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Southarn Chemical Works Vs. Mohamed HuseIn FakruddIn Maniar - Court Judgment

LegalCrystal Citation
CourtMumbai High Court
Decided On
Case NumberA.F.O.D. No. 193 of 1962
Reported inAIR1970Bom128; (1970)72BOMLR156; ILR1970Bom645
ActsIndian Contract Act, 1872 - Sections 23 and 205; Drugs Act, 1940 - Sections 18; Drugs and Cosmetics Rules - Rule 61; Specific Relief Act, 1877 - Sections 19 and 21; United Provinces Consolidation of Holdings Act, 1954
AppellantSoutharn Chemical Works
RespondentMohamed HuseIn FakruddIn Maniar
Appellant AdvocateHemendra Shah, Adv., i/b., Mody Shambhu
Respondent AdvocateB.R. Naik, Adv.
.....out his part of the contract,;that the drugs and cosmetics act did not require that, before the agency agreement was entered into by the plaintiff he should have satisfied himself that the agent held a licence, and;that, therefore, the agreement cannot be regarded as void and the defendant was liable in damages for breach of contract. ;mrs. chandnee widya vati v. dr. c.l. katial [1964] a.i.r. s.c. 978, dy. director of consolidation v. deen bandhn [1965] a.i.r. s.c. 484, tukaram zipru v. baban dhondu (1965) 67 bom. l.r. 908, h.o. brandt & co. v. h.n. morris & co. [1917] 2 k.b. 784, taylor & co. v. landauer & co. [1940] 4 all e.r. 335, janu sait v. ramaswami naidu [1923] a.i.r. mad. 626, hormasji motabhai v. pestanji dhanjibhai (1887) i.l.r. 12 bom. 422, v. narasimha..........resisted the suit contending that the agreement of agency was illegal and void as he had no wholesale licence when the agreement was entered into. he also questioned the amount of damages. the learned trial judge held that the agreement was invalid in law and therefore unenforceable. he also gave a finding on the question of damages which he assessed at rs. 20,527. in view of his finding on the first and the main issue, the learned judge dismissed the suit. the plaintiff appeals.4. the first question is whether the agreement of the nature in the case can be said to be a void agreement, so that the plaintiff should be held not entitled to claim even damages. on behalf of the respondent it is argued that the agreement is contrary to the terms of the drugs act read with the rules and the.....

Patel, J.

1. This is a plaintiff's appeal against the dismissal of his suit for damages and it arises under the following circumstances:

2. The plaintiff-firm manufactures Diamond Apicin and Diamond Jantpudis at Miraj. The defendant is a trader at Sholapur. By an agreement dated January 2, 1959 between the plaintiff and the defendant, the defendant was appointed as the selling agent of the plaintiff's medicines for the Districts of Sholapur and Gulbarge, and for the Talukas of Humnabad, Tuljapur Latur and Indi. The agreement was to be in force for a period of three years. By this agreement the defendant undertook to purchase and sell a minimum of 80,000 pudis of Diamond Apicin and 5000 of Diamond Jant-pudis, agreeing further that the defendant would not discontinue the agency for the period of three years and if he did so, he would have to pay damages to the plaintiff. In pursuance of this contract, the defendant ordered some goods but it appears that by about February 1959, the Civil Surgeon at Sholapur ordered the defendant not to sell any of these articles as a wholesaler as the defendant had no licence for wholesale trade in drugs. It appears from the correspondence between the parties that the defendant had already made an application by about February 1959 for a wholesaler's licence under the Drugs Act and the correspondence further shows that he actually got the licence on June 6, 1959. Even so, by notice dated August 17, 1959, the defendant terminated the agreement on the ground that the agreement was void and illegal as the defendant had no licence when the agreement was entered into. He also made a statement in that notice that the goods of about five months were lying with him undisposed of as he had no licence, evidently a statement which was untrue, since he had already obtained a licence about two and a quarter months prior to the issue of this notice. It may be mentioned that the defendant got another agency. The plaintiff after some correspondence filed the present suit for damages claiming a sum of Rs. 70,000 from the defendant.

3. The defendant resisted the suit contending that the agreement of agency was illegal and void as he had no wholesale licence when the agreement was entered into. He also questioned the amount of damages. The learned trial Judge held that the agreement was invalid in law and therefore unenforceable. He also gave a finding on the question of damages which he assessed at Rs. 20,527. In view of his finding on the first and the main issue, the learned Judge dismissed the suit. The plaintiff appeals.

4. The first question is whether the agreement of the nature in the case can be said to be a void agreement, so that the plaintiff should be held not entitled to claim even damages. On behalf of the respondent it is argued that the agreement is contrary to the terms of the Drugs Act read with the rules and the licence issued to the plaintiff and therefore Section 23 of the Contract Act would be attracted and the plaintiff cannot sue.

