Textile
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This article is written by Kumar Shubham, from National Law University, Odisha.

Introduction

National Textile Corporation Ltd. v. NareshwarBadrikumarJagad is one of the important cases in the Indian Contract law, when determining ‘Principal – Agent’ relationship. The given case examines the test of agency and also the personal liability of the Agent when the Principal is known. According to Section 182 of the Indian Contract Act 1872 (hereinafter referred as ‘Contract Act’), an ‘Agent’ is an individual who is employed by another to act according to the discretion of his employer or to represent his employer while dealing with any third person. The employer of the agent is known as the ‘Principal’. Section 230 of the Act states that personal liability of an agent. An agent cannot personally enforce contracts he entered on behalf of the principal nor is he bound by the contract. An agent cannot be sued or sued unless contracted. A contrary contract is presumed to exist when – 

  1. When the contract is made by an agent for the sale or purchase of goods for a merchant residing abroad.
  2. When the name of the principal is not disclosed by the agent while entering into the contract. 
  3. When the principal, though disclosed, cannot be sued. 

In the given case, the agent has been sued though the principal was known. The agent challenged it before the Supreme Court for the first time, but the challenge was not entertained. 

Facts of the Case

The brief facts of the case are – the suit premises in Chinchpokli, Mumbai, belonged to the trust run by respondents Nareshkumar Badrimkumar Jagad and others and was allotted to Hope Mills limited on lease for 99 years, through a deed dated 11.03.1893. The lease was to expire on 21.10.1990. The ownership of the suit property was later transferred to Harichand Roopchand Charity Trust (hereinafter referred as ‘the Trust’), by the true owners, on 22.02.1907. The lease rights were also eventually transferred to Toyo Poddar Cotton Mills (hereinafter referred as ‘Poddar Mills’), on 25.10.1926. 

The Parliament enacted a Textile Undertaking (Taking over Management) Act in 1983 (hereinafter referred as ‘the Act 1983’), in-order to take over the management of 13 textile mills including the said Poddar mills and further nationalized the mills through Textile Undertaking (Nationalisation) Act in 1995 (hereinafter referred as ‘the Act 1995’). The lease granted to Poddar Mills expired on 22.10.1990, however, the mill still continued to be a tenant by holding over the suit premises.  The Trust filed an eviction suit against the National textile Corporation (hereinafter called the Appellant), in the Small Causes Court Bombay seeking eviction of the appellants from the said premises. The Court directed the appellant to vacate the suit premises and hand over its peaceful possession to the Trust within four months.

Aggrieved by the decision of the Small Causes Court Bombay, the Appellants filled for a review in the High Court of Bombay. The Appeal was dismissed and the decision of the lower court was upheld, hence the appellants filed an appeal in the Supreme Court of India. 

Issues raised

  1. Whether the Appellant can be termed as “Government” or “Government Organization” or as an “Agent” of the Government.
  2. Whether an Agent can be sued if the Principal is known.
  3. Whether a factual question can be raised in the belated stage of the case.

Judgement

The Apex Court held that the National Textile Corporation (NTC) is merely a Government Company and neither “Government” nor a “Government Department” nor an “Agent” of the Government, within the meaning of Section 182 of the Contract Act. Regarding the tenancy of the premises, the Court stated that the tenancy rights were solely vested in the NTC itself. In the present case, the court further examined the meaning of “Government” and “Government Department” according to Article 12 of the Indian Constitution to analyze the relation between the appellants and the Government. The Court also relied on numerous precedents to understand the scope and ambit of Article 12. 

The Court said that the management of the Poddar Mills was vested in the Government according to the 1983 Act. The contractual tenancy period of the mills expired in 1990 but still the mills continued to occupy the suit premises as tenants. After the 1995 Act came into play, the management rights of the mills which were previously vested in the Central Government, were now absolutely transferred to the NTC, according to Section 3(1) and (2) of the 1995 Act. Therefore the right in tenancy of the Poddar Mills were also now vested to the NTC. Hence the court rejected the NTC’s claims that the Central Government was still the tenant of the said premises and that the NTC was a mere “agent” of the Government but the tenancy vested absolutely in the NTC. 

