Govindin Nair, C.J.

1. The batch of 39 cases including one Writ Appeal were heard together as some common questions of law have to be disposed of. The Petitioners and the Appellant in the Writ Appeal challenge the steps taken by the Government for recovery of certain amounts in respect of transactions which they had undertaken with the Government. The facts areas follows:

2. The State of Kerala is a deficit area in the matter of foodgrains. During the last few years scarcity was being felt in obtaining rice and paddy, the staple food of the community. The State Government therefore introduced a system of partial rationing in respect of the essential food stuffs invoking their powers under the Essential Commodities Act. Restrictions have been imposed on the trade and movement of foodgrains and other articles for ensuring their equitable distribution and availability at fair price. The Kerala Rationing Order, 1966, the Kerala Foodgrains Dealers Licensing Order, 1967, the Kerala Rice (Purchase by Levy) Order, 1966, the Kerala Rice and Paddy (Procurement by Levy) Order, 1966, the Kerala Paddy and Rice (Declaration and Requisitioning of Stocks) Order, 1966, the Kerala Paddy (Restriction on Milling) Order, 1968, the Kerala Paddy (Maximum) Price Order, 1968 and the Kerala Rice (Maximum) Price Order, 1968 are some of the orders passed by the State Government under the Essential Commodities Act. The Government needed a machinery for the purchase of paddy by levy from the cultivators in the paddy growing areas of the State. The Palghat District is a surplus area in respect of paddy and rice. Some of the Co-operative Societies in the Taluks of Alathoor, Chittur, Ottapalam and Palghat were engaged in the business of purchasing and hulling paddy and in the sale of rice. It was decided to utilise the services of the above societies in the matter of procurement of rice and paddy from the cultivators for getting the paddy milled and for delivery of the rice to the wholesale distributors. Orders were made from time to time appointing the Co-operative Societies as agents for the procurement of paddy and purchase of stocks requisitioned under the Kerala Paddy and Rice (Declaration and Requisitioning of Stocks) Order, 1966. Under the original scheme, the Co-operative Societies were to find their own resources to finance the procurement. However, the necessary funds for the purchase of paddy were arranged by the Government by way of loan through the Co-operative Central Bank. The societies were to purchase the paddy with the money so advanced. The cost of paddy and rice to be procured was fixed in the Kerala Paddy (Maximum) Price Order, 1968 and the Kerala Rice (Maximum) Price Order, 1968. The societies were to mill the paddy purchased by taking on lease sufficient number of rice mills with the prior approval of the District Collector and comply with the directions issued by the District Collector from time to time regarding the management of the mills. No paddy other than that procured on behalf of the Government was to be milled in the mills taken on lease during the pendency of the lease. The societies were to keep proper and correct accounts for the foodgrains and to sell the foodgrains strictly in accordance with the directions given by the Government. The paddy and rice procured and the rice obtained by milling the paddy procured were to be delivered in accordance with the directions of the District Collector, and such other officer authorised by the Government to wholesalers and retailers, for distribution, on receipt of the price fixed by the Government. For the services rendered by the societies, they were allowed a margin of Rs. 5 per quintal of rice. This margin was inclusive of transport charges, hulling charges and cost of gunny bags, incurred by the societies. The societies were also allowed 2 per cent interest on the investment made by them with the loan received.

