Project Contract -Amit

8/8/2019 Project Contract -Amit

1/25

Wireless signals as under Sale of Goods Act with special reference to

Jabalpur Cable Network v. E.S.P.N. Softwares Pvt. Lmt case.

National Law University, Jodhpur 1

TABLE OF CONTENTS

1 Acknowledgement...................................................... ..................... ............2

2 List of abbreviations.................................................. ............................... ...3

3 Research methodology.................................................... ......................... ...4

4 Introduction, Aims and Objectives........................................................ ....6

5 Chapters

5.1 Facts............................................................................... ....................... .....7

5.2 Judgment by High Court..................................................................... ...10

5.3 Analysis...................................................................... ...............................16

6 Conclusion and suggestions ................................ ................................... ...23

7 References and List of cases.................................................................... ...25


2/25




1 ACKNOWLEDGEMENT

As a child, you acknowledge everything you accomplish, and as you grow older and

more sophisticated, you acknowledge only major achievements but an endeavour of

this magnitude would not have been possible without the invaluable help and support

of Mrs Suchita Nagori who throughout helped me and supported me by putting in her

valuable efforts and knowledge at the time of making of this project and without her

this research would not have materialized. I also express my deep sense of gratitude to

all my friends especially Ajay Bhadu, late night discussion with them helped me a lot

in this project and who have helped me at every point of time. At the same time Im

also very grateful to God and my family members as without their support and

blessings this project would not have been a reality.


3/25




2 List of Abbreviations

A.I. - All India Reporters

S.C - Supreme Court

L.R - Law Reports

Vol. - Volume

Honble - Honourable

& - And

P. - Page

Ltd. - Limited

V - Versus

Sec. - Section

Co. - Company

H.C. - High Court

SSC - Supreme Court Cases

Bom. - Bombay

Enterp. - Enterprise

QB - Queens Bench

App Cas - Appeal Cases


4/25




4 RESEARCH METHODOLOGY

3.1 Topic: Wireless signals as under Sale of Goods Act with special reference to Jabalpur

Cable Network v. E.S.P.N. Softwares Pvt. Lmt case.

3.2 Area: Contract of Sale of goods

3.3 Introduction:

The project topic deals with studying whether wireless signals can be treated as goods or

not. The judgment of the Jabalpur Cable Network v. E.S.P.N Softwares Pvt. Lmt. case is

analysed so as to discuss Sec. 2(7) of the Sales of Goods Act, its concepts, characteristics and

legal scenario, further looking into the implications and consequences thereof and analyzing

and what the present position is.

3.4 Objective:

With the start of the present project work the following objectives were set out by me :-

To look into the concept of intangible goods under the definition of Sales of Goods Act. To look into the characteristics, legal background its consequences and the problems in the

above Case and analyse the judgment.

3.5 Theme of the Project:

Theme of my project work is to look into the definition of Goods under the Sales of Goods Act

and critically analyse the same.

3.6 Research Methods:

The methods that have been followed during the course of study (project) are LibraryMethod and Internet Method (Sources available on the internet).

3.7 GOAL OF THE STUDY

The study analysis the Judgment by Honble High Court of Madhya Pradesh in the above

mentioned case in which wireless signals were considered to be goods under the definition of

Sales of Goods Act. The wireless signals were compared to electricity and were termed as


5/25




goods. The goal of analysis is to discuss the scope of the definition of goods and legal

consequences and other aspects of this judgment.

3.8 Proposed judicial decisions for Analysis:

The Commissioner of Sales Tax, Madhya Pradesh, Indore v. Madhya PradeshElectricity Board.

Jabalpur Cable Network v. E.S.P.N. Software Pvt. Lmt.3.9 Literature Survey:

While reading literature for this project, books by Mulla and Avtar Singh on Sales of goods

Act has been a great help and even article and case laws from different sites have helped to

complete this project.

3.10 Footnoting Style:

The footnoting style and the formatting of the project work is uniform throughout which is in

accordance with NLU, Jodhpur footnoting style.

3.11 Chapterization:

1. Facts of the case2. Judgment by High Court3. Analysis4. Conclusion


6/25




4 INTRODUCTION

The definition of goods was under constant alteration for a long time until it was

finally codified in the Sale of Goods Act. However many of the newly discovered and

invented things are difficult to categorized under goods due to their nature which

makes them difficult to fit in the conditions laid down by conventional definitions.

This made the Courts to interpret the definition in new form and widen the scope of

the term goods, so that the disputed items may fall within the preview of goods

and dispute may be resolved.

The need for fast and rapid communication and transformation of information lead to

the discovery of wireless signals. However after many years of discovery no case

arose before the court where the question, can wireless signals be considered to be

movable property? could had been discussed and argued upon. The Honble

Supreme Court of India in The Commissioner of Sales Tax, Madhya Pradesh, Indore

v. Madhya Pradesh Electricity Board1

case decided that electricity can be considered

to be a good under the definition of Sale of Good Act. This decision proved to be

imperative and was taken into consideration by the High Court of Madhya Pradesh

when the question concerning whether wireless signals can be mulled under the

foretaste of goods, in the caseJabalpur Cable Network Ltd. v. E.S.P.N. Softwares

Pvt. Ltd.2

This interpretation made by the High Court of Madhya Pradesh is very

crucial in the present context where wireless goods are replacing many of the

immovable goods

The judgment cleared the path for further resolution of future disputes concerning

with the definition of wireless signals but the judgment is also criticisms and can be

termed to be circumstantial and is not possessed with any major authority as it its not

given by the Apex Court of India. The case is analyzed mainly for the purpose of

critically studying the interpretation of the High Court that wireless signals can be

considered to be movable goods on basis of its comparison and similarities with

electricity.

