TAMIL NADU NATIONAL LAW UNIVERSITY

TIRUCHIRAPALLI
Submitted for the internal assessment for the course of

B.Com., LL.B (Hons.) – Third Semester

Academic Year: 2024

SUBJECT: Contracts- II

Case Law Review

Submitted to:
Ms. Deepika Sivakumar
Assistant Professor of Law,
Tamil Nadu National Law University
Submitted by:
Piyal Sahoo
B.Com. LL.B (Hons.),
Tamil Nadu National Law University

DECLARATION
I, PIYAL SAHOO ,Reg. No. BCom LLB ID- UGBC23135, hereby declare that this
Research Paper entitled “Case Law review” has been originally carried out by me
under the guidance and supervision of prof Deepika Sivakumar, Assistant Professor
(Law), Tamil Nadu National Law University, Tiruchirappalli - 620 027. This work
has not been submitted either in whole or in part of any Degree / Diploma at any
University.

Place: Tiruchirapalli, Tamil Nadu

Date:

Contents
Introduction………………………………………………………………

Literature Review………………………………………………………

CaseLawreview……………………………………………………………

Chapter1 …………………………………………………………………

Chapter2 ……………………………………………………………………

Conclusion……………………………………………………………………

Citations………………………………………………………………………

Introduction

The legal distinction between bailment and sale has significant implications for
commercial transactions and contractual obligations in India. The cases of State of
Maharashtra v.Britannia Biscuit Co. Ltd and United Breweries Ltd v. State of Andhra
Pradesh (1997) serve as pivotal references in understanding how Indian courts
interpret and enforce the principles of bailment and sale. This case law review aims to
analyse the judgments in these cases to delineate the boundaries and overlaps between
bailment and sale under Indian law.

Research Aim

The aim of this research is to critically analyse the distinctions and overlaps between
bailment and sale in Indian contract law through the lens of landmark cases, thereby
providing a nuanced understanding of the legal principles involved.

Research Objectives

1. To elucidate the legal definitions and statutory provisions governing bailment and
sale.
2. To examine the judicial interpretation and application of these principles in the
cases of
State of Maharashtra v. Britannia Biscuit Co. Ltd and United Breweries Ltd v. State
of
Andhra Pradesh.
3. To identify the key factors that influence judicial decisions in distinguishing
between
bailment and sale.

Research Questions

1. What are the statutory definitions and legal principles governing bailment and sale
under
Indian law?
2. How have Indian courts interpreted these principles in the cases of State of
Maharashtra v.
Britannia Biscuit Co. Ltd and United Breweries Ltd v. State of Andhra Pradesh?
3. What criteria do courts consider when distinguishing between bailment and sale?
4. How do these cases influence the understanding and application of bailment and
sale in
Indian contract law?

literature review

The literature review will encompass academic articles, legal commentaries, and
previous case law that discuss the principles of bailment and sale. This section will
provide a comprehensive overview of existing scholarship and identify gaps that the
present case law review aims to fill.

Chapter 1: Theoretical Framework for contract of bail and sale

1.1Introduction
 This research paper titled review of case laws[ State of Maharashtra v.
Britannia Biscuit Co. Ltd, United Breweries Ltd v. State of Andhra Pradesh, 1997,
where although two fundamentally similar case laws were reviewed.This
paper ,mainly involved sections from Indian contract act 1872 and sales of goods act
1932.

