DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM, A.P., INDIA

PROJECT TITLE

SECTION 18 IN SALE OF GOODS ACT

SUBJECT

CONTRACTS

NAME OF THE FACULTY

P. JOGI NAIDU

Name of the Candidate

D.SUMANTH

Roll No.
2018LLB120

SEMESTER 3

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 ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to my teacher P. JOGI NAIDU

sir who gave me the golden opportunity to do this wonderful project on the topic of
(SECTION 18 IN SALE OF GOODS ACT) which also helped me in doing a lot of Research
and I came to know about so many new things I am really thankful to them.
Secondly I would also like to thank my friends who helped me a lot in finalizing this project
within the limited time frame.

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TABLE OF CONTENTS :-

1. INTRODUCTION………………………………………………………………… 1
2. The Commissioner Of Sales Tax vs Tata Iron And Steel Co. Ltd………………7
3. P.S.N.S. Ambalavana Chattian and others Vs Express Newspapers Ltd………11
4. State of Maharashtra, Bombay and Others V. Britannia Biscuits Company Limited
and Others…………………………………………………………………………….14
5. Marji Jeta vs Honnavar Puthu Hari Pai And Anr…………………………………..17
6. Louis Dreyfus And Co. Ltd. By Its Vs The South Arcot Groundnut Market………19

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 AIM OF THE STUDY/SIGNIFICANCE OF STUDY
Aim of our study is to make people understand section-18 in sake of goods act

RESEARCH METHODOLOGY
Doctrinal

SCOPE OF THE STUDY

Wide

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INTRODUCTION :-

Section 18 in The Sale of Goods Act, 1930

18. Goods must be ascertained.—Where there is a contract for the sale of unascertained goods, no
property in the goods is transferred to the buyer unless and until the goods are ascertained.
1. Corresponding English Law
A. This section corresponds to Section 16 of the English Sale of Goods Act 1893 (now Section 16
of the English Sale of Goods Act, 1979).
B. The English Act has not defined unascertained goods, but for the purpose of passing of the
property they seem to fall into three categories: generic goods, for instance ”100 tons of com”; the
unascertained portion of an ascertained whole, for instance, ”100 tons of corn from the 1,000 tons
which A has in his warehouse”; and most types of future goods. 2. Goods to be Ascertained (a)
No property in goods is transferred to the buyer from the seller unless and until the goods are
ascertained. 2 (b) A & Co issued to B &: Co. a pucca delivery order in accordance With the
customs prevailing in Calcutta jute market. It has been held that it IS a document of title to obtain
goods. If the transferee of delivery order has to perform new of the obligations and enter into new
stipulations to obtain the right to deliver goods, then it does not satisfy the definition of Section 18
and the delivery order cannot be described as document of title.3 (c) A agrees to sell to B logs of
timber while trees are embedded in the earth. It has been held that the logs of timber agreed to be
supplied have no existence as an individual chattel, until the trees are cut and severed from the
land, and specifications are separated. If there be a contract that the property in to page wen before
the property is put into a deliverable state, the property may pass
(d) One jagirdar agrees to sell to Ram logs of timber after telling trees. Before piling ms the estate
has vested in the State by special enactment. It has beef‘ told that the purchaser cannot claim to
cut trees. Agreement is not of sale of mac goods but of future goods. The ownership does not pass
to purchaser at he time of the agreement.‘
(e) The respondent carried on business at Chanda in the erstwhile Central provinces. He entered
into an agreement with the Western India Match Co. Ltd. tot M9 to be supplied under the
agreement were to be despatched by the respondent from railway stations in the Central Provinces.
They were to be measured under the supervision of the Company’s Manager at Ambemath in the
prince of Bombay on arrival. The prices of the goods were specified as ”F.O.R. Ambemath". It
was held that the goods were unascertained goods and as such the property in them could not pass
under Section 18 of the Sale of Goods Act till the goods were ascertained.
(f) Pucca delivery order: The contract represented by the pucca delivery order is a contract for
the sale of unascertained goods and no property in the goods is transferred to the buyer in view of
Section 18 of the Act till the goods are ascertained by appropriation.
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(3) Contract between Government and a company: Where a company was permitted to remove
bamboos from a forest at certain rate per ton under a contract with the Government and the
Government by an order enhanced that rate, such order would not cover expressly or impliedly the
bamboos that were extracted but not lifted or removed prior to the date of that order and the
enhanced rate would not be applicable to the bamboos cut although not removed prior to the date
of the Government order. The property in such bamboos had already passed to the ' ' company.‘
3. Contract for Sale of Unascertained Goods
1n P.S.N.S.A.C. 5' Co. v. Express Newspapers, AIR 1968 SC 741 a question arose when property
in goods is transferred in case of a contract for sale of unascertained goods. It was held by the
Supreme Court with reference to Section 18 of the Sale of Goods Act, 1930 that in such a case no
property in the goods is transferred to the buyer unless and until the goods are ascertained. It is a
condition precedent to the passing of property under a contract of sale that the goods are
ascertained. The condition is not fulfilled where there is a contract for sale of portion of a specified
larger stock. Till the portion is identified and appropriated to the contract, no property passes to
the buyer. In this connection.

