendant, for the plaintiff's use" in that
B
article, I think, as Ayyangar J. pointed out, the correct view was
taken in Mahomed Wahib v. Mahomed Ameer(1 ). The suits in
which the claims arose in circumstances other than those described
hereafter the question on limitation has to be decided under Art·
62 only.
I do not feel called upon on the present occasion to
C
decide to what other cases, if any, Art. 62 might apply.
It remains to deal with the amounts realised by the method
of requisitioning the rice in stock and releasing k
It was contended on behalf of the appellants that this was really taxation by
executive fiat and was therefore an illegal leyy of tax.
I am
unable to accept this contention.
Support for it was sought by
D
the appellants from Attorney-Genera/ v. Wilts United Dairies(').
It does not seem to me that that case furnishes any basis for the
contention. There the Ministry of Food Production had granted
a licence to a trader to buy milk on payment of a certain charge
and it was held that the charge could not be levied except on the
E authority given by statute and that no such authority had been
given. Another case to be considered in this connection is
Attorney-General v. Homebush Flour Mills Limited("). There it
was held that a certain statute which had been passed by the
Parliament of New South Wales, though purporting to require
payment upon the exercise of an option by a trader in fact left
p
him no choice and compelled him to make the payment and therefore in reality imposed an excise duty which only the Commoniyealth Parliament could impose and for this reason the statute
was ultra vires the legislature. The last case on this point which I
have to notice is Lower Mainland Dairy Products Sales Adjustment Committee v. Crystal Dairy, Limited('). There the proG vincial legislature of British Columbia had passed an Act which
authorised a committee constituted under it to impose a certain
leyy and it was held that the leyy was a tax which the legislature
had no power to impose.
The Australian case and the Canadian case were cases of levy
H
under ultra vires statutes and the English case was of a charge
(1) I.L.R. 32 Cal. 51:7.
(3) 56 C.L.R. 390.
(2) 127 L. T. 822.
(4) (1933) L.R. tea.
.584
SUPUIO OOUR.T
JlBPOilTS
[196S] 2 S.C.R.
made without any statutory backing at all. It seems to me that
It.
the present case is not of any of these kinds. There is here no
dJallenge to the legality of the Essential Supplies (Temporary
Powers) Act under which the requisition and release had been
made. Nor was it contended that under the Act the Government
(X)uld not requisition the stock of rice in the possession of a procuring agent at the price previously prevailing, nor that having
JS
done so, it could not sell the rice so requisitioned at the price
•ubsequently fixed. If it could so sell the rice requisitioned to
an outsider, it could equally sell it back to the procuring agent
from whom it was taken.
This is precisely what was done in this
.case.
The Government's acts were perfectly within its statutory
C
powers and legal.
It is not a case where the appellants had been
compelled to obtain the release on payment to avoid going out of
trade as was held in the Australian case to have happened. The
appellants were free not to pay and to obtain or not to obtain
1the release. If they had not, it has not been said that their trade
would have stopped. The ratio decidendi of the Australian case D
that the trader had been compelled to pay, which was why the
payment was held to have amounted to a tax, does not apply to
the case in hand.
There is not the slightest doubt that the extra profit with
which we are concerned had not come to the proc11ring agents by E
reason of any merit of their own; it had come into existence only
because the exigencies of the circumstances prevailing had com-
·pelled the Government to increase the price.
The Government
had apparently felt doubtful if its earlier methods of realising the
extra profits were legal and to avoid the consequences of any
illegality, it followed this procedure and t~ the legality of it I find Y
no objection. If the procedure was legal, as l think it was, it
could not have resulted in an illegal levy.
I would, therefore,
hold that where as a result of the requisition and release the Gov-
·emment had obtained moneys from the appellants, the realisation
bad been legal and did not amount to unauthorised levy of tax
and the appellants are not entitled to recover them from the GovG
ernment.
