Holding

The Supreme Court held that the suit is not for damages under Section 17(2) of the Defence of India Act and that the Union of India is liable to pay the price of the steel, dismissing the appeal.

Summary

The Union of India supplied steel to J.K. Gas Plant Manufacturing Co. for a gas plant; surplus steel was directed by the Kanpur Controller to be delivered to Govan Brothers Ltd. The price for the surplus steel remained unpaid, prompting the plaintiff to sue the Union for the price plus interest. The trial court held the Union liable, rejecting defenses under Section 65 of the Indian Contract Act, Section 175(3) of the Government of India Act, 1935, and Section 17(2) of the Defence of India Act. The High Court affirmed, applying Section 70 of the Indian Contract Act and finding that the Union enjoyed a direct benefit from the delivery, thus the suit was not barred as a damages claim. The Supreme Court dismissed the Union's appeal, holding that the suit was not for damages under Section 17(2) and that the Union was liable to pay the price of the steel.

Issues considered

The suit is barred by Section 17(2) of the Defence of India Act as a claim for damages or compensation.
Whether the contract between the Union and the plaintiff is enforceable despite non‑compliance with Section 175(3) of the Government of India Act, 1935 (writing requirement).
Whether Section 70 of the Indian Contract Act applies to impose liability on the Union.
Whether the written‑direction requirement in clause (5) of the Indian Iron and Steel Control Order, 1941 is mandatory or directory and its effect on liability.
Whether the Union of India derived a direct benefit from the delivery of steel to Govan Brothers, satisfying the third condition of Section 70.

Legislation cited

Defence of India Acts. 17(2)
Government of India Act, 1935s. 175(3)
Indian Contract Acts. 65, s. 70
Indian Iron and Steel Control Order, 1941s. clause 5

Subjects

Contract lawGovernment contractsSection 70 Indian Contract ActSection 17(2) Defence of India ActSection 175(3) Government of India ActIron and Steel Control OrderLiability for priceSurplus stock disposal

Judgment

893

UNION OF INDIA
v.
J. K. GAS PLANT
April 29, 1980
[S. MURTAZA FAZ.AL ALI AND A. D. KosHAL, JJ.J B

Contract Act, Section 10, Scope of-Conditions to be applied-Government
<Jf lndia Act, 1935, Section 175(3), applicability of-Defence of India Act,
Section 17(2), scope of.

The appellant had supplied some steel to the respondent plaintiff Company
for manufacturing gas plants at Rampur. Only a part of the steel so supplied C
was utilised for the intended purpose and with regard to the rest, the Regional
Deputy Iron & Steel Controiler, U.P. Circle, Kanpur directed the respondents
through a letter dated 8th/10th of November, 1944 to deliver the same to
the U.P. Registered Stock Holders Associations and to send to the Kanpur office,
the bill of costs of the material, handling charges etc. made in the name of
Iron & Steel Controller, Calcutta. Since the order contained in that letter could
not be implemented on account of lack of transport facilities, the Kanpur Con- D
troller, directed the respondent .company to deliver the surplus steel to MfS
G. Brothers Ltd., Rampur and to this extent the order dated 8th/10th November
1944 stood modified.

Though the surplns material was delivered to Govan Brothers between 11th
April 1945• and 30th of April, 1945, the price therefor to the tune of
....( Rs. 43,728-6-6 remained unpaid inspite of repeated demands made by the E
respondent. Ultimately, the Iron & Steel Controller informed the respondent to
take up the matter with Govan Brothers.

As the price of the steel remained unpaid by the Union of India as well as
G. Brothers the plaintiff company filed its suit for Rs. 46,652-14-6 which was
inclusive of interest on the principal price calculated at the rate of 6 per cent
per annum from April, 1945, upto the date of the institution of the suit, after F
Y' serving the defendant with the requisite notice under section 80 of the Code of
'\ Civil Procedure.
• The trial Court decreed the claim of the plaintiff company in full and also
directed that it would be entitled to the costs of the suit as also interest at the
rate of 3 per cent per annum from the date of the institution of the suit to
the date of payment. The trial Court held that the Kanpur Controller had
G
undertaken the liability to pay the price of the goods to the plaintiff company
even in respect of the delivery to G. Brothers and that the defendant could
not escape liability by reason of the contents of section 65 of the Indian
Contract Act even though the provisions of section 175(3) of the Government
of India Act, 1935, had not been complied with. The contention raised by the
defendant to the effect that section 17(2) of the Defence of India Act was a
bar to the suit was negatived.
H
In appeal, the High Court agreed that Se<:tion 17(2) of the Defence of
India Act would be a complete bar to the suit if it was one for damages. or
894 SUPREME COURl' REPORTS [1980] 3 S.C.R.

