# INDIAN STEEL & WIRE PRODUCTS L'(D v. STATE OF MADRAS September 11, 1967

- **Citation:** [1968] 1 S.C.R. 479
- **Court:** Supreme Court of India
- **Decided:** 1967-09-11
- **Case number:** Civil Appeals Nos. 19681970 of 1966
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/indian-steel-wire-products-l-d-v-state-of-madras-september-11-1967-4123
- **Pages:** 18

## Headnote

...
•'
A
INDIAN STEEL & WIRE PRODUCTS L'(D.
v.
STATE OF MADRAS
September 11, 1967.
[K. N. WANCHOO, C.J., R. S. BACHAWAT, V. RAMASWAYll,
47!}
B
G. K. MITTER AND K. S. HEGDE, JJ.J
Madras Genera! Sales Tax Act (9 of 1939)-Iron and Steel {Con-.
trol of Production and Distribution) Order, 1941-Snpp!ies effected
on orders of Steel Controller whether 'sales'-TribunaL's finding that
sales were for consumption in Madras State-To be treated as conclu.sive.
·At the instance of the steel controller exercising powers under
c the Iron and Steel (Control of Production and Distribution) Order,
1941, the appellant supplied certain steel products to various persons
in Madras State during the financial years 1953-54, 1954-55 and part
of the financial year 1955-56. The State of Madras assessed the turnover of the appellant relating to those transactions to sales tax under
the Madras General Sales Tax Act, the Jaw in force at that time.
The appellant contended before the authorities under the Sales Tax
Act as well as the High Court that the transactions were not sales.
D and therefore could not be taxed. The further contention was that
there was no material to sho\v that the deliveries \Vere for consumption within the State of Madras so as oo become taxable within the·
State. From the adverse decision of the High Court the appellant, by
special leave, came to this Court. rn support of the contention that
the transactions were not sales it was urged that they were effected
under the directions of the Iron and Steel Controller given under cl.
E IOB of the Order and that being so there was no mutual assent bet-
\veen the parties to the transactions.
HELD: The authority of the controller to pass the orders in question came from cl. 5 of the order and not cl. lOB. The orders were in
respect of goods not yet manufactured whereas under cl. lOB directions could be given only in respect of goods already in stock. So far
as cl. 5 is concerned admittedly it does not require the controller to
regulate or control every facet of a transaction bct;veen a producer
F and the person to whom he supplies iron and steel products. [488H:
489C-H]
In modern times the doctrine of laisser faire can have only a
limited application. That does not mean that there is no freedom
of contract. So long as mutual assent is not excluded in any deaHng,
in la\v it is a contract. On the facts of the present case it "''as not
possible to accept the contention that nothing was left to be decided
G bv mutual assent On the other hand the controller's directions were
c6nfined to narro\v limits and there \Vere several matters \\!hich the
parties could decide b,· mutual consent. [490B: 491B-C]
Kirkness v. John Hudson & Co. Ltd. [1955] A.C. 696; M/s. New
India Sugar Mills Ltd. v. Commissioner of Scites-tax, Bihar. [1963]
Supp. 2 S.CR 459: Calcutta Electric Supply Corporation Ltd. v. Commissioner of Income-tax, West Bengal. 19 I.T.R 406: M./s. Cement
Ltd . .v. State of Orissa, 12 S.T.C. 205: State of Madras v. Gannon DunH kerley, [1959] S.C.R. 379: North Adjai Coal Company (P) Ltd. Y.
Commercial Tax Officer & Ors. 17 S.T.C. 514 nnd S. K. Roy v. Additional Member, Board of Revenue. West Benqal. 18 S.T.C 379. referred to.
(ii) From the facts and circumstances the Tribunal rightly found
that the supplies were made to stockists in the State of Madras for
480
SOPREl\IE COUR'l' REPORTS
[1968] 1 s,c.n.
consumption in that State. It may be that a small portion of the supA
plies had gone out of the State. But that was not a relevant circumstance. Wha• had to be seen was whether the supplies in question
were made for consumption in the Madras State. On that question the
finding of the Tribunal was conclusive. [496B-CJ

## Text

_Characters 0–39,993 of 49,049. This is a partial read: ask again with offset=39993 for what follows._

...
•'
A
INDIAN STEEL & WIRE PRODUCTS L'(D.
v.
STATE OF MADRAS
September 11, 1967.
[K. N. WANCHOO, C.J., R. S. BACHAWAT, V. RAMASWAYll,
47!}
B
G. K. MITTER AND K. S. HEGDE, JJ.J
Madras Genera! Sales Tax Act (9 of 1939)-Iron and Steel {Con-.
trol of Production and Distribution) Order, 1941-Snpp!ies effected
on orders of Steel Controller whether 'sales'-TribunaL's finding that
sales were for consumption in Madras State-To be treated as conclu.sive.
