1. The plaintiffs are a firm of Marwari merchants carrying on business in Bombay and elsewhere in India.
2. The defendants are sued as a firm carrying on business at Cawnpore.
3. The evidence shows that one Kanyialal Jainarayen is the sole owner of that firm and carries on business not only at Cawnpore but also at Delhi, Calcutta and elsewhere.
4. The plaintiffs allege in their plaint that in the Maru Saravat year 1965 (A.D. 1908-1909) the defendants employed the plaintiffs to act as their pakka adatias and honour their Hoondies in Bombay on certain terms, viz., the plaintiffs were to charge commission at six annas per cent, and brokerage at 4 annas per cent, on the price of cotton and seeds and commission at Re. 1 per 1000 on the price of silver orders and on Hoondies paid by them on defendant's account, and all out of pocket charges, interest to run on both sides of the account at the rate of 7 annas 9 pies per cent, per mensem.
5. That an account was sent up to the 1st Ashad Sud 1967 (7th July 1910) to the defendants shewing a balance due by them of Rs. 475 which the defendants acknowledged to be correct by their letter of the 13th Shravan Vad (3rd August 1910).
6. That thereafter the plaintiffs accepted further orders from the defendants for the purchase of cotton-seeds and silver and paid Hoondies drawn by them on the plaintiffs.
7. That on the 2nd Chaitra Sud 1968 (1st April 1911) the defendants wrote asking for accounts and particulars of transactions outstanding and informing plaintiffs that they were to do business in future on the instructions of Gurupertab and not of Mangalchand, who up to that time had managed the defendants' Cawnpore shop.
8. That the plaintiffs sent the accounts asked for which showed that there were outstanding sales of 800 tons linseed and 200 tons rapeseed for delivery April-May 1911.
9. That on the 22nd April 1911 plaintiffs wrote through their solicitors calling upon defendants to arrange for the delivery of the said linseed and rapeseed or secure the plaintiffs against the liabilities incurred by plaintiffs in respect thereof. A sum of Rs. 12,209-7-9 and interest claimed to be then due according to the plaintiffs' account was also demanded. That defendants replied on the 5th May stating that they could not find in their books any trace of the transactions in linseed and rapeseed; that their gumasta had no authority to enter into such transactions; and that therefore the defendants were not liable.
10. That the plaintiffs were obliged to purchase in the market to meet the contracts they had entered into as a result of the defendants' orders. '
11. That plaintiffs acted as pakka adatias for the defendants and accordingly claim' the sum of Rs. 48,045-15 with interest as due to them on the account between themselves and defendants.
12. Kanyialal Jainarayen has filed his written statement stating that he is the sole owner of the business carried on at Cawnpore in the name of Jainarayen Kanyialal; that the business Consisted only of Hoondi transactions and the purchase and sale of ready goods ; that Mangalchand was his moonim and had no authority to enter into any forward transactions ; that Mangalchand was not a partner as alleged by the plaintiffs and had been dismissed by him on the 20th February 1910.
13. He denies that plaintiffs acted as pakka adatias and contends that all the orders given by Mangalchand were merely in respect of wagering sections.
14. He counter-claims for an account on the ground that if the forward transactions are excluded something will be found due him but at the hearing his counsel stated that he did not rely but he counter-claim.
15. The first issue raised by Mr. Inverarity was in respect of an order for interrogatories which it was alleged the plaintiffs had not obeyed.
16. I find that the interrogatories were served on the plaintiffs on the 18th February after the suit had appeared on the board. The defendants were responsible for the delay and as a matter of fact the interrogatories have been answered.
17. The next three issues appear to be frivolous. The suit as framed is maintainable.
18. Issues 5 and 6 relate to the question whether Mangalchand was as a matter of fact a partner in the defendants' firm or was held out by defendants to be a partner.
19. No evidence has been adduced to show that Mangalchand was a partner except certain plaints filed by the defendants in Cawnpore by Mangalchand in which he described himself as a partner. But this only came to the knowledge of the plaintiffs after this suit was filed. The plaintiffs cannot therefore say that they were led to think that Mangalchand was a partner owing to the existence of these plaints of which they were not aware while the dealings between them and defendants' firm were being carried on. Nor is there any evidence that defendants held him out to be a partner or that plaintiffs ever thought he was a partner. The plaintiffs were perfectly well aware of the practice amongst Marwari firms of carrying on their business at various branches through moonims.
