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Buddulal Goerlal Mahajan Vs. Shrikisan Chandmal - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtMadhya Pradesh High Court
Decided On
Case NumberFirst Appeal Nos. 29 and 33 of 1954
Judge
Reported inAIR1961MP57
ActsHindu Law; Contract Act, 1872 - Sections 30, 73 and 211
AppellantBuddulal Goerlal Mahajan
RespondentShrikisan Chandmal
Appellant AdvocateD.G. Bhalerao, Adv.
Respondent AdvocateK.A. Chitale and ;R.G. Waghmare, Advs.
DispositionAppeal dismissed
Cases ReferredTrojan and Co. v. Nagappa Chettiar
Excerpt:
.....month, frommaha sudi 15, by two mouths. the losses incurred in that regard, as well as on 100 hukumchand shares, and incidental expenses upto the maha waida (maha sudi 15: 6th february 1947) had been paid off. if it is intended and is possible that the goods contracted for can be delivered, then the mere fact that in certain circumstances either party would be liable to make good to the other the difference in price, cannot make it a wager. the question in the present case is answered by the series of letters from the defendant, which have been produced by the plaintiff clearly speaking of the delivery of shares. 14. the words 'pakka adtiya' are most frequently used in the bombay market, while elsewhere the words 'dalal',sharaf' and the like, take their place. whatever the word, the..........before maha sudi 15, 2003, and the waidas had been extended month after month. the waidas are, by indore practice in forward dealings in shares, for the sudi 15 of each month. when there is badlai or extension, which is month after month, the broker makes in his ledger, a sale of the shares to his constituent at the agreed price, and then purchases on that date at the prevailing market price, and charges a small commission. meanwhile, he would have got the shares from third parties, acting in his own name. actual delivery and payments are to be taken or made on badi 9 following the waida day; but the constituent is allowed to do so after some delay, on payment of small penalty. the practice has been collected and embodied in a set of rules under the authority of the 'eleven panchas' in.....
Judgment:

Krishnan, J.

1. This is an appeal by the defendant a constituent at Dhar, from a decree against him for the claim of the plaintiff a registered broker (or dalal) doing business at Indore, for compensation for the losses incurred by him on account of the defendant during forward transactions relating to 100 shares of theHukumchand Mills, 20 shares of the Malwa Mills and 200 bales of cotton, on account of extension (badlai) from the Maha Sudi 15, Samvat 2003 (6th February, 1947) to Phagun Sudi 15, Samvat 2003, and again to Chait Sudi 15, Samvat 2004 (4th April, 1947). While there is no controversy either about the liability or about the exact amount, in regard to the claim in respect of the losses in the transactions in cotton and the 20 Malwa shares, there are serious disputes in regard to the extension of the forward transaction on the 100 shares of the Hukumchand Mills.

The points for decision generally are (i) whether the plaintiffs are really a Hindu joint family concern, or a joint venture amounting to partnership attracting Section 69 of the Indian Partnership Act; (ii) whether the Indore Court or the Court at Dhar has got territorial jurisdiction; (iii) whether these forward contracts are of the nature of wagering contracts under Section 30 of the Indian Contract Act; (iv) whether the plaintiff can deal in his own name with third parties and still commit the constituent whose name he does not divulge to them, and realise compensation for losses incurred because of the fall in the prices; (v) particularly, in regard to the forward transactions in the Hukumchand shares, the question of fact is, whether, as alleged by the defendant, the deal had been closed a few days before Maha Sudi 15, Samvat 2003, and the losses calculated and subsequently paid off, or whether on that date, as alleged by the plaintiff, the defendant instructed him to extend forward contracts for a further period of one month, and again on Phagun Sudi 15, Samvat 2003, for another month. Finally, whether the resale by the plaintiff on Chait Sudi 13, was irregular as not being in accordance with the rules of the Stock Exchange and if so, what loss or prejudice it has caused to the defendant.

2. In regard to interest, there are two questions here; first, raised by the defendant in the main appeal (No. 29 of 1954J, whether it should at all have been decreed for the period before the suit; and second, by the plaintiff, in a cross appeal (No. 33 of 1954), that future interest should have been awarded from the date of the suit and not merely, as now, from the date of the decree.

3. We may note even here that most of the argument has centred round the general question (iv) and the factual question numbered (v).

