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Sale of Goods Act, 1930: Analysis Through the Lens of 8th Law Commission Report: By Priyanshu Gupta, a 2nd-year law student at National Law Institute University, Bhopal


Introduction

Business laws in India have suddenly become important not only with the opening of the economy, globalization and liberalization but also with an increase in the massive volume of business that takes place. However, the need to regulate such transactions and businesses was felt much before by the policymakers.

The sale or purchase of goods is the most recurring transaction in almost every kind of business. Every now and then, businessmen get involved in the sale & purchase of goods and enter into the contract of sale. These contracts are governed by the Sale of Goods Act,1930.  It is important for every individual, be it a legal professional or a common man who deals in the transaction of sales on a regular basis, to have an understanding of the important terms in the Sale of Goods Act,1930.

A salient feature of the sales of goods act is that the policymakers have kept it open-ended so that it can modify and upgrade with the evolution of economic society and people, and one of the examples of this is that there is no illustration provided in the sales of goods act 1930. However, there have been instances where the policymakers failed to make changes in the Sales of Goods Act 1930, which have been observed and suggested by different high courts and the supreme court.

In this paper, we will be discussing the features of the Sales of Goods Act, 1930, its evolution, drawbacks and its efficacy in the contemporary scenario. This paper will also specifically focus upon the 8th Law Commission Report in particular reference to the Sales of Goods Act, 1930 and the lacunae which have been discussed by yet not applied and brought into force. Also while working on this area there are some problems encountered, such as electricity, gas and water are still not considered as goods under the act which conflicts the sale of these items, despite these goods being movable as demanded by the Sales of Goods Act 1930.

Understanding the title of the act

The phrase “contract of sale” refers to both the sale of goods and a promise to sell things, and is used interchangeably. In contrast, “an agreement to sell” is an executory contract that indicates a conditional sale, while “a sale” is a completed or absolute contract. You can engage into a contract of sale by simply offering to buy or sell anything for a price and having that offer accepted. Although it’s important to remember that unless otherwise agreed upon, neither money nor delivery of goods are needed upon contract signing.

Sales agreements are legally binding whether they are signed verbally or in writing, in whole or in part, and even if they are not explicitly stated, as long as their provisions are followed. This is determined by the applicable legislation at the time of signing or signings.

Whereas the goods in the term mean movable goods with an exception of actionable claims and currency being used for transactions.

History of sale of goods act, 1930

Chapter VII (sections 76 to 123) of the Indian Contract Act, 1872 (the “Indian Contract Act” or “Indian Contract Act”) controlled the sale of goods in India until the first of July, 1930. Being founded on the foundations of English Common Law, the law pertaining to the sale of goods in India followed the principles of English Common Law, particularly the Law Merchant’s Principles. The law Merchant Principle was developed in the early 11th century in order to protect foreign merchants not under the jurisdiction and protection of the local law. A kind of law was also needed by which the traders themselves could negotiate contracts, partnerships, trademarks, and various aspects of buying and selling.

 The Sale of Goods Act, which was passed in 1893 and codified the fundamental principles of common law after being modified to fit the demands of a rapidly expanding society, was a watershed moment in the history of English law.

When it came to the sale of goods in India, it was discovered in 1920 that Chapter VII of the Indian Contract Act, which dealt with the sale of goods, was not capable of meeting the demands of the general public and that some of the provisions of this branch of the law needed to be changed to reflect new developments in mercantile transactions. Accordingly, the Sale of Goods Act of 1893 included the legal changes brought about by judicial decisions in England, however, those changes were not embodied in the comparable sections of the Indian Contract Act.  

It was also determined that it was essential to codify the law governing the sale of commodities in a distinct piece of legislation. Thus, in 1926-1927, the Legislative Department conducted a comprehensive review of the case law relevant to the provisions of the Contract Act dealing with the sale of products that were covered by the Contract Act.

