State of Madras v. Jayalakshmi Rice Mill Contractors Co. and Ors.

State of Madras v. Jayalakshmi Rice Mill Contractors Co. and Ors.

AIR 1959 AP 352

(Difference between agency and license)

FACTS:

The Food Procurement Order, authorised the licensees (rice millers in the Districts of East Godavari, West Godavari and Krishna) to procure rice and paddy from, the producers to sell them in the market at prices fixed by the Government. The difference between the prices at which they were purchased and the prices at which they were directed to be sold was asked to be made over to the Government. The various millers made over the difference in compliance with the order of the Government and later on filed suits for the recovery of those amounts on the ground that they alone were entitled to the difference in the price and the Government was not entitled to recover the same from them.

ISSUES:

  1. Whether the stocks held by the plaintiff are the exclusive property of the Plaintiffs?
  2. Whether the plaintiffs are agents of the Government in respect of the sale of paddy and rice?
  3. Whether the plaintiffs are entitled to the benefit of the increase in the price of the paddy and rice?
  4. Whether the order of the Government directing the collection of surcharge comes under the provisions of Section 3 of the Essential Supplies (Temporary Powers) Act, 1946?
  5. Whether the order of the Government directing levy of the surcharge is illegal and ultra vires and contrary to the terms of the licence and the agreement?
  6. Whether under Section 16 of the Essential Supplies (Temporary POWERS) Act, the plaintiffs are not entitled to call in question the orders passed under the said Act, in a Court of law?

CONTENTIONS:

Govt.-

  1. The position of these procurement agents was that of an agent. The mill owners were only concerned with the commission that was allowed to them and any amount received by reason of the increase in the prices could only go to the Government firstly because the mill owners got back the amount that they paid for the purchase and, therefore, not entitled to the excess amount, and secondly because the increase in prices was effected with a view to benefit the producers.

Plaintiff-

  1. The stocks of paddy held by them was their exclusive property having been purchased with their own funds and having been stocked at their own risk, the increase in the price of the stock of paddy and rice would accrue to them alone. In these transactions the relationship as between themselves and the Government was only that of a buyer and seller.
  2. The order of the Government (for the payment to them of the difference in price) was beyond the powers exercisable by them (under the provisions of Section 3(2) of the Act XXIV of 1946). It amounted to a levy of a surcharge which was not warranted by law.

HELD:

Subordinate Judge, Eluru:

The plaintiffs could not be regarded as the agents of the Government and excess received by reason of the increase in the price would go to the millers alone as they were the owners of the Rice and paddy. On the footing that the sales by the mill owners were to be regarded as sales in compliance with an order of the Government, the learned Judge held that these orders issued by the Government could not be sustained because they were not notified orders.

Sub-Court, East Godavari:

  1. The relationship between the plaintiffs and the Government was that of a buyer and seller and as such the Government was not entitled to the difference between the purchase price and the sale price. Also there was no provision in the Section 3(2) of Act 24 of 1946 for the same.
  2. The order of the Government directing the collection of the surcharge[1] was not warranted under Section 3 of the Act. This amounted to a levy of a surcharge and therefore was illegal and ultra vires.

Subordinate Judge of Krishna:

  1. The directions issued by the Government were within the competence of the Government and, therefore, the orders were legal and valid in law. It was further held that if under the terms of the license the procurement agent had merely to carry out the directions of the Government, the amount received by the sale of the paddy at a higher price should go to the Government and not to the licensee.

High Court, Andhra Pradesh:

  1. The fact that the agreement speaks of a procurement agent is not conclusive evidence of the relationship of principal and agent, for the name which the parties may choose to give to a transaction cannot be the sole criterion.
  2. (w.r.t 1st observation of the Sub-Court, East Godavari & 1st contention of the plaintiffs) The plaintiffs, unlike an agent, did not represent the Govt. in their dealings but merely constituted the medium for the purchase and sale and were subjected to the direction and control of the Govt. Commission, itself is not enough to constitute agency. They were not even buyer-seller either as it was a case of a person holding a licence for doing an act as per the conditions of the licence. Plaintiffs, having been appointed licensees (under, the Food Procurement Order) were not entitled to the difference as profit. Profits would accrue to the Govt. only.
  3. (w.r.t 2nd observation of the Sub-Court, East Godavari & 2nd contention of the plaintiffs ) The mere fact that Government itself called the amount sought to be realized as ‘surcharge’, cannot be conclusive about the character of a particular demand and there was no imposition of a “levy” or ‘tax’. Govt. was authorized to direct the stock-holders to sell the commodity to persons designated by the Govt. under Clause (f), sub-section (2) of the Essential Supplies (Temporary Powers) Act.
  • The appeals filed on behalf of the State should therefore be allowed.

 

LAW POINTS:

Principal and Master-

“A principal has the right to direct what work the agent has to do, but a master has the further right to direct how the work is to be done.” (Lakshminarayan Ramgopal v. Hyderabad Government)

Doctrine of ‘approbate’ and ‘reporbate’

A person cannot say at one time that a transaction is valid and thereby obtain some advantage to which he could only be entitled on the footing that it is valid and then turn round and say it is void for the purpose of securing some other advantage. That is to approbate and reprobate the transaction.


[1] difference between the purchase price and the sale price

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