1.2Concept of Bailment

The term bailment comes from French ''Bailler'' which refers to to deliver. A
bailment contract is essentially a contract between two parties to deliver certain goods
in consideration for a specific purpose, once it is completed the goods has to be rerun
to the originator. In a bailment contract there are two parties, one, ''Bailor'' who is the
owner of goods and second; ''Bailee'' to whom the goods are supposed to be delivered.
Section 148 Indian contract Act 1872 defined bailment as —A “bailment” is the
delivery of goods by one person to another for some purpose, upon a contract that
they shall, when the purpose is accomplished, be returned or otherwise disposed of
according to the directions of the person delivering them. The person delivering the
goods is called the “bailor”. The person to whom they are delivered is called, the
“bailee”. 1
To simplify the aforementioned definition Bailment is a contractual obligation
between bailor and bailee regarding giving something to someone else for a specific
reason, with an agreement that once the reason is fulfilled, the item will be returned or
handled as instructed by the person who gave it.
Although there are two types of bailment contract one, Gratuitous and non gratuitous
but certain rights are conferred upon bailor to the bailment contract firstly, right to
sue when the terms and condition of bailment contract breached, whereupon bailor
entitled to sue in order to recover damages from bailee. secondly, right to demand
return of the goods as we discussed above that a bailment contract must dealt with
movable goods/properties hence, bailor has right to call back the goods that he/she
lent to bailee.Thirdly, right to ask compensation for the damages which include major
or minor changes in the bailment product by the bailee also a bailor has right to claim
product produced out of his/her lent property. Fourthly, Right to terminate the
contract of bailment in which a bailor can terminate contract before the pre agreed
estimated timeline although in these situations bailee has right to seek compensation
for the loss arising out of contract.
On the other hand ‘Bailee’ has also certain contractual rights including firstly, right
to recover loss arising out of faulty product due to non-disclosure which essentially
helps a bailee to seek damages from bailor in those circumstances where bailor failed
to disclose shortcomings of a product which he/she bailed. Secondly, Right to
terminate contractual obligation where the action of bailor inconsistent with terms of
bailment contract. Thirdly, right to lien whereby a bailee can retain the good if due
compensation/remuneration has not been received for the services of the bailment
contract.

A bailment contract involves one person (the bailor) giving possession of their goods
to another person (the bailee) for a specific purpose. The ownership of the goods
doesn't change; it stays with the bailor. Both the bailor and bailee have certain rights

1
THE INDIAN CONTRACT ACT, 1872, 1872
and responsibilities they need to follow. For the contract to be legal, all the necessary
conditions must be met. The main difference between bailment and a sale is that in
bailment, only possession is transferred, while in a sale, ownership is transferred.

1.3 Concept of sale

On the other hand CHAPTER II(1) of THE SALE OF GOODS ACT, 1930
elaborates Sale as ‘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.’2
That says A contract of sale is an agreement where the seller gives or agrees to
give the ownership of goods to the buyer in exchange for money. This type of contract
can also happen between two people who each own a part of the goods.

Contract of sale is a agreement between two parties whereby namely buyer and seller
to exchange goods or service in consideration for monetary value.Section 4(1) defines
the contract of the sale as – a contract of the sale of goods is a contract whereby the
seller transfers or agrees to transfer the property in goods to a buyer for a price. Basic
elements of a sale contract includes two parties one buyer defined under Section 2(1)
and another seller which defines under Section 13 which states that a person who sells
or agrees to sell goods.There must be goods or property which is sellable in
consideration for price money. Price is another essential element whereby two parties
agree to exchange goods.

Essential elements of a valid sales contract include I) An offer, which is intended

towards the buyer II) An acceptance, Which is accepted by the buyer III) An Intention
to create legal relationship from seller to buyer IV) A consideration, or price value
against the good/property shall be sold. Other aspects of a valid sales contract include
1.Description of goods, 2.Time of delivery 3.Warranties and condition 4.Buyer's
obligation 5.Boilerplate provision 6. an arbitration clause etc.

The legal distinction between bailment and sale has significant implications for
commercial transactions and contractual obligations in India. The cases of State of
Maharashtra v. Britannia Biscuit Co. Ltd and United Breweries Ltd v. State of Andhra
Pradesh (1997) serve as pivotal references in understanding how Indian courts
interpret and enforce the principles of bailment and sale. In the subsequent chapters
aforementioned case law review aims to analyse the judgments in these cases to
delineate the boundaries and overlaps between bailment and sale under Indian law.

Chapter 2: Bailment prevailes while goods given for specific purpose

2.1 Facts
2
THE SALE OF GOODS ACT, 1930
 This case involved Britannia Biscuit Co. Ltd a manufacturer of a biscuit
company which sells their products in Maharashtra and suburbs. A unique approach
followed by this company which allows to return Tins of biscuit within a stipulated
time frame in consideration with a refundable deposit. The deposit is actually 20%
more than actual cost of the tin.In practice this aforementioned company accepts tins
even after 3 months if those are in good condition.As per accounting practice in the
annual financial statement they wrote off 50% as outstanding and treated 20% as
profit. Hence the contention arises between Maharashtra tax authority and Britannia
Biscuit Co. Ltd .