1AIR 1970 SC 732

2 AIR 1999 MP 271


7/25




Chapter 1

5.1 FACTS

Appellants: Jabalpur Cable Network Pvt. Ltd.

Respondent 1: E.S.P.N. Software India Pvt. Ltd. and Ors.

Respondent 2: Regional office of E.S.P.N. at Mumbai.

Respondent 3: Duly appointed Distributer for Jabalpur region by E.S.P.N.

yThe respondent No. 1 entered into an agreement on 15th April 1998, titled as "Star SportsService Contract", for a period from 15

thApril 1998 to 14

thApril 1999. The respondent No. 1

was named as the "licensor" in the contract and the appellant is known as "affiliate". It

appeared from Clause III of the agreement that the term of one year between the parties was

to expire by efflux of time unless the contract was renewed subject to same terms except for

the fees which could be varied. The amount of fees in the contract was payable at the rate of

Rs. 48,000/-per month by the affiliate to the licensor. However, the licensor reserved its right

to revise the subscription from time to time, Further it appeared from Clause IV of the

agreement that the licensor reserved its right to renegotiate with the affiliate with regard to

amount of monthly subscription payable to it, if it found that there was a substantial change

in the base of the subscribers of the affiliate. For this purpose, the licensor had reserved the

right to give a notice often days and on the failure of talks regarding renegotiation the

licensor had a right to terminate the contract by the end of the month. An important condition

was that the licensor granted to the affiliate a nonexclusive right to distribute the services

provided by Star Sports for reception by the customers of the distribution systems. It wasfurther agreed that licensor had right to terminate the contract by written notice if it believed

in good faith and reasonable judgment that it was threatened or subject to legal action by the

Government or any of its authorities under the laws of the land and the rules etc.

yIt was further agreed that the suspension of service will be on the basis of no fault liability onthe part of the licensor. Clause 8 of the agreement stated that the licensor had a right to


8/25




disconnect the service provided and terminate the agreement without prior notice in case of

non-payment of fees when they became due for payment as per Clause IV of the agreement.

However, the licensor had discretion not to disconnect the service and terminate the

agreement upon such terms and conditions as the licensor may deem fit and proper which

may, inter alia, include the receipt of entire arrears of money along with interest agreed

thereon at the rate of 1-1/2 per cent per month or at the highest lawful rate, whichever is

higher compounded monthly from the date such amounts which became due until they are

fully paid. Clause 10 showed that "Star Sports", "ESPN Swear Sports" were to be treated as

the trade names and the property of "Star Television Products Limited" and the affiliate had

no right to use such names for its own purpose. The right of termination was given in Clause

12. It was provided that contract would be terminated by seven days' prior notice by

registered post on breach of any of the obligations by the concerned party or on bankruptcy

or insolvency of other party. The exception to this Clause was that the licensor was given

absolute right to terminate the agreement without notice to the affiliate upon occurrence of

non-payments of fees as contemplated in Clause IV hereof, non-payment of hire purchase

installments, breach of Representations and warranties set out in Clause 3 hereof."

y The condition No. 15 is being reproduced hereunder as they are necessary for the decisionof this appeal:--

15.1 Entire understanding: This agreement contains the entire understanding between the

parties with respect to the subject-matter covered and supersedes any previous agreements

between the parties regarding such subject-matter.

15.2 Covering Law and Arbitration: The substantive rights and obligations of the parties

under this agreement shall be governed by Indian Law. All claims and controversies

hereunder shall be adjudicated exclusively in the Courts of Delhi,

(b) If any disputes or differences arise between the parties, then they shall endeavor to

resolve the same amicably through negotiations. If the difference are not resolved by means

of negotiations within a period of 30 days of such difference period as is agreed between

the parties, such difference then shall be referred to and settled by arbitration, in

accordance with the provisions of Arbitration and Conciliation Act, 1996, by three


9/25




arbitrators, one to be appointed by each party and the third to be appointed by the two

arbitrators. The venue of the arbitration proceedings shall be New Delhi."

yAfter the aforesaid agreement was entered into, the appellant made a request to respondentNo. 3, that 80 percent of the cable operators were not paying it the dues and, therefore, it

was discontinuing its service to the cable operators and accordingly, it will not be paying

the respondent No. 3 for Star Sports Services from the date of next renewal. However, the

last line of the letter says that in case, the cable operators were ready and willing to pay the

charges for Star Sports Services, the appellant shall continue its services. It appears that

pursuant to this letter, the respondent deactivated the Star Sports Services on 7th of August,

