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M. John Kotaiah Vs. A. Divakar and ors. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtAndhra Pradesh High Court
Decided On
Case NumberCivil Rev. Petn. No. 773 of 1983
Judge
Reported inAIR1985AP30
ActsContract Act, 1872 - Sections 202
AppellantM. John Kotaiah
RespondentA. Divakar and ors.
Appellant AdvocateG. Narayana Rao, Adv.
Respondent AdvocateM. Narasaiah, Adv.
Excerpt:
contract - power of attorney - section 202 of contract act, 1872 - plaintiff preferred revision when temporary injunction sought by him denied - whether power of attorney executed in favour of petitioner prima facie satisfies legal requirements for being construed as irrevocable power of attorney - where an authority or power is coupled with interest then only document is irrevocable otherwise not - in instant case document prima facie only creating interest in proceeds of exercise of power which is independent or incidental to creation of power but not creating any power coupled with interest simultaneously - plaintiff failed to prima facie satisfy requirements of irrevocable power of attorney for issuance of temporary injunction. - - a-1 must prima facie be construed in law as an.....order1. the main question involved in this revision is as to whether the power of attorney executed by the 2nd defendant in favour of the petitioner-plaintiff on 8-1-1977 prima facie satisfies the legal requirements for being construed as an irrevocable power of attorney. 2. this is a revision preferred by the plaintiff in o.s.no.2380/82 on the file of the 3rd assistant judge, city civil court, hyderabad. the suit was filed for the grant of a perpetual injunction restraining the defendants from interfering with the plaintiff's possession and management of the plaint schedule properties and from demolishing item 1 of the plaint schedule. the schedule to the plain consists of two items. item no.1 is a doubt storied building bearing no.5-9-195 chiragalli lane, hyderabad while the second.....
Judgment:
ORDER

1. The main question involved in this revision is as to whether the power of attorney executed by the 2nd defendant in favour of the petitioner-plaintiff on 8-1-1977 prima facie satisfies the legal requirements for being construed as an irrevocable power of attorney.

2. This is a revision preferred by the plaintiff in O.S.No.2380/82 on the file of the 3rd Assistant Judge, City Civil Court, Hyderabad. The suit was filed for the grant of a perpetual injunction restraining the defendants from interfering with the plaintiff's possession and management of the plaint schedule properties and from demolishing item 1 of the plaint schedule. The schedule to the plain consists of two items. Item No.1 is a doubt storied building bearing No.5-9-195 Chiragalli Lane, Hyderabad while the second items is a vacant site admeasuring 1393 square yards bearing No.5-9-88/1 and 2 at Fateh Maidan, Chapel Road,. Hyderabad. Pending suit the petitioner prayed for the issue of a temporary injunction restraining the defendants respondents from interfering with the petitioner's possession and management of the schedule mentioned properties and more particularly from demolishing item 1 of the plaint schedule. The trial Court instead of granting an injunction thought it fit to appoint an Advocate-Receiver to take possession of the suit properties for management by leasing out the same to tenants and depositing the rents into court. On appeal preferred by the defendants-respondents the learned appellate Judge allowed the appeal by holding that Ex.A-1 power of attorney created an interest in the immovable property and therefore required registration under Sec.17 of the Registration Act and was in admissible in evidence. For coming to that conclusion the learned appellate Judge held that inasmuch as the document entitled the agent to execute lease deeds on behalf of the principal it must be taken that the document itself created an interest in the immovable property, in favour of the petitioner-plaintiff. Having thus held the document inadmissible for purpose of Registration Act the learned appellate Judge considered Sections 202 to 206 of the Indian Contract Act and came to the conclusion that the document Ex.A-1 was not an irrevocable power of attorney. In the result he held that there was no prima facie case made out by the plaintiff for the grant of an injunction or for the appointment of a receiver. The appeal was allowed. This revision is preferred against the above order of the lower appellate Court.

