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Kaluram Bholaram Vs. Chimniram Motilal - Court Judgment

LegalCrystal Citation
SubjectContract
CourtMumbai
Decided On
Case NumberO.C.J. Appeal No. 26 of 1932 and Suit No. 2374 of 1920
Judge
Reported inAIR1934Bom86; (1934)36BOMLR68; 150Ind.Cas.467
AppellantKaluram Bholaram
RespondentChimniram Motilal
Excerpt:
indian contract act (ix of 1872), section 216 - agent-commission agent-agent selling his own goods to principal-profit made by the agent to be given to principal-measure of damages-civil procedure code (act v of 1908), section 34-compound interest.;under section 216 of the indian contract act, 1872, where an agent employed to purchase goods sells his own goods to his principal, that is to say, converts himself into a principal in respect of the sale, without disclosing the true position to the principal, the principal is entitled to claim from the agent any benefit which may have resulted to the agent from the transaction. the section in effect imposes something in the nature of a penalty upon an agent who acts improperly by converting himself into a principal without making due..........had bought in the market on the defendants' behalf, in that they handed over at that time to the defendants goods which otherwise they could have sold in the market at that date for a lesser rate; and the measure of their benefit is the difference between the contract rate and the market rate at the time of delivery.20. after dealing with the facts of the case, the judgment proceeded.21. that leaves only the question of interest. the learned judge has allowed compound interest from the date of the institution of the suit. mr. setalvad has conceded that by the practice prevailing between the plaintiffs and the defendants in making up and keeping their accounts compound interest was in fact charged by the plaintiffs without objection by the defendants; and he concedes that up to the date.....
Judgment:

John Beaumont, Kt., C.J.

1. This suit started as long ago as 1920. It was a suit brought by the plaintiffs, who claimed a sum of about Rs. 79,000 odd, as being due to them by the defendants, for acting as commission agents to the defendants to buy and sell piece-goods.

2. The defendants in their written statement alleged that no proper accounts had been delivered, that the plaintiffs had committed various breaches of duty as agents, and the defendants said that they would pay what was due, but that the amount claimed by the plaintiffs was not due.

3. In 1924 the matter was referred to the Commissioner for taking Accounts to take an account of the dealings and transactions between the parties. The matter proceeded before the Commissioner, or rather before three different Commissioners, for a period of five years ; and on June 22, 1929, the Commissioner made his report. On July 11, 1929, the plaintiffs took out exceptions to that report; and on September 27, 1932, the learned Judge made his order allowing some of the exceptions and rejecting others. From that judgment, the defendant appeals.

4. The learned Judge stated the facts, if I may say so, with admirable lucidity; and he formulated ten propositions of law, which he thought relevant to the case. Out of those ten propositions, the only ones which are challenged are Nos. 5, 7 and 8.

5. The questions which arise between the parties relate to three sets of bales of cotton delivered by the plaintiffs to the defendants. In each case, the plaintiffs were instructed to buy goods for the defendants as agents for the defendants; and in each case the plaintiffs informed the defendants that goods had been purchased at prices named. In fact, as on the evidence is plainly admitted by the plaintiffs, no goods had been purchased on behalf of the defendants, and the subsequent deliveries of goods by the plaintiffs to the defendants in alleged pursuance of the various contracts of purchase were made out of the plaintiffs' own goods, although the prices charged were those at which the plaintiffs allegedi they had bought goods for the defendants. The defendants were not informed that plaintiffs were supplying their own goods.

6. The plaintiffs throughout the transactions between the parties seem to have treated themselves as being pakka adatias and not mere commission agents; and before the Commissioner they asked leave to amend their plaint by alleging that they were pakka adatias. That application on their behalf was rejected, as the Commissioner held that they could not change the case at so late a date, and the decision of the Commissioner was upheld by the Judge. In this Court, Mr. Coltman on behalf of the plaintiffs has contended that on the plaint as it stands, he ought to be at liberty to allege that the true position of the plaintiffs was that of pakka adatias. But, in my opinion, that contention cannot be allowed. The plaint not only does not use the technical words ' pakka adatias ', the meaning of which was perfectly well understood at the date when this plaint was filed, but it has not set up any practice between the parties or any usage from which the position of the plaintiffs as pakka adatias can be inferred. Therefore, as it seems to me, we have to deal with this case on the basis that the plaintiffs were pure commission agents, and that they were not entitled to deal as principals with their own principals; and if that is so, it was clearly wrong for the plaintiffs to have supplied their own goods to the defendants, and it was even more wrong of them to have alleged that they had purchased goods on behalf of the defendants when in fact they had not so done.

