Seksaria Cotton Mills Ltd vs State of Bombay

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Criminal Appeal No. 61 of 1952

Decision Date: 30 March 1953

Coram: Vivian Bose, Mehr Chand Mahajan, B. Jagannadhadas

The Supreme Court of India heard the appeal of Seksaria Cotton Mills Ltd. against the State of Bombay, with the judgment delivered on 30 March 1953. The bench comprised Justice Vivian Bose, Justice Mehr Chand Mahajan and Justice B. Jagannadhadas. The case was reported in the All India Reporter at page 278 and in the Supreme Court Reporter at page 825. The dispute arose under the Essential Supplies Act of 1946, specifically sections 7 and 9, which required every manufacturer to provide “true and accurate information relating to his undertakings” in a government-issued return. A government notification defined the term “delivered” or “delivery” as the physical delivery of cloth in bales and pieces, expressly excluding cloth that, although paid for, remained in the physical possession of the seller.

Seksaria Cotton Mills Ltd., a manufacturer of cloth, appointed D.K. & Co. as its sole del credere selling agent. That agent guaranteed payment of the price for all sales made by the mill and, in turn, guaranteed delivery to the purchasers with whom the agent dealt directly. In one transaction, an individual identified as D.M., acting as the agent of an up-country quota-holder, informed the mill that he had been authorised by the quota-holder to take delivery of thirteen bales of cloth and paid Rs 14,000 to D.K. & Co. The agent then wrote to the mill confirming receipt of the payment. The mill dispatched the goods to D.M.; however, before delivery could be completed, the quota-holder changed his agent and D.M. refused to accept the bales. The mill consequently credited the amount received from D.M. to D.K. & Co., and the goods remained in a godown under the control of D.K. & Co. In the return filed under the Essential Supplies Act, the mill listed those thirteen bales as “delivered” to D.K. & Co.

The mill and its director were prosecuted and convicted on the ground that physical delivery had not been made to D.K. & Co.; therefore, the return was not true and accurate. The Court held that once the goods had left the mill premises, the price had been paid and title to the goods had passed. Because the bales were subsequently stored in a godown controlled by D.K. & Co., that agent was, in the circumstances, the person to whom the goods were actually delivered. Consequently, the conviction was illegal. The Court explained that a del credere agent acts as the seller’s agent only up to a point; beyond that, the agent may become a principal or an agent of the buyer. In interpreting penal statutes, the Court emphasized that ambiguous words must be construed in a broad and liberal manner, ensuring that the legal meaning of “delivery” accommodated the facts of this case. The appeal was therefore allowed, and the convictions were set aside.

From the judgment and order dated 5 March 1951 of the High Court of Judicature at Bombay, rendered by Chief Justice Chagla and Justice Bhagwati in Criminal Appeal No 394 of 1950, which arose from the judgment and order dated 29 May 1950 of the Court of the Presidency Magistrate, Second Court, Mazagaon, Bombay, in Cases Nos 630/P and 635/P of 1949, the parties appeared before this Court. For the appellants numbered one, two and four, counsel M P Amin, assisted by R J Kolah, represented them, while counsel K Muthuswami appeared for appellant three. For the respondent, the Solicitor-General for India, C K Daphtary, was assisted by Porus A Mehta. The judgment of this Court was delivered by Justice Bose on 30 March 1953.

The appellants were convicted under sections seven and nine of the Essential Supplies Act, No XXIV of 1946, on two separate counts. The first appellant, a registered joint-stock company known as Seksaria Mills Ltd, was assessed a fine of ten thousand rupees for each count, amounting to a total fine of twenty thousand rupees, and this assessment was affirmed on appeal. The second appellant, who held the position of Director of the mills, had originally been sentenced to two months’ rigorous imprisonment together with a fine of two lakh rupees for each count. On appeal, the term of imprisonment was set aside and the fine was reduced to ten thousand rupees for each count. The third appellant, the General Manager of the mills, had been ordered to pay a fine of two thousand rupees on each count, and this order was upheld. The fourth appellant, the Sales Manager of the mills, had received a sentence of four months’ rigorous imprisonment and a fine of one lakh rupees for each count; on appeal the imprisonment was confirmed but the fine was reduced to ten thousand rupees for each count. All substantive sentences were directed to run concurrently.