20. It cannot be disputed on the 7th issue that the transactions referred to in the plaint were the transactions of Mangalchand. I The real questions in the suit are :-
1. Whether Mangalchand had an authority from his master express or implied to enter into forward transactions.
2. Whether if Mangalchand had such authority the defendants are liable to the plaintiffs for the losses incurred by them in carrying out the instructions of Mangalchand.
21. Kanyialal in his evidence has stated that he started his branch at Cawnpore in 1953. His first moonim was one Girdharilal assisted by one Ramdyal. They had no authority to do forward business.
22. Girdharilal died about 1955 and his son Mangalchand was appointed in his place with the same powers.
23. Witness used to go to Cawnpore himself occasionally but he never examined the books at Cawnpore. He sent Gurupertab as munimto Cawnpore in February 1911 as Mangalchand said he did not want to stop at Cawnpore any longer. It was only on receiving a report from Gurupertab that witness discovered that Mangalchand had been entering into forward transactions. After the notice sent by plaintiffs' solicitors he put the matter in the hands of his pleader Moti Sagar.
24. Now if Kanyialal could show that Mangalchand had concealed the fact of his entering into forward transactions in such a way that his master by taking ordinary precautions could not have discovered what his moonim was doing, the plea that the master was not responsible for the servant's acts in excess of his authority might hold good, assuming always that forward business was not such as would be transacted by a Marwari firm in the ordinary course of business. But the evidence of Jawalidhar who was employed by Kanyialal to examine the plaintiffs' account in the defendants' Cawnpore books makes it clear that this plea cannot be sustained.
25. It is not' certain when the plaintiffs started doing business with the Cawnpore branch but there were dealings in 1958 and according to Jawalidhar the defendants' books contain entries of transactions in forward cotton with the plaintiffs for that year, and the books for 1959, 1962 and 1964 also contained entries relating to forward transactions.
26. After 1964 it appears that Mangalchand stopped doing forward business for sometime and when he recommenced made no entries in his books in respect of the forward transactions he was entering into in the name of the firm. The reason he gave for not doing so was the presence in the shop of other moonims in the employ of Kanyialal who would have found out what he was doing.
27. There was nothing unusual in a Marwari firm entering into such transactions and there was nothing which could be said to have put the plaintiffs on inquiry as to whether Mangalchand was exceeding the instructions of his master.
28. That Mangalchand did not enter in his master's books after 1964 the forward transactions, by itself would go to show that he knew he was doing wrong. But before 1964 Mangalchand does not seem to have concealed the fact that he was doing forward business.
29. Mangalchand gave evidence on Commission on behalf of the defendants. He stated he had no authority from Kanyialal to enter into forward transactions, that he concealed what he was doing from Kanyialal and that he never intended to give or take delivery.
30. I see no reasons to doubt this last statement supported as it is by the witness' own conduct and the other circumstances in the case.
31. From the evidence of witnesses examined on behalf of the defendants at Cawnpore it appears that Mangalchand was doing Sutta business with some of the Cawnpore clients and filed suits in the Court at Cawnpore in the name of the firm to recover profits on such business. Moreover Mangalchand said that he claimed a share in such profits in accordance with the terms of his employment.
32. If as a matter of fact Kanyialal was unaware before the arrival of Gurupertab at Cawnpore that Mangalchand was doing forward business, one would expect that when he discovered this he would have at once repudiated all the transactions of this nature entered into by Mangalchand, but on the 1st April Gurupertab merely asked for information about any goods which might have been bought and sold through the plaintiffs, and when plaintiffs sent the required information on the 7th April no notice was taken of it.
33. Kanyialal does not seem to have exercised much supervision over the transactions of the Cawnpore branch and even if during the years 1958 to 1964 he was not aware of forward business being done, which I very much doubt, he certainly ought to have discovered that fact if he had taken the ordinary precaution of having his Cawnpore books examined, and he could then have taken steps to prevent any further transactions of a like nature being entered into.