2.2 Issue
The central issue in this case was whether Britannia Biscuit Co. Ltd. transferring
containers along with the biscuits to retailers qualified as a "sale" under the Sales Tax
Act or if it was simply a "bailment." This distinction was crucial because if the
transfer was deemed a sale, it would be subject to sales tax. However, if it was
considered a bailment, sales tax would not apply.

2.2 Rule
By the ruling of honourable supreme court that this is a case of bailment , while
rejecting the sale concept honourable court cited four major points firstly, Sold
biscuits are intended to store in the Tin itself which nothing to deal with transferring
the rights of the sold goods which established this is a bailment secondly, absence of
price consideration while selling the biscuits by selling cans separately indicated the
intention to bind the concept of bailment not an outright sale thirdly, the court
observed that in relation with ownership the company merely transfer the possession
of Tins to the distributor and subsequently to the customers which under an obligation
to return within the stipulated time frame which indicates that the nature of
transaction is an bailment.

2.3 Analysis
The judgement in the State of Maharashtra v. Britannia Biscuit Co. Ltd 3. case is a key
example of how courts distinguish between a sale and bailment. The decision
highlights the importance of considering the parties' intentions and the specific terms
of their agreement. In this case, the requirement to return the containers and the fact
that no purchase price was paid indicated that the arrangement was a bailment rather
than a sale.

This ruling has several effects, particularly on taxation and business practices. It
establishes that transactions involving the temporary transfer of goods for a specific
purpose, without transferring ownership, are not subject to sales tax. This is
particularly relevant for businesses that use returnable containers or packaging. The
judgement also underscores the need for clear contractual terms to prevent
misunderstandings about the nature of the transactions and related tax issues.

2.4 Conclusion
The Supreme Court's decision made it clear that if an entity is given something to
hold or use for a specific purpose, without actually owning it, it's considered

3
State of Maharashtra v. Britannia Biscuit Co. Ltd 1995 Supp (2) SCC 72
"bailment." This difference is important for understanding tax responsibilities and
business practices, especially in industries where products are supplied in containers
that need to be returned. The ruling sets a clear example for similar situations in the
future, helping businesses and tax officials correctly identify and handle these kinds
of transactions based on their real purpose and intention.

Chapter 3 Sales Involved transfer of goods

2.1Facts
United Breweries Limited is a major player in the brewing industry in India. The
company sells beer in bottles and crates, collecting deposits from customers to ensure
the return of these containers located in Andhra Pradesh. This particular company had
a unique approach to bring down the cost of beer by collecting refundable deposits of
40 paise from consumers for bottles and crates.In turn this particular company refunds
deposits once consumers return their bottle and crates within stipulated time frame.
Now in the annual financial statement UB ltd showcasing their taxable income only
from beer , while excluding bottles and crates. Customs tax authority challenged UB
in the court of law that since consumers don’t always return bottles and the cost of
those generally higher than collectable deposits hence cost of bottles should also be
included in the taxable return.

2.2 Issue
In the aforementioned case the main issue arises out of the dispute that whether
the sales of beer include glass bottles and crates or it is a case of pure bailment against
refundable deposits. This case went into the High court of Andhra Pradesh then
subsequently to the supreme court where the honorable court upheld the decision of
the High court regarding the same.

2.2 Rule
Initially appellate tribunal ruled this in favour of Andhra Pradesh tax authority by
declaring that it is a case of outright sale.subsequently the matter went into high court
and honourable court ruled that since ownership of the bottles didn't remains with UB
once the beer sold to consumer moreover there were no contractual obligation to
return bottles within stipulated time frame hence its a outright sale not a contract of
bailment. Subsequently, the honourable supreme court also upheld the High court's
decision.

2.3 Analysis
The Supreme Court looked into the nature of the transactions between United
Breweries Ltd. and APSBCL4. It examined the terms of the contract and how much
control APSPDCL had over the beer once it was delivered to them. The key issue was
whether ownership of the beer was transferred to APSHCL.