For the same reason where in respect of such requisition and release the appellants had not paid money directly, but
had entered into engagements to pay moneys, those engagements
would be legal and enforceable. The question of payments and
of agreements of this particular kind are immlved in appeals Nos.
840, 842, 845, 850, 853 and 855 of 1962.
I would dismiss H
those appeals so far as they concern claim for the recovery of
moneys realised by the Government by requisition and release
A. V. SUBBA RAO v. STAtE (AY)IQ1Zgar, /.)
585
A.
md the enforceability of the agreements in respect of them. The
other appeals except where the auits were barred as stated by
Ayyangar J. should be allowed.
·
Ayywigar, I. This batch of 44 appeals have been heard
together because most of the points of law raised in them aro.
a common.
They are before us by virtue of certificates of fitness
granted for each appeal by the High Court of Andhra Pradesh.
The facts leading to the suits out of which these appeals arise
are briefly these : The appellants are owners or lessees of rice
mills in the districts of West Godavari, East Godavari and
Krishna.
Their business
consisted in purchasing paddy from
C producers, milling their purchase in their mills and in selling the
rice so milled to wholesale dealers in rice and others.
While so,
in or about 1946-4 7 and even before, severe restrictions were
imposed in the State of Madras on the trade in foodgrains in order
to maintain their supplies and ensure their proper and equitable
distribution to the community.
Action in that behalf was taken
D in respect of two matters; ( 1 ) Procurement of paddy and rice,
and (2) Dealing in them.
For this purpose the power vested in
the State Government under the Essential Supplies (Temporary
Powers) Act, 1946 was utilised and two orders "The Food grains
Procurement Order, 1946"
(later modified by the Foodgrains
Intensive Procurement Order, 1947) and the Foodgrains LicensE ing Order, 1946 were issued.
Under the former the procurement
or purchase of foodgrains including paddy was placed under control and the right to purchase was restricted to the Government
and to the Procurement agents appointed and notified by them.
The appellants were among those who were appointed as "Procur1' ing agents" under that order. The sales to be effected by the
procuring agents of the n;iilled rice were also placed under control
by virtue of the Licensing Order which prohibited all trade or dealing in foodgrains including rice except by those who held licences
and subject only to the tenns and conditions of the licence. The
appellants were each one of them licensed to deal in rice under
G this Licensing Order. It might be mentioned that the Prices at
which paddy could be procured as well as the orice at which oaddy
and rice could be sold by the licensed dealers were also fixed by
orders, notifications issued under the Essential Supplies Act. While
the 11.poellants were thus carrying on their business subject to the
provisions of the two "Orders" we have mentioned earlier, the
H
prices at which th~ a1>0ellants could sell rice which they milled out
of the paddy procured by them were enhanced on three occasion~
-July, 1947, December, 1947 and November 1948 and, on each
586
SUPllB.MB
COUllT
llBPOllTS
{1965] 2 s,c.&.
occasion, they were directed to submit statements regarding the A
stocks of paddy and rice held to them on the day just previous to
that on which the increased prices were to . come into effect and
they were directed to pay as a "surcharge" the amount representing
that increase on the stocks held by them.
The appellants demur-
. red, but payment was insisted on and the same was either paid
under protest or recovered from them in several modes to which B
we shall refer in detail later.
The suits out of which these appeala
arise were brought by ·these miller-procuring agents for recovery
Df the amounts of one or more of the three surcharges that were
collected from them, on the ground that the "surcharges" were
virtually taxes which had been illegally imposed and levied on
them.
These suits were filed in Courts of different Subo'rdinate C
Judges having territorial jurisdiction over their places of business.
Some of these suits were decreed while others were dismissed.
Appeals were filed to the High Court of Andhra Pradesh by the
aggrieved parties and most of these appeals were heard together
by the High Court and a common judgment was delivered directing D
the dismissal of all the suits.
A few of them came on for hearing
subsequently, but the learned Judges following the judgment of
the Court in the main batch disposed of them in accordance with
that decision.