34. If the transactions in suit had resulted in a profit I do not think I should have heard anything about Mangalchand having exceeded his authority.
35. I find therefore that defendants are liable to the plaintiffs unless they can evade their liability on the ground that the transaction was by way of gaming and wagering.
36. The plaintiff's gumasta Ramkishan could not give very positive evidence as to how plaintiffs and defendants commenced dealing with each other. He said ' First we got a letters from Jainarayen Kanyialal by the hand of Mangalchand. I can't remember when the first letter arrived but we got letters in 1961. My firm carried out the instructions in defendants' letters. Correspondence passed between us. We acted as pakka adatias for defendants. We charged commission six annas and brokerage four annas per cent, on cotton, linseed and rapeseed and wheat. Commission Re. I per 1000 brokerage, Defendants drew Hoondies on us and sent Hoondies for collection.'
37. At the end of 1963 there was a balance of Rs. 81 in favour of the defendants; and on the 1st Ashad Sud 1967 (7th July 1910) there was a sum of Rs. 475 to defendants' debit. That was admitted to be correct by Mangalchand's letter of the 3rd August, Ex. B.
38. The account sued on (Ex. D) commences with that balance. It contains entries relating to Hoondies with which I am not concerned, entries relating to dealings in silver which Mr. Kanga admits were wagering transactions and entries relating to transactions in linseed, rapeseed and cotton for certain Vaidas as follows;-
300 tons linseed Delivery September 1910200 bales Bengal cotton ' January 1911800 ' Broach ' March 19111000 tons linseed ' April-May 1911200 rapeseed ' ' ' '
Mangalchand incurred heavy losses on all these except the last which showed a profit of Rs. 7-13-0.
39. In respect of these transactions the plaintiffs allege that they acted as pakka adatias for the defendants. The word 'pakka adatias ' was never used by the parties themselves as far as I can Section It appears for the first time in the solicitors' letter of the 22nd April 1911. Mangalchand said he did not know what a pakka adatia was, but the evidence shows what was the course of dealing between the plaintiffs and defendants and whatever legal significance can be given to the term pakka adatia, it cannot be doubted that both parties as Marwaris were perfectly well aware what were their respective rights and liabilities according to the practice of Marwaris which has been recognised by this Court.
40. I think the evidence shows conclusively that there is a distinct line drawn by Marwari firms doing a similar business to the plaintiffs' between their transactions as commission agents and their transactions as pakka adatias. In their plaint the plaintiffs describe themselves as pakka adatias and commission agents. There is no evidence that Mangalchand ever sent goods to the plaintiffs for sale on commission at any rate since I961. Plaintiffs' gumasta Ramkishen said he had heard that Mangalchand had sent linseed and rapeseed in former years, but he had not got the plaintiffs' earlier books. Since he entered plaintiffs' service in 1961 Mangalchand had not sent any goods to him, nor he to Mangalchand.
41. No doubt the plaintiffs did receive ready goods from other constituents for sale on commission, the particulars of which were entered in the weighment book but the entries in respect of ready goods were kept quite distinct from the entries relating to Vaida transactions. What was the course of business for such transaction will appear if I describe what was done by the plaintiffs when they received orders from the defendants for the sale and purchase of 300 tons of linseed for the September Vaida 1910. Orders were received by telegrams on the 24th May for the sale of 200 tons and on the 22nd June for the sale of 100 tons. The plaintiffs arranged the rate with their brokers, making corresponding entries in the Soda Nondh; Exs. 10 and 13. Thereafter the brokers brought contracts-notes signed by the buyers from the plaintiffs, and particulars were entered in the Soda Nondh. Exhibit 10 shows that six contracts for 25 tons each were brought. The Gala or difference, if any, between the rate fixed with the broker and the rate in the contracts was debited or credited to the broker according as the rate was less or more than the rate fixed.
42. On the other hand 200 tons were purchased on the and June, and 25 tons on the 5th June, Exts. 11 and 12. The balance of 75 tons was purchased at the Vaida, Ex. 14.
