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Morarji Premji Gokuldas Vs. Mulji Ranchhod Ved and Co. - Court Judgment

LegalCrystal Citation
Decided On
Case NumberO.C.J. Appeal No. 2 of 1923
Reported inAIR1924Bom232; (1923)25BOMLR1014
AppellantMorarji Premji Gokuldas
RespondentMulji Ranchhod Ved and Co.
DispositionAppeal dismissed
broker and sub-broker - share-brokers-sub-broker entering into transaction and accepting money from constituent-misappropriation of money by sub-broker -payment of part of money by sub-broker to broker on other transactions- good faith of broker-non-liability of the broker to pay back money or to deliver shares.; the plaintiff agreed to purchase shares valued at rs. 15,000 from one g, a sub-broker of defendants who were certified brokers of the native share brokers' association. the defendants had by a writing appointed g as their sub-broker and authorised him to canvass orders for them. the fact of this writing was not known to the plaintiff. the transaction wan recorded on a memo form belonging to defendants, and signed by g on defendants' behalf. the plaintiff deducted rs. 1000 which g.....fawcett, j.1. in this appeal the facts are not in dispute, and are clearly detailed in the judgment of the court below.2. briefly, the defendants are a firm doing business as share-brokers and employed one gordhandas purshottamdas in the course of their business as a sub-broker. there is a question as to the exact extent of his authority, but the word 'sub-broker' appropriately describes the main functions of gordhandas. there was a transaction on august 10, 1922, between him and the plaintiff, and the result was that the plaintiff had to pay him rs. 15000. gordhandas owed the plaintiff rs. 1000 and the plaintiff gave him a crossed bearer cheque of rs. 14000 in favour of the defendants. gordhandas paid this cheque into his own account with a bank, and on the same day drew two cheques in.....

Fawcett, J.

1. In this appeal the facts are not in dispute, and are clearly detailed in the judgment of the Court below.

2. Briefly, the defendants are a firm doing business as share-brokers and employed one Gordhandas Purshottamdas in the course of their business as a sub-broker. There is a question as to the exact extent of his authority, but the word 'sub-broker' appropriately describes the main functions of Gordhandas. There was a transaction on August 10, 1922, between him and the plaintiff, and the result was that the plaintiff had to pay him Rs. 15000. Gordhandas owed the plaintiff Rs. 1000 and the plaintiff gave him a crossed bearer cheque of Rs. 14000 in favour of the defendants. Gordhandas paid this cheque into his own account with a bank, and on the same day drew two cheques in favour of the defendants for sums amounting in all to Rs. 10645-10-0, which they duly received. Subsequently Gordhandas absconded without having taken any steps to carry out the plaintiffs contract. The main question is whether the defendants are liable in respect of the transaction. Though the plaintiff did not know of it at the time of the transaction, there was a written agreement between the defendants and Gordhandas (Exh. A) regarding the terms of the latter's employment. The learned trial Judge held that under this document Gordhandas was in merely the same position as an ordinary sub-broker, and that it was a reasonable inference that any business transacted through Gordbandas was conditional on acceptance by the defendants. He also held that the transaction wag of an unusual character and not within the scope of Gordhandas' authority. He accordingly held that Gordhandas had no authority to bind the defendants in respect of the transaction in question.

3. In this appeal Mr. Setalvad for the appellant raises two main issues : namely, (1) what was the scope of Gordhandas' authority, and (2) whether the particular transaction was within that scope. His main contention was that the document Exh. A opens with a statement that Gordhandas 'will act as an agent of Messrs M.R. Ved & Co. in the share-brokerage business of Messrs. M.R. Ved & Co.'; that this constituted him not only an ordinary sub-broker but an agent with full authority to act for the defendants in all their share-brokerage business; and that in fact Gordhandas had as much authority as any partner in the defendants' firm to bind the latter in any transaction entered into by him for the purpose of carrying on that share-brokerage business. He urged that the words quoted above are perfectly general and that there is nothing in the following words to cut them down; and that the provisions as to the half-commission business to be conducted by Gurdhandas were not inconsistent with his acting as defendants agent in their general share-business as well. Accordingly ho contended that defendants were bound to accept all business brought by Gordhaudas, who could irrevocably accept it on behalf of the defendants. He further relied upon Section 188 of the Indian Contract Act and illustration (b) to that section.