On applications made by the several plaintiffs
certificates of fitness were granted by the High Court and that is
how the appeals are now before us.
E
As would be seen from the foregoing, the main point in controversy in these appeals is the legality of the collection by the
Government of amounts which are termed "surcharges" in these
proceedings from these several plaintiffs who are the appellants
before us. In order to appreciate how the surcharge came to be F
imposed and the circumstances attending their collections as also
the defences raised to the suits, it is necessary briefly to advert to
the statutory provisions which furnish the background in which
this levy came to be made and collected.
As is well-known, at the end of the Second World War the
country was faced with a scari:ity of foodgrains with the result that
G
statutory rationing had to be resorted to in most urban areas; and
for the purpose of enforcing rationing stocks of paddy and rice
had to be made available.
Power in this behalf was originally
exercised under the Defence of India Act and the Rules framed
thereunder and by subordinate legislation undertaken by virtue of
powers conferred by .the Defencd of India Rules.
When the H
Defence of India Act ceased to be in force on the expiry of six
1Donths after the termination of the war and· as this scarcity still
A. v. SUBBA RAO v. STATE (Ayyangar, l.)
f;87
A.
continued the Essential Supplies (Temporary Powers) Act, 1946
repleading and replacing the Essential Supplies
(Temporary
Powers) Ordinance, 1946 (XVill of 1946) was enacted to be in
force originally for 5 years till April 1, 1951 to deal with the
probelm of maintaining supplies essential to the community. Under
s. 3 of this statute "The Central Government, so far as it appears
B
to it to be necessary or expedient for maintaining or increasing supplies of any essential commodity, or for securing their equitable
distribution and availability at fair prices, may by order provide
for regulating or prohibiting the production,, supply and distribution thereof and trade and commerce therein". Without prejudice
C
to the generality of the powers conferred by sub-s. (1), sub-s. (2)
empowered Government by order to provide inter alia for :
D
E
F
" ( c) for controlling the prices at which any essential
commodity may be bought or sold;
( d) for regulating by licences, permits or otherwise
the storage, transport, distribution, disposal, acquisition,
use or consumption of any essential commodity;
( e) for prohibiting the withholding from sale of any
essential commodity ordinarily kept for sale;
(f) for requiring any person holding stock of an
essential commodity to sell the whole or a specified part
of the stock at such prices and to such persons or class of
persons or in such circumstances, as may be specified in
the order;
( i) for requiring persons engaged in production,
supply or distribution of, or trade or commerce in, any
essential commodity to maintain and produce for inspection such books, accounts and records relating to their
business and to furnish 11uch information relating thereto, as may be specified in the order;"
Under the powers thus conferred a scheme was devised for (a)
the procurement of foodgrains (we are here concerned with paddy
G and rice) from producers, (b) for their sale to wholesalers, ( c) a
further sale to retailers and ( d) ultimately the sale to the consumers, the last of which was, rui stated already, based on a system
of rationing to secure equitable distribution.
The appeal is concerned with the machinery and procedure employed for
the
procurement of foodgrains in the districts of East Godavari. We~t
H
Godavari and Krishna which were reck'.oned as surplus districts.
Though legislation or that of a similar type was also applicable to
certain other areas, these appeals are only concerned with the
588
SUPllBMB
COU&T
llBPOB.TS
11965] 2 S.C.R.
events that happened in these three districts.
The plaintiffs who A
filed the several i>uits which have been directed to be dismissed by
the High Court and who are the appellants before us were owners
of rice mills or lessees or licensees of such mills in these three
districts.
They were appointed as procurement agents for buying
up paddy from the producers i.e., cultivators or landholders. They
were also licensed under several Control Orders to which reference
B
will be made later, to deal in the paddy which they procured or the
rice into which they converted the paddy in their mills.
The prices
at which they could procure the paddy from the producers was
fixed by executive order issued under the powers contained in
1>. 3(2)(c) of the Essential Supplies (Temporary Powers) Act.