43. The result of the transactions was entered in the Nakal Vahi Ex. 9. Defendants are debited with the difference of Rs. 1069-7-3 in respect of the purchase and sale of 300 tons linseed deliverable in September.
44. Then follow particulars.
45. Defendants are debited with the value of 300 tons linseed at the rates at which the various lots were said to be purchased plus commission and brokerage and credited with the value of 300 tons at the selling rates.
46. Corresponding entries would appear in plaintiffs' books in the accounts with the opposite contracting parties, or, in case a broker did not bring a contract, with the broker himself, as in such a case the broker was responsible to the plaintiff.
47. The plaintiffs only accepted contracts from other Marwaris doing a similar business to themselves.
48. It will be noted that there was no privity between these opposite contracting parties and the defendants, nor according to the customs of Marwaris transacting this business as established in Bhagwandas v. Kanji (1905) 7 Bom. L.R. 611 : I.L.R. 30 Bom. 205, was there any obligation on the part of the plaintiffs to find buyers or sellers. As between themselves and the defendants the business was finished when an order for purchase or sale was accepted, such acceptance apparently being effected by an entry in the Soda Nondh.
49. Whether the plaintiffs took the risk themselves or covered themselves by selling again was entirely within their discretion. The selling client could not claim as of right the benefit of any covering contracts entered into on the same day as his sales.
50. As stated by Scott C. J. in Burjorji v. Bhagwandas : AIR1914Bom319 'there are in fact no parties to the selling contract but the client and his adatia who is the buyer. The adatia is not the disinter frosted broker. He is a party to the contract whose intention may well be known at its inception.'
51. In that case there were written contracts in respect of 1800 tons and oral contracts in respect of 2200 tons between the client and the adatia. The first contracts may have been in writing because the client was an outsider and not a Marwari, but however that may be, it must now be taken as established by the authority of the Appeal Court, that the legal relationship between the client and adatia is that of vendor and purchaser, whether the contract is written or oral, or whether, as in this case, an order is sent by telegram and accepted by the adatia. There is this additional incident to the contract, that the adatia is entitled to charge commission and brokerage in addition to the price. If the client sends goods for the due date the adatia is responsible for the price whether he has covered himself or not. That the relationship of vendor and purchaser exists between the client and adatia also follows from the decision of Chandavarkar J. in Bhagwandas v. Kanji I.L.R (1905) 30 Bom. 205 : 7 Bom. L.R. 611, that the adatia having accepted a selling order from a client for a particular vaida is not obliged to accept a cross buying order from the same client.
52. Thus it might happen that as a particular vaida approached, the defendants might have accounts open with a large number of their constituents where the buying orders had exceeded the selling orders or vice versa, while a number of accounts might be closed by equal purchases or sales.
53. At the same time there would be a number of accounts running between the plaintiffs and the opposite contracting parties in some of which purchases and sales might balance, in others there might be an excess on one side or the other.
54. If a constituent's account was open he was credited or debited with the requisite number of tons at the vaida rate, and open accounts with opposite contracting parties were settled in the same way.
55. After each vaidu the plaintiffs made up what is called the ' Jamakharach' or balance sheet of their dealings for that vaida. First they credited themselves with the difference to be paid by the opposite contracting parties and the constituents who had lost, and then they debited themselves with the differences to be paid to the contracting parties and the constituents who had won. If the plaintiffs had covered themselves throughout, the winnings and losses would balance, but there would be a balance in their favour, representing their commission and brokerage as the reward for accepting the orders of their constituents.
56. If they had taken up any of the contracts themselves they paid or received the difference themselves.
57. The evidence of the plaintiffs' books shows conclusively that the total volume of business in one commodity for any one vaida was transacted from start to finish by book entry, that accounts were closed after the vaida, and differences credited or debited.
58. Of course on the face of the contracts between the plaintiffs and any one of their opposite contracting parties, there might be an excess of sales over purchases so that it would be open to them to tender delivery of the balance at the vaida, and if it had been proved that this was occasionally done, that might be sufficient to give a genuine appearance to the whole business, as it might be impossible to say that in the case of any one particular contract there was no intention to give or take delivery.