·At the instance of the steel controller exercising powers under
c the Iron and Steel (Control of Production and Distribution) Order,
1941, the appellant supplied certain steel products to various persons
in Madras State during the financial years 1953-54, 1954-55 and part
of the financial year 1955-56. The State of Madras assessed the turnover of the appellant relating to those transactions to sales tax under
the Madras General Sales Tax Act, the Jaw in force at that time.
The appellant contended before the authorities under the Sales Tax
Act as well as the High Court that the transactions were not sales.
D and therefore could not be taxed. The further contention was that
there was no material to sho\v that the deliveries \Vere for consumption within the State of Madras so as oo become taxable within the·
State. From the adverse decision of the High Court the appellant, by
special leave, came to this Court. rn support of the contention that
the transactions were not sales it was urged that they were effected
under the directions of the Iron and Steel Controller given under cl.
E IOB of the Order and that being so there was no mutual assent bet-
\veen the parties to the transactions.
HELD: The authority of the controller to pass the orders in question came from cl. 5 of the order and not cl. lOB. The orders were in
respect of goods not yet manufactured whereas under cl. lOB directions could be given only in respect of goods already in stock. So far
as cl. 5 is concerned admittedly it does not require the controller to
regulate or control every facet of a transaction bct;veen a producer
F and the person to whom he supplies iron and steel products. [488H:
489C-H]
In modern times the doctrine of laisser faire can have only a
limited application. That does not mean that there is no freedom
of contract. So long as mutual assent is not excluded in any deaHng,
in la\v it is a contract. On the facts of the present case it "''as not
possible to accept the contention that nothing was left to be decided
G bv mutual assent On the other hand the controller's directions were
c6nfined to narro\v limits and there \Vere several matters \\!hich the
parties could decide b,· mutual consent. [490B: 491B-C]
Kirkness v. John Hudson & Co. Ltd. [1955] A.C. 696; M/s. New
India Sugar Mills Ltd. v. Commissioner of Scites-tax, Bihar. [1963]
Supp. 2 S.CR 459: Calcutta Electric Supply Corporation Ltd. v. Commissioner of Income-tax, West Bengal. 19 I.T.R 406: M./s. Cement
Ltd . .v. State of Orissa, 12 S.T.C. 205: State of Madras v. Gannon DunH kerley, [1959] S.C.R. 379: North Adjai Coal Company (P) Ltd. Y.
Commercial Tax Officer & Ors. 17 S.T.C. 514 nnd S. K. Roy v. Additional Member, Board of Revenue. West Benqal. 18 S.T.C 379. referred to.
(ii) From the facts and circumstances the Tribunal rightly found
that the supplies were made to stockists in the State of Madras for
480
SOPREl\IE COUR'l' REPORTS
[1968] 1 s,c.n.
consumption in that State. It may be that a small portion of the supA
plies had gone out of the State. But that was not a relevant circumstance. Wha• had to be seen was whether the supplies in question
were made for consumption in the Madras State. On that question the
finding of the Tribunal was conclusive. [496B-CJ
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 19681970 of 1966.
Appeals by special leave from the judgment and order dated
July 16. 1962 of the Madras High Court in Tax Cases Nos. 117,
118 and 119of1959.
S. B. Banerjee and S. N. Mukerjee, for the appellant (in all
the appeals).
B
K. M. Mudaliyar. Advocate-Genernl for the State of Madras C
and A. v. Rangam, for the respondent (in all the appeals).
M. C. Setalvad, B. Sen, G. S. Challerjee and P. K. Bose, for
the Intervener (in C. A. No. 1968 of 1966).
The Judgment of the Court was delivered by
Hegde, J. These appeals by special leave arise from the com- D
mon order made by the Madras High Court in T. C. Nos. 117 to
119 (revisions Nos. 71 to 73) on its file. The Indian Steel and Wire
Products Ltd. a joint stock public limited company is the appellant
in all these appeals.
At the instance of the steel controller the appellant supplied
certain steel products to various persons in the Madras State during E
the financial years 1953-54, 1954-55) and part of 1955-56
(from
April 1, 1955 to September 6, 1955). The State of Ma<Jras assessed
the turnovers- of the appellant relating to those transactions to
sales tax under the Madras Gen. Sales Tax Act, 1939 (Madras Act
9 of 1939) (to be hereinafter referred to as the Act), the law in force
at that time. The appellant has been assessed to tax on· the basis F
of best judgment. The authorities under the Act have determined
appellant's turnover during the year 1953-54 at Rs.
3129520/-
and levied a tax of Rs. 16298/4 annas. During the financial year
1954-55. its turnover was determined at Rs. 3759216/-
and the
assessment levied is Rs. 58737-12-0. For the broken period in the
financial year 1955-56, the appellant's turnover was determined at G
Rs. 1453292/- and the same was assessed to tax at Rs. 22707-12-0.