After conducting this assessment, a proposal of the Bill was created in 1928. It was in 1929 that a Special Committee comprised of esteemed lawyers analyzed the draught Bill, and the draught Bill, as revised by this Committee and subsequently adopted by a Select Committee of Parliament, became the Indian Sale of Goods Act, 1930 (III of 1930), which repealed Chapter VII of the Indian Contract Act, 1872 1872). The Act that was passed was mostly based on the English Act of 1893, but it was changed in light of later court decisions in England and India.

Salient features of sale of goods act, 1930

Sale of Goods Act, 1930: This law governs the sale of goods, which are things that can be moved i.e., movable goods. The act in elaborately lays down:

  • Conditions of a valid sale in the eyes of law:

This includes the capacity of the parties, goods that should be contracted for sale should be lawful along with lawful considerations, free consent of the parties etc. Overall, it contains major features of the Indian Contract Act, 1872.

  • Rights and duties of buyer and seller. For a valid contract of sale, the rights and duties should be fulfilled by both buyer and seller.
    • Rights of the buyer include: right to get the delivery, right to reject (if conditions are not met), right to examine the goods, remedy for breach of warranty, right o sue seller for specific performance, sue the seller for anticipatory breach of contract.
    • Duties of buyer: Duty to accept goods, duty to pay the consideration or price, duty to comply with the mode of payment if agreed specifically.
    • Rights of the Seller includes: To reserve the right of disposal of the goods until certain conditions are fulfilled, to exercise lien and retain possession of the goods, until payment of the price., to withhold the delivery of goods when it has not passed to the buyer, to sue the buyer for non-payment of the price on the day of delivery or on the specified date.
    • Duties of seller: To make the arrangement for transfer of property in the goods to the buyer, to ascertain and appropriate the goods to the contract of sale, to pass an absolute and effective title to the goods, to the buyer, to deliver the goods in accordance with the terms of the contract, to ensure that the goods supplied conform to the implied / express conditions and warranties
  • Express and implied conditions and warranties under a contract of sale:

A condition may be seen as one of the most important terms in a purchase and sale agreement since it is mentioned by the seller to the buyer and might be implicit or specified. In the event that the seller fails to comply with the buyer’s stipulation, the buyer has the right to reject the proposal. Condition might be stated explicitly or impliedly. In the event of a breach of terms, the aggrieved party has the right to treat the contract as repudiated by the other party. If the buyer has already made a payment, he has the right to collect the amount paid as well as to seek damages for breach of contract.

For example, if the buyer clearly specifies that the goods must be delivered before a specific date, that date will be taken into consideration as a condition because the customer has stated it at the time of contract.

The word warranties are a supplementary provision over and beyond the primary objective of the contract. It is not possible for the party who has been wronged or experienced loss to repudiate the contract and claim the contract if there has been a breach of warranty. As a result, if any of the terms of the warranty are violated, the buyer will only be able to claim damages and not the underlying purpose for which it was created.

Essentials of the contract of sale

The following are the essentials of contract of sale under Sale of Goods Act, 1930:

  • Two Parties:

When goods are sold under contract, ownership of the goods must be transferred from one party to the other. A person cannot buy something for themselves. As an example, A owns a grocery business. No sale has occurred if he gives the products (from the stock intended for sale) to his family, and no contract of sale has been formed. As a result, both the seller and buyer must be two distinct individuals, as one person cannot be both a seller and a buyer at the same time. There can be a contract of sale between the joint venture partners, though. If A and B own a television set jointly, B will become the sole owner of the set if A decides to sell his ownership stake in it to A. A partner may also acquire things from the firm in which he or she is a partner, thereby introducing an exception to the normal rule that no one may purchase his or her own products. Pawnees who fail to pay their debts may be forced to sell the goods they promised to the pawnor, who can then use the proceeds to enforce a court judgement.

  • Goods:

A contract for the sale of goods must have goods as its subject matter. Every type of movable property, with the exception of actionable claims and money, is classified as ‘goods.’ Contracts for the provision of services are not regarded to be sales contracts. ‘Transfer of Property Act’ governs the transfer of moveable property, which is a distinct legislation from the rest of the law.