4. The facts of the case are the following: During the relevant period, the plaintiff firm consisted of two brothers Shrikishan and Chandmal, the third brother having gone out after a partition. They do joint business, are registered brokers at Indore and members of two associations which generally regulate the forward dealings in shares and in cotton respectively. The defendant Buddulal resides at Dhar, doing business in the name of Chironjilal Gorelal. It is common ground that he had been dealing in forward contracts on shares and on different commodities as well, for sometime before the beginning of 1947.

It is also admitted that forward agreements for the delivery of 20 shares of the Malwa Mills, and 200 bales of cotton, were in force between the parties and had been extended month after month, fromMaha Sudi 15, by two mouths. The losses incurred in that regard, as well as on 100 Hukumchand shares, and incidental expenses upto the Maha waida (Maha Sudi 15: 6th February 1947) had been paid off. Both parties admit that the last were to be delivered by the plaintiffs to the defendant, on several monthly waidas before Maha Sudi 15, 2003, and the waidas had been extended month after month.

The waidas are, by Indore practice in forward dealings in shares, for the Sudi 15 of each month. When there is badlai or extension, which is month after month, the broker makes in his ledger, a sale of the shares to his constituent at the agreed price, and then purchases on that date at the prevailing market price, and charges a small commission. Meanwhile, he would have got the shares from third parties, acting in his own name. Actual delivery and payments are to be taken or made on Badi 9 following the waida day; but the constituent is allowed to do so after some delay, on payment of small penalty. The practice has been collected and embodied in a set of rules under the authority of the 'eleven panchas' in the business; a pamphlet containing these rules has been exhibited on the file of this case.

5. The plaintiff's case is that on Maha Sudi 15, Samvat 2003, he got the instructions of the constituent (in letter Ex. D/18) asking him to extend or do badlai for one month on all the forward contracts outstanding, namely those relating to 20 Malwa shares, the 100 Hukumchand shares, and 200 bales of cotton. Again, on Phagun Sudi 15, 2003 the defendant personally came to Indore and instructed him to do the badlai for one month longer. But shortly before the due date, (namely), the 5th April 1947), the defendant changed his mind and backed out; because he found that there was a steep fall in the price of the Hukumchand shares of about 180/- in the first month and a further fall of about 110/- per share during the second.

Accordingly, the defendant sent a telegraphic message (Ex. P/160) on 29-3-1947 directing the disposal of the 20 Malwa shares and 200 cotton bales, and added incidentally 'Sauda barabar'. 'Reply'. The word 'barabar' is loosely used, but one sense would be that after the carrying out of these directions, all the outstanding deals between the parties would have been settled. From the plaintiffs viewpoint that was not correct, as the 100 Hukumchand shares were to be taken by the defendant at the agreed price on Chait Sudi 15. The former scented a rat, and thereupon began a frantic exchange of messages and notices which developed into a dispute and ultimately into the present litigation.

To begin with, on receipt of the telegraphic message, the plaintiff sent two messages one at about 1-30 p.m. and the other at about 4-30 p.m. which reached Dhar respectively at 2-0 and 5-0 p.m. on the same day. The first message mentions that he had sold the cotton at 439/8/-; and as for the Malwa shares he would sell them when the share market, which was closed on that day, reopened. While this message makes no mention of the Hukumchand shares, the one that follows three hours later, runs :

'Share market will open Monday or Tuesday. Will sell 20 Malwa. What to do Hukumchand? You are pote 100. Wire.'

This brought an immediate telegraphic reply delivered to the plaintiffs at 7-30 p.m. on the same evening:

'Hukumchand not pote to me. Souda already done. Barabar.' which means that'I am no more responsible for Hukumchand shares because we have already settled the deal in regard to them.'

6. It is unnecessary to set out all the correspondence that followed, but the positions taken by the parties can be neatly summarised in the last telegrams of the series. Plaintiff's telegram of 31st March 1947 ;

'Your telegram of the 29th. Your allegations that your transaction of 100 Hukumchand shares has been squared is untrue. Your denial constitutes anticipatory breach of contract to buy 100 Hukumchand shares for Chait Sudi 15 and our clients will consequently sell the shares. Your risk for damages according to usage of the market.' (by plaintiffs' pleaders).