4. In my opinion this contention attaches an unjustifiable effect to the mare words 'agent in the share-brokerage business'; and I agree with the lower Court that, reading Exh. A as a whole, it does not amount to anything more than this that Gordhandas was expressly assigned the same position as would ordinarily be occupied by a sub-broker.

5. The word 'agent' does not of itself imply full authority to bind the principal, in the same way that a partner can bind his copartner under Section 251 of the Indian Contract Act. The question of the scope of his authority as agent is left entirely open. The definition of 'agent' in Section 182 of the Indian Contract Act covers a person employed to do any act for another, and the same applies to its use in ordinary parlance. Sections 186 and 187 of the Indian Contract Act show that the authority of an agent is to be gathered from either 'words' or 'circumstances,' and is not implied in the mere fact that he is an agent. The second para of Section 1888 and illustration (b) thereto only cover the case of an agent appointed 'to carry on a business.' If for instance Exh. A had said that Gordhandas was appointed an agent to carry on the defendants' share-brokerage business, or an agent with full authority to represent the defendants in that business, then there would no doubt be substantial ground for Mr. Setalvad's contentions. But in the absence of any such expressions, the words relied on are entirely insufficient to justify the wide construction that is sought to be put upon them. All the subsequent provisions of the agreement deal merely with the case of Gordhandas' acting as a sub-broker in the ordinary way, and it seems to me clear that the general words at the beginning were not intended to go further than appointing him an agent for the particular kind of share business referred to in those subsequent provisions. In my opinion it is a case where the words relied on give no full authority and the authority is to be gathered from the document read as a whole, and not a case where the principle applies that a full authority clearly given in one part of an instrument, is not to be cut down on account of ambiguous and uncertain expressions elsewhere : Halsbury, Vol. I, p. 163, Article 354.

6. Then as regards the question of Gordhandas' authority to bind the defendants, unless they accepted the business brought by him, it seems to me that the words 'placed with' favour the inference adopted by the learned Judge in the Court below that there was a condition of acceptance by the principal. Otherwise 'obtained for' or similar words would seem more appropriate. The evidence shows that such acceptance is a usual condition in the case of sub-brokers, and in the circumstances I think express words would have been used if it had been intended to dispense with this condition. It is no doubt true that ordinarily defendants would have accepted any legitimate business brought by Gordhandas. But it does not follow that they therefore renounced the power to reject it, should they think fit to do so. It is quite conceivable that a case might arise in which they would desire to exercise that power.

7. The second issue raised by Mr. Setalvad as to this particular transaction being within the scope of Gordhandas' authority is not, in this view of the case, of material importance. For, if the transaction was subject to the condition precedent of acceptance by the defendants, it follows that, as they did not accept it, it does not matter whether the transaction was, or was not, within the scope of Gordhandas' authority. But, supposing the first issue has been decided otherwise, then I think there is substance in Mr. Setalvad's complaint that the finding of the lower Court that the transaction of August 10 was of an unusual character and so was not within the scope of Gordhandas' authority is opposed to the observation of the learned Judge that 'it is the nature of the transaction which has to be looked to and not the time when it was entered into.' I should not, merely on account of the transaction having been entered into at an unusual time, hold that it was not within the scope of Gordhandas' authority, assuming that he had full authority to represent the defendants in his dealings with third persons.