Pursuant to a Government of India notification dated 2 February 1946, every manufacturer was required to furnish “true and accurate information relating to his undertakings” to the Textile Commissioner of the Cotton Spinning and Weaving Section in Bombay. In compliance with this requirement, the first appellant filed a return on 10 March 1947, signed by the third appellant; this return, marked as Exhibit A-1, indicated that thirteen bales of cloth—comprising twenty half bales and three full bales—had been delivered to Messrs Dwarkadas Khetan & Company of Bombay during February 1947 on behalf of the quota-holder Shree Kishan & Company. A second return of the same date, Exhibit A-2, relating also to February 1947, reported that six bales had been delivered to the same Dwarkadas Khetan & Company on behalf of another quota-holder, Beharilal Bajirathi. Each printed form bore a note on its reverse stating that the term “delivered” or “delivery” was intended to signify the physical delivery of cloth in bales or pieces, and did not include cloth that, although paid for, remained in the physical possession of the seller.

The prosecution alleged that the information furnished in the returns was not true and accurate because the bales in question had remained in the physical possession of the first appellant at all material times and had not been physically delivered to Messrs Dwarkadas Khetan & Company. The prosecution further argued that even if physical delivery to Dwarkadas Khetan had occurred, it would not satisfy the statutory form, which required disclosure of physical delivery to the quota-holder or his authorized agent. Since Dwarkadas Khetan & Company was not the agent of the quota-holder, the returns were contended to be inaccurate and misleading. Both the Presidency Magistrate who tried the case and the High Court on appeal concluded that the prosecution had successfully proved its case and accordingly affirmed the convictions.

In this case, the Court noted that the bales of cloth remained in the physical possession of the first appellant at all material times and were therefore not physically delivered to Messrs Dwarkadas Khetan & Company. The learned Solicitor-General argued before the Court that even assuming that physical delivery had taken place to Dwarkadas Khetan, such delivery would still fail to satisfy the statutory form because the form requires a statement of physical delivery to the quota-holder or to that quota-holder’s authorised agent. Since Dwarkadas Khetan was not the agent of the quota-holder, any statement indicating delivery to him was deemed inaccurate and misleading. Both the learned Presidency Magistrate who tried the original criminal proceeding and the High Court, when hearing the appeal, held that the prosecution had successfully proved its case. Consequently, the trial court’s conviction was affirmed and the appellate court upheld that conviction. The business practice of the first appellant was explained by the representatives of Dwarkadas Khetan & Company. According to that explanation, Dwarkadas Khetan & Company served as the exclusive selling agents of the first appellant. They acted as del credere agents, meaning they guaranteed to the first appellant that payment would be received for all sales they effected, and they likewise guaranteed to the purchasers that the goods would be delivered. It was necessary to appreciate that, under various orders and rules issued pursuant to the Essential Supplies Act, the first appellant was restricted to selling only to quota-holders who had been allotted specific quantities, and the appellant could not sell beyond the limits of those quotas. The two quota-holders relevant to the present dispute were Shree Kishan & Company and Beharilal Bairathi. The selling procedure followed by the first appellant proceeded as follows. When a batch of goods was ready for dispatch, the appellant would send to Dwarkadas Khetan & Company, in duplicate, a document described as a “ready sale note”. Each ready sale note set out the particulars of the bales involved and identified the persons to whom the bales were to be delivered. Upon receipt of the note, Dwarkadas Khetan & Company would contact the relevant quota-holder or the quota-holder’s authorised agent to arrange payment. The quota-holder would then pay Dwarkadas Khetan & Company the price specified in the ready sale note. After receiving the payment, Dwarkadas Khetan & Company would release one copy of the ready sale note to the quota-holder or its agent and would provide a receipt evidencing the amount received. Simultaneously, Dwarkadas Khetan & Company would forward to the first appellant an “advice slip” indicating that payment had been received and requesting the preparation of a delivery order. The first appellant would then debit the account of Dwarkadas Khetan & Company for the amount of the sale, rather than debiting the purchaser directly, because the appellant’s consideration for payment was the amount received from its agent. Upon receipt of the advice slip, the appellant’s office would prepare the delivery order and would cause the goods to be delivered to the party named in the order. The recipient of the goods would sign the delivery order to acknowledge receipt, and the signed order would be returned to Dwarkadas Khetan & Company. After making the appropriate entries in its books, Dwarkadas Khetan & Company would forward the signed delivery order back to the mills’ office. This sequence shows that the first appellant never dealt directly with the ultimate purchaser; all transactions were conducted through Dwarkadas Khetan & Company. Having set out the general procedure, the Court indicated that it was necessary to trace the specific history of the two consignments that gave rise to the dispute – one consignment consisting of thirteen bales and the other consisting of six bales. The analysis would therefore begin with the consignment of thirteen bales. The quota-holder for that consignment was Shree Kishan & Company.