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 The Commissioner Of Sales Tax
vs
Tata Iron And Steel Co. Ltd.
(1 December, 2006)

Equivalent citations: (2007) 5 VST 137 Bom

Bench: H Gokhale, J Deva Dhar
FACTS :-
The respondent who was a registered dealer under the Bombay Act and the Central Act had
imported and sold to its customers certain items of steel and iron and claimed that the sales were
in the course of import covered under Section 5 of the Central Act and consequently not liable to
tax under Section 75 of the Bombay Act. two reference applications are filed by the Commissioner
of Sales Tax (Commissioner for short) under Section 61 of the Bombay Sales Tax Act, 1959 (for
short the Bombay Act) read with Section 9(2) of the Central Sales Tax Act, 1956 (for short "the
Central Act). These two reference applications arise from the order of the Maharashtra Sales Tax
Tribunal dated 6th August, 2005. The Assessing Officer, however, by his order dated 30th March,
1996 held that the local sales and the interstate sales of iron and steel effected by the respondent
were neither covered under the first limb (sale occasioning such import) nor under the second limb
(sale by transfer of documents of title before the goods crossed the Customs Frontiers of India) of
Section 5(2) of the Central Act. The appeals filed by the respondent against the assessment orders,
both under the Bombay Act and the Central Act were dismissed by the first appellate authority on
3rd April, 2000. On second appeals filed by the respondent, the Maharashtra Sales Tax Tribunal
by its order dated 9th October, 2001 held that in the facts of the case, the sales were covered under
both limbs of Section 5(2) of the Central Act.
ISSUES :-
1. Whether on the facts and in the circumstances of the case, the Tribunal was justified in law
in allowing the claim of Rs. 51,36,02,035/-in respect of various transactions of Local Sales
and Rs. 1,67,16,740/-in respect of interstate sales (As per Annexure A) covered by four
bulk imports by ships and which were in unascertained stage till the clearance from
customs as sales in the Course of import by transfer of document of title to the goods within
meaning of Section 5(2) of the Central Sales Tax Act, 1956 read with Section 75 of the
Bombay Sales Tax Act, 1956 and hence not liable to tax under the B.S.T. Act 1959 or
C.S.T. Act 1956 ?
2. Whether on the facts and in the circumstances of the case the Tribunal was justified in law
holding that the provisions of the Sale of Goods Act, 1930 particularly Section 18 of the
Sales of Goods Act 1930 is not applicable to transactions in dispute ?

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3. Whether on the facts and in the circumstances of the case and on a true and correct
interpretation is the Tribunal justified in law in holding that the impugned sales are also
sales in the course of import and covered by first limb of Section 5(2) of C.S.T. Act 1956
and exempt from tax?
4. Whether on the facts and in the circumstances of the case was the Tribunal was justified in
directing to delete consequential interest of Rs. 1,47,91,738/- levied under Section 36(3) of
the B.S.T. Act.
PLAINTIFF’S CONTENTION :-
According to Mr. Sonpal, learned Counsel for the Commissioner, the imports made by the
respondent were neither covered under the first limb nor under the second limb of Section 5(2)
of the Central Act and, therefore, the Tribunal ought to have referred all the questions raised
in the applications for the opinion of this Court. Mr. Sonpal further submitted that in the present
case there is no material on record and there is no discussion as to how the findings have been
arrived at. In the present case, admittedly letters of credit have not been executed by the local
purchasers in favour of the foreign supplier. Therefore, there was no privity of contract between
the foreign supplier and the local purchasers. Thus, in the present case there were two
independent contracts, one between the respondent and the overseas supplier and another
between the respondent and the local buyers. The Tribunal has nowhere discussed that the
respondent was only an agent between the foreign supplier and the local purchasers and that
the import is directly between the foreign supplier and the local purchasers on principal to
principal basis.
RESPONDENT’S CONTENTION :-
Section 18 says that Goods must be ascertained. Where there is a contract for the sale of
unascertained goods, no property in the goods is transferred to the buyer unless and until the
goods are ascertained. Contention of the Commissioner that the imported goods were
unascertained goods covered under Section 18 of the Sale of Goods Act and, therefore, such
unascertained goods could not be sold on high sea sale basis, the Tribunal held that the
provisions of Sale of Goods Act are not applicable in the instant case. Mr. Jetly, learned senior
advocate appearing on behalf of the respondent referred to various documents furnished by the
respondent before the Assessing Officer and submitted that in the present case the Tribunal on
perusal of those documents came to the conclusion that sale occasioned movement of the goods
and, therefore, sales were covered by the first limb of Section 5(1) of the Central Act. Relying
upon various decisions of the Apex Court, Mr. Jetly submitted that once it is established on
facts that the sales are covered under the first limb of Section 5(2) of the Central Act, the tax
liability becomes exempted and in such a case the question as to whether the sales are covered
under the second limb of Section 5(2) of the Central Act becomes wholly academic. In these
circumstances, Mr. Jetly submits that the Tribunal was justified in rejecting the reference
applications filed by the Commissioner.