3. Under the proviso to Clause 3 of the Kerala Rice and Paddy (Procurement by Levy) Order, 1966 if a cultivator wants to sell rice in lieu of paddy 66 2/3 kilograms of rice will be treated as equivalent to one quintal of paddy. This ratio was to be followed by the society when they purchased rice in the place of paddy. However, the actual out-turn of rice on hulling paddy varied from place to place and in respect of different crops. For the purpose of fixing the out-turn of rice from the paddy procured through the Co-operative Societies, test hulling was done in respect of the different crops in different places and the Co-operative Societies were to account for the quantity of rice at the rate fixed as a result of test hulling. The out-turn on test hulling varied from 68 per cent to 71.5 per cent. The Taluk Supply Officers were to settle the accounts of the societies taking into account the out-turn of rice obtained as a result of test hulling. Accounts were initially settled by the societies with the concurrence of the concerned officers. But on auditing the accounts of the Taluk Supply Officers in the Palghat District the Local Audit Party of the Board of Revenue reported that the societies had not accounted for the price of the actual quantity of rice obtained by them by hulling paddy during the periods of their appointment. It was pointed out that as per the conversion rate fixed in the Kerala Rice and Paddy (Procurement by Levy) Order, to get a quintal of rice, 150 kilograms of paddy would be required. But when the out-turn is 68 per cent, only 147.6 kilograms of paddy is required to yield a quintal of rice. This means the price of one quintal of rice is equivalent to the price 147.6 kilograms of paddy. Similarly, if the out turn is 70 per cent, 143 kilograms of paddy is enough to yield one quintal of rice and the cost of 143 kilograms of paddy alone need be taken to fix the price of one quintal of rice. Thus, when the societies delivered rice obtained out of 147.6 kilograms or 143 kilograms of paddy as the case may be, the cost of 150 kilograms of paddy was recovered by them from the cultivators. In other words, while the societies actually received the cost of 150 kilograms of paddy, they released only 147.6 kilograms or 143 kilograms of paddy in terms of rice. An excess amount was thus received by the societies by way of profit. This was over and above the margin allowed to the societies under the terms of appointment. It is clear from paragraph 9 of Ext. P-1 in O.P. No. 2880 of 1974 that the co-operatives, the Petitioners in the batch of petitions "shall be paid a consolidated margin of Rs. 4 and Rs. 5 per qtl. of paddy and rice respectively besides a margin of 2 per cent towards interest on investments and administrative charges". Ext. P-1 is for the Mundakan crop of 1970-71. It is not disputed that in the other agreements for the other years also there is a fixed margin provided. So the Government took the stand that the excess amount was undue profit earned by the societies as agents of the Government and that they are liable to account for the same. Notices were accordingly issued to the societies to remit the excess amount obtained by them.

4. The societies resisted the claim. They apprehended that steps under the Revenue Recovery Act would be taken by the Government. The petitions are therefore filed challenging the demand made by the Government, for quashing the notices issued to the Petitioners and for a mandamus prohibiting or restraining the State for enforcing the demands. The Petitioners contend that there is no legal foundation for the claims of the Government and the Government have no authority to enforce the demands. According to them the purchase of paddy and rice and sale of commodities were governed by the terms of the agreement executed by them in favour of the State. There is no term in the agreement for the refund of any profit that the Petitioner-societies may make on account of the extra out-turn. The societies have all of them settled their accounts, paid the sales tax and income tax for the concerned period. They have declared dividends, paid bonus to employees and remitted amounts to the common fund. All these have been approved by the concerned authorities. It would not be possible to reopen these matters. The societies denied their liability to account for the price of excess paddy, which according to them is outside the terms of the agreement executed by them.

5. From the facts stated, there is no scope for doubt that the societies as a matter of fact did obtain excess amounts over and above the margin fixed in the orders of appointment and the agreements entered into by those societies with the Government. It is not disputed that the conditions subject to which the Petitioners were selected did not form part of the agreement executed by the parties as evidenced by Ext. P-2 in O.P. No. 2880 of 1974. The liability of the societies to account for such profits to Government is the issue in these cases. The said liability depends on the jural relationship between the Government and the societies in relation to the transactions for procurement and sale of rice and paddy. The question is whether the relationship of principal and agent, or any other fiduciary relationship with liability to account, existed between the societies and the Government. A similar question came up for consideration in Anr. batch consisting of ten Original Petitions including O.P. No. 3205 of 1974. Chandrasekhara Menon, J., who disposed of the cases held that though the word agent has been used in the order of appointment and the agreement executed by the societies, no agency as understood under general law had been created, that the Co-operative Societies were agents for working out the scheme of procurement but not in respect of the purchase and sale of paddy by them and that though loans had been arranged for the scheme, the money utilised for the purchase belonged to the society and not to Government and therefore there was no liability to account for any excess over the margin obtained by the societies over and above that mentioned in the order of appointment. The learned Judge followed the decision in Venkata Subba Rao v. State of Andhra Pradesh : A.I.R. 1965 S.C. 1773 in coming to the above conclusion.

6. There is no case that the facts in the present petitions are different from those in O.P. No. 3205 of 1974 and other petitions disposed of by Chandrasekhara Menon, J.