Defendant's telegram through his lawyer dated 1st April 1947:

'My client denies existence of any wagering agreement for Chait Sudi 15 alleged by you. He confirms squaring up of previous wagering agreement of Maha Sudi, He further denies any liability as agreements alleged illegal, opposed public policy. Do whatever at your responsibility.'

7. On the 4th, the plaintiffs sold all the shares that is, the 20 Malwa (about which there is no controversy) and the 100 Hukumchand and informed the defendant telegraphically. The defendant, of course, protested.

8. This was followed by exchange of lawyer's notices by post with the allegations more elaborately set out which I shall consider in course of the judgment. In brief, the plaintiffs claimed the difference on all the deals; while the defendant not seriously denying those about the cotton and the Malwa shares, denied that the Hukumchand forwards had been extended beyond Maha Sudi 15; so he refused to accept any liability in regard to the m. There are several general denials also by the defendant.

(i) Territorial jurisdiction :

9. This is in any case, of very little consequence at this stage and has not been canvassed by the appellant during the appeal.

(ii) The status of the plaintiffs :

10. The plaintiffs have started with the averment that they are a Hindu joint family and are doing business in that capacity. The defendant does not in his written statement deny this in terms, but only pleads that he is not in a position to say anything and wants it to be put to proof. In his statement, the plaintiff Shrikishan admits that out of three brothers, one has gone out of the family taking his share, but asserts that even after it, he and the second brother Chandmal, continue as a joint family and that the business of theirs is still the joint family business. This is a piece of evidence. But as against it, the defendant has brought literally nothing. There was a deed of partition at the time when the third brother left the joint family; but neither has the plaintiff produced it, nor has the defendant asked for it.

11. On behalf of the defendant, it is argued here that the plaintiffs will have to prove either that they constitute a joint family, or show that they are a firm registered under the Indian Partnership Act and produce a copy of the certificate and the entry in the books of the Registrar of Firms. This, it is contended, need not be expressly pleaded, as Section 69 of the Partnership Act creates a statutory ban of which the Courts should take notice on their own. So far, the proposition cannot be seriously questioned; but before we reach the position calling for the application of Section 60 of the Indian Partnership Act, the defendant has to dislodge the plaintiffs from the position they have taken as Hindu joint family, which can be only on the basis of a finding of fact.

12. There is a body of case law on this subject, from Balabux v. Rukhmabai, 30 Ind App 130 (page 137) to Bhagwatiprasad v. Rameshwari Kuer, AIR 1952 SC 72. To be sure, the fact of a partition, however limited, by which one coparcener leaves the joint family, puts an end to the presumption of jointness; but it does not swing to the other extreme and lead' to another presumption that there is separation as between every coparcener.

The presumption of jointness disappears leaving the matter dependent on the facts; at this stage, three alternatives are possible; first, that the entire coparcenery is smashed up, each coparcener becoming separate from each of the others; secondly, one coparcener leaving the others continues joint with no intention to separate in which event, they form the residue of the original coparcenery; and, thirdly, the partition being complete as between each of the coparceners, two or more of them, who under the Hindu Law, are competent to reunite, actually come together and reunite to form a new joint family.

There being no presumption in regard to any of the alternatives, it is a simple problem of factbased, as usual in such cases, on the intention and conduct of the parties, which have to be gathered from the evidence and the circumstances. The admitted fact of the exit of the third brother, while removing the presumption of jointness, does not, in any manner, affect the right of the two others to be heard that they continued joint and worked the joint family business. This is what is stated in the pleadings and in the evidence of Shrikishan. As against this, there is literally nothing from the side of the defendants. As it is, the remaining coparceners being brothers, there was no ban on reunion; but the case happens to be one of the continuity of jointness based on the evidence of Shrikishan. Thus, the defendant really gets nowhere to the stage of getting the benefit of Section 69 of the Indian Partnership Act.

(iii) Applicability of section 30 of the Indian Contract Act.

13. From the earliest stage of the dispute, the defendant has been thinking of this, as is apparent from his telegram of the 1st April, already quoted above; but in the argument, it has not been seriously canvassed though Shri Bhalerao, learned counsel for the defendant, has stated that he should not be understood as having given up this ground. Any way, 11 shall deal with it briefly. In all forward contracts,there is an element of speculation. In effect, the constituent instructs the broker to get certain shares for him on a future date.