1998. However, prior to deactivating the Star Sports Services the appellant was informed

by a letter, dated 24th July, 1998 to the following effect:--

y"In case the payment is not made on the date it is due, naturally would be service bedisconnected. However, I am sure you are more than aware as per the STAR Sports service

contract W 00802, the subscription charges are payable even for that period that the STAR

Sports services is discontinued."

yAfter receiving the aforesaid letter dated 24-7-98, the appellant sent a reply dated 25th ofJuly, 1998, to the Regional Manager, the respondent No. 2. It was stated in this letter, inter

alia, that the condition of demanding subscription charges even for the period the Star

Sports Services was discontinued, would leave the appellant with no option but never to

restart the Star Sports Services. Thereafter, on 7th of August, 1998 the services of Star

Sports were discontinued. Then again on 30th of October, 1998, after waiting for about two

months, it appears that the appellant again wanted to start a dialogue and stated that the

conditions imposed by the respondent No. 1 were one sided and high handed. Ultimately,

the talks broke down and as a consequence thereof the respondent No. 3, Channel Links

wrote to the appellant that the agreement stood terminated with effect from 4th

April 1999,

and it required the appellant to pay Rs. 2,40,000/- as service charges for the period falling

between 24th July1998 to 24th November1998.

yThereupon, the appellant filed an application under Section 9 of the Arbitration andConciliation Act, 1996 before the Court-below.


10/25




Chapter 2

5.2.1 Questions Raised

1. The first and foremost question raised before the Court was to decide the maintainability ofthis appeal, prior to decision of the case on merits.

2. The second question was regarding the territorial jurisdiction of the Trial Court and of TheHigh Court. It was incumbent upon the Honble High Court to decide the question of its

own jurisdiction first, before embarking upon decision on merits of this case.

3. Third question was raised regarding the nature of the contract. The Court was to decide wasit a Service Contract or an Agreement of Sale of Movable Property? Can wireless signals

be considered as goods under the definition of Sales of Goods Act?

4. Is Section 54 of the Contract Act applicable in this case?5. Is the contract specifically enforceable?6. Should the claim, by way of mandatory temporary injunction in order to prevent breach of

contract, be granted in favour of the appellant?

5.2.2 Judgment by High Court

y Regarding the question of maintainability of the appeal Honble High Court decided thatthe appeal was maintainable, against the order refusing to grant of an ex parte injunction

given by the Trial Court, under Section 37(1) (a). In this particular case, the Trial Court has

expressed its opinion for not granting ex parte injunction. The High Court held that it was

an order indicating the reason for not exercising the jurisdiction. Therefore, it is a formal

expression of adjudication. It cannot be disputed that under Section 9 of the Arbitration and

Conciliation Act and the Court has power to grant interim injunction or to take such other

interim measure of protection as may appear to the Court to be just and convenient. The

Clause (d) of Section 9(ii) of the above Act would cover the case of the appellant and in

case it does not so cover the case by Clause (d) the width and amplitude of Clause (e) of

Section 9(ii) of the Act gave the Court-below sufficiently wide power to issue an ex parte

mandatory injunction to the respondents to provide services of Star Sports to the appellant.


11/25




If the conclusion of this Court be correct then certainly, an order passed under Section 9 of

the Act would be appealable under Section 37(1)(a) thereof.

y The Honble court while deciding the matter of jurisdiction rejected the second preliminaryobjection raised by the respondents, with regard to the jurisdiction of the Civil Court at

Jabalpur, that in view of Clause 15.2 (a) of Annexure P-1, only the Delhi Court had

jurisdiction. The Court discussed the decisions of the Supreme Court in Hakam Singh v.

Gammon (India) Ltd.3 , A. B. C. Laminart Pvt. Ltd. v. A. P. Agencies, Salem,

4and Angile

Insulations v. Davy Ashmore India Ltd.5

that the parties to an agreement cannot confer

jurisdiction on a Court who is not possessed by it under the Code of Civil Procedure, but in

case, there be an agreement between the parties to a contract that out of the two Courts

having concurrent jurisdiction to try the suit, one of such Courts, shall try the suit, it is notopposed to public policy, within the meaning of Section 23 of the Contract Act; and it does

not contravene Section 28 of the Contract Act.

The Court held that the cause of action did not arise at Delhi and the Courts at Delhi had no

jurisdiction to try the case and it was also averred that Clause (relating to territorial

jurisdiction of the Court in the agreement, Annexure P-l) is not binding and does not oust

the jurisdiction of this Court, meaning thereby the jurisdiction of Civil Court at Jabalpur,

where the cause of action arose. It may also readily be seen that the appellant had made

respondent No. 3 also a party to it. It was stated specifically in this paragraph 7 of the

application that no part of the execution of the agreement took place at New Delhi. The

agreement was signed at Jabalpur and was countersigned on behalf of respondent no. 1 at

Mumbai. There is an ambiguity in the agreement itself. This ambiguity is to the effect

whether the parties to Clause 15.2 (a) of the agreement that the Courts where the agreement

was signed shall have the jurisdiction or the Courts of Delhi (India) shall have only the

jurisdiction. This ambiguity cannot be resolved without ascertaining the intention of the

parties and it would require evidence to determine the ambiguity in the agreement. In thiscase it must be assumed that the agreement was not signed at New Delhi. Therefore, it

cannot be assumed that the Court of Delhi shall have jurisdiction despite the presence of

the words in Clause 15.2 (a) of the agreement. It may be remembered that the case of the

3 AIR 1971 SC 7404

AIR 1989 SC 12395 (1995) 4 SCC 153 (AIR 1995 SC 1766).