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OBSERVATIONS :-
With reference to the applicability of the first limb of Section 5(2) of the Central Act is
concerned (Question No. 3), Mr. Sonpal submitted that in the present case, all the guidelines
laid down by the Apex Court in the case of K. Gopinath Nair v. State of Kerala reported in
105 STC 580 have not been complied with and the Tribunal has only made cursory remarks
that the sales were in the course of import and that the nexus between the overseas supplier
and the local buyer has been established. Accordingly, it is submitted that the findings recorded
by the Tribunal being totally perverse and there being no privity of contract or nexus between
the local sale and the import, the questions raised by the Commissioner must be considered on
merits. various documents furnished by the respondent before the Assessing Officer and
submitted that in the present case the Tribunal on perusal of those documents came to the
conclusion that sale occasioned movement of the goods and, therefore, sales were covered by
the first limb of Section 5(1) of the Central Act. Relying upon various decisions of the Apex
Court, Mr. Jetly submitted that once it is established on facts that the sales are covered under
the first limb of Section 5(2) of the Central Act, the tax liability becomes exempted and in such
a case the question as to whether the sales are covered under the second limb of Section 5(2)
of the Central Act becomes wholly academic. In these circumstances, Mr. Jetly submits that
the Tribunal was justified in rejecting the reference applications filed by the Commissioner.
Though there were two sets of letters of credit, one by the local buyers in favour of the
respondent and another by the respondent in favour of foreign supplier, the Tribunal on
appreciation of facts has held that there was inextricable link between sale and import.
Referring to the decision of the Apex Court in the case of Gopinath Nair (Supra), the Tribunal
held that in the present case, even though there were back to back contract, the link between
the two has not been severed. In these circumstances, the contention of the Commissioner that
there are no material on record and that the Tribunal has not discussed the issue in detail
relating to applicability of the first limb of Section 5(2) of the Central Act cannot be accepted.
As the findings that sales are covered under the first limb of Section 5(2) of the Central Act
are based on facts, the Tribunal was justified in rejecting the third question raised by the
Commissioner.
On perusal of the order passed by the Tribunal it is seen that the Tribunal in paras 38 to 45 of
the judgment has discussed in detail the terms of the contract entered into by and between the
respondent and the local buyers and after analysing the terms of the contract and the subsequent
chain of events came to the conclusion that there is an inextricable link between the import and
sale of goods in question. The Tribunal has recorded findings to the effect that the contract
between the respondent and the local buyers preceded the contract between the respondent and
the foreign suppliers. As per the contract entered into by and between the respondent and the
local buyers, the respondent was to import goods from the foreign supplier named therein and
supply at the prices mentioned therein. The Tribunal has noticed that as per the written
agreement, irrevocable letters of credit were to be opened by the local buyers and in fact such
letters of credit have been opened by the local buyers in favour of the respondents. Thereupon,
the respondent placed orders for import of goods by opening irrevocable letters of credit in
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favour of the foreign suppliers. The orders placed were for the same commodity set out in the
contracts entered into by and between the respondent and the local purchasers. The Tribunal
has noted that the commercial invoices issued by the foreign suppliers contained the name of
the local buyers to whom the goods were to be supplied and even the bills of lading contained
the names of the local buyers. The Tribunal has further recorded that in the present case, the
imported goods have been in fact cleared by the local purchasers by filing bills of entry. Thus,
the findings recorded by the Tribunal that the sales occasioned the movement of goods into the
country and hence covered under the first limb of Section 5(2) of the Central Act are findings
based on analysis of facts which are record. The genuineness of the transactions are not doubted
and the documents furnished by the respondent are not disputed by the Sales Tax Authorities.
Once the Tribunal held that in the present case the sales were covered under the first limb of
Section 5(2) of the Central Act and, consequently exempt from payment of tax, the question
as to whether the sales were exempt under the second limb of Section 5(2) of the Central Act
became academic. In this view of the matter, the refusal on the part of the Tribunal to refer
Question Nos.1 and 2 relating to the applicability of the second limb of Section 5(2) of the
Central Act as well as the provisions of the Sale of Goods Act to the transactions in question
cannot be faulted. Similarly, Question No. 4 being consequential, the said question has not
been referred.
JUDGEMENT :-
However, we expressly make it clear that we have declined to refer questions No. 1 and 2
because in the facts of the present case the said question are academic in nature and it will be
open to the department to agitate those questions in any appropriate case before the appropriate
forum. In the result, we hold that the decisions of the Tribunal in the present case are is based
on facts and, therefore, the orders passed by the Tribunal in rejecting the Reference
Applications filed by Commissioner cannot be faulted. Accordingly, we dismiss both the
reference applications with no order as to costs and also rejected contention of the
Commissioner that the imported goods were unascertained goods covered under Section 18 of
the Sale of Goods Act and, therefore, such unascertained goods could not be sold on high sea
sale basis, the Tribunal held that the provisions of Sale of Goods Act are not applicable in the
instant case.

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 P.S.N.S. Ambalavana Chettiar and others
Vs
Express Newspapers Ltd
(10 November, 1967)

Equivalent citations: 1968 AIR 741, 1968 SCR (2) 239

Bench: Bachawat, R.S.
FACTS :-
On 13th November 1951, the respondent agreed to sell the appellants a stock of 415 tons of
newsprint in sheets then lying in the respondent's godown. On 26th November, the parties
varied the contract by agreeing that the appellants would buy only 300 tons out of the stock of
415 tons. After taking delivery of a part of the newsprint, the appellants refused to take delivery
of the balance and repudiated the contract on 29th March 1952. On November 26, 1951, the
parties orally agreed that instead of 500 tons the respondent would buy 300 tons of newsprint
in reels and that instead of 415 'tons the appellants would buy 300 tons of newsprint in sheets
and the terms of the contract dated November 13, 1951 would stand varied accordingly. On
21st April the respondent, after notice to the appellants. resold the balance at a lesser
rate. The suit filed by the respondent claiming from the appellants the deficiency on resale
was decreed.
ISSUES :-
1 . Whether the seller has right to resale of goods under 54(2) of sale of goods act?
2. Whether P.S.N.S. Ambalavana Chettiar i.e. respondent can claim damages?