3. It is contended in this revision by the learned counsel for the petitioner-plaintiff Sri. G. Narayana Rao, that Ex.A-1 must prima facie be construed in law as an irrevocable power of attorney inasmuch as it is clearly recited therein that the principal cannot revoke the document for a period of ten year. It is also urged that the document created an interest in favour of the petitioner and that under S. 202 of the Indian Contract Act such an interest was sufficient to bring the document within the conditions necessary for treating it as an irrevocable power of attorney. It is also argued that the interest created by the document in favour of the agent was different from an interest in immovable property referred to in under S. 17 of the Registration Act and that Ex.1 does not require Registration. A power to grant lease is different from a lease itself. It is argued that the petitioner has spent a sum of Rs.77,000/- as an Agent and is also entitled to commission or remuneration under the deed and that therefore the document must be treated as an irrevocable power of attorney.

4. On the other hand it is contended by Sri. M. Narasaiah the learned counsel for the respondents that even if the document does not create an interest in immovable property for the purpose of Sec.17 of the Registration Act, still this document dt 8-1-1979 does not satisfy the necessary conditions laid down by Se.202 of the Indian Contract Act for treating it as an irrevocable power of attorney. It is submitted that the petitioner-plaintiff has therefore not made out a prima facie case. It is also argued that the power of attorney had already been cancelled and a partnership deed entered into for the purpose of construction of a multistoried complex in item No.1, that the building has been demolished and a sum of Rs.50 lakhs has been spent by the defendants and the cellar, ground floor, first floor of the multistoried complex have already been completed and the second floor of the building is now in progress. It is also stated that there has been no injunction at any rate from 4-9-82 onwards up to date and that there are no grounds for either granting injunction or for the appointment of a receiver.

5. The only point that therefore arises for consideration is whether the petitioner has made out a prima facie case for the grant of an injunction or for the appointment of receiver.

6. The following chronology of events is important. The power of attorney was executed on 8-1-79 by the petitioner's sister Mrs. Williams who is the 2nd defendant in the suit and who is also the 2nd respondent in the C.R.P. The 3rd defendant is her husband while the 1st defendant is a power of attorney agent appointed by the 2nd defendant on 7-6-82 after revoking the power of attorney in fovour of the plaintiff-petitioner on the same day in respect of both items 1 and 2 of the plaint schedule. It is the defendants case that on 13-4-1982 the power of attorney in favour of the plaintiff was revoked with regard to item 2of the plaint schedule alone. But that on 7-6-1982 it was revoked for both items 1 and 2 of the plaint schedule. It appears that defendants 2 and 3 formed into partnership on 20-4-82 for the purpose of construction of a multistoried complex. The plaintiff issued a notice to the 1st defendant on 4-2-79 and on 13-6-1982 for which the 1st defendant sent a reply on 21-6-82 stating that the plaintiff was no longer the power of attorney of the 2nd defendant. Thereafter the plaintiff issued further notices on 15-7-82 and 9-8-82 and filed the present suit on 24-8-82.

7. Initially the trial Court granted interim injunction on 24-8-82 in I.A. No.4826/82 for a few days. The first respondent filed a counter and an independent petition I,.A.No. 4901/82 on 28-8-82 for vacating the interim injunction. The matter was heard on 2-9-82 and the trial court without giving any finding on the rival contentions appointed a receiver on 4-9-82 saying that the property was in medio. That was a Saturday and the defendants moved the High Court in CRP No.3213/82 on the ensuing Monday viz. 6-9-82 and obtained an interim order suspending the order appointing a receiver. They also filed an appeal to the lower appellate Court and obtained stay from that Court in view of creation objections raised by the petitioner that the CRP was not pressed on 14-10-82 and ultimately the lower Appellate Court allowed the respondents' appeal by its order dt. 26-11-82. Against that order the plaintiff filed the present CRP No.773 of 1983. Pending the CRP No. injunction was granted in favour of the petitioner but the CRP was expedited and has now come up for hearing.

8. In the mean time the demolition of the old building in item No.1 and the construction of cellar, ground floor, first floor and part of the second floor of the multistoried complex by the defendants has taken place and it is stated across the bar that a sum of nearly Rs.50 lakhs has been spent.