8. The third point taken by Mr. Setalvad is that, in any case, in so far as the defendants obtained the benefit of the Rs. 10645-10-0 paid to them by Gordhandas out of the Rs. 14000 received by him from the plaintiff, the latter is entitled to recover the first named sum from the defendants. Apparently this contention was not pressed in the lower Court, for the judgment does not discuss the point and refers to an admission by the learned Counsel for the plaintiff that the fact of the payment of Rs. 10645 was merely a matter of prejudice. But the point seems sufficiently covered by the second part of issue No. 3 in the lower Court : and in any case (the requisite facts being in evidence and undisputed) it is purely a point of law, which can be raised before up. It was urged that the defendants cannot retain these moneys and at the same time repudiate the transaction; and reliance was placed upon Sinclair v. Brougham [1914] A.C.308. That case is not really in point, for it is not one of 'principal and agent' at all; and the main decision following the principle of In re Hallett's Estate : Knatchbull v. Hallett (1879) 13 Ch. D. 696 has no application to the present case. Hallett's case (as summarised at p. 404 in the course of the arguments in Sinclair v. Brougham) decided that if A holds property of B in a fiduciary character and pays it together with his own money into his banking account and draws money out of the account, he must be taken to have drawn out his own money in preference to B's. That does not help the plaintiff in this case. But there are no doubt observations in the judgments in Sinclair v. Brougham which do bear on the present question. I refer, for instance, to the remarks of Lord Haldane on the question of 'following money' at pp. 418-420 of the report, of Lord Dunedin at pp. 431-32, and of Lord Sumner at pp. 453-54. Reference is there made to the equitabla principle that no one has a right to keep either property, or the proceeds of property which does not belong to him : pp. 431, 436; and it is held that it can properly be given effect to on an action 'for money had and received' in cases where the law can consistently impute to the defendant the fiction of a promise to pay (of. pp. 416, 417). But it is also held that such a promise could not be imputed where it would be ultra vires to give it (p. 417); and that the action for money had and received should not le extended beyond the principles illustrated in decided cases (p. 453). Mr. Setalvad did not cite any authorities for applying these principles in a case of the present Kind, and (as already remarked) Hallett's case does not help the plaintiff here. It is one of the class referred to in Article 111 at p. 375 of Bowstead on Agency, 6th Edn. Bui there in authority which can be cited in support of Mr. Setalvad's contention, viz. Article 103 at p. 348 of the same work, which ways:

Where, by any wrongful or unauthorised act of an agent, the money or property of ft third person comes to the hands of the principal, or is applied for his benefit, the principal is liable jointly and severally with the agent to restore the amount or value of such money or property.

9. The law is similarly summarised in Halsbury, Vol. I, Article 432, para 2, at pp. 202 and 203 and Vol. VII, Article 986, at p. 486. Illustrations 2 and 3 at p 349 of Bowstead, which summarize Ex parte Shoolbred (1830) 28 W.R. 339 and Marsh v. Keating (1834) 1 Bin. N.C. 198, seem in particular to cover the present case. The payment of the Rs. 10645-10-0 to defendants through the bank by Gordhandas was virtually a payment made directly from Rs. 14,00 received from plaintiff, for Exh. B at pp. 19, 20 of Part III of the Paper Book shows that, on August 10, 1922, Gordhandas had a balance of only Rs. 174-10-1 and deducting the other debits of that day (Rs. 62) this balance is reduced to Rs. 112-10-1. In Ex parte Shoolbred there was a similar payment into the agent's account and drawing cheques upon it. It can also be contended that the fact of Gordhandas being indebted to the defendants to the extent of about Rs. 27,000 on August 10, 1922, is immaterial : but for this misappropriation of plaintiff's money Gordhandas would presumably never have made the payment, and the exception mentioned in foot-note (i) at p. 203 of Halsbury, Vol. I, only extends to fie case of the third person being indebted to the principal. But an important question is whether it makes any difference that defendants neither knew, nor had the means of knowing, that the funds from which Gordhandaa paid the Rs. 10645-10-0 had been misappropriated. In Marsh v. Keating it was expressly held that the defendants had the means of knowledge that the money was the property of the plaintiff; but this does not seem to have been always regarded in later cases as an essential condition. In Reid v. Rigby and Co. [1894] 2 Q.B. 40 the point was taken in argument, but is not noticed in the Court's judgments; and in Jacobs v. Morris [1902] 1 Ch. 816 Vaughan Williams L.J. at p. 830 says:

I am not sure that in Marsh v. Keating [1834] 1 Bin. N.C. 198 either the House of Lords or the judges whose opinion was taken meant to decide either that ignorance and want of means of knowledge will exonerate a person through whose account a sum of money has passed from responsibility, or that knowledge of the fact is essential to liability. Nothing more seems to me to have been decided than that there the defendants could not rely upon ignorance if they had the means of knowledge.