APPELLANT’S CONTENTION :-
Fr0m N0vember 29, 1951 up t0 February 27, 1952, the appellants t00k delivery 0f 122324 lbs. 0f
newsprint in sheets 0n payment 0f. Rs. 63,032-15-9 t0 the resp0ndent. Subsequently, the
appellants refused t0 take 'delivery 0f the balance 547501 lbs. 0f newsprint in sheets. C0unsel f0r
the parties agreed bef0re us that March 29, 1952 was the date when the appellants repudiated the
c0ntract. 0n April 21, 1952 after giving n0tice t0 the appellants the resp0ndent res0ld the balance
g00ds t0 0ne G.R. Lala at 61/2 annas per lb. 0n April 18, 1952, the appellants filed in the High
C0urt 0f Madras C.S. N0. 175 0f 1952 claiming fr0m the resp0ndent Rs. 57,816-13-2 0n acc0unt
0f the balance price 0f 300 t0ns 0f newsprint in reels and interest there0n. The resp0ndent admitted
the claim f0r the balance price. 0n July 30, 1952, the resp0ndent filed in the High C0urt 0f Madras
C.S. N0. 262 0f 1952 claiming a decree f0r Rs. 62,266-13-2 0n acc0unt 0f the balance price 0f
122324 lbs., the deficiency '0n resale 0f 547501 lbs. 0f the newsprint in sheets, interest and
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insurance charges after setting 0ff the sum 0f Rs. 57,816-13-2 due t0 the appellants. The principal
defence 0f the appellants was that the c0ntract with regard t0 415 t0ns 0f newsprint in sheets was
cancelled in N0vember, 1951 and that appellant N0. 2 was n0t a party t0 this c0ntract. The
appellants als0 denied the factum and validity 0f the resale. The tw0 suits were tried. by
Rajag0pala Ayyangar, J. He dismissed C.S. N0. 175 0f 1952 and decreed C.S. N0. 262 0f 1952.
Fr0m these tw0 decrees, the appellants filed tw0 appeals in the High C0urt 0f Madras. A Divisi0n
Bench 0f the High C0urt dismissed the tw0 appeals. The present appeals have been filed 0n
certificates granted by the High C0urt.
RESPONDENT’S CONTENTION :-
The principal argument advanced by Mr. Gupte was that the pr0perty in the g00ds res0ld 0n April
21, 1952 had n0t passed t0 the appellants and the resale was c0nsequently invalid. We are inclined
t0 accept this argument. It is t0 be n0ticed that the c0ntract did n0t envisage any l0an 0f m0ney
by ,the resp0ndent t0 the appellants 0n the security 0f the newsprint in sheets. The payment 0f Rs.
3,18,706-9-10 was made by the resp0ndent t0wards part discharge 0f its liability f0r the price 0f
the newsprint in reels. N0. d0ubt, the c0ntract stated: "We shall advance y0u m0neys against this
newsprint at annas 8 per lb. This advance will carry interest at 5 per cent per annum." But the real
imp0rt 0f this clause was that the appellants w0uld pay interest at 5 per cent per annum 0n an
am0unt equivalent t0 the price 0f the newsprint in sheets calculated at 8 annas per lb. The
resp0ndent was n0t a pledge 0f the newsprint in sheets and had n0 right t0 sell the g00ds under s.
176 0f the Indian C0ntract Act, 1872. The real questi0n is whether the resp0ndent had the right t0
resell the g00ds under s. 54(2) 0f the Sale 0f G00ds Act, 1930.
OBSERVATIONS :-

As the resp0ndent was n0t a pledger 0f the newsprint, the resp0ndent had n0 right t0 sell the g00ds
under sec.176 0f Indian C0ntracts Act. A seller can claim as damages the difference between the
c0ntract price and the am0unt realised 0n the resale 0f the g00ds where he has the right 0f resale
under sec.54(2) 0f the Indian sale 0f g00ds Act, 1930. But this statut0ry resale arises 0nly if the
pr0perty in the g00ds has passed t0 the buyer subject t0 lien 0f the unpaid seller. Under sec.18 0f
Sake 0f g00ds act, it is a c0nditi0n precedent t0 the passing 0f the pr0perty under a c0ntract 0f
sale that the g00ds are ascertained. In the present case, when the c0ntract was 0riginally entered
int0 f0r the sale 0f specific g00ds in a deliverable state and the pr0perty in th0se g00ds then passed
t0 the appellants. The seller can claim as damages the difference between the c0ntract price and
the am0unt realised 0n resale 0f the g00ds where he has the right 0f resale under s. 54(2) 0f the
Sale 0f G00ds Act. The statut0ry p0wer 0f resale under s. 54(2) arises if the pr0perty in the g00ds
has passed t0 the buyer subject t0 the lien 0f the unpaid seller. Where the pr0perty in the g00ds
has n0t passed t0 the buyer, the seller has n0 right 0f resale under s. 54(2). The questi0n is whether
the pr0perty in the 300 t0ns 0f newsprint in sheets had passed t0 the appellants bef0re the resale.
0n N0vember 13, 1951, the resp0ndent agreed t0 sell t0 the appellants tile st0ck 0f 415 t0ns 0f
newsprint in sheets then lying in the resp0ndent's g0d0wn in Madras. Secti0n 18 0f the Sale 0f
G00ds Act pr0vides that where there is a c0ntract f0r the sale 0f unascertained g00ds n0 pr0perty
the g00ds is transferred t0 the buyer unless and until the g00ds are ascertained. It is a c0nditi0n