Similarly, the price at which they could sell to wholesalers was
C
likewise fixed.
While things were going on in this state with he prices fixed
operating to determine the purchase and the sale price of these
procuring agents, Government raised the purchase and sale price
of paddy and rice in or about July, 1947. They then directed
D
these procuring agents to pay over to them as a "surcharge the difference between the original and the enhanced price on the stock
of paddy held by them on the day previous to the rise in price.
These miller-merchants resisted the levy but were forced to make
the payment which they did under protest.
There were similar
rises in prices on December 7, 1947 and on November 21, 1948
and in a similar manner the amounts of these surcharges were
collected from the several millers, the amount payable by each
being calculated on the stock of paddy or rice remaining with
them on December 6, 1947 and November 20, 1948 respectiv~lv.
E
A very large number of suits were filed by these merchanlq F
against the Government in the Courts of Subordinate Judges of
l"!luru, Narasapur, Amalapuram, Kakinada, Rajahmundry
and
Masulipatnam for the repayments of these sums which they alleged
had been illegally collected from them.
The main defence of the
Government was that the millers were really the agents of the
Government and so were accountable to them for the extra t'roftt G
taey would have made by reason of the increase in the price effected by Government. Besides, it was also asserted that the demand
for the "surcharge" was authorised Qr pennitted by the terms of
the "procuring agreement" entered into with them as also by the
conditions of the licences which were granted to them under which
H
they were pennitted to trade in paddy or rice. There was also a
minor point raised that the suits were barred by s. 16 of the
Essential Supplies Act, 1946.
As stated earlier, i>uitll filed in
A. v. SUBBA RAO v. STATE (Ayyangar, J.)
589
A some of the Courts were clis~d-~cceptlng ·the defence raiaed
·by the Goveffiment while those filed in other Courts succeeded and
decrees were passed for the repayment of the several sums collected
by the Government.
Appeals filed to the High Court from these
decrees and then those filed by the Government were allowed while
~ose by the miller-pl~tiffs were directed to be dismissed by a
B co=on judgment from which most of the appeals before us arise.
· We should, however, mention even at this stage that besides this
co=on question there have been other defences raised to some
of these suits to which it would be necessary to advert but we shall
defer stating them until after we have finished with the points that
C
are common to all these appeals.
·
We shall first take up for consideration the main point urged
before us by Mr. Agarwala for the respondent-State that the
appellant-millers were "agent" of the Government or, in any
·event, stood in a fiduciary capacity to the Government, so thl.t the
latter had a right to call on them to disgorge any profit they might
D make in their busines5 of procuring and selling foodgrains over
and beyond the remuneration permitted to them by the relevant
agreements, · ncences, notifications etc.
For this purpose it is
necessary to set out the various statutory provisions under which
tl:e appellants functioned ·as well as the terms and conditions of
the agreements entered into by them with the Government. We
E shall also narrate in some detail the circumstances in which the
"surcharge" were imposed and collected as they bear on the points
urged before us in these appeals.
·The first relevanf statutory provision to which it is necessary
to advert in this connection is the Madras Foodgrains Procurement
F
Order, 1946 dated the 15th June, 1946 issued under Rule 81 (2)
of the Defence of India Rules by the Government of Madras. It
applied to several clistricts in the State, among them East Godavari,
West Godavari and Krishna with which these appeals are concerned. Paragraph 1 of this Order required "every person who whether
as holder, occupier, tenant, sub-tenant or licensee or in any othu
G
capacity cultivates any land with paddy during the Fasli 1355 or
Fasli 1356 or who receives any portion of such paddy or rent or
interest or repayment of Joan in kind" "to sell the surplus of such
paddy as determined by the District Collector to be available with
such person after each harvest either as paddy or rice to the District
Collector or an agent appointed by him and to no one el!le". The
H
Dist.Jct Collector and those authorised by hilil in that behalf were
' • thus to have the monopoly of purchasing surplus paddy or rice
from cultivators. The formula for the determination of the snrplo;
IASup./65-4
590
SUP:&J!ME
COUllT
REPORTS
[1965) 2 s.C·R.
was laid down in the same paragraph but to this it is unnecessary
A
to refer.