  • Transfer of Ownership:

The transfer of ownership in tangible property is essential to completing a transaction. When we talk of “property in goods,” we’re talking about the actual possession of the commodities. A written agreement between the buyer and the seller detailing the terms of ownership transfer should be included in every contract for the sale of goods. Rather than a specific quality, “property” is used to describe the general property of commodities in this context. When things are pledged or sold, the pledgee or pawnee gets the products, but they don’t get the ownership rights. That’s because the general property is transferred under a contract of sale, while the special property is transmitted under a pledge of goods. It is also essential that there be an unmistakable transfer of ownership between the parties involved in a sale transaction. For the transfer of ownership to take effect, there is no need for the things to be physically transferred.

  • Price:

The buyer is required to pay a set sum of money for the goods. The monetary recompense obtained in exchange for the sale of products is referred to as ‘price.’ As a result, in every transaction involving the exchange of goods or services, money is almost always involved. Barter and trade transactions, which were frequent in ancient times, will be referred to as such and will not be regarded purchases. In addition, a donation of goods to a third party with no expectation of recompense is treated as a gift rather than a sale. The selling price is a formal word for the amount of money a thing must be sold for. In some cases, the consideration may be comprised of monetary and monetary equivalent items. In addition, unless otherwise mentioned in the contract of sale, payment is not needed at the time of signing.

Because a sale contract is a unique sort of contract, it must have all of the key characteristics of a valid contract, including free assent, consideration, the competence of the contracting parties, a lawful purpose, and any necessary legal formalities. If essential components are omitted from a sales contract, it will be void. If, for example, A agrees to sell his automobile to B because B coerced him to do so by undue influence, this sale contract is invalid since the transferor has not given his free agreement.

Issues discussed in 8th law commission report

The 8th Law Commission report was published in 1958 by the ministry of law. The Commission was chaired by M.C. Setalvad. Important issues discussed in 8th Law Commission report regarding sale of goods at 1930 are as follows:

  • Recommendation on Title:

It was recommended by the Law Commission that the word Indian should be removed from the title of the act under subsection (1) of section 1. This recommendation is implemented today thereby we see the title of the act as Sale of Goods Act, 1930 instead of Indian Sale of Goods act 1930.

  • Recommendation on Definition Contained in Section 2:

In relation to the definition of ‘documents of title’ contained in sub-section (4) of section 2, it is being highlighted by the commission that there is conflict over the consideration of railway receipt as a document of title. One side considers that the endorsement of the railway receipt, which is a mercantile document of title, provides the endorsee with the power to file a suit on the basis thereof. This same view has been upheld by the High Court of Punjab in the case of ‘Falan and Sons V. G.G.-in-counci[1]l’, by the Allahabad High Court in the case of ‘Sheo Prasad V. Dominion of India[2], and at the same time by the division bench of Bombay High Court[3]

However contrary opinion has been presented by a single bench of Bombay High Court[4] wherein the single bench opinionated that though railway receipt is a document of title of goods but mere endorsement of the receipt by itself is not sufficient to constitute the endorse either a bona fide pledgee for value or a bona fide transferee for value of the goods represented by the railway receipt.

  • Recommendations on Inclusion of Electricity, Gas and Water Under the Definition of ‘Goods’:

The major discussion and controversy revolved around the recommendations on the sale of goods act 1930 under the Law Commission report with respect to the inclusion of electricity gas and water under the definition of goods in clause (7) of Section 2.

Even in the commentary of Pollock and Mulla on the Indian Sale of Goods Act, this doubt regarding the inclusion of electricity, gas and water continues where at one point the Calcutta High Court in the case of Rash Behari V. Emperor[5] has shared this contention on the issue of electricity only.

However, the definition of goods in relation to the above-mentioned commodities is not only unclear in the Indian jurisdiction, but the situation is also unclear in the English jurisdiction, as previously stated. The case of County of Durham Electrical Power Distribution Co. V. commissioners of Inland Revenue[6] before the Kings Bench was argued on the assumption that electrical energy was to be considered “goods” for the purposes of the law relating to sales of goods, but it was explicitly stated that the point was not being decided and that it might have to be considered later in the course of the proceedings.