A major point the Court considered was whether APSPDCL had the right to use the
beer as its own property, which would suggest a transfer of ownership. Another
important factor was if APSPDCL could set the resale price, take on the risk, and
benefit from selling the beer. These aspects would point to the transaction being a sale
rather than a temporary holding (bailment).

4
United Breweries Ltd. v. State of Andhra Pradesh
In the end, the Supreme Court concluded that the arrangement was more like a sale.
The Court found that APSPDCL had control over the beer and was responsible for
any price changes, showing they had ownership. Therefore, the transaction was
classified as a sale, not a bailment.

2.4 Conclusion

The Supreme Court's ruling in United Breweries Ltd. v. State of Andhra Pradesh
established a key precedent by confirming the legality of state-imposed excise duties
on alcoholic beverages. This decision not only supported the regulatory system set up
by the State of Andhra Pradesh but also reinforced the broader principle that states
possess considerable authority under the Constitution to regulate industries impacting
public health and welfare. The case underscored the significance of following
constitutional divisions of power and reaffirmed the role of state governments in local
taxation and liquor regulation. Also this case emphasised the distinction between
Bailment and sale while describing the nature and elements involved between both.

Chapter 4 comparison between both cases

Both are essentially cases of interpretation of transactions involving goods, but they
are totally different in their legal environments and the judicial pronouncement
concerned In United Breweries Ltd v. State of Andhra Pradesh, the determination to
be made was about the transactions between the United Breweries Ltd (UB Ltd) with
their distributors, whether these transactions are to be classified as a bailment or as a
sale. The facts of this case are that the Andhra Pradesh government had begun to levy
a tax on the sales of UB Ltd, charging sales taxes on the returning beer bottles by the
distributors. The UB Ltd argued that these were transactions of bailment and not of
sales, hence exempted under the relevant state legislation from sales tax. The Supreme
Court of India had to decide whether the transfer of goods by UB Ltd to its
distributors and the return of empty bottles subsequently, was a bailment or sale of
goods.

The Court, in its judgement, emphasised the relationship status between the parties. It
has been said that the bailment is the transfer of the possession without transferring
the ownership usually for a specific purpose, and with a duty to return the goods or to
deal with those goods according to the directions of the bailor. The sale is the transfer
of ownership in a commodity on consideration and attracts the liability of the sales
tax. Thereafter, the Court looked into the facts of the case and the agreements entered
into by UB Ltd with the distributors and found that the transaction in question was not
a bailment but a sale. Thus, the government was entitled to charge and levy sales tax
on the goods supplied.
On the other hand, the question involved as to what constitutes a bailment or a sale in
the case of State of Maharashtra v. Britannia Biscuit Co. Ltd. In this case, the
assessee, Britannia Biscuit Co. Ltd., has been in dispute with the government of
Maharashtra on the character of its dealing with its customers. The assessee had a
structured arrangement wherein his products were sold to distributors who thereafter
sold/distributed them to retailers. The issue was whether such transactions were to be
treated as bailments, which would be exempt from sales tax, or as sales that would
attract sales tax.
The Supreme Court in Britannia Biscuit Co. Ltd dealt with the distinction of bailment
or sale by focusing on the intent and the terms of the contract constituting the
transactions. The Court had to decide whether such goods had been passed with an
intention that the title should pass to the distributor or merely for the purpose of
distribution and return. The decisive factor, therefore, is the intrinsic nature of the
transaction and whether it indicates a transfer of title or mere possession for a limited
purpose. The majority decision of the Court held the transactions in question to be
sales and not bailments. This ruling was given further to the evidence, which
indicated that there was a transfer of ownership intending to be performed and
economic reality incurrence of payment of consideration for goods.

Both the above cases emphasise the need to determine the nature of transaction
entered to decide whether sales tax can be levied. In United Breweries Ltd, the issue
was whether the empty bottles, upon return, represented a bailment contract or were
goods within a sale transaction. The Court held that the main transactions were in
nature of sales and as such were taxable as sale. In Britannia Biscuit Co.Ltd, the Court
considered whether the delivery of goods to distributors was a bailment or sale, as
based upon the "nature of the basic relation between the parties". It decided that
actually these were sales due to the terms of the contract and relationship between the
parties in practice.