12/25




appellant will be governed by Section 20(b) of the Code of Civil Procedure for the reason

in this case there are more than one non-applicants in the application under Section 9 of the

Act before the Court-below. It is obvious that the respondent No. 3 is necessary party in

view of the contention of the appellant that the termination of the contract is illegal. It is

clear that respondent No. 3 was a necessary party. It is a clear and distinct legal entity.

However, despite the agreement there was no automatic conferral of exclusive jurisdiction

in the Courts of New Delhi. In this case decision relied upon by the learned counsel for the

respondents would not be applicable to the facts of this case. For all these reasons, the

appellant had a right to file the suit under Section 20(c) of the Code of Civil Procedure at

the place where the cause of action arose wholly or in part.

yThe Honble court regarding the nature of the contract decided that whatever be the nameand style of the agreement, it is an agreement for sale of movable property and not of

immovable property. In view of this matter, the argument of the learned counsel for the

appellant that Sections 16 to 19 of the Act shall govern the cause of action in this case was

rejected.

Question whether signals be considered as movable goods or not under the definition of

Sales of Goods act, the Honble Court decided that wireless signals are form of

electromagnetic energy and can be considered as goods. In this connection, it would be

profitable to consider whether the signals issued by the respondent No. 1 can be defined as

"goods" within the meaning of Sale of Goods Act. Section 2(7) of the Sale of Goods Act

defines the "goods" as follows: - "Goods" means every kind of moveable property other

than actionable claims and money; and includes stock and shares, growing crops, grass and

things attached to or forming part of the land which are agreed to be served before sale or

under the contract of sale."

The Court said decided that in this case we are not concerned with the latter part of the

definition but one thing is very clear from the above definition of "goods" that "goods"

mean every kind of movable property. It cannot be disputed that even the coded signals

issued by the respondent No. 1 are a form of energy. They contain information in coded

form. The appellant had not only right to decode them but also to distribute the decoded

forms of signals through cable operators. Such an agreement would be an agreement of sale


13/25




of goods. It cannot be disputed that these signals are movable and travel across from the

site of programmes to the antenna of the appellant and, thereafter, to the television sets of

the subscribers through the cable operators. These signals are a form of energy, in the shape

of electromagnetic or other kind of waves. These are the goods sold by the respondent No.

1 to the appellant.

In this connection, this Court relied on a decision of Supreme Court in The Commissioner

of Sales Tax, Madhya Pradesh. Indore v. Madhya Pradesh Electricity Board6, wherein

their Lordships were required to consider whether "electricity" would be goods. The

Supreme Court, reversing the decision of a Division Bench of this Court, rendered in

Madhya Pradesh Electricity Board, Jabalpur v. Commissioner of Sales Tax, Madhya

Pradesh7, , held that the "electricity" would be goods. The Supreme Court observed at

that;--

"....The term "movable property" when considered with reference to "goods" as defined for

the purposes of sales tax cannot be taken in a narrow sense and merely because electric

entry is not tangible or cannot be moved or touched like, for instance, a piece of wood or a

book, it cannot cease to be movable property when it has all the attributes of such

property.........."

The Supreme Court went on to point out that the electric energy was liable to abstraction,

consumption and use. The signals, issued by the respondent No. 1 are also liable to be

abstracted consumed and used. It may be further pointed out that the Supreme Court was of

the view that electricity could be stolen and, therefore, stealing of electricity was made

punishable for its theft.

In this connection certain Clauses of the agreement show that the respondent No. 1 treated

its right of sending signals as its property. It was provided in Clause 3 (f) of General Terms

and Conditions of Annexure P-1 that the programmes issued by the Star Sports Services

shall not be permitted to be copied or reproduced by the appellant. The affiliate is also not

authorized to modify, misuse or tamper with the equipment or any of the signals emanating

there from in a manner that prevents identification of the equipment number or to interfere

6AIR 1970 SC 732

7 AIR 1968 MP 163


14/25




with the signals as per Clause 3 (d) of General Terms and Conditions mentioned in the

agreement, Annexure P-1. These precautions were taken by the respondent No. 1 by

providing them specifically in the agreement because he treated the right to show the

signals as its proprietary rights. The learned counsel for the respondents Nos. 1 and 2 is

correct in saying that Section 20 of the Code of Civil Procedure would be attracted for

determining the jurisdiction of the Court. Considering all these points the Court considered

wireless signals to be goods under the definition of Sales of goods Act.

y Regarding the question of nature of the contract the Court was of the view that if thesignals can be held to be goods then the agreement Annexure P-1 is for sale of movable

property produced by the respondent No. 1 for a period of one year. The appellant had not

only right to decode them but also to distribute the decoded forms of signals through cable

operators. Such an agreement would be an agreement of sale of goods.

y On the question of application of Section 54 of the Contract Act in this case the HonbleCourt decided that the respondent acquiesced in the act of the appellant and stopped

sending signals at the request of the appellant. In such circumstances, Section 54 of the

Contract Act would not be strictly applicable. Since the respondent No. 1 agreed to stop

issuance of signals, there was no quid pro quo and, therefore, the question of payment of

damages did not arise. The respondent No. 1 had full right to rescind the whole contract

and claim damages for breach of contract. It failed to exercise its option.

y With respect to the specific enforcement of the contract the Court said the answer to such problem has to be looked into from the point of view of the nature of the agreement.