7. The defendants, having on the various dates of delivery received these goods and subsequently dealt with them, are not in a position to cancel the contracts and return the goods to the plaintiffs. The learned Judge's decision as to that has not been challenged. But the defendants claim that they are entitled to be paid the amount of any profits made by the plaintiffs in dealing with their own goods under Section 216 of the Indian Contract Act. Section 215 deals with the right of rescission; and then Section 216 is in these terms:

If an agent, without the knowledge of his principal, deals in the business of the agency on his own account instead of on account of his principal, the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction.

8. So that, where you find, as here, an agent selling his own goods to the principal, that is to say, converting himself into a principal in respect of the sale, without disclosing the true position to the principal, then the principal is entitled to claim from the agent any benefit which may have resulted to the agent from the transaction. It seems to me that the section in effect imposes something in the nature of a penalty upon an agent, who acts improperly by converting himself into a principal, without making due disclosure, and that the operation of the section does not depend in any way upon the principal having suffered any loss. The learned Judge took the view that if the goods of the agent which he sells to the principal were acquired before the date of the agency, and if the principal is not in a position to return the goods and to cancel the contract, then no claim can be made by the principal under Section 216. For that opinion he relied on an English case of In re Cape Breton Company(1885) 29 Ch. D. 795 That was a case in which the defendant purchased certain mines, and subsequently sold them to a company of which he was a director. He purchased the mines before the formation of the company, and therefore it was clear that he was not an agent at the date of the purchase; and the company subsequently, with full knowledge of the facts, affirmed the contract and elected not to cancel. It was also established that there was no misrepresentation made by the director. In those circumstances, the majority of the Court of Appeal consisting of Cotton and Fry L. JJ. held that the director could not be made liable under Section 165 of the English Companies Act, 1862, for profit made by him by reason of the sale of his own property to the company. Lord Justice Bowen dissented. The case was taken to the House of Lords, and the decision was affirmed on the facts. But none of the members of the House of Lords expressed any opinion upon the point which had led to a difference of opinion in the Court of Appeal. The case has not met with universal approval. In 1898, in the case of Olympia, Limited, In re [1898] 2 Ch. 153 both the Master of the Rolls and Lord Justice Collins, as he then was, doubted the decision, and thought that it could be only justified on the special facts. On the other hand, the Privy Council in the case of Burland v. Earle [1902] A.C. 83-an appeal from Canada-followed the decision without comment.

9. Whether the case of In re Cape Breton Company was rightly decided or not, it cannot be said, I think, to have laid down a principle so generally accepted that we must assume it to have been present to the minds of those who framed the Indian Contract Act in 1872; and what we have to do is to construe the Indian Contract Act. The words of Section 216 are quite general, and contain no such qualification on the liability of an agent to account for a profit made by the sale of his own goods to the principal as was approved in In re Cape Breton Company.

10. I am not, therefore, able to agree with the learned Judge that an agent, acting as a principal and selling his own goods, is not liable for the profit made by the transaction, if he acquired the goods in question before the date of the agency. Of course, if goods are acquired by an agent as an agent on behalf of a principal at a particular price, and the agent subsequently supplies those goods to the principal at an enhanced price, that is fraud on the part of the agent, which can be dealt with apart from Section 216. But that, in my opinion, is not the case here, and I will assume that in each case the goods were acquired by the agent before the contract of agency. I think that what we have to do is to find out what profit the agent made from the transactions in which he should have acted as an agent, but did in fact act as a principal, that is to say, in the matter of selling his own goods to the principal.

11. Where the goods dealt with by the agent are, as here, goods having a ready value in the market, it seems to me that the profit which the agent makes out of the transaction must be the difference between the price at which he sells the goods to the principal, and the market value at that date. The true principle, in my opinion, is that the profit made by the agent is the difference between the price at which he supplies to the principal, and the true value of the goods at that date; and where you are dealing with goods having a market value, that market value must be taken as the true value. If one were dealing with goods which had no market value, then it would be necessary by other means to ascertain the true value, and in such a case it might be that the price at which the agent had himself bought shortly before the date of the transaction could be taken to represent that value. But the difference between the price at which the agent bought and the price at which he sold to the principal is not the measure of the profit which he makes by selling his own goods, since he may have made a legitimate profit on his original purchase before any question of agency arose. Much of the evidence in this case as to the price at which the plaintiffs bought is, in my opinion, irrelevant.