In fact the State has adopted in these cases the counter-affidavit filed on its behalf in O.P. No. 3205 of 1974. When some of the present petitions came up before George Vadakkel, J., the above decision was relied upon by the Petitioners. On behalf of the State, it was then pointed out that the decision in O.P. No. 3205 of 1974 required reconsideration inasmuch as it is contrary to the interpretation given to Clause 3 of the Kerala Rice and Paddy (Procurement by Levy) Order, 1966 by a Division Bench of this Court in O.P. No. 915 of 1976.

7. Before considering the jural relationship between the parties, it may be necessary to give some more details about the background in which the societies were entrusted with the work of purchase and sale of paddy. The several orders issued under the Essential Supplies Act empower the Government to regulate the trade and distribution of notified foodstuffs. Under Clause 2 of the Kerala Paddy (Maximum) Price Order, 1968 and Clause 3 of the Kerala Rice (Maximum) Price Order, 1968, Government could fix the maximum price of paddy and rice to be sold by a wholesaler or a retailer. Under the proviso to these clauses, special rates could be fixed for paddy and rice sold by the Government or their authorised agents after taking into account expenses on account of transport, storage and other incidental charges. The Kerala Rice and Paddy (Procurement by Levy) Order, 1966 Clause 3 directs that every cultivator should sell to the Government or an agent of the Government, appointed by the District Collector or any other person authorised by the District Collector in that behalf, paddy derived from lands cultivated by him in accordance with such scale as may be specified by the Government from time to time. Different scales may be specified for different areas of the State. Under the proviso to the above clause, the cultivator is entitled to sell to the Government rice in lieu of paddy and for this purpose 66 2/3 kilograms of rice is to be treated as equivalent of one quintal of paddy. Clause 7 of the order directs for payment of price at the prevailing market rate, not exceeding the maximum price specified for rice and paddy respectively. There is also restriction imposed on milling paddy as contained in the Kerala Paddy (Restriction on Milling) Order, 1968 and no person should get paddy milled in any rice mill except in accordance with a permit granted on that behalf. It was while the above restrictions were in force that the Government appointed the societies as procuring agents. The appointment was under the provisions of the Kerala Rice and Paddy (Procurement by Levy) Order, 1966 and the Kerala Paddy and Rice (Declaration and Requisitioning of Stocks) Order, 1966. The appointment was made by the District Collector, Palghat under a common order. Apart from the general terms contained in the appointment order, each of the societies executed an agreement. The relevant portions of the agreement run:

(1) The Bounden is hereby appointed as agent of the Government for the purchase of paddy or rice or both (hereinafter referred to as "Foodgrains") from cultivators or other stock holders in the area ... and the Bounden, has agreed to purchase paddy or rice or both that are available in the said area at the rate prescribed from time to time by the Government in this behalf.

(2) The Bounden shall store the foodgrains ... in proper godowns and he shall be responsible for their safe custody and fit condition.

(3) The Bounden shall sell the foodgrains strictly in accordance with the directions issued by the Government or the District Collector or any other officer authorised by the District Collector in this behalf and realise price only at such rates as may be prescribed by the Government or other appropriate authority from time to time....

(6) The Bounden shall undertake milling of the paddy purchased by him on behalf of the Government, if ordered by the District Collector. District Supply. Officer, Revenue Divisional Officer, Taluk Supply Officer or Tahsildar and the sale of the resultant rice at such margins or rates as may be prescribed from time to time. The rate of out-turn, specification of rice, etc., fixed by the Government/Collector from time to time shall be binding on the Bounden.

The Bounden shall for this purpose, take on lease sufficient number of rice mills with the prior approval of the District Collector and shall comply with the directions given by the District Collector from time to time regarding the management of the mills. No paddy other than that procured on behalf of Government shall be milled in the mills taken on lease during the pendency of the lease.

(7) The Bounden shall keep proper and correct accounts for the foodgrains purchased by him on behalf of the Government and also for other stocks of foodgrains which he may buy. The Bounden also agrees that such stocks of foodgrains which he may buy not as agent of the Government shall also be treated as foolgrains bought by him on behalf of Government.