~ compensation but held that the suit was not of that nature and, on the other
hand, it was for recovery of the price of the goods supplied to G. Brothers
as was also found by the trial Court. It further held that even though the
provisions of section 17 5 ( 3) of tbe Government of India Act were not complied
with the agreement resulting from the correspondence which took place between
the plaintiff company and the officers of the detendant '\Vas good. Relying on
Section 70 of the Indian Contract Act and on the basis thereof, it held the
B plaintiff company to be entitled to recover the price of the goods from the
defendant even if it was assumed that the provisions of section 175(3) were
a bar· to the recognition of the contract envisaged by the correspondence bt:tween
the parties. The High Court dismissed the appeal, but granted a certificate
under Article 133(1) (a) of the Constitution to the appellant.

Dismissing the appeal, the Court
c
HELD : 1. The suit is not one for Compensation or damages etc. as contem-
plated by Section 17 (2) of the Defence of India Act and hence is not barred by
.oat section [898 Al.

2. The legality of the matter under which the respondent company transferred
its stock to G. Brothers cannot be allowed to be questioned at the appellate stage.
D The question whether the requirements of clause (5) of the Indian Iron and
Steel Control Order, 1941 which postulates only a written direction for
disposal of surplus stocks were satisfied or not is a mixed question of fact
and law which was never raised in the Courts below. Further tbe plea taken
in paragraph ( 4) of the written statements filed by th'e appellant wais categori-
cally to the effect that "the fresh instructions issued to the plaintiff are con-
tained in the letter in the possession of the plaintiff" runs counter to the fac-
E tual part of the argument. Besides another question would arise whether the
word "vrritten" in clause (5) aforesaid is di.rectory or mandatory. [898 C-D1

3. Three conditions must be satisfied before Section 70 of the Indian Contract
Act can be invoked : first, a person should lawfully do something for another
person or deliver something to him; second, in doing the said thing or delivering
the said thing he must not intend to act gratuitously; and third, the other
person for whom something is done or to whom something is delivered must
F enjoy the benefit thereof. [898 H, 899 A] \

In the instant case, the appellant had enjoyed the full benefit of the delivery •
or the gooJs to G. Bros. and not merely an. indirect benefit thereof. [901 B]

State of West Bengal v. M/s. B. K. Monda/ [1962] 2 Suppl. S.C.R. 876; .. ·
reiterated,
G
S. I. Indian Rly. Co. v. Madura Municipality, A.LR. 1964 l\1adras 427;
distinguished.

CIVIL APPfl.LA TE JURISDICTION Civil Appeal No.
1273/70.
H Appeal by Special leave from the Judgment and Decree dated
28·1-1966 of the Allahabad High Court in First Appeal No. 431
of 1957.
UNION v . .) . K. GAS PLANT (Kasha/, J.) 895

P. P. Rao, Subodh Markendeya, R. Venkataramani and Miss A. A
Subhashini for the Appellant.
So/i. J. Sorabjee and Ramesh war Nath for the Respondent.
The Jnc1grr.ent of the C 0 urt wos delivered by
KOSHAL, J. This appeal by certificate granted under article
133(1)(a) of the Constitution of India by the Allahabad High Court B
is directed against its judgment dated the 28th of January, 1966, con-
firming on appeal a decree passed by the Civil Judge, Kanpur, for the
,; recovery of Rs. 46,652-14-6 with interest at the rate of 3 per cent per
annum from the date of the institution of the suit till payment in
,.. favour of Mis. J.K. Gas Plant Manufacturing Company Limited
against the sole defendant, namely, the Union ofindia. C
2. The case of the plaintiff company may be briefly stated thus.
The Government of India had supplied some steel to the plaintiff com-
pany for manufacturing gas plants at Rampur. Only a part of the
steel so supplied was utilized for the intended purpose and with regard
to the rest the Regional Deputy Iron and Steel Controller, U.P. Cir-
cle, Kanpur (hereinafter reterred to as the Kanpur Controller) directed D
the plaintiff company through a letter dated the 8th/10th of Novem-
ber, 1944 (exhibit 16) to deliver the same to the U.P. Registered Stock
Holders Association Kanpur (for short the Association). Jn re-
lation to the recovery of price of the material the letter statec' :
"Your bill for cost of the material supported by original re- E
ceipts from suppliers should be made out in the name ofiron
and Steel Controller, Calcutta, and submitted to this office.
Please make out a separate bill for handling, storage expenses,
etc., and send to this 0ffice supported with original freight and
payee's receipt."
The order contained in letter exhibit 16 could not be implemented F
' on ace .i•nt' flack of transport facilities. The Kanpur Controller there-
' fore directed the plaintiff company to deliver the surplus ~tee! to M/s.
Govan Brothers Ltd., ,Rampur (hereinafter referred to as G. Brothers)
and to this extent the order contained in letter exhibit 16 stood modified.
The plaintiff company delivered to G. Brothers the surplus material G
lying with it between the I Ith April, 1945 and 30th of April, 1945.
The deliveries totalled 135 tons, 6 cwts., 1 quarter and 1 pound, the
price whereof amonted to Rs. 43,728-6-6 which remained unpaid in-
spite of repeated demands made by the plaintiff company through
letters addressed to the Kanpur Controller to whom the bills bad been
forwarded as desired. Ultimately th~ plaintiff company was informed H
by the Accounts Officer attached to the Iron and Steel Controller,
Calcutta, that it should take up the matter with G. Brothers. ·
896 SUPREME COURT REPORTS (1980] 3 S.C.R.

