Understanding Interpretation of Express Terms of Contract

SECURITY PRINTING AND MINING CORPORATION OF INDIAN LIMITED AND ANOTHER v. GANDHI INDUSTRIAL CORPORATION [(2007) 13 SCC 236]

The Concept

The terms and conditions of a contract can either be expressly stated or they may be implied in the contract. If the terms and conditions of a contract are expressly stated to give a particular interpretation, an interpretation contrary to the same cannot be implied in the contract.

For instance, in the case mentioned below, it was expressly stated that the benefit of the modvat credit would be passed on to the  Appellant, hence, it could not be argued that there was an implied agreement that the modvat credit would be availed by the claimant.

It is only in absence of an express term that implied terms are inferred. Something that is implied but not expressly stated is called sub silentio.

Facts

The Appellant is a security press whereas the claimant is a paper manufacturer. The relevant facts are that the  Appellant released a tender for gumming and super-calendering  of stamp paper. The stamp paper nowhere mentioned that the modvat credit (credit availed for excise duty on raw materials) would be availed by the  Appellant.

The claimant was covered under the modvat scheme, wherein the claim for modvat credit can only be made by the manufacturer. The agreement which the claimant and the  Appellant entered into clearly stated that the benefit of the modvat credit would be ultimately passed to the  Appellant by the claimant. The claimant protested the inclusion of this term.

However, it proceeded to complete the work of gumming and super-calendaring. The claimant kept reminding the  Appellant that the manufacturer would avail the modvat credit. The  Appellant told the claimant that as per the contract, the benefit of the credit has to pass to the Appellant, and finally deducted the amount of credit availed from the final payment made to the claimant.

The matter was referred to an arbitrator. The arbitrator gave an award in favour of the claimant. Both the lower court and the High court confirmed the arbitrator’s award. Hence, the appeal was preferred before the Supreme Court. 

Issue

Whether the Claimant can avail modvat credit or not?

Arguments by the Appellant

1. The supply order/contract which contained express terms and conditions are binding on the parties and not the tender or the advertisement where terms and conditions were nor mentioned. 
2. Once the contract has been signed and has come into existence, the terms and conditions of the contract are binding and not the conditions given in the tender which was floated prior to the contract. 
3. As the modvat credit was claimed on basis of the excise duty paid on the manufacture of the paper which ultimately went to the security press, the security press was entitled to avail the benefit of the modvat credit. 

Arguments by the Respondent/Claimant 

1. Since, the modvat credit can only be claimed by the manufacturer, it is understood that the benefit will go to the claimant. 
2. Arbitrator is the best judge and the courts should not interfere with his findings, unless they are patently illegal. 
3. The tender which was floated did not contain any terms and conditions which stated that the benefit of modvat credit will go to the  Appellant. 
4. The principle of sub silentio (implied but not expressly stated) applies to the facts at hand.

Judgment

The Hon’ble Supreme Court allowed the Appeal on following grounds:

1. Express terms and conditions of the contract which stated that the benefit of the modvat credit would pass on to the  Appellant, were accepted by the claimant. 
2. Despite the protests, and the  Appellant’s statement that there is no change in the terms and conditions of the contract,the claimant continued to supply the services of gumming. 
3. If the claimant did not want to proceed on the stated terms and conditions, he could have withdrawn from the contract, but he proceeded to give services. 
4.  On the basis of the clear terms of the contract, the claimant is bound by it and it has to restore whatever the modvat credit received by it to the  Appellant. 
5. After the contract coming into existence, there is no purpose in referring to the terms of the tender. 
6. The express terms of the contract are binding, hence, the arbitrator’s award which gave primacy to the terms of the tender over determined terms and conditions of the contract is patently illegal and is liable to be set aside. 
7. The principle of sub silentio is inapplicable here as the contract terms are explicitly stated. These terms were well understood by the parties as well, as on the basis of these, the claimant had raised protest. Hence, sub silentio cannot be applied where the terms of the contract are clear and are understood by both the parties. 

Reflective Question

Would the decision be different, if the contract did not expressly state that the benefit would be passed on to the  Appellant?