Section 7 of the Specific Relief Act provides that a person entitled to the possession of

specific movable property may recover it in the manner provided by the Code of Civil

Procedure. Explanation 2 of Section 7 aforesaid says that a special or temporary right to

present possession of the movable property is sufficient to support a suit under this section.

In this situation, the Court has to determine the nature of contract. This Court has alreadystated the electronic signals in form of waves can be treated as goods and can be held to be

movable property. In view of this matter, the appellant is entitled to hold the movable

property by virtue of the agreement for a period between 15th of April, 1998 to 14th of

April, 1999 provided the agreement subsisted. The application under Section 9 cannot be

treated specifically an application for specific performance of contract. These signals were


15/25




not ordinary articles of commerce and were of special value to the appellant and they were

the goods which are not easily obtainable in market. Therefore, there was a presumption

that the breach of a contract to transfer these goods cannot be relieved by payment of

money in lieu thereof. It is also clear that there is no standard of ascertaining the loss

caused to thy appellant by not displaying the live programmes of the Star Sports Channel.

In such cases, the contract of specific performance would be enforceable Under Section 10

of Specific Relief Act read with explanation (ii) (a) thereof. Hence the contract is

specifically enforceable.

y Regarding the grant of mandatory temporary injunction Court was to decided that whetherthe Court was confined to the principles under Section 39 Rules 1 and 2 of the Code Civil

Procedure or it had some wide powers under Section 9(ii) (d) and (e) of the Act. Obviously,

the language given in Clause (e) makes the power much wider. The learned counsel for the

appellant referred to the case of Gujarat Bottling Co. Ltd. v. Coca Cola Company8,

reported in. The matter in this case was under Order 39, Rules 1 and 2 of the Code of Civil

Procedure. In this case, the principle laid down was that the conduct of the parties has to be

looked into for grant of injunction. It appears that conduct of both the parties in this case

can be faulted and, therefore, it cannot be said that the appellant alone has to be blamed.

The Court decided that it would be most inequitable not to grant the relief to the appellant

to transmit information which is of great value when it is live and loses its importance after

the telecast is over and, therefore, it would be appropriate to grant injunction to the

appellant subject to certain conditions which shall be spelled out later on.

y Accordingly, in terms of the aforesaid order, this appeal succeeded and was allowed.

8 AIR 1995 SC 2372


16/25




Chapter 3

5.3 Analysis

For analyzing the judgment of the High Court holding in the instant case the contract being

not a service contract but a contract of sale wherein considering wireless signals as movable

goods, its imperative to peruse through the relevant definitions and historical background

associated with it.

The primary question necessitating answer is what are goods? we cannot approach the

subject better than by trying to understand the two expressions goods and sale. The

definition of the term goods could be traced through Section 76 (Now Repealed) of theContract Act which defines it as: - Goods means and include every kind of movable

property.

Movable property has been defined in Section 3, clause 34 of the General clause act, Act X

of 1897: - movable property shall mean property of every description except immovable

property. So, it becomes necessary to examine what immovable property is? Section 3,

clause 25 of the General Clauses Act defines immovable property: - immovable property

shall include, land, benefits to arise out of land, and things attached to the earth or

permanently fastened to anything to the earth.

Now this definition under old Section 76 gave rise to difficult questions (e.g.,) whether

shares in a joint stock company can be called goods or not. In Lalit Mohan Nandy V.

Haridas Mukharjee9 it was held that goods will not include shares. But in the later case,

Manekji V. Wadilal & Co.10, it has been held that shares are goods. Again, under the

definition under the old section was so wide, that it might include even money. But, current

coins could not be called goods and it was held in Koti Venkataramaniah V. The Official

Assignee11, that current notes are not goods. Coins of antiquity and Jubilee coins, however,

have been held to be goods. Current money is not goods, current coins sold, as curiosity

will be goods. The Indian sale of goods act 1930 has combined the definition under the

9 (1996)24CLJ 335 : 37 IC 70710

(1926) 53 IA 92 : 50 Bom.36011 (1909) 19 MLJ 283 : 2 IC 611


17/25




English act and under the repealed sec. 76 of the contract act and has given a new definition

in the following terms in Sec.2 clause7: Goods mean every kind of movable property other

than actionable claims, and money and include stock and shares, growing crops, grass and

things attached to or forming part of the land which are agreed to be served before sale or

under the contract or sale.

The word actionable claim has been defined in Sec. 3 of the transfer of property act as

follows: - Actionable claim, means a claim to any debt, other than a debt secured by

mortgage of immovable property or by hypothecation or pledge of movable property not in

possession, either actual or constructive, of the claimant, which the civil courts recognizing

as affording grounds of relief, whether such debt or beneficial interest be existing accruing,

conditional or contingent.