In this matter, the quota-holder for the thirteen bales of cotton was the firm Shree Kishan & Company, which operated in the interior regions and therefore required a local agent in Bombay to handle payments and receive delivery. Initially the appointed agent was a man named Dharsi Moolji, and subsequently the appointment was changed to P. C. Vora. Although the letter notifying the appellant of Dharsi Moolji’s appointment is not part of the record, the parties agreed that the letter was dated 7 February 1947. On 20 February 1947 Dharsi Moolji wrote to the appellant stating that he had been authorised to take delivery of the January quota on behalf of Shree Kishan & Company. The following day, 21 February 1947, Dharsi Moolji paid Rs. 14,000 to Dwarkadas Khetan & Company for the quota, a payment that is proved by a receipt and by an entry in Dwarkadas’s books. On that same day Dwarkadas Khetan wrote to the appellant informing it that his firm had received the advance payment from Shree Kishan & Company and that the thirteen bales should be sent to “our godown”. Whether the term “our” referred to Dwarkadas’s own godown or to a godown jointly used by Dwarkadas and the appellant was not clarified; the High Court judges had held that the godown belonged to the appellant, but the Supreme Court found that this point was not material for the reasons later explained.

After receiving this advice slip, the appellant prepared a document described as a “ready sale note” on 21 February 1947, which authorised the purchaser to take delivery within a week. The note identified Dharsi Moolji as the commission agent, although the name later appearing on the document was changed to Prataprai Chunilal (P. C. Vora). Acting on the instructions contained in the ready sale note, the appellant dispatched the thirteen bales on 28 February 1947 to Dharsi Moolji. In the meantime, however, further developments occurred. On 17 February 1947 P. C. Vora wrote to the appellant stating that he had been authorised to take possession of the thirteen bales. During the interval between the two letters, Shree Kishan & Company replaced its local agent, which meant that when the goods arrived at Dharsi Moolji’s premises he refused to accept delivery. Dwarkadas then telephoned the appellant, explaining that he had received the money for the bales from Dharsi Moolji but had not received any payment from P. C. Vora; consequently he could neither deliver the goods to the latter nor accept money from him until the dispute with Dharsi Moolji was resolved. The appellant responded by directing Dwarkadas to keep the goods in the Dady Seth godown. On the same day, apparently before all of the above transactions were completed, further adjustments were made in the appellant’s accounts, but those details are set out in the following portion of the record.

In the circumstances described, the first appellant recorded in its accounts a credit to Dwarkadas Khetan for the sum that had been received from Dharsi Moolji on account of the thirteen bales, after deducting Dwarkadas’s commission. Effectively, this entry represented payment by Dwarkadas Khetan to the first appellant for the purchase made by the buyer Shree Kishan & Company. It should be recalled that Dwarkadas Khetan & Company were the sole selling agents and that they alone bore responsibility to the mills for orders placed through them. The dispute between Dharsi Moolji and P. C. Vora was resolved during the period from 3 March 1947 to 14 March 1947. On 3 March 1947 Dwarkadas Khetan returned the rupees 14,000 that Dharsi Moolji had paid, and on 14 March 1947 he accepted payment from P. C. Vora. The alteration made in the “ready sale note” dated 21 February 1947 was apparently a consequence of these developments. Four days later Dwarkadas Khetan delivered the goods to P. C. Vora. No amendment was required in the first appellant’s ledger because Dwarkadas bore responsibility for the price irrespective of the transactions with Dharsi Moolji, and the goods had, in any event, been sold to Shree Kishan; the only remaining question at that stage concerned the identity of the agent authorised to accept delivery on his behalf. The return in question was dated 10 March 1947. From the foregoing it is clear that, as of that date, the following factual situation existed: (1) the selling agent had informed the first appellant that a sale had been effected; (2) the selling agent had paid the first appellant for the goods; (3) particular bales had been earmarked and allocated to the sale, thereby transferring ownership of those goods; (4) the goods had actually left the mill premises; and (5) the goods were stored in the Dady Seth godown under Dwarkadas Khetan’s control. The assertion that the goods were under Dwarkadas Khetan’s control rests on three grounds. First, as already indicated, ownership had passed, so the first appellant no longer held title. Second, Dwarkadas testified that he would have refused to deliver the goods until he received payment from P. C. Vora. Third, as a del credere agent, he possessed the right (a) to withhold delivery to any party until he was paid, and (b) to proceed with delivery despite any objections from the first appellant once his own consideration had been received. Moreover, Dwarkadas’s representative, Mehtaji, stated, “If the goods are not, accepted by the merchants or their agents, the same are sent to us and we keep them in the godown.” Considering these facts, the Court turned to examine the document alleged to be problematic. The document is a printed form whose heading reads, “Manufacturer’s Returns showing detail of delivery to quota-holders or other of civil cloth.” Beneath the heading appears a note stating, “IMPORTANT:-This form should be completed in accordance with the instructions.”