12. Mr. Coltman on behalf of the respondents has contended that all the contracts in this case, which were in fact satisfied by the plaintiffs out of their own goods, were covered by them, that is to say, at the date of those contracts the plaintiffs had acquired goods sufficient to answer the contract; and further, that the plaintiffs had received all the goods which they delivered under the contracts, or rather all the goods to which the contracts related, before the contracts were actually entered into. I will assume those points in favour of the respondents. In my opinion they are not really relevant. No doubt, the fact that all the contracts made by the plaintiffs with the defendants were covered is evidence that the plaintiffs were not merely unscrupulous gamblers, but were conducting bona fide business. But if in fact the plaintiffs wrongfully supplied their own goods to the defendants, it seems to me immaterial to consider whether they had in fact acquired those goods when they entered into the contracts.

13. Now, these being the general principles, which I think we ought to apply, it becomes necessary to consider what the position is in regard to the various transactions.

14. His Lordship then dealt with the facts of the case, and concluded:

15. Then the only other question raised on the appeal is as to interest. The learned Judge directed the defendants to pay compound interest at the rate of six per cent, per annum with annual rests. Under the original contract between the parties, the rate was in effect six per cent per annum; and according to the practice of the parties, accounts were made up annually at Diwali; and the amount due for principal and interest was carried forward to the next year, and simple interest was charged on that sum. So that the result was that in practice compound interest was payable. No doubt, that contract would come to an end when the suit was started, and we have to deal with the question of interest under Section 34 of the Civil Procedure Code. Mr. Setalvad for the defendants has suggested that on the words of that section, which allows us to give interest on the principal sum adjudged at the date of the suit, we cannot give compound interest. But I think we clearly have jurisdiction to give compound interest; and in this case, having regard to the practice which existed between the parties, and to the very long time during which the defendants have been in possession of the plaintiffs' goods without paying for them, and to the fact that although they admitted in the written statement that something would be due, they have never paid anything on account, and never brought anything into Court, I am not prepared to differ from the manner in which the learned Judge exercised his discretion under Section 34 of the Civil Procedure Code. That being so, there will be no alteration in the order of the learned Judge as to interest.

Blackwell, J.

16. I agree. I think that the difficulty in which the plaintiffs find themselves in this case is that in fact they carried on their business as pakka adatias. They filed their accounts before the Commissioner in the first instance on this basis, and were ordered by him to file their accounts upon the footing that they were commission agents, and that the defendants were entitled to full particulars from them as to the times when and the persons from whom they purported to buy goods pursuant to the defendants' orders upon their account. In the course of the proceedings before the Commissioner the plaintiffs asked for leave to amend their plaint by setting up a case that they were pakka adatias. This the Commissioner refused to permit them to do. They asked for similar leave before Mr. Justice Kania on the hearing of the exceptions to the Commissioner's report. He refused them leave, and before this Court Mr. Coltman has sought to make out that the plaintiffs were pakka adatias as between themselves and the defendants whether with or without amendment. In my opinion the amendment was rightly refused by the Commissioner at the stage at which it was asked for, and it would have been wrong for the Court at any subsequent stage to permit the plaintiffs entirely to change their case.

17. As regards Mr. Coltman's contention that he was entitled to put forward the contention that the plaintiffs dealt with the defendants as pakka adatias, he relied on what he said was the general meaning of the word 'commission agent' as used in paragraph 2 of the plaint. But the business of a pakka adatia depends entirely upon a custom that exists in Bombay, the knowledge of which must be brought home to the persons with whom they deal; and if a claim is made in a plaint simply upon the footing that the plaintiffs were commission agents, then if the plaintiffs seek to prove against the defendants that the nature of the particular commission agency was that of the pakki adat system, they must prove that that was the case to the knowledge of the defendants. There is no such averment in the plaint before us; neither is the expression 'pakka adatia' used in the plaint from beginning to end. In my opinion, therefore, it was not open to Mr. Coltman, as he sought to do by virtue of one of his cross-objections, to ask this Court to permit him to satisfy the Court, if he could, that the plaintiffs had dealt with the defendants as pakka adatias.