9. The learned counsel for the petitioner has contended that prima facie Ex.A-1 dt . 8-1-1979 satisfied the requirements of an irrevocable power of attorney under S. 202 of the Indian Contract Act and therefore an injunction should be granted in favour of the petitioner-plaintiff. He also argued that the balance of convenience is in favour of granting an injunction. He placed strong reliance on the decision of the Delhi High Court in Harbans Singh v. Smt. Shanti Devi (ILR (1977) 2 Delhi 649 and of the Kerala High Court in Thomas Samuel v. Pappu Ramachandran 1980 Ker LT 867 and contended that the power of attorney does not require registration under S. 17 of the Registration Act and that it cannot be revoked inasmuch as it satisfies the conditions of S. 202 of the Contract Act and at any rate the document itself mentions that it cannot be revoked for a period of ten years.

10. For a proper appreciation of the question raised it is necessary to deal with the terms of the document Ex.A-1 which purports to be an irrevocable power of attorney. It recites that the 2nd defendant is the owner of items 1 and 2 of the plaint schedule, and that the plaintiff had agreed to act as the power of attorney of the 2nd defendant subject to the condition of receiving remuneration at 5% of the total market value of the properties, whether developed or otherwise and also the amounts lying in various banks including amounts payable by the 2nd defendant's former employers in U.S.A. and from other sources and further subject to the express condition that the power shall not be revoked before the expiry of ten years from the date of execution and unless the remuneration mentioned above was paid to the plaintiff. Clause 1 of the deed states that the plaintiff is to manage, control, supervise and develop the property of the 2nd defendant and to maintain, construct, alter, improve, purchase and develop any buildings, land or works necessary for the principal's benefit and overall interest in relation thereto and to have full and firm control and custody over the relevant deeds of title. Cl.2 provides that the plaintiff is to let or lease any part of the property, realise rents or profits, accept or surrender all leases, evict unauthorised occupiers and prevent encroachments. Cl.3 permits the plaintiff to attend before any authority such as courts, municipal corporation, Government departments and other agencies or institutions and banks for the benefit of the principal. Clause 4 permits the plaintiff to safeguard or claim or settle any disputes before any authorities including taxation authorities. CI.5 enables the plaintiff to administer and dispose of all funds received or receivable by the principal. Cl.6 permits the plaintiff to receive, invest and spend the principals's monies. Cl.7 permits him to sign and verify applications etc. Cl.8 permits him to engage advocates. Cl.9 is general. Clause 10 reads as follows:-

'The principal hereby undertakes not to revoke this power of attorney till all the disputes or claims threat may be ending in his name, for and on behalf of the principal, with any authorities, including courts, and until all his dues and remuneration of 5% (five per cent) of the total value of the total properties, developed or otherwise, and of the amounts lying in various banks, are fully discharged and duly paid to the Attorney and further undertakes not to revoke this power of attorney till the expiry of 10 (ten) years conditions herein stated.'

Cl.11 states that the power of attorney shall be operative irrespective of whether the principal is in India or abroad. Under clause 12 the principal undertook to reimburse the plaintiff in respect of all costs and other expenses that the plaintiff might incur incidentally. Under Cl.13 the principal undertook not to act by herself, while the power of attorney was in operation and not to give any power whatsoever in favour of any other person relating to the matters referred to in the document.

11-12. In Bowstead on Agency, 14th Edition, page 423 it is stated as follows:-

'(I) Where the authority of an agent is given by deed or for valuable consideration, for the purpose of effectuating any security, or of protecting or securing any interest of the agent, it is irrevocable during the subsistence of such security or interest. But it is not irrevocable merely because the agent has an interest in the exercise of it or has a special property in, or lien for advances upon, the subject matter of it, the authority not being given expressly for the purpose of securing such interest or advances;

(ii) Where a power of attorney, whenever created is expressed to be irrevocable and is given to secure a proprietary interest of the donee of the power, or the performance of an obligation owed to the donee, then, so long as the donee has that interest, or the obligation remains undischarged, the power is irrevocable;

(iii) Authority expressed by this article to be irrevocable is not determined by the death, insanity or bankruptcy of the principal, nor ......where the principal is an incorporated company, but its winding up or dissolution, and cannot be revoked by the principal without the consent of the agent.' (Emphasis..................)

The author thereafter points out that the mere fact that a power is declared in the instrument granting it to be irrevocable does not make it so. Irrevocability requires something further. It must satisfy the requirements mentioned above and then it is then called a power coupled with an interest. The mere right to earn commission is not an interest rendering a grant of authority irrevocable nor is an agent's lien. The fact that the agent subsequently acquires an interest in the property is irrelevant, to be irrevocable. The authority must be conferred as protection of the agent's interest.