Mineral oil extracted and removed from the soil is goods.12Stones won in the process of

quarrying either in their then condition or after breaking up are goods.13 Standing timber

on the land agreed to be served from the land before the sale will be covered by definition of

goods.14

Slag, clinder tips or other artificially formed mounds may, in the process of time, so

accede to the soil as to become incapable of forming the subject-matter of a contract of thesale within the meaning of the sale of Goods Act.15 According to Indian law shares are also

goods within the meaning of the definition of the Act.16

Under Sec. 3(34) of the General

Clauses Act, a decree is movable property and goods within the meaning of the Sales of

Goods Act.17

Patents, copyrights, goodwill, trademark, are all considered goods, which can

be the subject matter of a Contract.18

Copyright in songs have been included in the definition

of goods.19

A ship also has been considered to come within the definition of the words

goods.20

Water was also considered as good in Ferens v. Brien.21

Electricity was

12 Anglo-iranian oil co. v. jaffrate,(1953) 1WLR 246, 250.13 Kulkarni v. The State, AIR 1957 MP 45.14

State of Maharasthra v. Champalal Kishan lal Mohta, AIR 1971 SC 908.15 Organ v. Russell, (1909) 1 KB 357.16 Mnekji v. Wadilal, AIR 1926 PC 538.17

Madholal Sindhu v. Official Assignee, AIR 1950 FC 21.18 Hooper v. Gumm, (1867) 2 Ch. App 282.19

Ramiah Asari v. Chidambara Mudaliar, (1920) 39 MLJ 341.20 Behnke v. Bede Shipping Co. (1927) 1 KB 649.


18/25




considered as good by Honble Supreme Court in Commissioner of Sales Tax, Madhya

Pradesh. Indore v. Madhya Pradesh Electricity Board22

.

The next question to be answered is what is Sale? the repealed Sect. 77 of the Indian

Contract Act defined a sale thus : - Sale is an exchange of property for a price. It involves a

transfer of ownership of the thing sold from the seller to the buyer.

Section 4 of the Indian Sale of Goods Act as follows: A contract of sale of goods is a

contract whereby the seller transfers or agrees to transfer the property in goods to the buyer

for a price. There may be a contract of sale between one part-owner and another. It is not

essential that any immediate right to possession should be passed by the contract.What is

essential is that the title passed there under is absolute and not merely possessory. Sale is a

translative fact and involves the transfer of the entire interest of the person in whatever is

sold. A transaction will be sale only where for money consideration; property is transferred

under a contract for sale.23

The High Court in this case considered the definition of "goods" in the Sale of Goods Act

given in Section 2(7) which defines the "goods" as follows: - "Goods" means every kind of

moveable property other than actionable claims and money; and includes stock and shares,

growing crops, grass and things attached to or forming part of the land which are agreed to beserved before sale or under the contract of sale."

The Court was not concerned with the latter part of the definition and concluded that in the

above definition "goods" mean every kind of movable property and even the coded signals

issued by the respondent No. 1 are a form of energy. They contain information in coded

form. The appellant had not only right to decode them but also to distribute the decoded

forms of signals through cable operators. Such an agreement would be an agreement of sale

of goods. There can be no dispute that these signals are movable and travel across from the

site of programmes to the antenna of the appellant and, thereafter, to the television sets of the

subscribers through the cable operators. These signals are a form of energy, in the shape of

21 1882 QBD 2122

AIR 1970 SC 7321 New India Sugar Mills Ltd. V. Commissioner of Sales Tax, AIR 1963 SC 1207.


19/25




electromagnetic or other kind of waves. These are the goods sold by the respondent No. 1 to

the appellant.

In this connection, this Court relied on a decision of Supreme Court in The Commissioner of

Sales Tax, Madhya Pradesh. Indore v. Madhya Pradesh Electricity Board24

, , wherein the

Supreme Court decided that "electricity" would be goods. Here the important point to note is

that the Supreme Court gave a 3 point test to decide whether electricity can be goods or not.

This point test can be applied to decide about other intangible things.

The first stage is Abstraction. Here the Court observed that electricity can be abstracted. The

second stage is Consumption. The Court pointed out that electricity is a consumable thing.

The third and the last stage being Use, the Honble Court said that electricity is subject to use

only.

Relying upon this test the High Court said compared wireless signals to be a form of

electromagnetic energy and further said that wireless signals issued by the Respondent no. 1

are also liable to abstracted, consume and use. Information in wireless signals is in form of

coded form which is sent from a base station, these signals are received at different stations

and the signal is decoded there and information is transferred.

The Judgment of the Honble High Court is not very correct and subject to many slip-ups.