In the case of Ferens V. O’Brien[7], it was determined that water delivered by a water provider to a consumer and remaining in his pipes may be liable to larceny under common law in certain circumstances. In the case of West Middlesex Water-Works Co. V. Suwerkrop[8], on the other hand, the court found that an agreement for the provision of water by a water corporation falls under the exemption of a “contract for the sale of commodities” under the Stamp Act, which was a completely different outcome. In a related manner, in the case of Erie County Natural Gas and Fuel Co. Ltd, V. Carroll & anr[9]., the Privy Council determined that even natural gas was good in the eyes of the law.

Different jurisdictions have reached different conclusions, such as the United States of America, which has determined that a contract for the supply of electricity is a contract for the sale of electricity. Thus, electricity has been deemed to be personal property by the courts, and it is capable of sale[10].

The Indian Electricity Act stipulates that “Whoever dishonestly abstracts, consumes, or uses any energy must be punished with imprisonment for a time which may extend to three years, or with a fine which may not be less than one thousand rupees, or with both.” This illustrates the fact that electrical energy may be a target for theft. It is possible to sell electricity in India, as stated in Article 287 of the Indian Constitution, which prohibits the state legislature from imposing a tax on “the consumption or sale of electricity.” This demonstrates that electricity may be sold in India.

  • Recommendation on Inclusion of Stocks and Shares in The Definition of Goods:

When the report was being prepared then suggestions by The Stock Exchange, Bombay was given for including stocks and shares under the definition of goods instead of regarding it as actionable claims. However, the commission under the chairmanship of Setalvad did not accept the suggestions because as per the section 82 of the Companies Act, 1956 (now 2013) has considered shares or other interest of a member in a company as movable property and therefore the definition is concurrent with that section. But at present the statute has included stocks and shares under the definition of goods.

Analysis of the report with respect to the sale of goods act 1930

First of all, its commendable to the 8th law commission under the chairmanship of M.C. Setalvad that it touched upon almost all and important issues with respect to Sale of Goods Act, 1930. By going through the report, it can be analysed that contentious parts have been addressed properly with reasonable justification.

However, on the issue of inclusion of gas, water and electricity which this paper is specifically dealing the law commission reported in affirmation that gas, electricity and water should be included in the definition of goods under section 2(7).

If we analyse the inclusion of electricity then the decision of the Calcutta High Court in the matter of Associated Power Company v. R.T. Roy[11] ruled that electricity falls under Article 366 (12) of the Constitution and Section 2 (7) of the ‘Act’, and that it is therefore classifiable as a ‘good’. According to a Madras High Court decision, electricity falls under the definition of ‘goods’ since it is capable of delivery, and it makes no difference whether the electricity is in the form of a tangible or ethereal kind of energy, according to the learned judge. In its 8th report, the Law Commission of India suggested that electricity and water be included in the definition of ‘goods’ under Section 2(7) of the ‘Act’ to make it more inclusive. The Supreme Court of India decided that the concept of “goods” as defined in the Madhya Pradesh Sales Tax Act (2 of 1959) encompassed all types of moveable property when it heard a case challenging the meaning of “goods.” In addition, the court determined that:

“The term “movable property” when applied to “goods” as defined for the purposes of sales tax cannot be construed in a narrow sense, and simply because electric energy is not tangible or cannot be moved or touched in the same way that, for example, a piece of wood or a book, it does not cease to be movable property when it possesses all of the characteristics of such property.”

“It has the same rights as any other moveable property in terms of transmission, transfer, delivery, storage, possession, and so on.”

Although Pollock and Mulla have expressed concerns about the applicability of ‘the Act’ to electricity, they do so because there is no contractual obligation on the part of the public authority to supply ‘electricity,’ rather than statutory obligation on the part of the authority providing these ‘goods’, as stated in their commentaries. The supply of such commodities would not amount to a ‘sale’ for the purposes of the ‘Act’.

