9911796707
TMI Blog1960 (11) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... poration Act (XIV of 1948) and will hereinafter be referred to as the Corporation. It is a multi-purpose Corporation one of its objects being the construction of a number of dams in Bihar and Bengal with a view to controlling floods and utilising the stored water for purposes of generation of electricity. One of such dams is the Konar Dam in the district of Hazaribagh in Bihar. For the con- struction of the aforesaid Dam the Corporation entered into an agreement with Messrs Hind Construction Ltd. and Messrs Patel Engineering Co. Ltd. on May 24, 1950, and appointed them contractors for the afore- said purpose. They will hereinafter be referred to as the contractors. As a result of a change in the design of the Dam, it became necessary to enter into a supplementary agreement and on March 10, 1951, clause 8 of Part II of the original agreement was amended and a fresh clause 8 was substituted. Under the new clause 8 of the agreement, as amended, the Corporation agreed to make available to the contractors such equip- ment as was necessary and suitable for the construction aforesaid. The contractors are charged the actual price paid by the Corporation for the equipment and machin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Board of Revenue by its resolution dated October 1, 1953, rejected the revisional application and upheld the order of the authorities below. Thereafter, the Corporation made an application to the Board of Revenue under section 25 of the Act for a reference to refer the following questions to the High Court at Patna, namely, (a) whether the assessment under section 13(5) of the Act is maintainable, (b) whether, in the facts and circumstances of the case, it can be held that the property in the goods included in Schedule A did pass to the contractors and the transaction amounted to a sale, and (c) whether the terms of the agreement amount to sale transactions with the contractors and taking over by the Corpora- tion amounts to re-purchase. This application was made on December 22, 1953, but when the application for making a reference to the High Court came up for hearing before the Board of Revenue on May 20, 1954, and after the parties had been heard, counsel for the Corporation sought leave of the Board to withdraw questions (a) and (c) from the proposed reference and the Board passed the following order: "Leave is sought by the learned Advocate for the petitioner to drop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court under this article. The application is accordingly dismissed." Having failed to obtain the necessary certificate from the High Court, the Corporation moved this Court and obtained special leave to appeal under Article 136 of the Constitution. The leave was granted on March 31, 1958. Though the scope of the decision of the High Court under section 25 of the Act on a reference made to it is limited, the Corporation has raised certain additional points of controversy, which did not form part of the decision of the High Court. Apart from the question whether the transaction in question amounted to a sale within the meaning of the Act, the statement of the case on behalf of the appellant raises the following additional grounds of attack, namely, (1) that the Corporation is not a dealer within the meaning of the Act, (2) that the proviso to section 2(g) of the Act is ultra vires the Bihar Legislature and (3) that the Act itself is ultra vires the Bihar Legislature by reason of the legislation being beyond the scope of entry 48 in List II of Schedule VII of the Government of India Act, 1935. Hence, a preliminary objection was raised on behalf of the respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractor the machinery mentioned in Schedule No. 2, Group A and Group B below." Then follows a description seriatim of the many items of machinery in Group A with the number of such machinery and the approximate cost thereof. In this Group A, there are fourteen items of which it is only necessary to mention the first one, that is to say, four excavators with accessories approximately valued at Rs. 12,46,390; and No. 14, two excavators of another model, approximately costing Rs. 3,35,000. The total approximate cost of the machinery in Group A is estimated to be Rs. 42,63,305. Then follow the descriptions of machinery in Group B, the approximate cost of which is Rs. 21,84,148. Then follow certain conditions in respect of equipments included in Group A, in these words: "The Corporation will take over from the contractor items 1 and 14 on the completion of the work at a residual value calculated on the basis of the actual number of hours worked assuming the total life to be 30,000 hours and assuming that the machinery will be properly looked after during the period of its operation. The remaining items of this group will be taken over by the Corporation at their residual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and thereby arrive at their residual value; and (c) that the recovery or refund of the amount payable by or to the contractor on account of these equipments will be decided only if the Corporation is fully satisfied that their residual life at the time of their being finally handed over to the Corporation shall under no circumstances fall below one-third of their respective standard life as agreed upon by the Corporation and the contractor." Then follow terms and conditions in respect of Group "B" which are not relevant to our purpose. Thereafter, the following conditions appear: "In respect of equipments whether in Group A or B made available by the Corporation to the contractor: The following conditions shall apply to all equipments, i.e., those included in Groups A and B above and others, if any: (a) The contractor shall continuously maintain proper machine cards separately in respect of each item of equipment, clearly showing therein, day by day, the number of actual hours the machine has worked together with the dates and other relevant particulars. (b) The contractor shall maintain all such equipments in good running condition a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporation shall forthwith furnish to him a complete list of all the spares which it has procured or ordered for the equipment to be supplied to the contractor." The portions quoted above contain the relevant terms and conditions in respect of the transaction in question, so far as it is necessary to know them for the purpose of this case. It will be noticed that the Corporation made available to the contractors different kinds of machinery and equipment detailed in Group A of the approximate value of Rs. 42,63,000 odd, for which the price paid by the Corporation inclusive of freight, insurance, customs duty etc. has to be charged to them. But the machinery and the equipment so made available to the contractors were to remain the property of the Corporation until the full price thereof had been realised from the contractors. It is also noteworthy that the agreement makes a distinction between the aforesaid part of the agreement and the equipment lent to the contractors in respect of which the contractors had to be charged in terms of hiring, including interest on capital cost and the depreciation of equipment. Thus cleary the agreement between the parties contemplated two ki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d life fixed by the parties. It is clear from the terms and conditions quoted above that there was no right in the contractors to return any of the machinery and equipments at any time they liked, or found it convenient to do so. The conditions which apply to all equipments, whether in Group A or in Group B, are also relevant to determine the nature of the transaction. The contractors are required to "continuously maintain proper machine cards showing certain relevant particulars ". It is their duty to maintain the equipments in good running condition and to regularly and effectively service them. No item of machinery and equipment could be removed by the contractors under any circum- stances until the full cost thereof had been recovered from them and even then only if the removal of those items of machinery or equipment was not likely to impede the satisfactory progress of the work. Then follows the most important condition that the contractors themselves shall have to replenish their stock of spare parts of the machinery made available to them by the Corporation. When spare parts are supplied to the contractors by the Corporation, they shall be liable for the actual pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmine such a controversy is whether there is a right reserved to the hirer to return the goods at any time during the subsistence of the contract. If there is such a right reserved, then clearly there is no contract of sale, vide Helby v. Mathews and Others [1895] A.C. 471. Applying these two tests to the transaction in the present case, it becomes clear that it was a case of sale of goods with a condition of re- purchase on certain conditions depending upon the satisfaction of the Corporation as to whether the "residual life" of the machinery or the equipment was not less than one-third of the standard life in accordance with the terms agreed between the parties. It is clear on those terms that there is no right reserved to the contractors to return the goods at any time that they found it convenient or necessary. On the other hand, they were bound to pay two-thirds of the total approximate price fixed by the parties in equal instalments. The contractors were not bound under the terms to return any of the machinery or the equipments, nor was the Corporation bound to take them back unconditionally. The term in the agreement regarding the "taking over" of the machinery or equipments ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