The body of case law summarized in standard textbooks on Contract Act in the commentary under Section 30, is to the effect that it is not a wagering contract unless both the parties intend not to take delivery in any event, and, whatever happens, only to adjust the difference. If it is intended and is possible that the goods contracted for can be delivered, then the mere fact that in certain circumstances either party would be liable to make good to the other the difference in price, cannot make it a wager.

The question in the present case is answered by the series of letters from the defendant, which have been produced by the plaintiff clearly speaking of the delivery of shares. They, show that the delivery of the shares was in contemplation. Nor is it a case in which the delivery of these shares was reasonably impossible. These alone suffice to reject the plea that the contract was one by way of wager.

(iv) Whether the plaintiffs were pakka adtiyas and the defendant knew of the practice at Indore:

14. The words 'pakka adtiya' are most frequently used in the Bombay market, while elsewhere the words 'dalal', 'sharaf' and the like, take their place. Whatever the word, the incidents of a pakka adtiya have been clearly set out in a large number of decisions, in particular, Bhagwandas v. Kanji Deoji, ILR 30 Bom 205, the relevant parts of which were quoted with approval, in the Privy Council decision -- Bhagwandas v. Burjorji, AIR 1917 PC 101. This has been followed in a number of cases including the Lahore case, Firm Ganpatmal-Sundardas v. Firm Khersingh-Balwantsingh and Co., AIR 1937 Lah 581, Baksiram Rodmal Shop, Akola v. Firm Jasroop Shrinath, Harda, AIR 1948 Nagput 173; and very recently, Suganchand v. Fulchand, AIR 1957 Madh Pra 194.

These lay down the incidents of a pakka adat thus; Firstly, the pakka adtiya can, in dealing with third parties on behalf of his constituent, use his own name; secondly, he is not an agent of his constituent in all respect but is in certain respects, a person employed for profit; thirdly, there being necessarily no privity of contract between the constituent on the one side and the third party on the other, to whom his name is not disclosed, the pakka adtiya is, as it were, a guarantor to both, on the one hand, that delivery should, on due date be given, and, on the other hand, it should be taken at the price at which the order was accepted, or the party concerned will pay up the difference in price. Finally, it has been held that this practice is not repugnant to law or bad on the ground of policy.

15. The plaintiffs have averred :

'These dealings are negotiated through certified brokers and are entered in their own name and without disclosing the names of the actual contracting parties. The brokers are responsible to both the parties for performance of the contract and are entitled to recover losses sustained in these transactions.''

Though the words are not actually used, this is a gist of the incidents of a pakka adat. As against this, the defendant has not even cared to make a clear denial. He has said vaguely that the claimis hit by Section 236 of the Contract Act though it is difficult to understand how this section comes in when we are dealing with this kind of commercial practice. In his evidence, the defendant states that he knew the practice of the Indore market and the rules followed in the Exchange but he has forgotten them. As a matter of fact, he had been dealing for some years befoe this transaction and it is impossible that he is ignorant.

16. The entire system in vogue at Indore is substantially the same as in vogue at Bombay. In fact, Indore market in shares and goods developed during more than half a century when the businessmen of Bombay began to do business there both on account of the availability of cheap cotton and other goods, and on account of the absence of any income-tax till the coming into force of the Constitution. In such matter, the description of Indore as a smaller Bombay, is not incorrect. This question came up for consideration before the High Court of the erstwhile Holkar State in 1944 Mishrilal Boduji v. Messrs. Dhirji Raghunath and Co., Civil Original Suit No. 4 of 1943.

It was held that the registered dalals in the share business in the Indore market were pakka adtiyas. That judgment is not binding; but the problem has been fully examined there and the judgment is of considerable persuasive force. It is not anybody's case or suggestion that between the time of the transactions dealt with there, and the ones in the instant case, there has been a material variation of the usage or practice. The defendant's own position is more evasive than helpful. In his written statement and in his evidence also, he is trying at best to make out that he did not know of the Indore usage.

In principle, a practice in a local share market which is altogether peculiar and inconsistent with the general usage, cannot be binding on the constituent unless he has knowledge or has been specifically informed by his dalal. But the position here is that the defendant has been actually dealing in the Indore market for some years before these transactions. Actually, his case is not a straightforward one of ignorance; on the contrary, he claims to have known the rules of the exchange, but says that he has forgotten them when he came to depose. Thus, we would hold that like all dalals registered with the proper organisation at Indore, the plaintiffs are doing business in accordance with the practice of pakka adtiyas at Bombay.