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precedent t0 the passing pr0perty under a c0ntract 0f sale that the g00ds are ascertained. The
c0nditi0n is n0t fulfilled where there is a c0ntract f0r sale 0f a p0rti0n 0f a specified larger st0ck.
Till the p0rti0n is identified and appr0priated t0 the c0ntract, n0 pr0perty passes t0 the buyer.
In Gillett v. Hill(1), Bayley, B. said:
"Where there is a bargain f0r a certain quantity extra greater quantity, and there is h p0wer 0f
selecti0n in the vend0r t0 deliver which he thinks fit, then the right t0 them d0es n0t pass t0 the
vendee until the vend0r has made his selecti0n, and tr0ver is n0t maintain able bef0re that is d0ne.
If I agree t0 deliver a certain quantity 0f 0il as ten 0ut 0f eighteen t0ns, 0n 0ne can say Which part
0f the wh0le quantity I have agreed t0 deliver until a selecti0n is made. There is n0 individuality
until it has been divided."
N0 p0rti0n 0f 415 t0ns 0f the newsprint lying in the resp0ndent's g0d0wn was appr0priated t0 the
c0ntract by the resp0ndent with the appellant’s c0nsent bef0re the resale. 0n the date 0f the resale,
pr0perty in the g00ds had n0t passed t0. the buyer C0nsequently, the resp0ndent had n0 right t0
resell the g00ds under s. 54(2). The claim t0 rec0ver the deficiency 0n resale is n0t suitable. The
resp0ndent t0 claim as damages the difference between the c0ntract price and the market price 0n
the date 0f the breach. Where n0 time is fixed under the c0ntract 0f sale f0r acceptance 0f the
g00ds, the measure 0f damages is prima facie the difference between the c0ntract price and the
market price 0n the date 0f the refusal by the buyer t0 accept the g00ds, see Illustrati0n (c) t0 s.
73 0f the Indian C0ntract Act. In the present case, n0 time was fixed in the c0ntract f0r acceptance
0f the-g00ds. 0n March 29, 1952, the appellants refused t0 accept the g00ds. The resp0ndent is
entitled t0 the difference between the c0ntract price and the market price 0n March 29, 1952.
JUDGEMENT :-
The claim 0f resp0ndent was unsustainable. In the result, Civil Appeal N0. 165 0f 1965 is all0wed
in part, the decrees passed by the C0urts bel0w are varied by substituting theref0re a decree in
fav0ur 0f the resp0ndent against the appellants f0r a sum 0f Rs. 10,980-12-8 with interest there0n
at 6 per cent per annum fr0m July 30, 1952. The decrees f0r 'c0sts passed by the C0urts bel0w are
affirmed. There will be n0 0rder as t0 c0sts in this C0urt. Civil Appeal N0. 166 0f 1965 is
dismissed. N0 0rder as t0 c0st there0f. V.P.S. C.A. 165 0f 1965 all0wed in part. C.A. 166 0f 1965
dismissed. It was held by the supreme c0urt with reference t0 secti0n 18 0f the sale 0f g00ds act,
1930 that in such a case n0 pr0perty in the g00ds is transferred t0 the buyer unless and until the
g00ds are ascertained. It is a c0nditi0n precedent t0 passing 0f pr0perty under c0ntract 0f sale that
the g00ds are ascertained. The c0nditi0n is n0t fulfilled where there is a c0ntract f0r a sale 0f
p0rti0n 0f specified large st0ck. Till the p0rti0n is identified and appr0priated t0 the c0ntract, n0
pr0perty passes t0 the buyer.

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 State of Maharashtra, Bombay and Others
v
Britannia Biscuits Company Limited and Others
(23 November, 1994)

Bench: B.P. Jeevan Reddy, S.B. Majumdar

Citation: 1994 Indlaw
SC 1211, (1995) Supp2 SCC 72, JT 1994 (7) SC 727, 1994(5) SCALE 44, 1995 (96) STC 642,
[1994] Supp5 S.C.R. 719
FACTS:-
Britannia sold biscuits in Bombay and other states in tins. They sold these biscuits under two types
of agreements: one for Bombay and one for other states. For other states, they sold the biscuits
along with the tins. But for Bombay, they offered to sell the biscuits in tins which could be returned
by the customers and price of the tins would be refunded back to the consumers. But this return
must be within 3 months of the sale of biscuits and not after that. The respondents manufactured
and sold biscuits in tins. In respect to the biscuits sold in Bombay and its suburbs, the assessed
(respondents) charged only for the price of the biscuits. With regards to the tins, the respondents
took a refundable deposit (which was 20% more than the actual cost of the tin), with the stipulation
that if the tins were returned within a period of three months and in a good condition, the refundable
amount would be returned. The assessee however, did not adhere to this, in practice, and accepted
tins even after three months. As per its accounting practice the assessed wrote off 50% of the
outstanding unrefunded deposit for the assessment year 1967-68 and treated 20% of the deposit
amount as profit. The Assessing auth. treated this amount as sale price of unreturned tins and
included the same in the taxable turnover of the assessee. Now, certain facts that will help us
determine the outcome of this case:
1. Different types of sale for Bombay and other states.
2. The invoices made when the biscuits were sold, mentioned sale of the biscuits.
3. The company mentioned that the customers may or may not return the tins after 3 months and
this was totally on the discretion of the customers.
4. The account drawn by the company was divided into two parts: one for returned tins and another
for tins which were sold off; this indicated that the company contemplated that some of the tins
could be sold off
5. The 3 month time for return was not strictly adhered to; thus showing the level of seriousness
of the company

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ISSUES:-
1. Whether there was an obligation upon the purchaser to return the tins or was it a case
where the return or non-return of the tins lay within the discretion of the purchaser?
2. Was there sale or bailment in the present case?
3. What was the actual nature of the transaction?