The two cases compared show that though each of them pertains to the same problem
of bailment or sale, the judicial reasoning has been made depending on the nature of
the concrete transactions and the parties' intentions. In United Breweries Ltd, the
Court was faced with what was, in effect and substance, the return of empty bottles,
an act in respect of which the applicability of sales tax was in question. The
conclusion reached depended on whether the returning of the bottles was an incidental
part of a sale or the consequence of an agreement between bailor and bailee. In
Britannia Biscuit Co. The Court's analysis in that case focused on the nature of the
transfer of goods and whether the intent of that transfer was a sale, under the contract
and the practical realities of the transactions.

The cases above highlight the subtlety in telling apart bailment from sale. These
reflect how judicial interpretation is shaped by the specific facts and contractual terms
of each case. While United Breweries Ltd dwelled on the tax aspects of returned
goods, Britannia Biscuit Co. Ltd looked at the larger context of the distribution
process to rule on the nature of the transaction. The basic principle flowing out of
both judgments is the need for examining the nature of transfer of goods and its
intention so as to categorise the transaction correctly for determination of tax liability.

British bailment is principally a derivative of the Sale of Goods Act 1979 5 and the
common law. In bailment, one party (the bailor) temporarily transfers his personal
property to another party, called a bailee, for some particular purpose, upon condition
that when the purpose is fulfilled, the property is returned. The law therefore requires
that a bailee is under the duty of care, that he should take reasonable care over the
goods, and return them safely. In case he fails to do so, and the goods are either
damaged or lost, he could be liable on grounds of negligence. Specific obligations and
liabilities of bailees may also, in some instances, be impacted by express terms of the
contract between the bailor and bailee, as well as relevant case law. For example, in

5
United Breweries Ltd. v. State of Andhra Pradesh
the event of a bailee's wrongful retention or disposition of property, bailors may seek
remedies under the Torts (Interference with Goods) Act 1977.

In the UK, the sale of goods, among others, is provided for under the Sale of Goods
Act 1979, and its amendments give the applicable legal rights and responsibilities
between buyer and seller during any transaction in goods. According to this Act, a
contract of sale is that type of contract where the seller transfers or agrees to transfer
the property in goods to the buyer for a monetary consideration, known as the price.
The Act develops essential principles like the goods should match their description
given under Section 13, that they must be of satisfactory quality given under Section
14, and that the goods be fit for the purpose under which they were meant to serve.
The Act also deals with the passing of property (Sections 16-20) that stipulates when
the property in the goods passes from the seller to the buyer. Such provisions ensure
that the consumer is protected and may seek redress for those situations where goods
delivered are not in conformity with the agreed terms or quality.

Conclusion
While analysing the cases mentioned above, it is evident that the distinguishing mark
for drawing a line between bailment and sale draws its line on the issue of the transfer
of ownership and intention therefore. In bailment, the dominant intention has always
been either for the safekeeping or hire of goods for a certain purpose, and thus there
lies an inherent obligation to return the goods. On the other hand, a sale is a
transaction in which both possession and ownership are transferred, and no liability to
return exists, thus distinguishing between bailment and sale. The liability of the bailee
depends upon the terms of the contract and the measure of care exercised in case of
loss or damage. If he fails to give reasonable care, he can be held liable in case of
negligence. The seller's obligations in a sale are mainly oriented to the quality and
fitness of the goods for their intended purpose. A breach of such obligations may give
the buyer remedies for damages, rescission, or specific performance.

Bibliography

United Breweries Ltd. v. State of Andhra Pradesh

THE INDIAN CONTRACT ACT, 1872, 1872

State of Maharashtra v. Britannia Biscuit Co. Ltd 1995 Supp (2) SCC 72

THE SALE OF GOODS ACT, 1930

Rotherham, Craig. “Sale or Return Contracts: The Right to Reject.” The Cambridge
Law Journal, vol. 57, no. 3, 1998, pp. 451–53.

Adams, John N. “Sale or Return Contracts: Shedding a Little Light.” The Modern
Law Review, vol. 61, no. 3, 1998, pp. 432–37.

Sealy, L. S. “‘Risk’ in the Law of Sale.” The Cambridge Law Journal, vol. 31, no. 1,
1972, pp. 225–47.