The form in question was printed on the reverse side of a sheet that required the completion of full details relating to the previous month. Beneath the heading, the instruction read, “All stocks pledged or hypothecated by manufacturers with banks or others shall be included in this statement.” The only column in the printed form that could possibly relate to this instruction was column three, which was headed “Full name and address of person to whom delivered.” On the back of the form, further instructions were provided. Instruction II explained that the words “others” in the heading of the form encompassed artisans who were privileged to purchase cloth under General Permission No. TCS 42/1 dated 10 August 1944, as well as any person to whom deliveries were made under any other General or Special Permission or Order of the Textile Commissioner. It directed that the names of such artisans or other persons be entered in column 3, and that the corresponding number and date of the General or Special Permission be entered in column 2. Instruction III clarified that the terms “delivered” or “delivery” meant the physical delivery of cloth in bales or pieces, and expressly excluded cloth that, although paid for, remained in the physical possession of the seller. The form was filled out as follows: in the column headed “Full name and address of quota-holder” the name of Shree Kishan & Company was entered, and in the column headed “Full name and address of person to whom delivered” the name of Dwarkadas Khetan & Company was entered. The point for determination was whether these two entries were inaccurate.

Addressing first the learned Solicitor-General’s argument concerning the construction of the words used in the form, the Court held that the argument could not be accepted. The second clause of the portion marked “Important” at the head of the form required the inclusion of all stocks pledged or hypothecated with banks or others, and Instruction II on the back required the entry of the names of “any other person” in column 3 with the relevant permission details in column 2. Whether this meant that goods could not be pledged without permission or that only goods allotted to quota-holders could be pledged was left undecided, but the Court concluded that the entry in column 3 was not intended to be limited to quota-holders or their agents. Rather, column 3 was to record “the person to whom physical delivery of the goods has been made, whoever he may be.” Consequently, the only issue remaining was whether physical delivery to Dwarkadas Khetan had occurred. In this regard, the Court found that there could be no doubt that the goods had left the mill’s premises, that title to the goods had passed, and that when Dharsi Moolji refused to receive them, the goods were handed over to Dwarkadas Khetan and were not taken back to the mill. Dwarkadas Khetan inquired of the mill what should be done with the goods, and ultimately placed them in the Dady Seth godown. Under any ordinary understanding of the term “delivered,” it was clear that the goods had been physically delivered to Dwarkadas Khetan.