APPELLANT’S CONTENTIONS :-
No such obligation (as observed by HC) can be inferred from the endorsement on the price list and
invoice of the assessee. The return of the tin lay within the discretion of the purchaser as even the
time-limit was not strictly observed in practice and hence the arrangement was one of sale and not
bailment.

RESPONDENT’S CONTENTIONS :-
The tins supplied to the purchasers continued to be the property of the respondents and they were
shown as the stock of the respondents in their account books. Therefore, it was a case of bailment
and not sale. The amount written off can be treated at the most as compensation or damages for
breach of the obligation lying on the purchaser to return the tins. There is a difference of approach
adopted by Assessing the First Appellate and the approach adopted by the tribunal. While the
former held that the sale of tins took place when the respondent made the entries in its accounts at
the end of the accounting year writing off half the outstanding balance amount, the tribunal
understood it as sale of tins along with the biscuits and held that when the tins were returned and
the deposit were refunded by the respondent, it was the case of purchase of tins by the respondent.
For constituting the “sale price” as defined by sale of good act, there must be a specific sale of
goods to a specific buyer and that on the approach adopted by the assessing Auth. And the First
Appellate Auth. no such specificity is identifiable and on such ground sale-price can’t be
ascertained.

OBSERVATIONS :-
Section 18 says that Goods must be ascertained. Where there is a contract for the sale of
unascertained goods, no property in the goods is transferred to the buyer unless and until the goods
are ascertained. In our opinion, the transaction in question is neither a bailment nor a pledge. It
was a composite transaction. It was to start with an entrustment which could result in a sale of tins
in case of non-return of the tins. While entrusting the tins, the respondent took care to stipulate and
receive the value of the tins and a little more to the precise 20 %. If the tin was returned, well and
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good the transaction remained one of entrustment. But if not returned within 3 months, it became
a sale as per the terms of the transaction. The fact that the respondent was receiving back the tins
even after the expiry of three months and returning the deposit was more by way of grace probably
a business decision rather than a matter of right or an obligation.
We must at this stage, refer to Section 24 of the Sale of Goods Act, 1980. It reads:
"24. Goods sent on approval or "on sale or return". When goods are delivered to the buyer on
approval or "on sale or return" or other similar terms, the property therein passes to the buyer
(a) When he signifies his approval or acceptance to the seller or does any other act adopting the
transaction:
(b) if he does not signify his approval or acceptance to the seller but retains the goods without
giving notice of rejection, then, if a time has been fixed for the return of the goods, on the expiration
of such time, and if no time has been fixed, on the expiration of a reasonable time.

JUDGEMENT
SC concurred to this point and said that court should not be led away by the manner in which the
assessee has made entries in its own account but must look to the substance of the transaction and
decide what in truth it amounts to. Neither the endorsement on the price list nor the endorsement
on the invoice can be said to create an obligation to return. Also, the time limit was not strictly
adhered to Once it is held that there was no obligation to return the tins the theory of bailment falls
to the ground and the said trading receipt can’t be anything but sale price. It may also be noticed
theory of bailment put forward by the respondent is in the opinion, not very accurate. Once it is
held that there was no obligation to return the tins, the theory of bailment falls to the ground. It
would then not be a case where some property of the respondent was entrusted to the
purchasers/customers with stipulation that they should be returned .or otherwise disposed of
according to the directions of the respondents, within the meaning of Section 148 of the Contract
Act, which defines the expression. It appears that each customer/purchaser (evidently ail of them
were wholesalers) had an account with the respondent and when a particular number of tins were
supplied to a customer, an entry was made to that effect in that customer's account in the account
books of the respondent besides making an entry in the other relevant account books of the
respondent. It is further recorded in the judgment that when the customer returned the tins, a
reverse entry was made in the customer's account as well as in the relevant account books of the
assessee. If so there could be no difficulty in identifying the customer who failed to return the tins.
The submission of Mr. Vellapally is thus without a factual foundation.

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 Marji Jeta
vs
Honnavar Puthu Hari Pai And Anr.
(29 July, 1915)
Equivalent citations: 31 Ind Cas 334
Bench: Spencer, Coutts-Trotter
FACTS :-
The facts are that the 2nd defendant, as the agent of the 1st defendant who carried on business at
Honnavar, instructed plaintiff at Mangalore to send to the 1st defendant 101 gunny bags of
Rangoon rice by loading them in the "Machva." This instruction is referred to in Exhibit A, dated
1st May. On the 4th May the plaintiff shipped 101 bags of rice on board the "Machva" to Honnavar.
No letter of requisition was given to the, Captain of the ship instructing him to deliver the goods
to the 1st defendant, the purchaser, but the plaintiff sent his servant in advance with the letter,
Exhibit F, to the 1st defendant, dated 4th May, in which occurs the following passage: 'As soon,
as they reach you, you should obtain them and write to that effect. The rate, description and ankda
thereof will be communicated to you later on. As there is a great urgency for money you should
pay Rs. 700 to Mr. Venkatesa Prabhu, the bearer of this letter." On the 7th May, there was a storm
in Mangalore harbour, the ship was stranded and the rice was damaged and had to be sold at a
considerable loss.