Under Paragraph 2 delivery of the paddy and rice bad
to be made to the Collector or his agent in the village in which
that paddy or rice was cultivated or at some place within the District in which the cultivation took place, the price varying with the
place of delivery i.e., taking into account the transport charges.
The provision that the procurement by the Government or their
B
authorised agents and at the prices fixed by the Collector on a
monopoly basis was reinforced by Para 3 of this Order which
prohibited any person from selling or otherwise disposing of any
quantity of paddy or rice to any person other than the District
Collector or an agent notified in that behalf.
We are omitting
reference to the other paragraphs of this order as unnecessary for
C
our purposes.
This Order was, among several others, continued
in force by the Essential Supplies (Temporary Powers) Act, 1946
when the Defence of India Act lapsed and ceased to be in operation.
Slight variations were made in this Order by subsequent
notified ordem-vide for instance, the Intensive Procurement 0
Order dated March 26, 1947 but these change; or modifications
related mostly to the formula or basis for determining the surplus
available for purchase, but as these made no material variation for
our present purpose we arc not setting them out.
Several millers in the three districts of East and West Godavari
and Krishna .whose busiat& consisted in buying paddy, milling
E
them and selling the rice, applied to the Government for appointment as procuring agents in accordance with this notification.
Before however they could be appointed as procuring agents each
of them had to execute an agreement in a form prescribed by rules
and as the terms of this agreement from the core of the case of
the State Government on the question of Agency it is necessary to
refer to them in some detail.
The heading of this model agreement which was signed by each one of the appellants reads :
"Agreement executed by Procuring Agent/ Authorised wholesale Distributor."
It then proceeds :
"I. . . . . . having been appointed a dealer for the
purchase, storage and distribution of paddy, rice or ...
under the Intensive Procurement Scheme and or InforF
G
mal Rationing Scheme, shall abide by all the provisions
H
prescribed from time to time by or under the said
schemes and any directions issued thereunder
'
A. v. SUBBA RAO v. STATE (Ayyangar, J.)
591
A In particular-
! undertake to purchase paddy, rice .... that are
available for purchase in the area allotted to me at the
rates prescribed from time to time by the Commissioner
of Civil Supplies, Madras, or any officer authorised by
B
him in this behalf.
c
D
E
F
I undertake to store paddy, rice or millets purchased
by me in proper godowns and to be responsible for their
safe custody.
I also undertake to sell the stocks of paddy, rice or
millets with mo to the peTM>m to whom I am directed to
sell it at such rates as may be prescribed from time to
time.
I agree to deposit with the District Supply
Officer ........ District Rs. 2,000/- against the fulfilment of this undertaking.
I agree to the forfeiture by the District Supply
Officer . . . . . . . . District of this deposit for any breach
by me or by any person acting on my behalf for failure
on my part to comply with or to secure compliance with
the aforesaid provisions, regulations and dutiel! prescribed from time to time under the Intensive Procure- ·
ment and or Informal Rationing Scheme."
On: the execution of this agreement they wore appointed as agents
for purchasing paddy and rice determined as surplus with the ryots.
This appointment was notified in tho District Gazette and as against
each group of agents the area in which they were authorised to
procure was set out.
This was, however, not the only statutory provision regulating
the conduct and dealings of the appellants.
Under the Madras
Foodgrains Control Order, 1947 issued under the Essential Supplies Act, 1946 which was in supersession of the Madras Foodgrains Control Order, 1945 promulgated under Rule 81 (2) of
G
the Defence of India Rules though containing substantially the
same terms, the business of dealing in foodgrains was subjected to
statutory control.