13. It will therefore be seen that incases where the principal owed some money to the agent and for the purpose of discharge of that amount conferred a right on the agent to recover a debt payable to the principal by a third party and assigned the right - to collect such debt from the third party to the agent, the agent acquires an interest in the debt so assigned and the power granted to the agent is to be irrevocable. Similarly in cases where the principal becomes liable to a third party and has also to get some monies from his debtors or others owing money to him he can appoint an agent for remuneration and direct him to collect the monies due to him and pay to his creditors. In such a contingency the agent becomes an agent not only for the principal but also for the third party who has to get monies from the principal. The agent acquires a right in respect of the monies due to the principal from his debtors or others and thereby the power becomes an irrevocable power of attorney. These contingencies are clearly explained in the decision of the Delhi High Court in Harbans Singh's case (ILR (1977( 2 Delhi 649). It was pointed out in that case that the interest created under an irrevocable power of attorney does not necessarily amount to an interest in the property which is the subject matter of the power of attorney. Unless the document itself created a right in immovable property thereby attracting S. 17 of the Registration Act there is no question of the power of attorney becoming compulsorily registrable. But at the same time it may still create an interest sufficient to make the power of attorney irrevocable for purposes of S. 202 of the Contract Act.

14. In the present case one other important principle has to be borne in mind.

15. The principle of S.1 applies only to case where authority is given for the purpose of giving a security or a part of the security and not to cases where the interest of the donee arises afterwards and incidentally. In such cases there is no authority coupled with an interest; but it is an independent authority and an interest subsequently arising (per Venkata Subbarao, J. in Venkanna v. Atchuuta Ramanna AIR 1938 Mad 542 as decided by the Madras High Court. In that case the sons of Ramaiah (plaintiffs 1 to 5) together with one Brahmaiah executed a document on 21-11-1916 in favour of the 6th plaintiff who was a stranger to the family. The 6th plaintiff claimed to be an agent of plaintiffs 1 to 5 who were the sons of one Ramaiah. The sons of Ramaiah and Brahmaiah had executed the document on 21-11-1916. The document provided that the 6th plaintiff could file a suit for himself and conduct it and that the properties recovered, on behalf of the principals above mentioned, should be divided into two equal shares between the agent and the principals. The question arose whether the power given to the agent was an irrevocable power. It was held that the document contemplated the agent incurring costs 'in futuro' for the filing and the conduct of the suit. It was observed that the conditions for execution of an irrevocable power of attorney were satisfied only in cases, where the authority was given for the purpose of being a security or a part of the security, and not to cases where the interest of the donee arises afterwards and incidentally; in such cases there is no authority coupled with an interest, but an independent authority and an interest subsequently arising. Venkata Subba Rao, J. referred to the case in Smart v. Sanders (1848) 5 CB 895=136 ER 1132 at 1141 where Wilde C.J. observed as follows:

'But we think this doctrine applies only to cases where the authority is given for the purpose of being a security, or, as Lord Kenyon expresses it, as a part of the security, not to cases where the authority is given independently, and the interest of the donee of the authority arises afterwards and incidentally only. As, for instance, in the present case, as disclosed by the 13th plea, the books are assigned to a factor for sale. That confers an implied authority to sell. Afterwards the factor makes advances. This is not an authority coupled with an interest; but an independent authority, and an interest subsequently arising. The making of such an advance may be a good consideration for an agreement that the authority to sell shall be no longer revocable; but such an effect will not, we think, arise independently of agreement. There is no authority or principle in our law, that we are aware of, which leads us to think it will.'