59. Practically the whole of the plaintiffs' transaction for the vaidas mentioned above are on the record. In respect of 100 bales of Bengal cotton they appear to have tendered a delivery order, but the entries show that had nothing to do with any order given by the defendants. Again it appears that delivery orders for 75 tons rape-seed were given, and that for the linseed April-May vaida the plaintiffs gave a delivery order for 25 tons to Sadashiv Gambhirchand.
60. That was after the defendants' notice of the 5th May. In every case there are cross entries in respect of these delivery orders. Technically speaking a seller may be said to deliver goods to his buyer by giving him a delivery order' on a certain person from whom the buyer may obtain the goods on paying the price, but just as contracts in the usual mercantile form may be used for the purpose of transactions for payment of differences only, so also delivery orders which appear on the face of them to be of an unimpeachable character may be used and pass from hand to hand amongst a succession of persons who have no intention whatever of making use of such delivery orders, or of doing anything else : beyond adjusting differences between themselves. Considering the magnitude of plaintiffs' forward transaction for the I various vaidas in question amounting to from 2000 to 5000 bales of cotton and from 5000 to 10000 tons linseed, I am not disposed to think that the fact that two or three delivery orders for small quantities, which might or might not be effective, passed through their hands, can stand in the way of my coming to the conclusion, that as between themselves, their brokers and their opposite contracting parties the common intention was to adjust the contracts at the respective vaidas by paying and receiving differences.
61. Now that it can be taken as settled that there is no privity between the clients who give orders to a pakka adatia and the persons who buy and sell from and to the pakka adatia, the existence of the latter can only be relevant if it affords an indication of the intention of the pakka adatia at the time of his accepting the clients' orders. See per Scott C. J. in Burjorji v. Bhagvandas : AIR1914Bom319 . Even then it does not seem to follow as a matter of course that because the pakka adatia intended to do genuine business with his buyers and sellers he also intended to do genuine business with his clients.
62. It is interesting to note that Ex. A 12 which was put in by Mr. Kanga as a specimen of the covering contracts made by the plaintiffs contains the same condition 'not to be delivered to N. R. & Co.' as the plaintiffs' contracts in Burjorji v. Bhagvandas : AIR1914Bom319 .
63. I am of opinion that the present plaintiffs' covering contracts and his course of business relating thereto afford no indication whatever on the part of the plaintiffs to call for or give delivery from or to the defendants.
64. Then the evidence in this case proves conclusively that as between the plaintiffs and their clients the plaintiffs never expected their clients to produce goods or pay cash for goods and never expected to be called upon to do the same themselves, while Mangalchand has sworn that all his transactions with plaintiffs were sutta. Reliance was placed by the plaintiffs on certain letters written by Mangaichand as showing that he intended to despatch goods in performance of his forward contracts.
65. The correspondence put in begins on 8th October 1910, Ex. G, letter from Mangalchand to plaintiffs. The letters of the 8th October, 2nd December, 10th December, 16th December, 1st January and 3rd January from Mangalchand clearly refer only to forward transactions.
66. On the 5th January he writes:-
You (plaintiffs) write to say that we do not send you orders for business and that we send the same to some other firm. It is all right. We have not sent orders to anybody.... Whatever work has been sent in these days the same has all been sent to your firm and not to any other place. Ready goods have been more or less sent. The same have been sent to Tilokchand Mamraj. Goods used to be sent to him even formerly. Now-a-days we do not venture to buy or soil any kind of goods. When we think proper we shall send orders to you. Please write and let us know when pakka information about linseed will be received.
67. On the 8th January he writes (Ex. O.):-
Shall we send ready goods to you? If you can exert yourself in selling the same please write.
68. Clearly this cannot refer to linseed to be sent on account of what had been already sold for the April-May vaida. The writer seems to distinguish between sending ready goods for sale on commission and sending orders for business which can only refer to orders for forward business.
69. The letters of the 9th, 22nd and 24th January, Exs. P, Q and R, are full of inquiries about the rates of cotton and linseed. Mangalchand expected that owing to good crops the rate for linseed would fall and he would make a profit on his forward sales.