Even according to the appellant, its turnovers during 1953-54 was
Rs. 2912533-14-0, in 1954-55, Rs. 3971493/7 /- and in
1955-56,
Rs. 1725400 / 51-. Therefore, there is little room for controversy
about its turnover in the relevant years. The appellant is
contesting the right of the State of Madras to levy tax on the turnovers
in question. According to the appellant. the turnovers in question H
could not have been considered as sales and. consequently they
could not have been brought to tax under the Act. The appellant
asserts that deliveries in question were made under compulsion of
law and there was no agreement between the parties. They were
"
I. s. & "" P. LTD. v. STATE
O~' MADRAS (llegde, J.)
481
A made in pursuance of the orders of the
Controller exercising
powers under the Iron & Steel (Control of Production and Distribution) Order, 1941 (which will hereinafter be referred to as the
orderl, which was issued und.er the Defence of India Act 1939. It
was argued on behalf of the appellant that it was the controller
who determined the persons to whom the goods were to be sup·
B
plied, the price at which they were to be supplied, the manner in
which they were. lo be transported, and the mode in which the pay·
ment of the price was to be made. In short, it was said that every
facet of those transactions were prescribed by the controller and
therefore those transactions cannot be considered as sales. On the
basis of those assertions support was sought from the decision of the
House of Lords in Kirkness v. John Hudson & Co., Ltd.(') the deci·
C sion of this Court in M /s. New India Sugar Mills Ltd. v. Commissioner of Sales Tax. Bihar('), the decision of the Calcutta High
Court in Calcutta Electric Supply Corporation Ltd. v.
Commis-
,;oner of Income Tax, West Bengal(') the aecision of the Orissa
fligh Court in Messrs. Cement Ltd. v. The State of Orissa('), and a
few other decisions. It was further argued that even if those transD actions are considered as sales the State before exercising its taxing
power should have had in its possession material to show that the
goods delivered by the appellant were delivered in that State for
consumption which circumstance alone can make those transactions
sales within that State; as no material was placed on record to show
that the goods in question were delivered in that State for conswnption it could not have brought the turnovers in respect of those
E transactions to tax under the Act. These contentions of the appel·
lant have been rejected by the authorities under the Act as well
as by the High Court. Other contentions advam;ed on behalf of the
appellant deserve to be summarily rejected for the reasons to be·
mentioned hereinafter.
The principal question that falls for decision in these appeals.
F
is whether the transactions with which we are concerned herein
are sales. Sec. 2(h) of the Act defines 'sale' thus:
" 'Sale' with all its grammatical variations and cognate
expressions means every transfer of the property in goods
by one person to another in the course of trade or business
'
for cash or for deferred payment or other valuable consi-
"'
G
deration. and includes also transfer of property in goods
involved in the execution of works contract and in the
supply or distribution of goods by a co-<Jperative society.
club. firm or any association to its members for cash or
for deferred payment or other valuable consideration but
does not include a mortgage, hypothecation. charge or
pledge:" <the explanations to that definition are not relevant for our present purpose).
(') [1955] A.C. 696.
('l [1963] Suppl. 2 S.C.R. 459.
(') 19 I.T.R. 406.
(') 12 S.T.C. 205.
L/J(N)6SCI-·~
482
SUPREME COURT REPORTS
[1968] l S.C.R.
This wide definition undoubtedly covers those
transactions. But A
then the power of a State to tax sales is derived from Entry 54 of
List II of the VII Schedule in the Constitution. That entry as it
stood at the relevant time empowered the State to tax on the sale or
purchase of goods. The scope of the expression 'sale or purchase
of goods' found in entry 48 in List II of Schedule VII of the Government of India Act 1935 which is in pari materia with the aforeB
· mentioned entry 54 came up for interpretation before this Court
in State of Madras v. Gannon Dunkerley('). In that case, the question that fell for decision was whether the words 'sale of goods'
should be given their popular meaning or whether they should have
the meaning attached to them under the Sale of Goads· Act. This
Court held that the expression 'sale of goods' was, at the time when
the Government of India Act, 1935 was enacted, a term of well
C
recognised legal import in the general law relating to sale of goods
and in the legislative practice relating to that topic and must be
interpreted as having the same meaning as in the sale of Goods Act
1930. In the course of the judgment, Venkatarama Aiyar, J, who
spoke for the Court after examining the various decisions cited at
the Bar, observed' as follows :
D
"Thus, according to the law both of England and of India.
in order to constitute a sale it is necessary that there should
be an agreement between the parties for the purpose of
transferring title to goods which of course pre-supposes
capacity to contract, that it must be supported by money
considel:ation and that as a result of the transaction proE
perty must actually pass in the goods. Unless all these elements are present, there can be no sale. Thus, if merely
title to the goods passes but not as a result of any contract
between the parties, express· or implied, there is no sale.
So also if the consideration for the transfer was not
money but other valuable consideration, it may then be
F
exchange or barter but not sale. And if under the contract
of sale, title to the gotids has not passed, then there is an
agreement to sell and not a completed sale."