(8) The Bounden shall maintain such accounts and registers as may be directed by the District Collector, District Supply Officer ... and shall conform to all directions issued by them....

(9) The Bounden shall sell a certain percentage of the paddy procured by him to the Food Corporation of India for feeding their Modern Rice Mill at Olavakkode, if so ordered by the District Collector or District Supply Officer, Palghat, at such margin or rates as may be prescribed.

(10) The Government or the District Collector shall have power to terminate this agreement at any time without notice and without being liable for payment of any compensation to the Bounden in respect of such termination. The Bounden shall, in the event of such termination, be paid the value of the foodgrains taken over from him by the Government at rates dstermined by the District Collector or Commissioner of Civil Supplies.

Clauses 4 and 5 are not relevant for the purpose of the case. Clause 11 deals with breach of conditions in the agreement and the liability for damages and Clause 12 deals with recovery of sums due to the Government by recourse to the Revenue Recovery.

8. The contention put forward on behalf of the Petitioners is that the above clauses in the agreement do not create the relationship of principal and agent. Neither are the Petitioners liable to account for the income in any fiduciary capacity. Stress was made on the following circumstances:

(a) No amount has been advanced by the Government for the purchase of paddy or rice and, therefore, subject to the restrictions on purchase and sale the proprietary rights in the paddy and rice vested in the societies.

(b) The expenses for hulling, storage and transportation were all incurred by the societies.

(c) Sales tax was paid by the societies.

The State, on the other hand, would point out that the right to purchase and sell which the societies had was attributable to their appointment as agents under the concerned orders. Even though the orders by themselves did not specify how the agency was created, the relationship between the societies and the Government was governed by the general law of agency. Though it is a fact that funds were advanced by the societies, that was done by them in their capacity as agent. The law of agency does not preclude the agent from advancing amounts on behalf of the principal. The payment of sales tax does not advance the case, it was contended, because "The price of the paddy (Ex-mill price) thus fixed by the District Collector takes in 1 per cent tax leviable under the Kerala General Sales Tax Act. Hence the imposition of 1 per cent tax is not really on the agent as such but the same is collected from the consumers at large. The payment of tax is made on behalf of this Respondent and the tax liability is never cast on the agent.