In this case, the Court observed that the goods had indeed been physically delivered to Dwarkadas Khetan. Nevertheless, the learned High Court Judges did not appear to have examined the issue of actual physical possession, as they stated: “It would not be true to say, and the record amply bears it out, that this godown belonged to Dwarkadas Khetan. Even if Dwarkadas Khetan had control over the godown, the control was exercised on behalf of and as the agent of the Mills.” Consequently, the test of possession that the High Court Judges applied was not based on control over the goods. Yet control has always been regarded as one of the accepted tests of physical or de facto possession. Lancelot Hall, distinguishing between possession in law and possession in fact, explains that “possession in the popular sense denotes a state of fact of exclusive physical control” (see his Treatise on Possessory Liens in English Law, p. 2). Likewise, Pollock and Wright describe in their Essay on Possession in the Common Law (p. 119) that “physical possession” may be generally described as follows: when a person is in such a relation to a thing that, with respect to the thing, he can assume, exercise or resume manual control of it at pleasure, and with respect to other persons the thing is under the protection of his personal presence, or located in a house or land occupied by him, or kept in some receptacle belonging to him and under his control. That description fits precisely the circumstances of Dwarkadas Khetan. The Court noted that the term “possession” is ambiguous and that legal texts divide it into two broad categories: (1) physical possession or possession in fact, and (2) legal possession, which need not coincide with physical possession. The statute under consideration adopts the same broad distinction. However, even on the factual side, nuances arise; for example, the possession of a servant is termed “custody” rather than possession. The Court then considered the status of an agent. If a person resides abroad for many years and leaves his house and furniture in the charge of an agent who holds the keys and has immediate access to and physical control over the furniture, it would be difficult to say that the agent is not in physical possession. Although legal possession continues to reside in the owner, the actual physical possession would belong to the agent. The same reasoning applies to a del credere agent, who acts as the seller’s agent only up to a point; beyond that, he may be a principal or an agent of the buyer. This distinction was discussed by one of the judges in the Nagpur High Court in Kalyanji Kuwarji v. Tirkaram Sheolal(1) and was accepted by the Madras High Court in Kandula-Radhakrishna Rao v. The Province of Madras(2). The Court concluded that a detailed analysis of these nuances was unnecessary for the present matter and proceeded to the next point.

In this case the order under consideration would affect the commercial activities of hundreds of individuals, many of whom are small petty merchants and traders who ordinarily would not have legal counsel constantly available. Even where such persons obtain advice, the more learned their advisers are in the law, the greater the difficulty they encounter in deciding what advice to give, because it is only after one becomes versed in legal doctrine that the subtleties of language and the bewildering effect of ordinary English words become apparent. An ordinary person of average intelligence, who is not trained in law, would not find such words difficult to understand. Consequently, when dealing with a penal statute of this character, the Court felt bound to interpret any ambiguous expression in a broad and liberal manner so that the provision would not become a trap for honest, unlearned and unwary persons. The Court further held that if a party honestly and substantially complies with a series of confusing statutory directions, that compliance must be regarded as sufficient, even though a hyper-critical legal analysis might permit alternative, more imaginative constructions. In the present facts, the Court concluded that Dwarkadas Khetan, considering the circumstances, could be described, without stretching the language, as the person to whom the goods were actually delivered. Accordingly, the conviction on that count could not be sustained.

The Court added that, even assuming that highly technical notions of possession were introduced, the breach would remain merely technical and inadvertent, not constituting any purposeful violation of law. The factual record, as presented, accurately reflects the ordinary meaning of the terms used; nothing was concealed. The goods ultimately reached the quota-holder, or more precisely his proper agent, and there was no advantage to be gained by anyone through an unauthorised claim arising from a natural mistake caused by a delay in the effect of a change of agency. Even if a technical breach existed, it did not justify the harsh criticism recorded in the trial-court judgment nor the severe sentences imposed by the learned Magistrate. The Court observed that, in the High Court, a nominal fine would have satisfied the requirements of justice, even given the learned judges’ interpretation of the law. The second count, concerning six bales, followed the same factual pattern. The quota-holder in that instance was Behrilal Bairathi. In those facts, Dharsi Moolji paid Dwarkadas Khetan for the goods, and the mills dispatched the bales to Dharsi Moolji for delivery in the same truck that carried the thirteen bales. When Dharsi Moolji also refused to accept these six bales, they were deposited.

The Court observed that the disputed goods had been placed in the Dady Seth godown together with the other thirteen bales that had been previously mentioned. The record showed that delivery of those goods had been made to an entity identified as Dwarkidas Khetan & Company. After reviewing the material placed before it and after considering the reasons set out in the earlier part of the judgment, the Court concluded that the return filed by the appellants was both true and accurate. Accordingly, the Court allowed the appeal that had been filed against the convictions. In doing so, the Court set aside the conviction and the sentence that had been imposed in each of the four separate cases that were before it. The Court further directed that any fine that had already been paid in connection with those convictions should be refunded to the persons who had paid it. The order therefore confirmed that the appeal was allowed and that the earlier judgments were reversed. The Court also recorded the legal representatives who had appeared before it: the appellants numbered one, two and four were represented by an agent named Rajinder Narain; the appellant numbered three was represented by an agent named Ganpat Rai; and the respondent was represented by an agent named G. H. Rajadhyaksha.