As laid down by this decision, to constitute a valid sale, there must
be concurrence of the following elements viz. (!) parties competent
to contract (2) mutual assent (3) a thing the absolute or general G
property in which is transferred from the seller to the buyer and
(4) a price in money paid or promised'. Therefore we have to see
whether all these elements are found in the transactions before us.
Before doing so it Is necessary to refer to the .'order' and the manner in which those transactions were effected.
During the World War II iron and steel goods became scarce. H
Therefore it . became necessary for the Government to control the
production and distribution of those goods. In order to do so, the
(') (1959) S.C.R 3'19.
•
'LS. & w.P. LTD. v. STATE OF MADRAS (Heyde, J.)
483
A government issued the 'order' on July 26,.1941, and the same came
into force on August 1, 1941. The provisions in that order which
are material for our present purpose are set out hereinbelow :-
"2. Definitions.-In this Order, unless there is anything
repugnant in the subject context:-
ll
(a) 'Controller' means the person appointed as Iron
and. Steel Controller by the Central Government, and
includes any person exercising, upon authorisation by the
Central Government, all or any of the powers of the Iron
C
and Steel Controll.er;
0
•
(b) 'Produc::r' means a person carrying on the business of manufacturing iron or steel.
(c) 'Registered Producer' means a producer who is
registered as such by the Controller.
(d) 'Stockholder' means a person holding stocks of
Iron or Steel for sale who is registered as stackholder by
the Controtler.
(e} 'Controlled Stockholder' means a stockholder appointed by the Controller to hold stocks of iron or steel
under such terms and conditions as he may prescribe from
time to time.
(f) 'Pressure Pipes' include all Pipes and Tubes 1/8"
nominal bore and above which will withstand or may be
used for a working pressure of 25 lbs. per square inch and
above.
.
3. Application of Order-m The provisions of this
Order shall apply to all iron or steel of the categories speci~
fied in the Second Schedule to this Order. (2) A certificate
s.igned by the Comptroller or by any officer authorised by
him in this behalf, in respect of any category of iron or
steel, shall be. conClusive· proof that it is an article to
which this Order is applicable.
4. Acquisition-No person shall acquire or agree to
acquire any iron or steel from a Producer or a Stockholder
except under the authority of and in accordance with the
conditions contained or incorporated in a general or
special written order of the controller.
5. Disposal-No Producer or Stockholder shall dispose of or agree to dispose of or export or agree to export from British India any· iron or steel, except in accordance with the conditions contained or incorporated in a
general or special written order of the Controller.
·
lOB. Power to direct sale-The Controller maY, by a
·written Order require any person holding stock or iron
484
SuPllJIJIB OOUllT REPORTS
[1968) l s.c.11.
and steel, acquired by him otherwise than in accordance
with the provisions of Clause 4 to sell the whole or any
part of the stock to such person or. class of persons and
on such terms and conditions as may be specified in the·
Order.
IOC. Power to prohibit. removal-The Controller
may order any producer (including a registered producer),
any stockholder (including a controlled stockholder) or any
other person not to remove or permit the removal of any
iron or steel, whether sold cir unsold, from his stockyard
or from any other part of his premises to any place outside
the prccitt\;t:; vf such stockyard or premises, except with
the written permission of the Controller.
I IAA(3). No producer, stockholder, or other person
holding stocks of iron and steel shall without sufficient
cause, refused to sell any iron or steel which he is authorised to sell under this Order.
Exp!anatio11-The possibility or expectation of obtaining a higher price at a later date shall not be deemed
to be a sufficient cause for the purpose of this clause. ·
II B. Power to fix prices--(!) The Controller may
from time to time by notification in the Gazette of India
fix the maximum prices at which any iron or steel may be
sold (a) by a Producer, (b) by Stockholder including a
Controlled Stockholder and · (c) by any other person or
class of persons. Such price or prices may differ for iron
and steel obtainable from different sources and may include allowances for contribution to and payment from
equalising freight, the concession rates payable to each pro
ducer or class of producer under agreements entered into
by the Controller with the prod,ucers from time to time,
and any other disadvantages.
(2) For the purpose of applying the prices notified
under sub-clause (]) the Controller may himself classify
any iron and steel and may, if no appropriate price has
been so notified, fix such price a~ he considers appropriate.
(3) No producer or stockholder or other person shall
sell, or offer to sell, (and no person shall acquire) any iron
or steel at a price exceeding the maximum prices fixed under sub-clause (!) or (2).
J 3. Any Court trying a contravention of this Order
may, without prejudice to any other sentence which it
may pass, direct that any Iron and Steel
in, respect of
which the Court is satisfied that this order has been contravened shall be forfeited to His Majesty."