10. On the other hand Stirling L.J. held (at p. 833) that it was necessary to establish the principal's knowledge or means of knowledge in such a case. Cozens-Hardy L J. appears to have been of the same opinion. But a stronger authority on the point is afforded by the decision of the House of Lords in Thomson v. Clydesdale Bank, Limited [1893] A.C. 282. In that case Lord Shand says (p. 291):

Where questions arise with third parties into whose hands the money can be traced, as in this instance, liability against them for recovery of the sum misapplied arises only where it can be 6hown directly, or as the reasonable inference from facts proved, that these parties were cognizant that the money was being wrongfully used, in violation of the agent's duty and obligation.

11. This case is cited by the Privy Council in Bank of New South Wales v. Goulburn Valley Butter Company Proprietary [1902] A.C. 543 as settling the law that in the absence of notice of fraud or irregularity a banker is bound to honour his customer's cheque : but it is clear from the judgments in Thomson v. Clydesdale Bank, Limited, that the principle is a general one, not based on any peculiarity of banking law. Thus Lord Herschell in his remarks (at p 287) says 'a person, be he banker or other', and Lord Shand laid down the general principle I have already quoted.

12. This is an important qualification of the general rule laid down in Article 103 of Bowstead on Agency, which applies also to the corresponding right of the principal to follow property into the hands of third persons : see illustration (3) to Article 110, ibid, p. 374.

12. If, therefore, this suit had been brought in England, I think there is clear authority for holding that plaintiff is not entitled to recover the Rs. 10645-10-0 from the defendants. Is there any difference in the law applicable in India?

13. The case is not expressly provided for in the Indian Contract Act. Thus Sections 69 and 70 do not cover the case. But there is good authority for holding that the Indian Contract Act is not exhaustive of all cases in which a person under the English law would be taken to have a right of action against another as for money paid to his use : see Ranganaiki Ammal v. Ramanuja Aiyangar I.L.R. (1911) 35 Mad. 728 and cases there cited. In Jugdeo Narain Singh v. Raja Singh I.L.R. (1888) Cal. 656 and Narayanasami Reddi v. Osuru Reddi I.L.R. (1901) Mad. 548 it has been held that though a case may not be one of 'coercion' felling under Section 72 of the Indian Contract Act, yet that does not prevent the application of the principle that, where the defendant has received money which in justice and equity belongs to the plaintiff, under circumstances which render a receipt of it, a receipt by the defendant to the use of the plaintiff, the plaintiff is entitled to recover it. These decisions are not in this respect affected by the Privy Council case of Kanhaya Lal v. National Bank of India, Ld. I.L.R. (1913) Cal. 598, which places a wider meaning on the word 'coercion' in Section 72 of the Indian Contract Act than the Indian Courts were disposed to give it. I can see no sufficient reason for not following the principle laid down in the two cases of Jugdeo Narain Singh v. Raja Singh I.L.R. (1888) Cal. 656 and Narayanasami Reddi v. Osuru Reddi I.L.R. (1901) Mad. 548 in view of the fact that the legislature in Article 62 of Schedule I of the Indian Limitation Act expressly recognizes a suit to recover money received by the defendant for the plaintiff's use, and under Section 26 of Bombay Regulation IV of 1827, the principles of law and equity laid down in English decisions are proper guides, in the absence of specific law or usage to the contrary. Section 238 of the Indian Contract Act no doubt says that 'misrepresentations made or frauds committed by agents, in matters which do not fall within their authority, do not affect their principals.' But this is a section which falls under the general heading (above Section 226) of 'effect of agency on contracts with third persons,' and is restricted (as the illustrations and the first part of the section show) to the question of the effect of such misrepresentations or frauds on agreements made by the agents. It does not purport to deal with the third person's right to recover from the principal money which the latter has obtained through the agent's fraud or misrepresentation. If, however, the English case-law is applied, it must be applied in full : and I think it is clear that the money received by the defendants in this case cannot, in the absence of knowledge, or means of knowledge, on their part that it was plaintiff's money, which had been misappropriated by Gordhandas, be treated as money received by the defendants for the plaintiff's use. I also think that the Privy Council have plainly shown that their view is the same as that taken by the House of Lords in Thomson v. Clydesdale Bank, Limited, not only by their reference to it in Bank of New South Wales v. Goulburn Valley Butter Co. Proprietary [1902] A.C. 543 but also by their decision in Texas Company, Ltd. v. The Bombay Banking Co. I.L.R. (1919) 44 Bom. 139 : 22 Bom. L.R. 429. I may cite in particular the remarks in their Lordships' judgment at pp. 146, 147:

Had Vaidya's account, to which the proceeds of the oil business were paid, been kept wish the Bombay Bank under circumstances that could fairly impute to them knowledge that the monies were not Vaidya's, different considerations would apply.