70. On the 8th February he wrote in Ex. T:-
You have sent for money, no moneys are payable by us. You send for moneys on account of the loss, you should write for particulars. We shall remit the moneys in respect of the loss 20 days before the month in which due date is to fall. Do you please rest assured. We shall of course send linseed to you...ready linseed will be sent.... We shall send you ready linseed entirely.
71. Again on the 10th February 1911 he writes in Ex. V ;-
We shall send ready linseed entirely.
72. On the 13th February 1911 he writes in Ex. W:-
We shall make as much purchase of goods as we possibly can. There is still 15-20 days' time for consignment of goods.
73. On the 16th February 1911 he writes in Ex. X :-
We shall commence the purchase of linseed after 20 days. In case we find it profitable we shall send the same in large quantity.
74. On the 20th February 1911 he writes in Ex. Y :-
Purchase of ready goods have commenced. We shall send to you railway receipt in respect of linseed and rai in the course of 10-15 days. Please , consider the same to be a good as received.
75. In Ex. 2 written on the 25th February there is no mention about ready linseed ; but in Ex. A i written on the 9th March he says;-
We are going to soud you a man with whom we shall also send the railway receipt in respect of ready goods. Please exert yourself in transacting the business. Please transact the business of the ready goods with profit. we shall send the same in large quantities.
76. Mangalohaud does not seem to have them questioned as to why he never sent any linseed to the plaintiffs as lie said lie was going to do. As regards these letters in general it is to he noted-(1) that there, is no evidence of Mangalchand having purchased or despatched a single bag of linseed to the plaintiffs ; (2) that when ready linseed is promised no reference whatever is made to the forward contracts ; (3) that Mangalchand was clearly referring to the possible despatch of goods to be sold on commission sales ; (4) that as a matter of fact the promises of the despatch of ready goods were, for some reason or other not explained, all bluff; (5) that therefore these references to ready goods do not throw any light on Mangalchand's intentions when he gave the orders for the linseed April-May vaida.
77. The evidence of Dayabhai Kallianjee, an employee in the service of Tullokchand Mamraj, is instructive as showing the difference between forward business and sale an commission. It was contended that the firm of Tullokchand Mamraj had sold forward poppy-seed on behalf of defendants and that defendants had sent the goods, but in cross-examination Dayabhai said ' the defendants' poppy-seed was sold to officewallas on railway terms, goods to be delivered as soon as received by rail. The officewallas are told when the contracts are made that the goods have arrived or are on the way'. Tullokchand Mamraj had sold on defendants' behalf 50 tons poppy-seed on 9th April 1910, 50 tons on 9th May, 25 tons on 31st May and various consignments of goods were received on the 22nd April, 18th May and 21st May.
78. Lastly Ramkishen had to admit in cross-examination that the officewallas did forward business on Bazaar terms which were different to Marwari terms and that the names of Messrs. Volkarts, Ralli Brothers, or Bruel & Co did not appear in plaintiffs' Jamakharach for the January 1911 Bengal cotton vaida or the March t 91 t Broach cotton vaida. There was also a difference between the vaida rates and ready rates the same day of several annas.
79. The explanation that the ready rate was. lower than the vaida rate because the purchasers had to provide new bags cannot be sufficient, as it is admitted that the contracts in each case are in the same terms and Ex. A12 contains the condition that the goods are to be delivered in new twill bags.
80. The letters written by the plaintiffs to Mangalchand from the 4th November 1910 until the 17th April 191 1 Exs. 61 to 72 make it clear that the plaintiffs were thinking of rates only and not of the delivery of goods, they did not write as if they thought that Mangalchand was going to despatch goods to meet his obligations at the vaida day, though of course if he had sent linseed as he promised they were ready to sell on his account. There is not one circumstance proved before me which can lead me to suppose that the plaintiffs and defendants had any intention of doing anything more than gamble on the rise and fall of the prices in silver, cotton, linseed and rapeseed. The whole of the evidence is in favour of a common understanding that the parties should deal in differences and settle in that way.
81. On my finding on the 9th issue the suit must be dismissed.