2005 Supreme(SC) 1344

2005(8) Supreme 472
Supreme Court of India
(From Gauhati High Court)
S.B. Sinha and R.V. Raveendran, JJ.
Assam Small Scale Ind. Dev. Corpn.Ltd. & Ors. —Appellants
versus
M/s. J.D. Pharmaceuticals & Anr. —Respondents
Civil Appeal No. 6324 of 2005
(Arising out of SLP (C) No. 3950 of 2005)
Decided on 7-10-2005
Counsel for the Parties :
For the Appellants : R.F. Nariman, Sr. Advocate, Arunabh Chowdhury, Parthiv Goswami, Pragya Singh Baghel, Mrs. Manik Karanjawala, Advocates.
For the Respondents : Pravir Choudhary, S.P. Roy and Ms. Babita Sani, Advocates.

Important Point
The Assam Preferential Stores Purchase Act is a beneficient legislation.

Headnote:Assam Preferential Stores Purchase Act, 1989—Sections 2(d), 2(f), 2(r), 2(s), 3, 7, 8, 9—Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993—Section 2(h)—Scope and Applicability—Plaintiff respondent, a Small Scale Industry registered with appellant Corporation—It entered into an agreement with the Corporation on or about 19-10-1990 wherein plaintiff respondent was termed as a principal and the Corporation as an agent—Pursuant to the said agreement, Corporation placed orders for supply of medicines manufactured by respondent for the period June, 1991 to June, 1993—Total price of medicines supplied by respondent stood at Rs. 20,56,654.13 out of which only a sum of Rs. 46,512.80 was paid to respondent—Suit filed by respondent claiming the amount together with interest payable thereon in terms of 1993 Act—Respondent had not committed any breach or any irregularity in regard to the supplies—Whether Corporation would be liable for all consequences arising from non payment of the price of goods supplied—(Yes)—Whether 1993 Act was applicable to the transactions entered into between June 1991 and 23.9.1992—(No).

       Held : It is not disputed that the Respondent did not commit any breach or any irregularity in regard to the supplies. Once the supply of the goods was completed, having regard to the clause aforementioned, the Corporation was bound to release the payment upto 90 in view of the fact that the purchasing authorities were also obligated to issue indent to the Corporation with 90 advance. If such advance had not been given, the Corporation in terms of the scheme should not have issued the indent. It may be true that the terms and conditions appended with each order of supply stipulate that payment would be made subject to receipt of the fund from the indenting department. But, the scheme, guidelines, the agreement as also the terms and conditions for supply of stores, if read as a whole, the only meaning which can be attributed thereto would be in relation to the 10 of the amount which the Corporation was to realize from the supplying authorities upon submission of bill by the manufacturer. The said term has nothing to do with payment of 90 advance in accordance with the provision of the Scheme. (Para 23)

       The 1989 Act makes a statutory provision beyond the concept of agency as contained in the Contract Act. It is a special statute. In terms thereof the Respondent was not required to pay any commission to the Corporation, though the Corporation was described as ‘agent’ of the Respondent under the agreement. 5 commission was to be paid to the Corporation by the purchasing authorities. The provisions of the 1989 Act, thus, should be given full effect. The status of the parties must not thus, be determined as to how they have described themselves but having regard to the substance of the transaction as envisaged under the Act and the scheme framed, which as noticed hereinbefore, is as a part of the Act. As a statutory agency came into being by and between the purchasing authorities and the Corporation in terms whereof the Corporation not only exercised the control in relation to the entire supply of materials, as a part of the statutory scheme, it also undertook to collect the price of the goods supplied from the purchasing authorities and pay the same to the manufacturers subject, of course, to the payment of its commission which would be a substantial amount. Under the scheme, the purchasing authorities had a duty to pay 90 of the price before the Corporation makes an indent and, thus, the latter had a statutory duty to realize the same before an indent is made, as also the remaining 10 when supplies are completed. If the payment was to be made by the Corporation to the Respondent both under the contract as also in terms of the statutory provision, it cannot now turn round and contend that it was not part of its duty and leave the matter at that. It was obligated having regard to the statutory scheme on the part of the Corporation to realize the price for the consideration of the goods supplied. It was not constituted merely to act as a conduit pipe. It was bound to perform its statutory duties envisaged under the 1989 Act. (Paras 32 and 33)

       The Corporation for all intent and purport having undertaken the liability of the purchasing authorities would also be liable for all consequences arising from non-payment of the price of the goods supplied. We may summarise the effect of the 1989 Act, the marketing support scheme of the Corporation, the O.M. dated 28.3.1988 referred to in Section 7(1)(iii) of the 1989 Act, and the agreement between the Corporation. (Paras 37 and 38)

       It is not in dispute that the plaintiff had demanded both the principal amount as also the interest from the Corporation. Section 3 of the 1993 Act imposes a statutory liability upon the buyer to make payment for the supplies of any goods either on or before the agreed date or where there is no agreement before the appointed day. Only when payments are not made in terms of Section 3, Section 4 would apply. The 1993 Act came into effect with effect from 23.9.1992 and will not apply to transactions which took place prior to that date. We find that out of the 71 suit transactions, sl. Nos. 1 to 26 (referred to in penultimate para of the Trial Court Judgment), that is supply orders between 5.6.1991 to 28.7.1992, were prior to the date of 1993 Act coming into force. Only the transactions at sl.no. 27 to 71 (that is supply orders between 22.10.1992 to 19.6.1993), will attract the provisions of the 1993 Act. The 1993 Act, thus, will have no application in relation to the transactions entered into between June, 1991 and 23.9.1992. The Trial Court as also the High Court, therefore, committed a manifest error in directing payment of interest at the rate of 23 upto June, 1991 and 23.5 thereafter. (Paras 39 and 40)

       We, therefore, are of the opinion that in relation to the transactions made prior to coming into force of the said Act, simple interest at the rate of 9 per annum, which was the bank rate at the relevant time, shall be payable both prior to date of filing of the suit and pendente lite and as future interest in terms of Section 34 of the Code of Civil Procedure. Interest, however, will be payable in terms of the provisions of the 1993 Act (compound interest at the rate of 23.5 per annum) in relation to the transactions made after coming into force of the Act, both in respect of interest payable upto the date of institution of the suit and pendente lite and till realisation. (Para 43)

       (ii) Interpretation of Statutes—Nature of Transaction—It is required to be determined on basis of substance there and not by the nomenclature used—While interpreting terms of agreement, it is necessary to look to the substance of the matter rather than its form.

       Held : The nature of transaction is required to be determined on the basis of the substance there and not by the nomenclature used. Documents are to be construed having regard to the contexts thereof wherefor ‘labels’ may not be of much relevance. (Para 26)

       It is no longer in doubt or dispute that while interpreting the terms of agreement, it is necessary to look to the substance of the matter rather than its form. Use of a terminology may not be sufficient to lead to a conclusion that the parties, to the contract in fact intended that the said status would be conferred. (Para 28)