After analyzing all legal principles, the court further stated that it is very much evident that the Appellant is neither “Government” nor “Government Department” but just a Government company, and hence cannot equate itself with the Central Government. The argument made by the Appellant that it was acting as an agent of the Government is also not worth considering because the tenancy rights were absolutely vested in the appellants and this was crystal clear from the transfer of powers through the 1995 Act. The Appellant in this case is under no control of the Central Government. 

The Court further states that though it is a known that an agent cannot be sued when the principal is known, the appellant in the present case haven’t taken this plead before any of the lower courts, hence it has been held that their suit is not maintainable as it did not warrant impugned judgment as it involved a question of fact. A new plea cannot be taken in respect of any factual controversy.  Hence the court has dismissed the appeal and ordered the appellants to vacate the premises, four weeks from the day of issue of the order. 

Case analysis

National Textile Corporation Ltd. v. Nareshwar Badrikumar Jagad is one of the benchmark judgments in the field of Contract law in India. The relationship between Principal and Agent and the liability of the agent have been widely discussed in the case. In the given case, the entire debate was on whether the Appellant came under the definition of Government or was an agent of the same. After analyzing all the aspects of the judgment and the arguments raised by the concerned counsels, it can be said that the judgment is correct and clears the law. 

The judgment starts with critically analyzing the pleadings made by the appellants in the lower and then in the Apex court. It further discusses the ambit of Article 12 of the Constitution to examine the definition of “Government” and “Government Department” in order to determine the position of the Appellant. 

The Court has held that the Appellant is neither “Government” nor “Government Department” which is in accordance with all legal provisions. Government is a body of individuals who have the authority to administer and govern the affairs of the state. A government may exercise its authority and functions through various departments or corporations. In the present case, the Government undertook the management of the Mills through the 1983 Act after which the tenancy rights of the premises came in the hands of the Government, but after the 1995 Act was enacted, the rights were then absolutely transferred to the National Textile Agency, therefore the Government was no more controlling the affairs of the mills.

In the case of the State of Punjab and Ors. v. Raja Ram and Ors, it was held that a Government Department is one which is not only funded and controlled by the government but also shouldn’t have an identity of its own. The appellant ceases to be a “Government” or “Government Department” but can be called a “Government company”. In the case of A.K. Bindal and Anr. v. Union of India and Ors, it was held that a government company is not identified with the Union but has its own distinct identity. Hence, the appellant ceases to be an Agent under Section 182 of the Contract Act, as the appellant is not under control of the government. 

The Appellant can be called an Agent of the government for a limited purpose within the ambit of Article 12, but cannot be called so under Section 182 of the Contract Act because the transfer of authority was very much evident from the 1995 Act and it was crystal clear that the Government was exercising no control over the appellants. According to Section 230 of the Contract Act, an agent cannot sue or be sued unless there exists a contrary contract. Also according to PremNath Motors Ltd. v. Anurag Mittal, an agent cannot be sued if the principal is known. In Midland Overseas v. CMBT Tana, it has been stated that in order to sue the agent, it must be proved that the principal was undisclosed and the contract was entered by the agent in personal capacity. 

However, in this case, the appellant has failed to take the plea that it was merely an agent. According to Order VIII Rule 2 of the Code of Civil Procedure, it was the duty of the appellants to take that specific plea in order to show that the suit was not maintainable, but they failed to do so. They have never raised the issue in the lower courts that the Central Government was the tenant and they were merely agents of the government.

The case was solely based on a question of facts and the appellant failed to establish the proper pleadings in their submissions. In the case of Trojan and Company v. RM N.N. NagappaChettiar, it was held that a decision of the case cannot be based on outside the pleading of the parties. In the case of Chinta Lingam and Ors. v. The Govt. of India and Ors, the Supreme Court has held that unless a factual foundation has been established in the pleadings, no arguments can be raised on that particular point. Hence the Court stands correct and legally sound in dismissing the appeal as it did not warrant impugned judgment.

Conclusion

This case was the first time when a factual question was raised in front of the Supreme Court. Though it is a settled principle that the agent cannot be sued when the principal is known, however the Appellants failed to raise this fact in any of the lower court, and this case being a question of fact, the plea was dismissed. The main factual foundations of the case is built from the submissions in the lower courts and further no factual controversy is entertained in the belated stage. 


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