A As the price of the steel remained unpaid by the Union of India
as well as G. Brothers the plaintiff company filed its suit for Rs.
46,652-14-6 which was inclusive of interest on the principal price cal-
culated at the rate of 6 per cent per annum from April, 1945, up to
the date of the institution of the suit, after serving the defendant with
the requisite notice under section 80 of the Code of Civil Procedure.
B 3. In its written:statement the Union of India admitted the correct-
ness of the order contained in letter exhibit 16. It pleaded however
that that order was cancelled in toto and not merely in regard to the
party to whom the plaintiff company had to make over the surplus
steel. It was specifically denied that the disputed goods had been
delivered to G. Brothers at the risk and responsibility of the
c defendant and that the defendant was liable to pay the price
thereof. It was asserted that the defendant was merely
controlling the supply and distribution of iron and steel and that
the liability to pay the price of any goods dealt with by it in
the exercise of its powers of control rested upon the party receiving
the goods. Another plea taken· was that the suit was not main-
D
tainable in view of the provisions of section 175(3) of the Government
of India!Act, 1935,lwhich enjoins that a contract between the Govern-
ment oflndia and a third party has to be in writing and in a particular
form. It was emphasized that G. Brothers alone were liable for the
payment demanded by the plaintiff company.
E 4. The trial courtiheld that the Kanpur Controller had undertaken
the liability to'pay the price of the goods to the plaintiff company even
in respect of the delivery to G. Brothers and that the defendant could
nofescape~liability bY'.reason of the contents of section 65 of the Indian
Contract Act even though the provisions of section 175(3) of the
Government of India Act, 1935, had not been complied with. The
F contention raised by the defendant to the effect that section 17(2) of
the Defence oflndia Act was a bar to the suit was negatived by the trial
court. Some other findings were also arrived at which are not relevant
for the purposes of this appeal. The trial court therefore decreed the
claimlof the plaintiff company in full and also directed that it would be .
entitled to the costs of the suit as also interest at the rate of 3 per cent
G per annum from the date of the institution of the suit to the date of
payment.
5. When the[first appeal came np for hearing before the High Court
the contention based on the provisions of section 17(2) of the Defence
of India Act was reiterated on the ground that the suit was one for
H damages or compensation. Section 17(2) states :
"Save as otherwise expressly provided under this Act, no
suit or other legal proceeding shall lie against the Crown for
UNION v. J. K. GAS PLANT (Koshal, /.) 897