ISSUE :-
1.Which of these persons is to bear the loss representing the difference between the contract rate
and the rate at which the damaged rice was sold?

PLAINTIFF’S CONTENTION :-
The Courts below have held that the loss must be borne by the plaintiff, on the ground apparently
that as the vendor shipped the goods without indicating the consignee to the Captain and desired
that the rice should not be delivered until its price has paid, it could not be held that the property
in the goods passed from the vendor to the purchaser. It is suggested that in the Indian Law the
position is different from that under the English Law.

DEFENDANT’S CONTENTION :-
The question raised by this second appeal is whether the purchaser, i.e., the 1st defendant is liable
for the price of Rangoon rice shipped to him in pursuance of the instructions given by the 2nd
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defendant. When the 2nd defendant instructed the plaintiff to sell him rice and send it on board the
ship, he must be taken to have proposed to the plaintiff that the property should pass to the
purchaser upon shipment. That was the offer and plaintiff accepted it by shipping the goods and
the acceptance was not made subject to the condition that plaintiff should reserve to himself the
right of disposal until the price of the goods was paid.

OBSERVATIONS :-
Section 18 says that Goods must be ascertained. Where there is a contract for the sale of
unascertained goods, no property in the goods is transferred to the buyer unless and until the goods
are ascertained. The Courts below have held that the loss must be borne by the plaintiff, on the
ground apparently that as the vendor shipped the goods without indicating the consignee to the
Captain and desired that the rice should not be delivered until its price has paid, it could not be
held that the property in the goods passed from the vendor to the purchaser.
It is suggested that in the Indian Law the position is different from that under the English Law. It
is quite clear in English Law that the passing of the property will be governed by the intention of
the parties, and that the rules laid down in Section 18 of the Sale of Goods Act for the
determination of what the intention of the parties is are not to override the intention of the parties,
if that intention is otherwise clear.
It is suggested that in India, the law is different and whatever be the intention of the parties in fact,
the Statute lays down definite rules in accordance with which the property passes at the time and
in the "circumstances prescribed in the rules. That appears to be the view taken by the Calcutta
High Court in the case of Brij Coomaree v. Salamander Fire Insurance Co. 32 C. 816. It is not
necessary for the purpose of this case to decide whether this is the true construction of the Statute
or not, because in this case there is no evidence that the intention bf the parties, i.e., of both of
them was that the passing of the property should not follow the ordinary course. In the ordinary
course, as a result of Section 83 and Section 91 of the Indian Contract Act, property would pass
- on shipment.
When the 2nd defendant instructed the plaintiff to sell him rice and send it on board the ship, he
must be taken to have proposed to the plaintiff that the property should pass to the purchaser upon
shipment. That was the offer and plaintiff accepted it by shipping the goods and the acceptance
was not made subject to the condition that plaintiff should reserve to himself the right of disposal
until the price of the goods was paid.

JUDGEMENT :-
On these grounds we hold that the property passed as soon as the goods were shipped and the loss
must fall on the 1st defendant. We allow the appeal with costs in this Court and dismiss the
memorandum of objections.

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 Louis Dreyfus And Co. Ltd. By Its
Vs
The South Arcot Groundnut Market
(27 February, 1945)

Equivalent citations: (1945) 1 MLJ 414

FACTS :-
In each suit, the plaintiff was a company purchasing groundnuts and exporting them from
Cuddalore in the South Arcot district. The common defendant in the three suits was "The South
Arcot Groundnut Market Committee" by its President. That Committee was established under
Section 5 of the Madras Commercial Crops Act of 1933; and in exercise of the powers
conferred upon it by the Act, it claimed fees on sales of groundnuts to the three plaintiff firms.
The plaintiffs paid what was demanded of them and filed these three suits for the return of the
sums paid by them. For the purpose of argument two contracts entered into with Louis Dreyfus
& Co., Ltd., the plaintiff in O.S. No. 38 of 1942, have been referred to. The contracts entered
into with the other companies are of a similar nature; and it is conceded that if it is found, on
a perusal of the documents relating to the Louis Dreyfus & Co., Ltd., that the sale and purchase
took place within the South Arcot district, the sales and purchases in the other suits also took
place within the South Arcot district.

ISSUES :-
1.Whether the sales and purchases in question were within the South Arcot district?
2.Whether the defendant committee had power to levy these fees, in view of the feet that the
plaintiffs sold the property?