14. In my opinion, therefore, Mr. Setalvad's contention fails, and I would dismiss the appeal with costs.

Coyajee J.

15. The main contentions urged before us in this appeal are:

1. What was the scope of Gordhandas' authority?

2. Whether the transaction in suit was within that scope?

16. I have had the advantage of seeing the judgment of my learned colleague. I entirely agree with his conclusions on those issues and with the reasons which he has there set out in support of those conclusions.

17. At the end of his opening address, appellant's counsel contended that, in any event, the respondents (defendants) should not be allowed to retain the two sums of Rs. 5000 and Rs. 5645-10-0 paid to them by Gordhandas out of the Rs. 14,000 which he had wrongfully obtained from the appellant, and that the appellant was entitled to follow these sums of money and to require the respondents to pay them over to him.

18. Assuming that this contention is covered by the third issue in the trial Court, it was certainly not pressed there, for the learned Judge observes in his judgment that 'it was admitted by the learned Counsel for the plaintiff' (now appellant) 'that the fact of the payments by these two cheques was merely a matter of prejudice.' In my opinion the admission was made for substantial reasons. I agree with my learned colleague in holding that this contention is untenable, and will briefly give my reasons. The material facts bearing on this contention are these. The agreed price of the fifteen shares, which formed the subject-matter of this transaction, was Rs. 15,000. Plaintiff withheld a sum of Rs. 1000 in satisfaction of a debt due to him by Gordhandas personally; he then made out a crossed cheque of Rs. 14,000 in favour of 'Mulji Ranchod Ved Esq. or bearer' and gave it to Gordhandas. On August 10, Gordhandas paid this cheque into his own account with the Bank of India, Limited. Gordhandas was at that time indebted to the respondents in a sum of about Rs. 27,000. The existence of that debt is not called in question. In part payment of that debt Gordhandas, on August 10, drew two cheques in favour of the respondents for the sums of Rs. 5000 and Rs. 5,645-10-0 respectively-which amounts they duly received. On the same day (August 10) Gordhandas gave them two more cheques, one of Rs. 1000 and the other of Rs. 5000 : but we do not know more about these, beyond the fact that they were dishonoured.

19. The position then is this. Gordhandas had no authority, express or implied, from the respondents to act on their behalf in this particular transaction. He obtained Rs. 14,000 from the appellant on certain representations which he failed to make good. He appropriated this sum of Ra. 14,000 to his own use A part of it, namely, Rs. 10,645-10-0, he used in discharge pro tanto of a debt which he then owed to the respondents. The respondents did not know, nor had they the means of knowing, that the money which they were receiving in discharge (pro tanto) of the debt due from him, had been wrongfully obtained from the appellant.

20. Under these circumstances the appellant, in my opinion, is not entitled to follow this money, and to require its payment to him by the respondents. The principles laid down in Thomson v. Clydesdale Bank, Limited [1893] A.C. 282 are applicable to this case. The appellants in that case, who held as trustees certain shares in the Commercial Bank of Scotland, instructed D.B. Thomson, a stock-broker in Edinburgh, to sell the shares and to deposit the proceeds in certain Colonial banks in the names of the appellants. The shares were sold by Thomson in the ordinary course of business, the dealing being between him and another member of the Stock Exchange who knew him only in the transaction and accordingly give in payment for the shares in the ordinary way a cheque payable to Thomson or order. This cheque Thomson paid in to his credit with the respondent bank on the same day on which he received it. At that time Thomson's account with the respondent bank was overdrawn to an amount exceeding the amount so paid. Thomson having become insolvent, the appellants claimed to be entitled to have the amount of the cheque repaid to them by the respondent bank. The question then arose whether, under those circumstances, the appellants were entitled to follow the money and to require its payment to them by the respondent bank, or whether the bank were entitled to retain it in discharge pro tanto of the debt which was due from Thomson. Dealing with this question, Lord Herschell L.C. observes (p 287):

It cannot, I think, be questioned that, under ordinary circumstances a person, be he banker or other, who takes money from his debtor in discharge of a debt is not bound to inquire into the manner in which the person so paying the debt acquired the money with which he pays it. However that money may have been acquired by the person making the payment, the person biking that payment is entitled to retain it, in discharge of the debt which is due to him.