any damage caused or likely to be caused by anything in good A
faith done or intended to be done in pursuance of this_Act or any
rules made thereunder or any order issued under any such
rule."
The High Court agreed with the learned counsel for the defendant
that this section would be a complete bar to the suit if it was one for
B
damages or compensation but held that the suit was not of that nature
and, on the other hand, it was for recovery of the price of the goods
supplied to G. Brothers as was also found by the trial court. The
contention was therefore rejected as untenable. The High Court then
proceeded to examine the true nature of the transaction culminat-
ing in the delivery of steel to G. Brothers and held that the defendant c
had failed to establish that the direction regarding preparation and
submission of bills contained in letter exhibit 16 had been cancelled
when the plaintiff company was required to deliver the goods to
G. Brothers. It was further held that even though the provisions of
section 175(3) of the Government of India Act were not complied
with the agreement resulting from the correspondence which took D
place between the plaintiff company and the officers of the defendant
was good. In this connection reliance was placed on Debi Prasad
Srikrishna PrasadJLtd. V- Secretary of State(I). The sheet anchor of the
judgment of the High Court however was its reliance on section 70
of the Indian Contract Act and on the basis thereof it held the plaintiff
company to be entitled to recover the price of the goods from the de- E
fendant even if it was assumed that the provisions of section 175(3)
were a bar to the recognition of the contract envisaged by the corres-
pondence between the parties. In this connection reference was made
to New Marine Coal Co. (Bengai) Private Ltd. v. Union of Jndia(2).
It was argued before the High Court that the conditions requisite for
the applicability of section 70 of the Indian Contract Act were not F
available in the present case in as much as the defendant had not been
shown to have enjoyed the benefit of the transaction which accrued
only to G. Brothers. The High Court however took a contrary view
with the observation:
"The benefit or advantage that has been derived by the defen- G
dants lies in the fact that it has been able to distribute the stock
to persons of its choice according to the rules and regulations
framed by it."
It was in these premises that the High Court dismissed the defendant's
appeal with costs.
H
(1) A I. R. 1941 All. 377.
(2) A. I. R. 1964 S. C. 152.
898 SUPREME COURT REPORTS (1980] 3 S.C.R.

A 6. The argument based on section 17(2) of the Defence oflndia
Act has been reiterated before us but it has merely to be noticed to be
rejected. We are clearly. of the opinion that the suit is not for
damages, etc., such as are contemplated by that section. ·
7. It was seriously argued on behalf of the defendant that
B throughout the period during which the Kanpur Controller dealt
with the matter in dispute he was exercising the powers conferred on
him under the Iron and Steel Control Order,1941, that under clause 5 of
that order the plaintiff company could dispose of its stock of steel only
in pursuance of a written direction from the Kanpur Controller and
that the mandate issued by the Kanpur Controller to the plaintiff
c company requiring the latter to deliver the goods to G. Brothers having
been found to be an oral one, the whole transaction fell outside
the ambit of the law so that the Union of India could not be bound
by it. The argument as it stands does not lack plausibility although
it would be a question whether the word 'written' occurring in clause
(5) of the Indian Iron and Steel Control order is directory or manda-
D tory. However we refuse to allow the argument to be raised and
tha~ for two reasons. Firstly, it is a mixed question of fact and law
which was never raised in the courts below. Secondly, the plea taken
in paragraph 4 of the written statement filed by the defendant was
categorically to the effect that "the fresh instructions issued to the
plaintiff are contained in the letter in the possession of the plain·
E tiff", which plea runs counter to the factual part of the argument. In
this view <·f the matter the legality of the order under which the plaintiff
company transferred its stock to G. Brothers cannot be allowed to be
questioned at this a stage.

8. The only otherground put forward in support of the appeal
F was that the provisions of section 70 of the Indian Contract Act were
not applicable to the facts of the present case. That section reads:
"Where a person lawfully does anything for another person
•
or delivers anything to him, not intending to do so gratuitously,
and such other person enjoys the benefit thereof, the latter is
G bound to make compensation to the former in respect of, or to
restore, the thing so done or delivered."
As pointed out in State of West Bengal v. Mis. B.K. Moftdal( 1),
three conditions must be satisfied before this section can be invoked:
"The first condition is that a person should lawfully do some·
thing for another Person or deliver something to him. The second
H
condition is that in doing the said thing or ~delivering, the said
(I) [1962] I Supp. S. C. R. 876
UNION \' . .I. K. GAS PLANT (Koshal, !.) 899