9. As already stated, O.P. No. 3205 of 1974 and the other petitions which were disposed of along with it involved the identical questions. The decision in the above petitions purported to follow the ruling of the Supreme Court in Venkata Subba Rao v. The State of Andhra Pradesh : A.I.R. 1965 S.C. 1773. Shri K.R. Kurup, on behalf of the State would contend that the above case is distinguishable on the facts on which it was decided. According to the learned Counsel, the scheme of purchase and sale which was the subject-matter of the above decision varied in material particulars from the scheme under which the Petitioner-societies were appointed as procuring agents by the Government. With respect, we see considerable force in the above submission. The case before the Supreme Court arose as a consequence of certain orders for procurement of paddy passed by the Government of Madras under the Essential Supplies (Temporary Powers) Act, 1946. The Appellants in that case were either owners or lessees of rice mills engaged in the business of purchasing paddy from producers, milling the paddy purchased in their mills and selling them over to the wholesale dealers in rice and Ors. . When scarcity of rice and paddy was felt in certain areas it became necessary to impose restrictions on the trade of foodgrains in order to maintain an equitable distribution thereof. The Government issued two orders, the Foodgrains Procurement Order, 1946 (later modified by the Foodgrains Intensive Procurement Order, 1947) and the Foodgrains Licensing Order, 1946. Under the former order, procurement or purchase of foodgrains including paddy was placed under control and the right to purchase paddy was restricted to Government and to the procurement agents appointed and notified by them. The sales to be effected by the procuring agents of the milled rice were also placed under control by virtue of the licensing order. The Appellants were appointed as procuring agents and they were also licensed to deal in rice under the Licensing Order. The price at which paddy could be procured and the prices at which paddy and rice could be sold by the licensed dealers were also fixed. While the Appellants were thus carrying on their business, the prices at which they could sell the paddy and rice were raised on three occasions, in July 1947, December 1947 and November 1948. The Appellants were directed to submit statements regarding the stocks of paddy and rice held by them on the day previous to that on which the increase in rate came into force and they were directed to pay by way of surcharge, the amount representing the increase in the price of the paddy held by them. When the Appellants resisted, they were threatened of coercive steps. Some of the Appellants paid the amount and in the case of Ors. , the amount was recovered otherwise. Suits were later on filed by the Appellants against the State for recovery of the amount so paid by them. The defence was that the Appellants were agents of the State Government and, therefore, the State Government were entitled to whatever profit they earned as a result of the increase in the sale price of paddy and as such, they should make good the amount to the Government. It was on the above set of facts that the Supreme Court held that the Appellants were not agents. It is seen that procuring agents executed agreements undertaking to purchase paddy and other food-stuffs from the areas allotted to them, to store the quantity purchased in appropriate godowns and to sell the paddy to the persons to whom they were directed to sell it at the rates fixed from time to time by the District Supply Officer. If the above agreements alone stood, we are inclined to think that it would have been held that the Appellants were agents of the Government for the purchase and sale of paddy. But the matter did not rest there. The procurement of paddy was confined to the surplus areas. There were deficit areas in the State and the Government was obliged to supply the requisite quantity of foodgrains for the consumption in those areas. The foodgrains necessary for the purpose were sold to the Government by the same procuring agents under agreements entered into with them. The District Supply Officer had the right to reject the whole or any portion of the paddy so supplied. The paddy or rice, as the case may be, was supplied at particular places at the risk of the supplier. The District Supply Officer was not to be held responsible for any loss sustained by the supplier. The supplier was also to pay General Sales Tax. On the dates when the prices were enhanced as a result of the Bonus Scheme, the procuring agents were in possession of paddy purchased at a lesser rate. The increase in the price of paddy naturally gave rise to some profits. It was the profits so obtained that were recovered by the Government. The State Government contended that the general law of agency applied in the case of procuring agents while the Appellants contended that they were governed by the terms of the agreements executed by them in favour of the Government. It goes without saying that the jural relationship of the parties in the above case should be decided not only on the basis of the agreements executed by the Appellants for the purpose of procuring paddy but also taking into account the agreements executed by them to sell to Government to enable the Government to supply paddy in deficit areas. The very fact that the Government agreed to purchase the paddy from the procuring agents at stated prices is sufficient to show that the property in the foodgrains vested in the procuring agents. In other words, there was no relationship of principal and agent between the procuring agents and the Government. The facts of the present case are different.

10. The jural relationship between the State and the procuring agents has to be gathered from the order of appointment, from the agreements executed and from the orders passed by the Government from time to time. The preamble to the agreement reads:

Whereas the Government have appointed the Bounden as an agent for the purchase of paddy or rice or both under the provisions of the Kerala Rice and Paddy (Procurement by Levy) Order, 1966 and the Kerala Paddy and Rice (Declaration and Requisitioning of Stocks) Order, 1966 (hereinafter referred to as the said order) and for the storage and distribution of the same, subject to the terms and conditions contained in the said orders, and those hereinafter appearing to which the Bounden has agreed.

The execution of the agreement was followed by orders fixing the out-turn of rice for the different crops in the respective areas. The order Ext. P-1 in O.P. No. 2880 of 1974 and similar orders in the other petitions mentioned that "The Co-operative shall account for an out-turn of rice for the paddy procured by them at such rates as may be fixed by the District Collector conducting test hulling. Rice received over and above the out-turn fixed, should also be accounted for". This has to be read along with Clause 6 of Ext. P-2 agreement which stated "The rate of out-turn specification of rice, etc., fixed by the Government/ Collector from time to time shall be binding on the Bounden".