Then, commenting on the argument that the bankers took with notice that the sum which they received was a sum of money not belonging to their debtor personally, but which he held or had received for other persons, and that, having had this knowledge or notice, they were not entitled to retain it in discharge of Thomson's debt, his Lordship says (p 287):

I cannot assent to the proposition that even if a person receiving money knows that such money has been received by the person paying it to him on account of other persons that of itself is sufficient to prevent the payment being a good payment and properly discharging the debt due to the person who receives the money. No doubt if the person receiving the money has reason to believe that the payment is being made in fraud of a third person and that the person making the payment is handling over in discharge of his debt money which he has no right to hand over, then the person taking the such payment would not be entitled to retain the money upon ordinary principles which I need not dwell upon. But in the present case there appears to me to be an absolute absence of any evidence of that kind.

And Lord Watson observes (p. 290):

I broker knew that he was insolvent, and that he was using his customers' money to pay his own debt to the bank without any reasonable expectation of his being able to replace it. That was an undoubeted fraud upon the appellants; but, in my opinion, the broker's fraud is of no relevancy in this case, unless it is coupled with bad faith on the part of the respondents. The onus of proving that they acted in mala fide rests with the appellants.

The decision in Sundar Lal v. Fakir Chand I.L.R. (1902) All. 62 has a bearing upon this question. There, a benamidar Mahesh Das realized upon a bond standing in his own name money to which other parties including the plaintiff were beneficially entitled, and paid over the money so obtained in the course of a transaction apparently bona fide and not, collusive to a third party Fakir Chand, who had no knowledge of plaintiff's interest therein; it was held that the plaintiff could not recover against Fakir Chand. The learned Judges observe (p. 64):

We fail to see how it can be successfully contended that he gob any portion of this money for the use of the plaintiff, or that, under the circumstances of this case, the money which was in I lie hands of Mahesh Das can be followed into the hands of Fakir Chand.. There was no fiduciary relation or privity existing between him and the plaintiff, and no collusion whatever between him and Mahesh Das has been suggested .If Fakir Chand had known or had had reason to believe that the money secured by the bond belonged in part to the plaintiff, different considerations would arise.... But it does not appear that he had any such knowledge, and no collusion on his part, as we have said, or fraud, is alleged.

The learned Judges then refer to the case of Thomson v. Clydesdale Bank, Limited. Here, also, the respondents had no reason to believe that Gordhandas, in discharge of his debt, was handing over money which he had wrongfully obtained from the appellants and had therefore no right to hand over.

21. I have found it difficult to understand the basis of the appellant's claim to recover this money from the respondents. The facts of this case do not fall within the principle enunciated by Romer L.J. in Bannatyne v. MacIver [1906] J.KB. 103 109. This is not a case where an agent, having obtained money from a third person wrongfully, has applied it for his principal's benefit, e.g., in discharging his legal debts and obligations. Neither does the case come within the principle of 'unjust enrichment.' But in justification of this claim, the appellant's counsel has relied on certain observations of Lord Haldane L.C in Sinclair v. Brougham [1914] A.C. 398. I have read those observations with respectful attention. The difficulty, however, is how to apply them to the facts of the particular case now before us. On what principle is the appellant entitled to compel the respondents to refund the money? There is no promise to pay, actual or imputed by law. There is no implied promise on the respondents' part to repay to the appellant money which Gordhandas gave them in discharge of his debt under the circumstances stated above. The decision in Sinclair v. Brougham does not proceed on the footing of money bad and received. And as observed by Lord Sumner (at p. 453 of the report) : ' The action for money had and received cannot now be extended beyond the principles illustrated in the decided cases.' No decided case has been brought to our notice justifying a claim to money received and retained by the respondents under circumstances such as we have here.

22. For these reasons I agree in holding that this appeal fails.

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