The first point of denigration lies in the curtailed interpretation made by the Court. The test

laid down by the Honble Supreme Court is not precise, though electricity is intangible but it

always require a medium and the mediums required by electricity for the process of

extraction, consumption and use have to be tangible. In this aspect they are inseparable and

thereby cannot have separate existence, henceforth electricity couldnt be completely

intangible good. If we go by this definitions and given by the Court in Commissioner of

Sales Tax, Madhya Pradesh. Indore v. Madhya Pradesh Electricity Board, AIR 1970 SC 732,

it does not fulfill the 3 conditional test mentioned above. Since wireless signals were

considered to be goods on the basis of the similar nature and a form of electricity in the

present case the judgment becomes ambiguous. Moreover there is one major difference

between these two regarding transformation things is that wireless signals can even travel in

24AIR 1970 SC 732 page 736, paragraph 9


20/25




vacuum, these signals are electromagnetic signals which do not require any medium to travel

so while transferring of signals no medium is required whereas in case of electricity a

medium is always necessary. So even if electricity can be partially termed as goods, wireless

signals dont even fall in this criterion. During the interpretation of Statutes and Commercial

Laws Courts adopt liberal views. If the definition and meaning of the interpretation done, the

words used while interpretation mean the same and the nature of the case in same then an

interpretation can be applied in the similar case. In Commissioner of Sales Tax, Madhya

Pradesh, Indore v. Madhya Pradesh Electricity Board25

, the aim and the behind terming

electricity was for matters of sales tax and that cannot be taken in a narrow sense. In present

case the matter was of contract of between two parties.

Other point which supports the uncertainty of this judgment is the question whether this

subsidiary requirement of redefining goods was a legal requirement or was it an attempt to

solve the case by fitting in wireless signals within the definitions of goods as when this case

was being tried there was no relevant law in India where this case could be fitted in. There

was no Central source to drive any authority. If there had been any relevant Act else would

had solved the case. Also the main aim of the appellant while arguing to include wireless

signals in definition of goods was to gain compensation. This supports the fact that the

judgment was given just to resolve the disputes of that case with then available laws and not

keeping in mind the future prospective. 9 years have passed and yet there is no legislation

passed to consider wireless signals as goods. An Electricity bill, 2003 clearly terms

electricity as movable goods and its theft is punishable but no act has been passed regarding

the wireless signals. There is one Broadcasting Bill waiting to be passed by the legislature,

may be possible that the entire future disputes regarding Telecommunication will be solved

by this bill. This bill also silent on the fact that should wireless signals be considered as

goods. On one hand where endeavours are being made for The Convention on Contracts for

the International Sale of Goods to harmonise the laws relating to contract and sale of goods,

the Indian stand on laws regarding sale of goods are not very comprehensible.

Now we take into account the judgment of the court considering that this was not a service

contract and was therefore an agreement of sale under Sales of Goods Act. The main basis

25 AIR 1970 SC 732,


21/25




and explanation High Court gave in support of this was that the wireless signals are goods on

the basis of the interpretation given in the above case by Honble Supreme Court so this

contract was for Sale of signals by Respondent No. 1 to the appellant. Now since, the terming

of wireless signals itself is ambiguous it would be profitable to call this as a Service contract.

There has to be a distinction between supply of goods and supply of services. The Electricity

Act includes electricity within the definition of 'goods', this shows that there is always room

for debate even in relation to a basic matter such as what 'goods' comprises. There is certainly

no reason why, today, we should restrict the concept of 'goods' to personal chattels. The

reason for including electricity (and gas) is that electricity is capable of being consumed in

the same way as, for example, food. However, this does not mean that we should treat all

intangibles as goods, or that treating electricity as goods requires all contracts involving

electronic signals to be so treated. In any event, the features which distinguish a licence from

a sale are that ownership is not transferred and that the subject matter is used, not consumed.

The Honble High Court was very correct in deciding the matters relating to question of

jurisdiction and maintainability of the appeal. There was ambiguity in the terms of the

contract as Clause 15.2 (a) of the agreement stated that the Courts where the agreement was

signed shall have the jurisdiction or the Courts of Delhi (India) shall have only the

jurisdiction. This ambiguity cannot be resolved without ascertaining the intention of the

parties and it would require evidence to determine the ambiguity in the agreement. Moreover

Respondent no. 3 was also an important party to the contract. The agreement was signed at

Jabalpur and was counter signed on behalf of Respondent no. 1 at Mumbai. It was very clear

from the facts of the case that Delhi was not the place was contract was signed. The signals

were sent to and collected at Jabalpur so the place of contract was also not Delhi.

Here thing important to note is that the terming of wireless signals can also be treated as a

work of Judiciary to swathe up the incompetence of Legislature to make laws in accordance

with changing times. The Honble Supreme Court in State of Uttar Pradesh and Anr. etc. Vs.

Union of India (UOI) and Anr.26

decided that the question whether a given activity is one of

sale or service is a vexed question. The terminology employed to describe an activity as sale

or service is not conclusive in itself. By calling sale as service or vice-versa, the substance of

26 AIR 2003 SC 1147,


22/25




the transaction will not get altered. The question has to be determined by discerning the

substance of the transaction in the context of the contract between the parties or in a case of

statutory contract in the light of the relevant provisions of the Act and the Rules. If an

activity or activities are comprehensively termed as 'service' but they answer the description

of 'sale' within the meaning of a Statute, they can nonetheless be regarded sale for the

purpose of that Statute. In other words, it is possible; an activity may be service for purposes

of one Act and sale for purposes of another Act. It may also be that in a given case, on the

facts of that case, a particular activity can be treated as 'service' but in a different fact

situation the same could be sale under the same Statute. This decision is very important in

giving a new scope to the definition of goods and deciding cases wherein analogous disputes

arise.