The appellant has set out in para 4 of the statement
of the case the procedure adopted for acquiring iron and/
•
A
B
c
D
E
F
G
H
A
c
E
F
G
11
I. S. & Vi, P. LTll. V. STAT& OF MADRAS (H,!J'te, J.)
48lS
w steel products under the order. This is what is stated
therein:~
"That Order was at all material times administered
principally by the Iron and Steel Controller having his
office in the city of Calcutta in the State of West Bengal
who controlled the entire production and distribution of
the iron and/or steel products. Any party desiring to acquire any product has to apply to the Controller. Upon
processing such application or requisition entirely at his
option and discretion, the Controller would pass such a requisition on to the Appellant for manufacture and/ or
despatch. The appellant has, upon receipt of the said requisition from the Controller to prepare a Works Order
for the manufacture of the products concerned apd to adv.isc the Controller; and later on completion of the manufacture the appellant has to make the product conform to
the requisition processed by the Controller and then deliver
the requisite quantity in the requisite shape to the Indian
State Railways siding maintained at the appellant's own
.factory site, .in Indranagar, in the suburbs of Jamshedpur,
in the State of Bihar, and to advise the requisitionist as
well as the Controller accordingly."
The correspondence relating to the delivery of steel goods
in pursuance of an order placed by one K. Thiruvengadam
Chetty & Co. has been produced by the appellant evidently to show the manner in which the transactions were
effected.
On December 20, 1952. Thiruvengadam Chetty and Co .. wrote
as follows to the Controller:
'From
To
Name-K. Thiruvengadam Chetty and Company.
Address-I.con Merchants and Tata Scob Dealers 93,
Rasappa Chetty Street, Madras-3.
Date 20th December 1952.
The Iron and Steel Controller,
33, Netaji Subas Road, Calcutta.
Through the Director of Controlled Commodities,
Mount Road, Madras.
Dear Sir,
Please place on our. behalf and at our risk and account our order on Registered Producers for material as
per specification given below for delivery in such period
.as you can arrange. We confirm that this indent is placed
486
SUPREME COU!IT REPOR'rB
[1963} l s.c.a:j
subject to the provisions of the Steel Price Schedule regarding prices, etc .. and the terms and conditions of business
(including payment) of the registered producets on whom
the order is placed by you and that delivery or part/delivery from any such registered producer will be accepted
by us. Please direct the registered producers concerned to
send us a copy of the works order in confirmation of having booked our Indent.
Ship to.-Madras Saltcotaurs.
Send R. R. to.-Messrs. K. Thiruvengadam Chetty
and Company, Iron Merchants. 93. Rasappa Chetty
Street, Madras-3, through your Madras Office.
Send original and duplicate invoice
to Messrs. K.
Thiruvengadam Chetty and Company, 93. Rasappa Chetty
Street, Madras-3 through your Madras Office.
Date of shipment 1desired:
Ex-stock as early as possible.
Qaa.ntity
Pieur.-1
Sor.tion
Li LJ!U.13
Con1pfote detcriptiou
ttri·tr~~trcl
of inateri&I indented
(I)
(2)
(3)
(t)
(;)
-------
CWT. QRS. LBS.
10
.. 468
M'.S. rountl-i
14' 18'
13 B Ca ~eg')ry
5
.. 493
.
3!16" 18'
do
5
.. 4!i3
•
.i'ltl .. 18'
do
20 (Twe11ty tons only) -·--------- ---·--
All P.T. free on rail Saltcotaurs and bundling charge account.
Yours faithfully.
(signed) .............. .
by Partner,
For K. Thiruvengadam Chetty and Company."
The Controller forwarded that letter to the appellant with the
A
B
c
D
E
F
following remarks: -
G
"The above indent is forwarded to Indian Steel and
Wire Products
Limited. Tatanagar, for
delivery in
period 1153 or subsequently in accordance with any gene·
ral or special directions of the Iron and Steel Controller."
It may be noted that the Controller merely asked tl\e appellant to H
deliver to K. Thiruwngadam Chetty and company the goods
ordered "in accordance with any general or special directions of the
Iron and Steel Controller." Our attention was not invited to anv
general or specia 1 order issued by the controller excepting that
I. S & W. P. LTD. V. STATE OF lllADRAS (H'fjile, J.)
487
A lixmg the base price. It is clear that it was left to the appellant to
supply the goods ordered at his convenience. On the basis of the
above communication a works cTder was issued by the appellant
to the mill superintendent, a copy of which was sent to Thiruvengadam Chetty and Company. That order reads:-
"Works Order: RS/MAD/RM/15/53 of 23rd February
B
1953.
Delivery: P.D.1/53.
Ship to: Saltcotaurs
Book to self. Freight: To pay.
To
C
The Mill Superintendent.
D
E
F
G
H
Please supply the following to the Shipping Department: -
M.S. Rounds our usual commercial quality in bundles
in stock lengths of 12/ 18 feet.
TONS
1/4"
diameter
at Rs. 486
per ton free on rail.
3/16"'
..
10
5
at Rs. 493
Saltcota.urs, plus buuclliug.
5jl6·
cc:
5
at Rs. 453
Charge of Rs. 5 per ton.
South India Iron and Hardware Merchants Association, Armenian Street, Madras.
Notice to consignees.