(v) Whether the contract regarding 100 Hukumohand shares was extended beyond the Maha Sudi 15, 2003 -

17-27. (Their Lordships discussed the evidence and continued as under:)

Thus, we come to the conclusion that even after Maha Sudi 15, there were two extensions of the for- ward contracts, not only in regard to the cotton and Malwa shares, but also in regard to the Hukumchand shares. Further, by the time March was ending and the Chait waida was approaching, the defendant found that the Hukumchand shares had fallen by about 290/- each and he would have to make good this difference of about 28 or 29 thousand. The whole set of his telegrams between the 29th and 4this only an attempt to get out of the agreement; butthe plaintiffs were equally wakeful.

(vi) The manner of resale -

28. That the broker could resell the shares as soon as he found that the constituent clearly intends not to honour the agreement on the waida day is of course, admitted. The only conditions are that the anticipatory breach should be clearly set out; and the tact and the circumstances of resale should be notified to the constituent. These have been observed. The defendant's argument is that the plaintiffs have not followed the special procedure prescribed in the rules of the Share Brokers Association, In general, that procedure given in the rules would involve a few days' delay, and is meant for normal cases.

The defendant is unable to show that what he describes as the hasty procedure on the part of the plaintiffs has really caused him any prejudice. Quite on the contrary, in that falling market, a few days' delay and the publicity incidental to that procedure, would have caused the defendant even greater losses. These rules do indicate the general practice in normal circumstances; they are not statutory in the sense that the broker should always follow the particular procedure. If anything, the departure in these special circumstances, has benefited rather than prejudiced the defendant.

Interest --

29. In regard to interest, there are two positions taken; firstly, the defendant contends that this is a case of damages and interest on damage cannot be allowed. Actually, the plaintiff calculated 6 p. c. p.a. interest from the date of loss that is, the waida day to the date of the suit, which has been allowed in toto. For the duration of the suit no interest has been awarded and the plaintiffs have filed a cross appeal. The trial court has allowed interest at 4 p. c. p. a. from the date of the decree till realization; one wonders if there has not been an inadvertent mistake by the mention of 'decree' for 'suit'.

30. On a sum of money claimed as damages, no interest may be granted under the Interest Act. At the same time, the ruling on which the defendant has relied, has itself, pointed out (B. N. Rly. Co. Ltd. v. Ruttanji Ramji, AIR 1938 PC 67):

'The Proviso to Section 1 applies to a case in which the court of equity exercises jurisdiction to allow interest. But in order to invoke a rule of equity, it is necessary in the first instance to establish the existence of a state of circumstances which attracts the equitable jurisdiction'.

The ruling reported in Trojan and Co. v. Nagappa Chettiar, AIR~ 1953 SC 235 is also cited by the defendant. Certainly, interest on damages cannot be allowed under Section 73 of the Contract Act; but hero it is on equity and usage. A party can plead that interest is payable on damages in accordance with equitable principles, that have taken the form of established commercial practice. In this case, for example, a large number of witnesses have been examined by the plaintiffs to show that in such cases, interest is actually paid on damages measured by the difference between the price levels.

This principle is also mentioned as one of 'rules'' in the pamphlet setting out the practice in I the Stock Brokers' Association. Even on purely equitable considerations, we note that it was clearly a case of liability for the difference which was known to the defendant; still, he was trying to avoid payment. It is all right to say that a suit could have been filed without any delay and the plaintiffs could have claimed interest from the date of the suit. In practice, it takes time to decide on bringing a suit and preparing for it. Therefore, all things considered, we would support the award of interest for the period before the suit.

31. As for the cross appeal, we would also allow it, ordering that interest should be added for the suit period also, at the same rate of 4 p. c. p. a. as has been awarded for the period after the decree. We are, in fact, inclined to feel it has been a case of inadvertent mistake on the part of the trial court using the word 'decree' instead of 'suit'.

32. In the result, the appeal by the defendant (No. 29 of 1954) is dismissed with costs and pleaders fee according to rules payable to the plaintiff-respondents; however, 'no costs or pleaders fee shall be payable in respect of the cross appeal, (No. 33 of 1954).


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