5. Section 18 of the Drugs Act, 1940, prohibits the manufacture and sale of drugs and cosmetics except as provided therein. Clause (a) relates to the quality, Clause (b) prohibits the sale of any of these articles or distribution thereof if imported or manufactured in contravention of the provisions of the Act or the rules and Clause (c) prohibits the manufacture for sale, or sell or stock or exhibit for sale, or distribute any drug, except under, and in accordance with the conditions of a licence issued for such purpose under the Chapter. Rule 61 of the Drugs and Cosmetics Rules framed under the Drugs Act prescribes different forms for different kinds of licences to deal in drugs. As in the present case the defendant had to act as awholesale agent of the plaintiff, the Form applicable would be Form 20-B. The plaintiff undoubtedly and admittedly has a licence as per this Form. Now, the conditions of the licence amongst other things provide by condition 8 (ii) that no sale of any drug shall be made to a person not holding the requisite licence to sell, stock or exhibit for sale, or distribute the drug. The proviso is not material to the present purposes.

6. What is prohibited is the actual sale of drugs by condition 3 (ii) of plaintiff's licence. If, therefore, in contravention of this provision a person actually sells or supplies the goods to a person who does not hold the licence for the particular purpose, then, as the sale is prohibited by law, he may not be entitled to recover the price for the goods. In the present case, however, there is an agreement of agency between the parties. As agreement of agency is capable of being carried on if each party does what is required of him to do. The plaintiff in order to fulfil his part had to have a licence for the sale of such drugs which he manufactured. Similarly the defendant in order to carry out his part of the contract was bound to have a licence which permitted him to deal in wholesale business of the drugs. It is admitted that he already held a licence for retail trade. There is nothing in the Drugs Act to show that no agreement can be entered into for agency unless and until the person who gives the agency is satisfied that the agent holds the licence. It would only mean that after the agreement is entered into between the parties, each party must do his best to fulfil his part. If per chance one party or the other cannot obtain such consent or licence then of course the agreement would be unenforceable but that would be not by reason of the fault or neglect of the party but because the licensing authority refused to grant the licence. It is only if the parties with a deliberate desire to evade the law enter into the contract to do something which is not legal, then the agreement must be regarded as void.

7. In this connection we may refer to a few cases which have come up before Courts. The case of Mrs. Chandnee Widya Vati v. Dr. C. L. Katial : [1964]2SCR495 , arose out of a contract entered into by the appellant with the respondent to sell to the respondent a house which stood on a plot which was granted by the Government. The vendor-appellant could not have sold the house without the permission of the Government. As the vendor refused to complete the contract on that ground, the respondent filed a suit. The trial Court dismissed the suit. The respondent appealed to the High Court who decreed the plaintiff's suit saying that the Court had to enforce the terms of the contract enjoining upon the defendant to make the necessary application to the Chief Commissioner for the required sanction and it would then be for the Chief Commissioner to decide whether or not to grant the necessary sanction. The principle was acceptedby the Supreme Court. The second case where similar principle was laid down is the decision in Dy. Director of Consolidation v. Deen Bandhu : [1964]4SCR560 , which arose under the United Provinces Consolidation of Holdings Act of 1954. In a case under the statute where sanction was refused, the Supreme Court intervened and directed that the sanction for the transfer should be made. Following these cases, this Court in Tukaram Zipre v. Baban Dhondu : (1965)67BOMLR908 , held that in a case where sanction was necessary for transfer of the property, either the Court can compel the defendant to make the application for the same or appoint a Court Commissioner to do so or permit the plaintiff to make the application. The underlying principle of these cases is that unless the transaction is itself of such a nature that it contravenes the law, it must be enforced by requiring the defendant to take such steps as are necessary in that direction. Much more so would be the case where the suit is not for specific performance but for damages such as the present, where, the Court cannot specifically enforce the agreement of agency since it would be impossible to supervise the carrying out of it. The plaintiff would in such a case not be barred from asking for damages where the defendant does not carry out the contract not because the law prevents it but because he refused to take any action to satisfy the conditions imposed by law upon him before fulfilment of the contract. In this case it is much worse because the defendant terminated the contract after he had already got a wholesaler's licence for the drugs and, according to the plaintiff, he started competing the plaintiff's sales by pushing the drugs of other manufactures. The plaintiff is right in this allegation.

8. A somewhat similar question though in a slightly different context arose in H. O. Brandt and Co. v. H. N. Morris and Co. (1917) 2 KB 784. The contract in that case was for monthly deliveries of pure aniline oil. After the contract was made, the export of the oil was prohibited by an order in Council except otherwise than under licence to export. The Court held that the agreement was not void nor it became unenforceable by reason of the subsequent restrictions but that an obligation to apply for a licence lay upon the buyers who could not refuse to perform their part of the contract merely by alleging inability. Same principle has subsequently been followed in Taylor and Co. v. Landauer and Co. (1940) 4 All ER 335.