18. Dealing with the case upon the basis that the only claim which the plaintiffs can make is that of commission agents, I am clearly of opinion that there is not sufficient evidence in regard to any of the dealings, with which we are concerned, that the plaintiffs when they purchased the various goods which they subsequently delivered to the defendants were acting as the defendants' agents. Mr. Coltman has conceded that if there were evidence that after the plaintiffs quoted X rupees to the defendants, they in fact bought for X minus Y rupees, the plaintiffs would have to account to the defendants for the profit. In my opinion, on the evidence adduced in this case, no such question arises; and I approach this case upon the footing that the plaintiffs delivered to the defendants their own goods which they had acquired independently of any contracts of purchase which were placed with them from time to time by the defendants. The plaintiffs from time to time intimated certain rates to the defendants pursuant to their various orders; and, in my opinion, there is no evidence whatever to support the suggestion that those rates were other than the market rates prevailing at the time the orders were placed and those rates were given.

19. The question we have to deal with is as to whether the plaintiffs have derived any benefit within the meaning of Section 216 of the Indian Contract Act from having supplied their own goods in purported fulfilment of contracts placed with them by the defendants to purchase such goods in the open market. The answer to that question must, in my opinion, clearly turn upon the evidence as to the market rates at the times at which the plaintiffs delivered their own goods in purported fulfilment of the orders placed with them by the defendants. If the market had risen, obviously no benefit was obtained by the plaintiffs in their method of carrying out the contract placed with them by the defendants. If, on the other hand, the market had fallen at the time any delivery was made, it seems to me plain that the plaintiffs derived a benefit from supplying to the defendants their own goods instead of goods which they represented they had bought in the market on the defendants' behalf, in that they handed over at that time to the defendants goods which otherwise they could have sold in the market at that date for a lesser rate; and the measure of their benefit is the difference between the contract rate and the market rate at the time of delivery.

20. After dealing with the facts of the case, the judgment proceeded.

21. That leaves only the question of interest. The learned Judge has allowed compound interest from the date of the institution of the suit. Mr. Setalvad has conceded that by the practice prevailing between the plaintiffs and the defendants in making up and keeping their accounts compound interest was in fact charged by the plaintiffs without objection by the defendants; and he concedes that up to the date of the institution of the suit compound interest at the rate in question is justified. He, however, contends that that being a matter of implied agreement between the parties from their course of business, such implied agreement came to an end when the transactions ceased; and he accordingly submits that when the Court decides what rate of interest it shall allow in its discretion, as permitted by Section 34 of the Civil Procedure Code, the Court ought not to allow compound interest, because that would be allowing a rate of interest which was charged between the parties according to an implied agreement which, as he submits, had come to an end. Accordingly, he asks us only to allow simple interest at six per cent. It has been pointed out by their Lordships of the Privy Council in Orde v. Skinner that, in their Lordships' opinion, the rate of interest to be allowed on the principal debt up to the date of the decree ought to be that, if any, which has been fixed by the contract, express or implied, between the parties. It is quite true that no question of compound interest arose in that case. But having regard to that expression of opinion, it seems to me clearly open to this Court in exercising its discretion under Section 34 to allow compound interest from the date of the institution of the suit at a rate which was the rate impliedly agreed to between the parties while their transactions were running. Speaking for myself, I think that the implied agreement between the parties to this case was that compound interest should be charged from time to time up to payment and not merely during the actual currency of the transactions between them. But whether that be so or not, it seems to me that this Court is clearly entitled to allow compound interest at the rate which was the subject of implied agreement between the parties during the currency of the transactions between them. Accordingly, I agree that there is no ground for interference with the discretion exercised by the learned Judge as to compound interest.

Beaumont, C.J.

22. (On costs). As far as the costs of the appeal are concerned, each party must bear their own costs.

23. The cross-objections must be dismissed with costs.

24. The order of costs as regards the suit and the reference made by the learned trial Judge will stand.

25. But the costs of the exceptions to the Commissioner's report ought to be half and half.

26. As regards the costs of the chamber summons dated August 22, 1929, the order of the learned trial Judge will stand.


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