Delivery must be taken within three days of the arrival of the train at destination, a certificate obtained for
any wrongful delivery and a claim preferred against the
Railway Company forthwith under advise to us. In the
case of non-arrival of any consignment advise should be
given us as soon as a reasonable time for the journey has
elapsed.
'All orders booked are subject to our terms ot business and general understanding in force at the time of
booking the orders and despatch of goods.'
'All prices mentioned in the Works Orders are subject to revision, i.e., prices ruling at the time of despatch
will be charged.' ".
The works order in question specifically says that 'all
orders booked are subject to our terms of business and
general understanding in force at the time of booking
the orders and despatch of goods'. In fact as seen from
the letter of Thiruvengadam Chetty and
Co.. dated
August 31, 1953, the buyers were willing to change by
mutual agreement the specifications of the goods to be
supplied. This is what that letter says:
.ms
SUPR~ME COl'RT REPORTS
[1968) I S.C.R.
agreeme1n the specifications of the goods to be supplied. This is A
what that letter says:
"If l" size is not ready, please despatch 3/8" size 20
tons as requested in our previous letter. Please treat this
as very urgent."
From the material on record it is not possible to accept the
contention of Mr. S.R. Bannerjee. learned counsel for the appel- B
!ant that the dealings in question were controlled at every stage,
leaving no room of concensus. From the records before us all
that could be gathered is that the controller fixed the base price of
the steel products and determined the buyers. In other respects,
the parties were free to decide their own terms by consent. As seen
from the correspondence referred to earlier, the controller allowed C
the appellant to supply the goods ordered either in the first quarter
of the year 1953 or subsequently. In other words, the appellant
could supply the goods in question at its convenience. It was open
to the appellant to agree with its customers as to the '.late on
which the goods were to be supplied. From the works order dated
February 23, 1953, a copy of which was sent to one of the appel- D
!ant's customers, it is clear that all orders booked were subject to
appellant's terms of business and general understanding in force
at the time of 'booking the orders and despatch of goods. It was
also open to the appellant to fix ihe time and mode of payment of
the price of the goods supplied. Therefore it would not be correct
to contend that the transactions were completely regulated and
controlled by the controller leaving no room for mutual assent. In E
his revision petition dealing with the question of transport of the
goods supplied the appellant stated that "the transport of goods
was if at all by virtue of an independent arrangement between the
petitioner and the persons to whom the goods were supplied ...... ".
This admission clearly shows that the supplies in question were
made partly on the basis of mutual assent.
It was Mr. Bannerjee's contention that for finding out the
nature of the transaction we have only to look to the order and not
to the documents produced in the case According to him, the documents produced in this case do not fully disclose the nature of the
transactions: the transactions in question had to be effected under
the terms of the order: the order left no room for negotiation bet- G
ween the supplier and its customers and therefore we should conclude that the transactions in question are not sales. According to
Mr. Bannerjee all supplies of iron and steel products could be made
only in accordance with the directions given by the controller under
cl. IOB of the order. That being so, he asserted there was no room
for mutual assent. We do not think that this contention of Mr.
Bannerjee is well-founded. We are unable to agree with him that H
the iron and steel products could not have been supplied to any person except in pursuance of an order made by the controller under
cl. IOB. We think that supplies by producers can be made in pursuance of an order of the controller under cl.5. We are not pursuaded
I. ;. & w. P. LTD. "· s !"ATE o!' MADRAS (Fleg ,,, .!.)
189
A by Mr. Bannerjee·s contention that clauses 4 and 5 merely prohibit the prcspective buyer and the intending seller from buying or
selling without the sanction of the controller and that those provisions do not confer power on the controller to authorise a person
to acquire and to permit a producer to sell. Those provisions, in
our judgment, by implication confer power on the controller to
JI issue the necessary authority to the buyer and the seller. This conclusion of ours is strengthened from the circumstance .that cl. I OB
was not a part of the order till 1946. That provision was inserted
in the order by notification No. 1(1)-1(530)-A dated May 26, 1946,
It is nobody's case that the provisions of the order were incapable
of being implemented till that date. The contention of Mr. BannerC jee that the controHer derives his power to authorise the buyer to buy
and the seller to sell exclusively under cl. JOB, suffers from another
infirmity. Under cl. JOB, the controller gets power t'.l require any
perscn holding stock of iron and steei acquired by him otherwise
than in accordance with the provisions of cl. 4 to sell the whole or
part of the stock to such person or class of persons and on such
terms and conditions as may be specified in the order. This clause
D does not empower the controller to issue the authority required
under cl. 4. Our attention has not been invited to any provision in
the order if we exclude from consideration cl. 4. under which the
controller could have the power to authorise the buyer to buy iron
and steel products. Thefefore, it is obvious that he gets that power
from cl. 4, itself. The language employed in clauses 4 and 5 is sirniE Jar. If the controller gets power to authorise a buyer to buy iron
and steel products under cl. 4, there is no reason why he should
be held to have no power under cl. 5 to authorise a producer or
stock-holder to dispose of his stock of iron and steel products. Further, under cl. !OB, the controller can only require any person holding stock of iron and steel to sell the whole or part of his stock to
such person or class of persons and on such terms and conditions
F as may be specified in the order. That ckluse does not empower him
to direct any manufacturer to manufacture any steel or iron product and to dispose of the same to any person. In other words, a
direction under cl. lOB can only be given to a person holding stock
of iron and steel But under cl.5 he can authorise a producer or a
stockholder to dispose of any iron or steel whether the same is in
G stock or not in accordance with the conditions contained or incorporated in a special or general written order issued by him. In the
instant case, as can be gathered from the correspondence already
referred to, .the order issued by the controller could be complied
with only after manufacturing the required material. Hence, the
order issued by the controller could not have been issued under
B cl. lOB. In this view of the matter it is not necessary for us to find
out the true scope of cl. JOB. So far as cl.5 is concerned. admittedly, it does not require the controller to regulate or control every facet
of a transaction between a producer and the person to whom he
supplies iron and steel products.