PLAINTIFF’S CONTENTION :-
Ex. P-4 is the contract discussed by the learned advocate for Louis Dreyfus & Co,. It has 18 clauses.
In general, the procedure to be adopted was that the seller, who was apparently a resident of
Sendurai situated outside the South Arcot district, was to send the nuts by rail to Cuddalore. The
contract contains specifications of the bags in which the nuts are to be packed. The buyers agreed
to pay advances up to 90 per cent of the value of all goods sent upon obtaining the railway receipt.
The bags were to be taken to the godowris of the buyers, who inspected the goods and reserved
the right, if not satisfied with the weight, quality and conditions of the goods, to reject them. If
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they accepted the goods, then they paid1 the sellers whatever was due to them after deducting the
advances. If they rejected the goods, they demanded whatever had been paid by way of advances.
This general description of the nature of the contract makes it clear that the final contract of sale
was completed only in Cuddalore, after an inspection had been made. The learned advocate for the
appellants stresses the provision of Section 23 of the Sale of Goods Act. Sub-section (1) reads thus
:
Where there is a contract for the sale of unascertained or future goods by description and goods of
that description and in a deliverable state are unconditionally appropriated to the contract the
property in the goods thereupon passes to the buyer.
It is argued that the goods were unconditionally appropriated to the contract when the sellers placed
the goods in the bags according to the specification and committed them to the charge of the
railway. The goods were not then, however, unconditionally appropriated to the contract; because
they were still subject to the approval of the buyers in their Cuddalore godown. We are therefore
satisfied, on a reading of Ex. P-4 that the purchase and sale was concluded in Cuddalore. One of
the arguments of the learned advocate for the appellants is based on the use of the word "and"
between the words "bought" and "sold" in Section 11 It is argued that Section 11 only applies
where a person purchases a crop within the notified area and sells it again within the same area.
The actual wording of the section is:
The market committee shall, subject to such rules as may be made in this behalf, levy fees on the
commercial crop or crops bought and sold in the notified area.

RESPONDENT’S CONTENTION :-
Under Section 18(2)(iv) as already pointed out, the Government may frame rules "fixing the
maximum annual fees which may be levied.. on the commercial crop or crops bought and sold in
the notified area." It is argued that as the Government has not fixed any such maximum fees, the
committee is not empowered to levy any fees at all. It seems to us a strange argument that although
the statute expressly requires the committee to levy fees on commercial crops bought and sold yet
they cannot do so because no maximum fee has been fixed. The committee must levy fees under
Section 11 unless there is something in the rules which qualifies or takes away that power. If the
Government had fixed the maximum annual fee, then the committee would have to levy fees on
crops bought and sold subject to that maximum. In the absence of a maximum, the committee can
levy whatever fees they consider to be proper.
In its earlier by-laws, the committee did fix a maximum, and it is argued that Section 19, which
empowers the committee to frame by-laws, restricts them to the regulation of the business and the
conditions of trading and does not permit them by their by-laws to fix fees; for that neither
regulated business nor has it anything to do with the conditions of trading. It was convenient for
the committee to give the scale of fees in the by-laws; so that everybody reading the by-laws could
see "what the fees were; but it is unnecessary for us to say whether Section 19 empowers the

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committee to frame by-laws fixing the fees, because the committee has clearly power to do so
under Section 11.

OBSERAVATIONS :-
Under Section 3, the Provincial Government may by notification, declare their intention of
exercising control over the purchase and sale of such commercial crop or crops in a particular area.
Under Section 4, the Government may notify such an area; and from the date of such notification
or from such later date as may be specified therein, "no person shall within the notified area set
up, establish, or continue or allow to be continued any place for the purchase, sale, storage, weigh-
ment, pressing or processing of the commercial crop or crops, so notified, except under a licence"
and except in accordance with the provisions of the Act and such rules and by-laws as may be
framed thereunder. Section 5 relates to the powers of the Provincial Government to establish a
market committee for such an area whose duty it is to enforce the provisions of the Act. Such a
committee is, by Section 7, a body corporate, with powers of sale, lease, etc. Under Section 11,
the section with which we are chiefly concerned, the market committee is bound, subject to such
rules as may be made in this behalf, to levy fees on the commercial crop or crops, bought and sold
in the notified area. Section 18 enables the Provincial Government to frame rules, consistent with
the Act, for carrying out all or any of the purposes thereof. The only sub-section with which we
are concerned is Sub-section (2)(iv) whereby the Provincial Government may fix the maximum
annual fees which may be levied by the market committee in respect of the licence granted under
Section 4 and on the commercial crop or crops, bought and sold in the notified area and the
recovery of such fees. Section 19 makes provision for the framing of by-laws. By-laws have been
framed by the committee; and in those bye-laws are found rules with regard to the levying of fees,
the maximum being fixed therein.
The market committee shall, subject to such rules as may be made in this behalf, levy fees on the
commercial crop or crops bought and sold in the notified area.
It seems to us that this means, especially having regard to the use of the word "shall" that the
market committee is bound to levy fees on all crops bought and on all crops sold. Even if it be
considered that there must be a purchase and a sale, then there was a purchase in this case and
there was also a sale. The plaintiffs bought the groundnuts and their vendors sold the nuts to them
within the notified area. The purchase and sale were within the notified area. We find no reason to
limit the application of this section only to those cases where the merchants who purchase the
crops subsequently sell them within the same notified area.

JUDGEMENT :-
These three appeals arise out of three suits that were tried together in the Court of the Subordinate
Judge of Cuddalore because they gave rise to identical questions of fact and law. In its earlier by-
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laws, the committee did fix a maximum, and it is argued that Section 19, which empowers the
committee to frame by-laws, restricts them to the regulation of the business and the conditions of
trading and does not permit them by their by-laws to fix fees; for that neither regulated business
nor has it anything to do with the conditions of trading. It was convenient for the committee to
give the scale of fees in the by-laws; so that everybody reading the by-laws could see "what the
fees were; but it is unnecessary for us to say whether Section 19 empowers the committee to frame
by-laws fixing the fees, because the committee has clearly power to do so under Section 11.
The appeals fail and are dismissed with costs--one advocate's fee--calculated on the value of A.S.
No. 491 of 1943 which amount should be proportionately divided between the three appellants.

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