Taking up the question of application of Section 54 the High Courts judgment was very

correct, argument that it was the appellant who was required to pay the money first under the

agreement and as a consequence thereof he was entitled to receive the signals and under

Section 54 of the Contract Act if the appellant failed to perform his part of the contract, the

reciprocal promise on the part of the respondent No. 1 of issuing signals could not be claimed

was very weak. On the basis of Section 54 of the Contract Act the respondent No. 1 was not

entitled to claim compensation for the period the services were not utilized as this section

would not apply unless the respondent No. 1 suffered any loss on account of non-payment of

fees by the appellant. On the other hand, it acquiesced in the act of the appellant and stopped

sending signals at the request of the appellant. In such circumstances, Section 54 of the

Contract Act would not be strictly applicable. There was no quid pro quo and, therefore, the

question of payment of damages did not arise. The respondent No. 1 had full right to rescind

the whole contract and claim damages for breach of contract. It failed to exercise its option.


23/25




6 Conclusion

The judgment delivered by the Honorable High Court of Madhya Pradesh apparently seems

to be ambiguous wherein the wireless signals have been incorporated within the ambit of

goods under the sales of goods act. The judgment also appears to be farcical prima facie as

the judgment of the instant case is inspired from Commissioner of Sales Tax, Madhya

Pradesh. Indore v. Madhya Pradesh Electricity Board27

. wherein electricity was construed to

be within the sphere of goods and the courts have blatantly incorporated its ratio without

deciding the instant case on its merits. The court failed to appreciate the fundamental premise

which distinguishes electricity from wireless signals. The difference between the two is

imperative to be considered because it establishes the reason behind holding electricity to be

as moveable goods and why wireless signals constitute class apart. It is submitted that for

transmission of the electricity a medium is required unlike wireless signals wherein the

primary test behind adjudging electricity to be as goods was that it needs a medium to travel

which interlay includes the material form of wire to transmit the energy for the consumers to

use it unlike wireless wherein no medium is required. Thus court failed to appreciate this fact

and moreover the judgment does not touch upon the instant point in its entirety. The

judgment in the Jabalpur Cable Network case is ambiguous on the point of inclusion of

wireless signals within the definition of goods under the sales of goods act The Electricity

bill came in 2003 after 33 years of the historical judgment by the Supreme Court. 9 years

have passed and there is still no codified law to deal with the tribulations concerning

transaction of intangible items. In respect of the articles which are of special value like

wireless signals and which were not easily obtainable in the market the attitude of the Sale of

Goods Act is quite traditional. In present scenario where X is being talked about to

harmonize the different laws of the different countries regarding the sale of goods, Indias

stand is still ambiguous. in the present picture of global trade, trade between different

countries is only possible if the parties are clear with the terms of the contract and the

procedure that would be followed if dispute arises. How can we expect an industrial giant of

U.S. in wireless sector to enter into trade in India when there is not law for the same? A new

27 AIR 1970 SC 732


24/25




concept of what are 'unique' goods with a test of uniqueness that must be made in terms of

the total situation which characterizes the contract should be developed for these

sophisticated articles instead of fitting them in conventional laws. The inclusion of wireless

signals in the definition of goods would result in repeated interpretations of the definition of

goods by the Court. As I have already mentioned above, sale of goods is the single most

important contract for the consumer and the question of conformity is the most important

problem with which he is confronted.


25/25



7.1 REFERENCES:

1. The Law of Contracts & Tenders; 10th Edn.; T.S.Venkatesa Iyers / S Gogia & Co.Hyderabad 2004.

2. Indian Contracts & Specific Relief Acts; 13th Edn. Vol II / Pollock & Mulla/ Lexis Nexis

Publication 2006

3. Law of Contracts I & II 8th Edn / G C V Subba Rao; S Gogia & Co. 2006

4. Law of Contract / 9th Edn / Avtar Singh / Eastern Book Co. Lucknow 2006

5. Chitty on Contracts / Sweet & Maxwell Ltd. / 29th Edn. Vol II / U.K. 2006

6. www.manupatra.com

7.2 List of Cases:

1. The Commissioner of Sales Tax, Madhya Pradesh, Indore v. Madhya Pradesh ElectricityBoard, AIR 1970 SC 732

2. Madhya Pradesh Electricity Board, Jabalpur v. Commissioner of Sales Tax, MadhyaPradesh, AIR 1968 MP 163

3. Hakam Singh v. Gammon (India) Ltd., AIR 1971 SC 740

4. A.B.C. Laminart Pvt. Ltd. v. A.P. Agencies, Salem, AIR 1989 SC 1239

5. Angile Insulations v. Davy Ashmore India Ltd., (1995) 4 SCC 153, AIR 1995 SC 1766

6. Fatehchand Ganeshram Agrawal v. Wasudeo Shrawan Dalal, AIR 1948 Nagpur 334

7. Gujrat Bottling Co. Ltd. v. Coca Cola Company, AIR 1995 SC 2372

Documents

Project Contract -Amit