Therefore, any breach or failure on the part of a public entity to deliver electricity would be governed by the rules of the legislation regulating the public body in which the violation occurred.

As a result, the ambiguity regarding considering electricity as goods or service has been cleared by the Honourable Supreme Court in the case of ‘Karnataka Power Transmission Limited V. Ashok Ironworks Private Limited[12] wherein the court held that electricity should be considered as provisions of services and not sale as sale of goods.

Though gas can be compressed and stored likewise water can be stored and they both can be moved from one place to another which is the requirement for satisfying the definition of goods under Sale of Goods Act 1930, but in respect of gas and water they are very crucial utilities that play an important role in the growth of the economy and society. In order to effectively eradicate poverty, enough public utilities must be provided. Ultimately, it is the responsibility of governments to ensure dependable universal access to services under transparent and accountable regulatory frameworks. So, if gas and water are considered as goods then it will be easily subject to sale between private parties with very less or no checks and balances and this will make these essential things subject to exploitation. However, when they are not good as in the present case then they cannot be privately traded and therefore any transfer requires governments inspection and confirmation which protects these important utilities from being exploited and thus securing their allocation for general public and for future use.

Conclusion and suggestions

While conducting research for the purpose of writing this research paper, I attempted to describe the history of ‘Sale of Goods Act, 1930’, its salient features along with identifying some of the most significant recommendations made by the 8th Law Commission in its report under the chairmanship of M.C. Setalvad, as well as some of the issues involving certain commodities such as natural gas, electricity, and water and their inclusion in the definition of “goods” as defined by Section 2(7) of the ‘Act’.

The discussion contributed to demonstrating that “electricity,” which is an intangible yet moveable product, falls within the purview of service, as determined by the Honorable Supreme Court. This allows us to demonstrate that being a moveable property is not a definite indication of being a “good,” as is commonly believed. Therefore, it is clear that, owing to the rapid advancements in science and technology, the definition of products cannot be segmented into straight jacket divisions, and the breadth of this section will continue to grow in the future as a result.

However, it is also clear from this research paper that every utility that is movable, regardless of whether it is tangible or intangible, cannot be included under the definition of goods as defined by section 2(7) because public policy must be considered when making such changes, and if they pose any difficulty or cause any apprehension, then the lawmakers hold complete discretion to avoid including essential utilities under the sale of goods act as in the present case gas and water have not been included as goods under the definition of good as they are meant for use of the public at large and they are essential.

With respect to the law commission report and Sale of Goods Act, 1930 it is suggested that periodic review of such critical areas should be done so that with rapid advancement in society and change in demography the areas of importance do not become obsolete with the time. At the same time, it is admirable the instance taken by courts and lawmakers upon the inclusion of certain goods under the definition of goods including the subject of ‘Electricity’.


[1] Falan and Sons V. G.G.-in-council AIR 1949 East Punjab 190

[2] Sheo Prasad V. Dominion of India AIR 1954 All 747

[3] Dolaram Dwarkadas V. B.B. and C.I. Railway Co. AIR 1914 Bombay 178

[4] Shamji Bhanji and Co. V. North Western Railway, AIR 1947 Bom. 169

[5] Rash Behari V. Emperor AIR 1936 Cal. 753 at p. 766

[6] County of Durham Electrical Power Distribution Co. V. commissioners of Inland Revenue, (1909) 2 K.B. 604

[7] Ferens V. O’Brien, (1883) II QBD 21

[8] West Middlesex Water-Works Co. V. Suwerkrop, (1829)4 C&P 87

[9] Erie County Natural Gas and Fuel Co. Ltd, V. Carroll & anr., (1911) A.C. 105

[10] Volume CLVI, American Jurisprudence, p, 216.

[11]Associated Power Company v. R.T. Roy AIR 1970 Cal 75

[12] Karnataka Power Transmission Limited V. Ashok Ironworks Private Limited 2009

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