Similarly in CORPUS JURIS SECUNDUM. Vol. 2 (Agency) it is stated as follows at page 1163:

'The interest to which the agent gets in the estate or property must be simultaneous with the power given him in order to give him a power coupled with an interest and nor this reason an interest in the result of the exercise of the power as distinguished from an interest in the subject matter of the power itself, is insufficient, for if the agent's interest exists only in the proceeds arising from an execution of the power , the power and the interest cannot be simultaneous in point of time since the power, in order to produce the interest, must be exercised, and by its exercise it is extinguished.' (Emphasis mine)

16. Similarly in the American Restatement of Law, on Agency, it is mentioned as follows in Chapter V at para )138 pages 351) as follows:-

'If, however, the power so given is held for the benefit of the principal and the agent is interested in its exercise only because it entitles him to compensation in exercising it, then even though the principal contracts not to terminate it, and although the agent gives consideration therefor, as by acting or agreeing to act, the power is not a power given as security as the term is herein used. An agent's interest in earning his agreed compensation is an ordinary incident of agency and neither a contract that the principal will not revoke nor a contract that the agent may protect his right to earn commissions, in spite of the revocation, will deprive the principal of control over act to be done by the Agent on his behalf.

On the other hand, if an agent acquires an interest in the subject matter, as where he engages in a joint enterprise in which another supplies the subject matter, a power given him by the other to protect such interest is a power given as security.'

17. Thus it will be seen that if the interest created in the agent is in the result or the proceeds arising after the exercise of the power then the agency is revocable and cannot be said to be an irrevocable agency. However, if the interest in the subject matter, say a debt payable to the principal, is assigned to the agent as security simultaneously with the creation of the power and thereafter the agent exercises the power to collect the debt for discharge of an obligation owed by the principal in favour of the agent or owed by the principal in favour of a third party, then the agency becomes irrevocable.

18. In the present case it will be seen prima facie on a reading of the power of attorney that there was no existing obligation in favour of the plaintiff, such as a debt before the execution of the power of attorney nor was such an obligation created simultaneously with the execution of power of attorney. This is also not a case where the principal has assigned any interest simultaneously with the execution of the power of attorney. But it only created an interest in the resultant product or produce arising out of the exercise of the power. Paragraph 10 of the power of attorney extracted above permits the agent to recover all his dues and remuneration of 5% of the total value of the total properties, developed or otherwise and all the amount lying in various banks are to be fully recovered and duly paid to the attorney. Thus, the interest created in favour of the agent for payment of either his dues or his remuneration is in the product arising out of the exercise of the power and therefore it is clear prima facie, that Ex.A-1 does not create an irrevocable power of attorney.

19. It is then argued that inasmuch as the document itself mentions that the power created is irrevocable, and also irrevocable for a period of ten years, it is not permissible to treat it as a revocable power.

20. From the passages quoted above it is clear that if on a construction of the power of attorney and in the light of the facts and circumstances obtaining in the case, the document does not prima facie satisfy the requirements for the creation of a power coupled with interest, then merely because the document itself describes the agency to be an irrevocable one, it does not become an irrevocable agency. The Indian Contract Act also provides that in cases where the period of agency is prescribed and the agency is not, in law irrevocable, then the agent may have a cause of action against the principal for other remedies in case the agency is revoked within the period. But that does not mean that an agency described as being irrevocable is to be treated as an irrevocable if, in law, it does not satisfy the requirements of an irrevocable power of attorney.

21. The learned counsel for the respondent invited my attention to the decision of the Madras High Court in Palani Vannan v. Krishnaswamy Konar AIR 1946 Mad 9. In that case the primary object of the power of attorney was that the agent is to execute a decree and recover on behalf of the principal the fruits of the decree. It provided that the agent's remuneration was to be one-half of the proceeds. It also contained an indemnity for the out of pocket expenses of the agent to be recovered form out of realisations. The power of attorney was not executed for the purpose of protecting or securing any interest of the agent. The last words of the power were, I shall not for any reason whatsoever cancel, without your permission, this authority which I have given to you, without paying the amount expended by you and without giving the aforesaid relief for your trouble.

22. It was held by the Division Bench of the Madras High Court that the agency was not one coupled with interest falling under S. 202 of the Indian Contract Act. Thus the document in that case was construed as a revocable power of attorney even though it expressly stated that it was irrevocable. Such a construction was put on the document because of the fact that, in law, it only created an interest in the proceeds of the exercise of the power.

23. In the said judgment the learned Judges quoted a passage from a judgment of the Bombay High Court in Hurst v. Watson (1864-66) 2 Bom H.C.R. 400 as follows:

'Where an authority or power is coupled with an interest, it is irrevocable, unless there is an express stipulation to the contrary, but the right of the agent to remuneration, although stipulated for in the form of part of the property to be produced by the exercise of the power, is not an interest in this sense.'