490
SUPREME COURT REPORTS
f!968] l S.C.R.
It is true that in view of the order, the area within which there A
can be bargaining between a prospective buyer and an intending
seller of steel products, is greatly reduced. Both of them have to
conform to the requirements of the order and to comply with the
terms and conditions contained in the order of the controller. Therefore they could neg<>tl..ite only in respect of matters not controlled
by the order or prescribed by the controller. It is true, in these cir- JI.
cumstances, the doctrine of laisser faire can have only a limited ap.
plication. That is naturally so. In certain quarters the validity of
that doctrine is, seriously challenged. Under the existing economic
compulsions-all essential goods being in short supply-in a welfare State like ours, social control of many of our economic activities is inevitable. That does not mean that there is no freedom to
contract. The concept of freedom of contract has undergone a great C
deal of change even in those countries where it was considered as.
one of the basic economic requirements of a democratic life. Full
freedom to contract was never there at any time. Law invariably
imposed some restrictions on freedom to contract. But due to change
in political outlook and as a result of economic compulsions, the
freedom to contract is now being confined gradually to narrower and D
narrower limits. This aspect is vividly brought out in the 'Law of
Contract' by Cheshire and Fifoot (6th ed.) at p. 22. Dealing with
the question of freedom to contract, the learned author observes.
"As the nineteenth century waned it became ever
clearer that private enterprise predicated some degree of
economic equality if it was to operate without injustice.
The very freedom to contract with its corollary, the freedom to compete. was merging into the freedom to combine; and in the last resort competition and combination
were incompatible. Individualism was yielding to monopoly, where strange things might well be done in the name
of liberty. The twentieth century has seen its progressive
erosion on the one hand by opposed theory and on the
other by conflicting practice. The background of the law,
social. political and eco'nomic. has changed. Laisser faire
as an ideal has been supplanted by 'social security'; and
social security suggest status rather than
contract. The
State may thus ·compel persons to make contracts, as
where. by a series of Road Traffic Acts from 1930 to 1960,
a motorist must insure against third-party risks; it may, as
by the Rent Restriction Acts. prevent one party to a contract from enforcing his rights under it; or it may empower
a Tribunal either to reduce or to increase the rent payable
under a lease. In many instances a statute prescribes the
contents of the contract. The Moneylenders Act. 1927.
dictates the .terms of any loan caught by its provisions; the
Carriage of Goods by Sea Act, 1924, contains six pages of
rules to be incorporated in every contract for 'the carriage
of goods by sea from any port in Great Britain or Northern
F
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491
A
Ireland to any· other port; the Hire Purchase Act, 1938
inserts iiito hire-purchase contracts a number of terms
which the parties are forbidden to exclude; successive
Landlord and Tenants Act from 1927 to 1954 contain
provisions expressed to apply 'notwithstanding any agreement to the contrary.".
B
c
It would be incorrect to contend that because law imposes
some restrictions on freedom to contract, there is no contract at
all. So long as mutual assent is not completely excluded in any dealing. in law it is a contract. On the facts of th.is case for the reasons
already mentioned, it is not possible to accept the contention of the
learned counsel for the appellant that nothing was left to be decided by mutual assent. On the other hand, we agre~ with the learned
Advocate C:Seneral of Madras and Mr. Setalvad who appeared for
the State of West Bengal. the intervener, that the controller's directions were confined to narrow limits and there were several matters
which the parties could decide by mutual assent.