11. Ordinarily a person can claim that goods purchased by Anr. belong to himself only if he advances money for such purchase. But situations are common when a person asks Anr. to purchase goods on his behalf and arranges funds for such purpose. He may also ask Anr. to advance money on his behalf and purchase goods. In such cases, the property in the goods passes to the person who arranges the funds or at whose instance the goods are purchased, subject to his accountability for the amount advanced by the other. In other words, it is not correct to say that in all cases the property in the goods passes to the person who hands over the money to the seller of the goods. Therefore, in the instant case, even if the societies had purchased the paddy and rice out of their own resources that is not a conclusive factor in deciding their relation with the Government. It is the common case that loans were arranged by the Government with the Central Co-operative Bank and a margin of 2 per cent has been allowed to the societies by way of interest on investment and administrative charges. The circumstances under which the payment of sales tax, which has been relied upon by the Petitioners has been explained by the State to which we have already made reference. That expenses for storing and conversion of paddy into rice, were met by the societies, also does not advance the case of the Petitioners in view of the margin of Rs. 4 and Rs. 5 per quintal of paddy and rice respectively fixed for such expenses by orders similar to Ext. P-1 in O.P. No. 2880 of 1974. On the other hand, the agreements executed by the societies mention in more than one place that the procurement and purchase was on behalf of the Government and it has also been stated in several places in Ext. P-1 and Ext. P-2 in O.P. No. 2880 of 1974 that the Petitioners were agents. The special provision regarding the milling of paddy, the direction that paddy and rice procured should be delivered to persons directed by the officers of the Government and at rates fixed by them, the stipulation regarding maintenance of accounts, and the right to terminate the agreement are all factors which go to show that the paddy and rice belonged to Government and Government had control over it. It is true that Clause 10 mentions that on the termination of the (agreement, the societies were to be paid the value of the foodgrains taken over by the Government. This clause is not inconsistent with the case of the State that the societies were agents of the Government. In cases where amounts were spent by the agent on behalf of the principal, the former is entitled to reimbursement. The societies having advanced amounts for the procurement of paddy on behalf of the Government were entitled to reimbursement of the value of the paddy which remained as balance in their possession and for the procurement of purchase of which they had spent amounts, when the paddy is taken over by Government. The description of the societies as agents has to be interpreted in the above setting.

12. Under the general law of agency as contained in the Indian Contract Act, no particular form is required for the creation of an agency. Agency can be inferred from the circumstances of a case. It is true that at times it may appear from certain facts that there is a principal-agent relationship but it may turn out that when all the facts and circumstances are taken together there is no real agency. This does not, however, mean that agency cannot be inferred without there being a deed creating agency. The test of an agency is whether the person purports to enter into a transaction on behalf of a principal or not. Once agency is established, it does not matter whether the agent advances money for any particular transaction. Such advancing of funds would be for and on behalf of the principal and the property acquired with the money so advanced would remain the property of the principal. Once an agency can be inferred from the facts and circumstances of the case, the agent will be answerable for all the amounts that come into his hands during the course of the transaction in respect of which the agency is created. Even unaccounted profits come under this head. The liability to account for the secret profits has been dealt with in Fridmans Law of Agency, Third Edition in the following passage at page 135:

Secret profits. -- Another way of expressing what has been said above is that an agent may not make a secret profit out of the performance of his duties as agent. It is his duty to account for all such profit. Failure to do so will amount to a breach of his contract of agency and will disentitle the agent to his commission as well as make him liable to dismissal.

What is a secret profit The expression refers to any financial advantage which the agent receives over and above what he is entitled to receive from his principal by way of remuneration. This includes bribes, that is the payment of a secret commission by a third party to obtain the agents complicity in some activity not necessarily in the interest of his principal. But there need be no bribery involved in the making of a secret profit. Nor need there be corruption of the agent on the part of a third person. It is sufficient if the agent, without the complicity of a third person, secretly gains financial advantage to himself from the exercise of his authority. There may be no fraud on the part of the agent. Nevertheless there will be liability to account for the profit received, for the contract between principal and agent is one uberrimae fidei.

Lord Denning in the case reported in (1965) 1 All E.R. 849 explained the rationale of this liability as follows:

Once it is found that the agent has used his principals property or his position so as to make money for himself, it matters not that the principal has lost no profits or suffered no damage.... Nor does it matter than the principal could not have done the act himself.... Nor do you have to find that the Act, which brought about the profit, was done within the course of his employment.... The reason is simply because it is money which the agent ought not be allowed to keep. He gained an unjust benefit by the use, of his principals property or his position and must account for it.