This passage is in favour of respondents and cannot be treated as supporting the plea of the petitioner-plaintiff. However, the learned counsel for the petitioner sought to rely on the words 'unless there is an express stipulation to the contrary' I do not agree that part of the passage in any way helps the plaintiffs' case. It clearly postulates the converse proposition viz., that in cases where a document creates a power coupled with interest and is, in law, irrevocable still the parties could by express agreement agree to treat it as revocable. But their Lordships never laid down that in cases where the document does not create an irrevocable power in law, still the parties could by merely describing the power as irrevocable bring it within the law relating to irrevocable power of attorney. In fact the passages referred to by us earlier from Bowstead on Agency and the American Restatement of the Law would clearly show that even in cases where a document has been described as an irrevocable power of attorney still if, in law, the interest created is only in the proceeds of the exercise of the power, the document has to be construed only as a revocable power of attorney and not as an irrevocable power of attorney. In fact, I May mention that in Doward, Dickson & Co. v. Williams (1890) 6 TLR 316 it was held by Justice Vaughan Williams that:

'He could not exceed to the proposition that if a man authorised an agent to collect debts from him at a commission for 5 years that authority cannot be revoked, and the agent is entitled to say: 'I will go on collecting the debt in spite of the principal's revocation''.

In may opinion therefore prima facie the document Ex.A-1 only creates an interest in the proceeds of the exercise of the power which is independent or incidental to the creation of the power, but does not create any power coupled with interest simultaneously. This is my prima facie conclusion in this C.R.P. arising out of an application under O.39, C.P.C.

24. However, the general principles relating to irrevocable power of attorney are enunciated in the decisions of the Supreme Court in Loon Karan Sethia v. I.E. John : [1969]1SCR122 and Bharat Nidhi Limited v. Takhatmal : [1969]1SCR595 . In the said cases the general principles relating to powers of attorney have been laid down and these two cases were followed by the Kerala High Court in Thomas Samuel Singh v. Pappu Ramachandran (1980 Ker LT 867). A reading of the facts in the two decisions of the Supreme Court and of the Kerala High Court would show that in those cases the interest created in favour of the agent was not in the proceeds of the exercise of the power but simultaneously with the creation on the power and those cases are clearly distinguishable.

25. For the above reasons I hold that the plaintiff-petitioner has not made out a prima facie case that Ex.A-1 is an irrevocable power of attorney. Therefore, even though I do not agree with the appellate Court that Ex.A-1 requires registration under the provisions of the Registration Act, I still hold that Ex.A-1 prima facie does not satisfy the requirements of an irrevocable power of attorney, for purpose of an application by the plaintiff under O.39, C.P.C.

26. Coming to the balance of convenience I have already stated that the plaintiff-petitioner had no injunction except for a short period from 24-8-1982 to 4-9-1982 and thereafter there has been no injunction in favour of the petitioner either in the lower appellate Court or during the pendency of this revision petition. Further the respondents-defendants have gone ahead with the demolition of the old building in item 1 of the plaint schedule and have already spent, as mentioned by the respondents' counsel, a huge sum of about Rs.50 lakhs and constructed the cellar, ground floor, first floor and part of the second floor of a multistoried complex. The huge rock lying in the property has also been cut and removed. I do not think that at this stage the balance of convenience could be in favour of the petitioner-plaintiff.

I had suggested to the learned counsel for the petitioner that any opinion on the construction of the document, Ex.A-1, might directly impair the decision in the suit but the learned counsel desired that a prima facie finding must be given for the purpose of the application filed under O.39, R.1, C.P.C. though it will not be binding in the suit. It is for that reason that I was compelled to go into the prima facie case urged by the petitioner-plaintiff.

27. However, I make it clear that the opinion expressed by me is a prima facie opinion and the suit will be disposed of on the basis of the evidence and other material or rulings that may be referred to by either of the parties in support of their rival contentions.'

28. In the result the Civil Revision petition fails and is dismissed, but without costs. It will be appreciated if the trial Court will try to dispose of the suit expeditiously, at any rate within six months from today.

29. Revision dismissed.


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