We shall now proceed to examine the principal decisions relied
upon by the learned counsel for the appellant. In Kirkness v. Jolin
D
E11tlm11 & Co. Ltd.('), the material facts were these: On January\,
1948, railway wagons owned by John Hudson & Co., the tax payers,
then under requisition by the Minister of Transpcrt. were acquired
by the British Transport Commission under s. 29 of the Transport
Act. 1947. Under s. 30 of that Act, compensation became payable
by the Commission to the tax payers. The amount paid as compenE sation was substantially higher than the written down value of the
wagons for income tax purposes and as the tax payers had received
allowances under r. 6 of the rule~ a~plicabk to CJses I and II cf
Sch. D to the Income Tax Act 1918. they were assessed under s. IT
of the Income Tax Act 1945 to give effect to a balancing charge
in respect of the excess of the original cost of the wagons over the
F written down value. The Court of Appeal held that the transfer of
wagons under s. 29 of the Transport Act 1947 was not a sale at
common law, since it did not involve a mutual assent and a price;
11 was an acquisition authorised by a statute and not a compulsory
purchase. Therefore. the wagons were not machinery or plant which
had been 'sold' within the meaning of s. 17(1) (a) of the Act of '1945.
G and no balancing charge could be made under the sub-section. This ,
decision was affirmed by the House of Lords by a majority. Speaking for the majority, Viscount Simonds observed:
B
"My Lords, in my opinion the company's
wagons
were not sold, and it would be a grave misuse of language
to say that they were sold. To say of a man who has had
his property taken from him against his will and been
awarded compensation in the settlement of which he has
had no voice. to say of such a man that he has sold his
property appears to me to be as far from the truth as to-
(') (1955) A.C. 696.
~Cl'REllE COCR'f REPORTS
(1968) l S.C.R, .
say of a :nan who has been deprived of his property without compensation that he has given it away. Alike in the
ordinary use of language and in its legal concept a sale
connotes the mutual assent of two parties. So far as the
ordinary use of language is concerned it is difficult to
avoid being dogmatic, but for my part I can only echo
what Singleton L.J. said in his admirably clear judgment:
'What would anyone accustomed to the use· of the words
'sale' or 'sold' answer? It seems to me that everyone must
say 'Hudsons did not sell'. I am content to march in step
with everyone and say 'Hudscms did not sell'. Nor is a
.different result reached by an attempt to analyse the
legal concept. When Benjamin said in the passage quoted
by Singleton and Birkett L. JJ. from his well-known book
on Sale, 2nd ed., p. I. that 'by the common law a sale of
:personal prcperty was usually termed a 'bargain and sale
of goods', he was by the use of the word 'bargain' perhaps
unconsciously emphasizing that the consensual relation
which the word 'bargain' imports is a necessary element
in the concept', ".
From the facts set out above it is clear that the House of Lords
was dealing with a compulsory acquisition and not sale. Therefore
;that decision is of no assistance to the appellant.
A
B
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D
Jn Messrs. New India Sugar Mills Ltd. v. Commissioner of
Sales Tax, Bihar('), this Court was called upon to consider whether
certain transactions effected under the Sugar Control Order 1946 E
were sales. By a majority this Court held that they were not sales.
The facts as found by the High Court and accepted by this Court
are found at pp. 463 and 464 of the report. They are as follows:
"The admitted course of dealing between the parties
was that the Government of various consuming States used
to intimate to the Sugar Controller of India from time to
time their requirement of sugar, and similarly the factory
owners used to send to the Sugar . Controller of India
statements of stock of sugar held by them. On a consideration of the requisitions received from the various State
Governments and also the statements of stock received
from the various factories, the Sugar Controller used to
make allotments. The allotment order was addressed by
the Sugar Controller to the factory owner, directing him
to supply sugar to the State Government in question in accordance with the despatch instructions received from the
competent officer of the State Government. A copy of the
allotment order was simultaneously sent to the State Govvernment concerned, on receipt of which the competent
authority of the State Government sent to the factory
concerned detailed instructions about the destination to
(') [1963] Supp. 2 S.C.R. 459.
F
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I. S. & W, p, LTD, V. S l'ATE OF MADRAS (ffe,q.le, J.)
493
which the sugar was to be despatched as also the quantities of sugar to be despatched to each place. In the case
of the Madras Government it is admitted that it also laid
down the procedure of payment, and the direction was
that the ·draft should be sent to the State Bank and it should
be drawn on Parry and Company or any other party
which had been appointed as stockist importer on behalf
of the Madras Gr,vernment."
On the basis of those facts, the Court came to the conclusion that
there was no room for mutual assent ih those transactions. The
facts of the present case are materially different frcm the facts of
that case. Hence the ratio of that decision does not apply to the
facts of the present case. Whether in a given case there was mutual
C assent or not is a matter to be decided on the fads of that case.
In Calcutta Electric Supply Corporation Lill. v. Commissioner
of Income Tax. West Bengal('), the facts were: The assessees were
an electric supply company. During the war the government requisi--
tioned an electricity generating plant of the assessees under r. 83(1)
of the Defence of lndia Rules. The government wanted to acquire
D that plant. As the assessees were not willing to sell the plant, they
required the government to re-examine the position and to rescind
the order depriving them of the plant. but the government refused
to re-consider that decision. The amount which the assessees receiv--
ed as price or compensation for the plant exceeded the written down
value of the plant by Rs. 3,27,840 /-. The taxing authorities treated
E
the excess as assessees' profits under s.