thing he must not intend to act gratuitously; and the third is that
the other person for whom something is done or to whom some-
thing is delivered must enjoy the benefit thereof. When these
conditions are satisfied section 70 imposes upon the latter
person, the liability to make compensation to the former in res-
pect of or to restore. the thing so done or delivered."
B
On behalf of the defendant the objection raised to the applicabi-
lity of this section to the transaction in dispute is two-fold. The first
contention in this behalf is that the delivery to G. Brothers was
unlawful-a contention which we have already turned down. Secondly
it is said that no benefit at all was derived from the transaction by the
Union of India and that its sole beneficiaries were G. Brothers. This
c
objection has not only been overruled by the High Court but appears
to us also to be without substance. In this connection reference may
be made to some documentary and oral evidence. To begin with,
letter exhibit 16 which directed the plaintiff company to deliver the
goods to the Association specificirlly required that the plaintiff com- D
pany would make the bills in the name of the Iron and Steel Controller,
Calcutta, and send them for payment to the Kanpur Controller, The
inference which may reasonably be drawn from the contents of the
letter is that the Kanpur Controller was dealing with the goods as if
they belonged to the Government of India whose duty it was to pay for
them when they changed hands. and that the idrnti;y cf the party to E
whom the goods were to be delivered by the plaintill cc111pany under
the orders of the Kanpur Contrcllcr was immaterial. Secondly, the
Kanpur Controller (Mr.R.R. Chari) in his dcpcsiticn dnt<d the 24th
of June, 1946 made before the Second Special, Tribunal, Lahore (Camp
Bombay) in Criminal Case No. 3 of 1946, stated thus:
F
( "In September. 1944, J.K. Gas Plant Manufacturing Co.,

• Rampur, Ltd., handed over 137 tons of iron and.steel to Messrs .
Govan Brothers, Rampur, under instructions from our Dcpa1t-
ment. Messrs Govan Brothers thus held the,materials on behalf
of the Government."
G
It has been urged by learned counsel for the defendant that this
statement is not admissible in evidence as it was not made at the trial
"·--t of the case in hand. ButJit is toollate in the day for such an objection
to be entertained. The statement was admitted in evidence as exhibit
15 at the trial presumably,without1.objectioRand cannot now be thrown
out. According to it G. Brothers held the supply of steel made to them H
by the plaintiff company not for themselves but on behalf of the
Government. Besides, a letter (exhibit 51) which was issued by the
900 SUPREME COURT REPORTS [1980] 3 S.C.R.

A .Kanpur Controller to Mr. Siddiq Ali Khan of the Department of
Industries and Commerce, Rampur, also states:
"In thiS:connection I may mention that the steel is virtually the
property of the Government of India, War Transport Depart-
ment and under no circumstances can the Government loose
B money in the bargain. I am obtaining the actual cost of the ma-
terials plus all incidental charges and I will let you know the
amount to be paid by each party alongwith written orders re-
gularising the issue of these materials to the various parties.
I have to hold you and you in turn Messrs. Govan Bros.
(Rampur) Ltd., responsible for the recovery of the cost of the
C materials when intimated to you."

There is no reason for us to hold, in view of this statement that
the steel supplied by the plaintiff company to G. Brothers was not
being held by the latter on behalf of the Government of India and

D ' .
if that be so, the Government must be held to have reaped full bene-
fit of the delivery to G. Brothers and it is immaterial how the steel
supplied to the latter was dealt with later on.

9. Learned counsel for the defendant cited S. I. Railway Co.
v. Madura Municipa,'ity (') for the proposition that the benefit to the
defendant was in any case an indirect one which would not faUwithin
E the ambit of the third condition envisaged by the provisions of section
70 of the Indian Contract Act. In that case the South Indian Railway
had widened a culvert in compliance with an order passed by the Pro-
vincial Government under certain provisions of the Railways Act,
1890. The work was done primarily for the benefit of the private
owners of property in the neighbourhood. The Railway Company
F however sued the Municipal Committee within the territorial limits
of whose jurisdiction the culvert lay for the cost of widening it on the
ground that the Municipal Committee received a benefit because it
recovered taxes from the owners or occupiers of the property. In
turning down the claim of the South Indian Raihvay Company Leach.
C. J., who delivered the judgment of the division Bench consisting
G
of himself and Lakshmana Rao, J., stated:

"This is a very indirect benefit, and section 70 can in our opin-
ion only have application where there is direct benefit to the
person for whom the work is done. The persons who
are eajoying the benefit o! this work are the owners and occupiers
H
of the buildings in the locality. Tt would be doing violence to
(!) A. I. R. 1945 Madras 427.
UNION v. J. K. GAS PLANT (Koshal, l.) 901

the section to say that in these circumstances the work was done A,
for the benefit of the municipality."
The judgment of the Division Bench was upheld by their Lord -
ships of the Privy Council in Governor-General In Council, Represented
by the General Manager, South Indian Railway v. Municipal Council,
Madura, Through its Commissioner along with the reasons on B
which it was based. But then the case is of no help to the defendant
who had enjoyed"the fullbenefitof the delivery"of goods to G. Brothers
and not merely an indirect benefit thereof.
10. For the reasons stated the appeal fails and is dismissed with
costs.

S. R. Appeal dismissed