Sec. 45 of the Sale of Goods Act, 1930 defines an unpaid seller as any seller of goods under the Sale of Goods Act, 1930 to whom the whole sale price has not been paid, or when a cheque issued to pay the sale price has been dishonoured. (If this applies to you, click here)
An unpaid seller under the Act also includes an agent is directly responsible for the receiving payment for the good sold. For instance, if I am an agent for Haldiram’s snacks and I have shipped the goods to retailers, I am entitled to stop the goods in transit, despite the money eventually going to Haldiram’s and not to my pocket.
An unpaid seller also has the right of lien (not to be confused with lease) on the goods while he is in possession of them, a limited right to re-sell the goods and a right to withhold delivery of goods, but here, we shall only focus on the right to stop goods in transit.
In what cases can the goods be stopped in transit?
The four criteria where an unpaid seller gets the right under the Act to stop goods in transit, resume possession and retain them until the price is paid are listed under Sec. 50 of the Sale of Goods Act.
The right of stoppage of goods in transit is an right in equity and arises wholly from the insolvency of the buyer and is based on the principle that one man’s goods should not be applied for the settlement of another man’s debts. If this sounds technical, you can understand it as one man not using someone’s goods for his benefit, without paying for them. Further, the right of stoppage of goods in transit is limited to the goods which have been shipped but not paid for, and if the goods are defective or damaged when stopped, the right of stoppage of the goods is to that extent impaired.
Broadly, the requirements for the exercise of this right are
1. That the buyer must be insolvent, which indicates incapacity to furnish the consideration for the goods sold, for which the property in the goods has been transferred.
2. That the goods be in the course of transit (being shipped),
Condition 1: The buyer must be insolvent
The Supreme Court has held that the non-payment of even one debt, such as a bounced cheque would be sufficient evidence of the insolvency of the buyer to bring into effect the provisions of the act. What if X owes me Rs. 100 for the supply of cotton, and I want to stop the sale of jute, for which he had paid the sale price? As per law, my right is only to stop the shipment of cotton, for which X owes me and has not paid.
Condition 2: The Goods must be in transit
The right of the seller to effect the stop goods in transit depends on the seller’s possession of the goods. The construction and interpretation of the rights of the seller under the Act are defined under Sec. 46 of the Act read with Sec. 51 of the Sale of Goods Act. Under Sec. 51 of the Sale of Goods Act, goods are deemed to be in course of transit from the time they are delivered to a carrier or other bailee for the purpose of transmission to the buyer, and until the buyer or his agent takes delivery of them from such carrier or bailee.
Another interesting situation arises when the buyer chooses to take possession of the goods before they reach their destination. This has been provided for by the Act itself, which provides under Sec. 51(2) that in such circumstances that transit will be deemed to be at end. The time of taking delivery of the goods is a prerogative of the buyer and if he takes delivery of the goods prematurely, the transit will be deemed in law to have come to an end, and the fact that the appointed destination was different is completely immaterial.
The decisions of Indian Courts are useful in determining the scope the right of the unpaid seller. In the case of Sri Krishna Commercial Society v. State of Andhra Pradesh , it was held that the right depends on real possession. The Court pronounced that the decision as to whether the transit of the goods had been completed has to rest on whether actual delivery to the buyer has taken place.
The decision in the case of Singareni Collieries v. State of Andhra Pradesh cleared another problem. The Court declared that if delivery to the buyer is ‘actual delivery’, then if the carrier or the bailee of the goods is an agent acting specifically for the buyer, then actual delivery is deemed to have ended when the goods were handed over to the buyer. The learned judges held:
“So, when the property was put on rail at the collieries itself, there was receipt of these goods by the buyer and as such the sale in all these cases was complete within the State. The petitioners transported the goods to various places outside the State as instructed by the parties and not as a condition attached to the contract of sale. The movement of the goods was subsequent to the completion of the sale in this State. After the goods were put in the wagons, there was nothing further to be done by the vendors. In cases where the Government was not the purchaser, cash was paid in advance and in cases where the Government was the purchaser, cash was realised later. As such, there was no question of the petitioners having any vendor’s lien in regard to these goods or the right of stoppage in transit.” More interesting is the observation of the court when it said “. So far as the seller is concerned, as soon as the goods are put on rail, he fades out of the picture and he is not any way responsible for the diversion. This is an extraneous factor that cannot have any bearing on the present enquiry.”
Remember: The moment the buyer gets control of the goods, you lose your right!
Even the act, through specific provisions, seems to suggest that the said right of the unpaid seller is based on control. For example, under Sec. 51(3) of the Act, if on arrival of the goods at their destination, the buyer is informed of the arrival of the goods by the carrier, and the carrier continues in possession of the goods as an agent of the buyer, the period of transit is said to have been completed and it is immaterial that a further destination for the goods has been indicated by the buyer. Even when the buyer of the goods was denied access to the goods for the non-payment of the freight, the unpaid seller could not avail of the right to effect stoppage in transit and the right was deemed to have expired.
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