9. Dr. Naik relying upon some cases urged that the agreement such as the present is void in law. He relies upon the decisions Tanu Salt v. Ramaswami Naidu AIR 1923 Mad 626, Hormasji Motabhai v. Pestanji Dhanjibhai ILR (1888) Bom 422 and V. Narasimha Ram v. V. Gurumurthy Raju, : [1963]3SCR687 . None of these cases have any application whatsoever. The first case arose out of an actual transaction of buying arid selling. Theplaintiff who had given the money and agreed to take the goods in payment thereof could not have received the goods by sale in this manner unless he had a licence. The Court held that the contract could not be enforced as the plaintiff himself had no licence though if he was not in pari delicto with the defendant in the making of the contract he could recover the amount which he had paid. In the second case the question arose in the relation to Abkari law where the partnership was absolutely prohibited. The Court found that both the parties were in pari delicto and as the partnership was absolutely prohibited the plaintiff could not succeed in his suit for account. The third case arose out of stifling of a prosecution which was filed against the promisor and as the Court came to the conclusion that it was intended to stifle the prosecution which was already launched, the promisee could not succeed on the promise. To the same effect are the other cases which are cited before us which we do not think it necessary to refer.

10. Dr. Naik has relied particularly upon the decision in Kedar Nath v. Prahlad Kai, : [1960]1SCR861 , where the Supreme Court after discussing several cases summarised the position in law as follows :

'The correct position in law, in our opinion, is that what one has to see is whether the illegality goes so much to the root of the matter that the plaintiff cannot bring his action without relying upon the illegal transaction into which he had entered. If (he illegality be trivial or venial, as stated by Williston and the plaintiff is not required to rest his case upon that illegality, then public policy demands that the defendant should not be allowed to take advantage of the position. A strict view, of course, must be taken of the plaintiff's conduct, and he should not be allowed to circumvent the illegality by resorting to some subterfuge or by misstating the facts. If, however, the matter is clear and the illegality is not required to be pleaded or proved as part of the cause of action and the plaintiff recanted before the illegal purpose was achieved, then, unless it be of such a gross nature as to outrage the conscience of the Court, the plea of the defendant should not prevail.'

The principle stated in this decision is not irreconcilable with the principles of the cases we have referred to. The Court either in enforcing the specific performance of the contract by requiring the party to apply for the required sanction, or in giving damages for the negligence of the party in carrying out his part of the contract in not even applying for a licence, is not doing something which is contrary to the principle above stated. Having regard to the terms of the provisions we are of the view that the learned Judge was not justified in holding that the agreement between the plaintiff and the defendant was void ab initio.

11. It is only necessary to state that even, after the defendant was informed by theCivil Surgeon that as he had not got a wholesale drug licence he could not sell the goods, the defendant wrote to the plaintiff that the goods could not be sold not because he had not a wholesale drug licence but that he had applied for the same and further goods should be sent only after an intimation was given that such licence was received. This only shows that the agreement could be carried out after the licence was received. It was only in August 1959 when probably the defendant got some better temptation from others that he terminated the contract with the plaintiff. In our view therefore, the plaintiff is clearly entitled to claim damages.

12. The next question is what should be the amount of damages decreed to the plaintiff. The plaintiff in its plaint had originally claimed a sum of Rs. 70,000 as damages on the basis that its monthly profit would have been Rs. 7,000. The learned trial Judge has estimated the damages at Rs. 20,527.

13. Where breach of contract has been established, the plaintiff is undoubtedly entitled to claim damages from the defendant. The plaintiff is, however, expected to take steps to mitigate his loss. The Court after considering both the actual loss and the steps taken by the plaintiff to mitigate the loss has to determine the amount of damages. In the present case the method adopted by the learned Judge to assess the damages is as below. The contract shows that every month the defendant had to sell these two drugs manufactured by the plaintiff valued at Rs. 5550 i.e. the drugs worth Rs. 66,600 per year. The plaintiff produced his assessment orders before the learned trial Judge to show that he was assessed on the basis of 66% profit in the year 1957-58 and on the basis of 47% on the sales of 30,000 in 1956-57. Exh. 167 showed that the gross profit in the trading and manufacturing account worked out at 66.2% on the sales of Rs. 51,609. Out of this amount the learned Judge deducted 15% commission payable to the agent defendant. The defendant himself did not enter the witness box to show what would be the profit in such business. The plaintiff further produced a statement, Exhibit 169, showing the sales effected by it from November 25, 1959 to May 29, 1960 for aperiod of six months as per the Tippans kept by him. In the statement the bill numbers and the quantity of packets sold were also mentioned. This showed that in six months he had sold medicines in the area of agency worth Rs. 23,534.37. If the defendant had continued the agency, medicines worth Rs. 33,300 for six months would have been sold. Thus the loss of sale in this area, was Rs. 9,765.63. On this basis for 28 months the learned Judge held that the reduced sales in this area came to Rs. 45,570 and on this he held the loss would be Rs. 20,527. From this calculation it appears that the learned Judge has taken net profit at about 50% of the sales. This, however, in our view is not justified. There may be several vicissitudes in the market, prices might fluctuate, competition might increase with the result that some reduction in the price of the medicines sold also may be required. Having regard to all exigencies it seems to us that in this kind of business looking to the comparative higher profits, it would be reasonable to assess the loss at Rs. 25% of the sale price which would come to Rs. 11367.

14. We accordingly set aside the decree and order made by the learned trial Judge and decree to the plaintiff a sum of Rupees 11307 with costs in proportion to his success throughout. The defendant will bear his own costs.

15. Appeal allowed.

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