13. There can be, no doubt, that the relationship of the Petitioners-societies and the State was one of agent and principal. We are not able to see any facts and circumstances which militate against the terms of the orders selecting the Co-operative Societies subject to the conditions mentioned therein and the agreements executed by the societies which strike a discordant note from the description of the Co-operative Societies as agents and the statements therein that they have to act on behalf of the Government. It is evident from the order Ext, P-1 which is similar to other orders in the case of other Petitioners that the Petitioners are entitled to only a fixed margin which is to provide for the expenses incurred by them for transport, hulling and other administrative charges and also to provide for a margin of profit. When the agreement in specific terms provided for a fixed margin, anything received in excess of that margin will have to be treated as excess profits received by an agent to which the agent is accountable on the basis of the principles which we have referred to above.

14. Apart from the general principles of agency referred to in the previous paragraph, it is very clear from the terms of the contract that the contracts that we have to deal with in these batch of cases are quite different from those which were considered by the Supreme Court in the decision in Venkata Subba Rao v. The State of Andhra Pradesh : A.I.R. 1965 S.C. 1773. The Supreme Court, assuming that the contract was one of agency, observed that:

....the procuring agent was to procure and sell rice at the prices fixed and prevailing at the time respectively of the procurement and sale. It is not disputed that the difference belonged to him. It was in fact said that was the commission to which he was entitled under the contract as an agent. If this is so, the procuring agent would under the contract be entitled to keep the larger difference caused by the selling price having been increased after his procurement. Hence it seems to me that under the contract, irrespective of whatever kind it was, the difference, even though it became larger, belonged to the procuring agent and the Government had no right to it.

It is impossible to view the contracts in these cases in the manner in which the Supreme Court dealt with the terms of the contracts in the cases before them. We have already made it clear that the agreement between the parties evidenced by documents similar to Exts. P-1 and P-2 in O.P. No. 2880 of 1974 only provided for a specific fixed margin. This was by way of remuneration in terms of commission due to the procuring agents. If they obtain anything more, there is the provision in paragraph 7 of Ext. P-1 which is one of the conditions subject to which the Petitioners have been chosen as procuring agents clearly providing that "Rice received over and above the out-tern fixed, should also be accounted for". This provision will have to be read with the sentence in paragraph 6 of Ext. P-2. "The rate of out-turn specification of rice etc., fixed by the Government/Collector from time to time shall be binding on the Bounden." When so read, by the terms of the contracts by which the Petitioners are bound, it can be seen that they are liable to account for the excess rice and that this certainly will cause an obligation to account for the price of the rice. With great respect, we are unable to agree with the views expressed by Justice Chandrasekhara Menon towards the end of paragraph 23 of his judgment in O.P. No. 3105 of 1974 and connected cases that the liability to account for the rice "does not mean that the price which he has obtained for the same is due to the Government".

15. The decision in O.P. No. 915 of 1976 has no application. The only question that was considered therein was whether there was a concluded agreement and in the absence of an agreement the contention of the Petitioner that there has been violation of the principles of natural justice by cancellation without notice is sustainable or not. We therefore hold that the Petitioners are liable to account for the price of the excess rice.

16. But it has been contended by the Petitioners that before the demand had been made, they had not been informed about the basis on which the figures claimed by them had been arrived at and they had not been given any opportunity whatever, to state their case in regard to the amounts claimed and that as such, the fixation, which the Petitioners termed as arbitrary fixation, of the liabilities of the Petitioners, without affording them an opportunity to know the basis of the claim and to repudiate it possibly, was unsustainable and that further steps for realisation of the amounts demanded from the Petitioners should not be permitted. We see force in this contention. Before further steps are taken against the Petitioners, they will be given full information giving details on the basis of which the amounts claimed from them have been fixed by the Government and they will be given sufficient opportunity to make their representations against the claims founded on the details arrived and only after considering such representations and after passing an order fixing the liability of each of the Petitioners, steps will be taken to collect the amounts from the Petitioners.

17. We dispose of the Original Petitions as directed in paragraph 16 above. We direct the parties to bear their costs.

18. Writ Appeal No. 208 of 1976 which was heard along with the Original Petitions was taken from an order dismissing the Original Petition, O.P. No. 2952 of 1976, in limine. We allow this appeal to the extent indicated in paragraph 16 above. The Appellant will be furnished with the details on the basis of which the claim had been made against him and given an opportunity to make representations against the claim on the basis of the details supplied and an order will be passed thereafter after considering the representations and fixing the liability of the Appellant. We direct the parties to bear their costs throughout.