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Madhav Trading Company Vs. Union of India and ors. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtDelhi High Court
Decided On
Case NumberSuit No. 536 of 1973
Judge
Reported inILR1978Delhi74
ActsPartnership Act
AppellantMadhav Trading Company
RespondentUnion of India and ors.
Advocates: B.R. Maheshwari,; Suresh Sethi,; K.N. Kataria and;
Cases ReferredM. C. Chacko v. The State Bank of Travancore
Excerpt:
.....bank of travancore [1970]1scr658 and observed that 'it is settled law that a person not a party to a contract cannot, subject to certain well recognised exceptions, enforce the terms of the contract :the recognised exceptions are that beneficiaries under the terms of the contract or where the contract is a part of the family arrangement may enforce the covenant'.(8) the learned counsel for the defendants have frankly admitted that there can be no quarrel with the view of the law propounded by the authorities cited above......the contract dated 19-4-1971, i.e. 'delivery will be completed by 30-9-1971' and 'the name of the indian agent appearing in the clause be substituted to read as 'm/s. metal international corp., f block, connaught place. new delhi'.' a copy of this letter was forwarded to madhav trading company and the firm was asked to note that it was no more agent against the contract and, thereforee, not authorised to exchange correspondence in respect thereof. it is plain from the aforesaid documentary evidence that defendant no. 2 had nominated the plaintiff as its agent in india for purposes of the aforesaid contract and that its de-recognition as agent of the said defendant did not take place before 27-8-1971. the defendants have led no evidence whatever to make out that defendant no. 3 performed.....
Judgment:

M.S. Joshi, J.

(1) This suit was instituted on 14-12-1973 by Madhav Trading Company, a partnership firm carrying on business at Calcutta, against the Union of India, (defendant No. 1), Salzgitter Stahl Gmbh, a West German Company (defendant No. 2) and Madhav Trading Company, a partnership firm carrying on business of Rs. 1,06,999.86. It was alleged by the plaintiff that it was a partnership firm duly registered under the provisions of the Partnership Act. On 20-1-1971, the 1st defendant, Union of India, invited tenders, for the supply of approximately 4,197 tonnes of steel sheets; It was stated in the invitation to tender, inter alia, that a

(2) Defendant No. 1 conceded in its written-statement that while submitting its tender defendant No. 2 had intimated to the Union of India that the plaintiff was its authorised agent in connection with the tender enquiry in question, still it offered resistance to the suit contending, infer alia, that while returning the signed copies of the contract, in its letter dated 29-4-1971 defendant No. 2 had intimated nomination of defendant No. 3 as its agent in place of the plaintiff and there was a reference in this letter to an earlier communication dated 3-3-1971. As the plaintiff had ceased to be the agent of defendant No. 2 it was not entitled to the commission sued for. It was urged by the Union of India further that there was no privity of contract between it and the plaintiff and it was bound to follow the instructions of defendant No. 2 in respect of the payment of the commission. It was denied by this defendant that the plaintiff was a registered partnership firm or that the plaint has been signed 'and verified by a person competent to do so. Defendant No. 3 also controverter the plaintiff's claim to the payment of the commission in dispute and pleaded that defendant No. 2 had nominated this defendant as its agent and the payment of the commission at the stipulated rate was due to it Defendant No. 2 did not put in appearance and was proceeded against ex-parte. The conflicting pleadings of the parties gave rise to the following issues :-

1. Whether the plaintiff is a registered partnership ?

2.Whether the suit against defendant No. 1 is maintainable ?

3.Whether the suit against defendant No. 3 is not maintainable as there was no privity of contract between the parties ?

4.Whether the benefit was reserved under the agreement dated 19th April, 1971 in favor of the plaintiffs ?.

5.Whether the contract in question was unilaterally repudiated by defendant No. 1 ?

6.Whether by letters dated 3rd March. 1971 and Ann! 29. 1971 the contract: was terminated ?

7.Whether the plaintiff is entitled to commission It so, to what amount ?

8.Relief.

(3) The plaintiff and defendant No. 1 have adduced oral as well as documentary evidence. No evidence has been produced by defendant No. 3.

(4) Issue No. 1 Exhibit Public Witness 1/5 tiled by the plaintiff provides unimpeachable evidence of the registration of Madhav Trading Company on 13-2-1967 and Ramesh Chand Kabra. who signed and verified the plaint and Natwar Lal Kabra who signed and verified the replication, being among its partners. The issue is found in favor of the plaintiff.

(5) Issues 2, 4 and 7 It is shown by Exhibit D-6, the offer emanating from defendant No. 2 for the supply of the steel in question, that the plaintiff was its agent and the price quoted by this defendant included a commission of 2 per cent for that agent. This offer was accepted by the Union of India through a telegram sent to Salzgitter Stahl Gmbh Export. Dusseldorf (West Germany), on 20-3-1971 (Exhibit P6) and a copy of the communication was sent to Messrs. Madhav Trading Company in recognition of its being the agent of defendant No. 2. On 19-4-1971 the Railway Board, acting on behalf of the Union of India, forwarded six copies of the formal contract dated 19-4-1971 to the German Firm and required it to return four of them duly signed. A copy of the said letter along with a copy of the contract was dispatched lo Messrs. Madhav Trading Company. It was in August 1971 that the Railway Board informed defendant No. 2 vide its letter of 27th August, that two amendments had been made to the contract dated 19-4-1971, i.e. 'Delivery will be completed by 30-9-1971' and 'The name of the Indian Agent appearing in the clause be substituted to read as 'M/s. Metal International Corp., F Block, Connaught Place. New Delhi'.' A copy of this letter was forwarded to Madhav Trading Company and the firm was asked to note that it was no more agent against the contract and, thereforee, not authorised to exchange correspondence in respect thereof. It is plain from the aforesaid documentary evidence that defendant No. 2 had nominated the plaintiff as its agent in India for purposes of the aforesaid contract and that its de-recognition as agent of the said defendant did not take place before 27-8-1971. The defendants have led no evidence whatever to make out that defendant No. 3 performed any functions as agent of defendant No. 2 after 27-8-1971 nor it has been pointed out from the side of the defendants that services of an agent were needed for the execution of the contract in any manner subsequent to that date.

(6) As per Exhibit D-5, its letter dated 16-2-1971, defendant No. 2 informed the Railway Board that Messrs. Madhav Trading Company was authorised to negotiate on its behalf with the 1st defendant about tender enquiry S-99 of 1971 and, as already stated, it informed the 1st defendant again vide its letter of offer dated 17-2-1971 (Exhibit D6) that the plaintiff was its agent and the price demanded by it included commission at the rate of 2 per cent payable to the said agent. The plaintiff wrote a letter to the Railway Board on 19-2-1971 (Exhibit D7) that Shri Devendra Mohan Lakhotia would be attending the opening of tenders on its behalf. Devendra Mohan Lakhotia has appeared as Public Witness 3 and testified that he was present at the time of the opening of the tenders. The plaintiff informed its principal through Exhibit Public Witness /1, a letter dated 23-2-1971, that it had received copy of their offer No. 85.771 and that it was disappointing that they had not offered any firm validity but that it would do its best. Exhibit PW2/1, a letter sent by defendant No. 2 to the plaintiff informed it that the booking of 4197 tonnes of cold rolled steel sheets to Railway Board had been confirmed vide cable dated 22nd March, 1971. The Financial Adviser & Chief Accounts Officer of Integral Coach Factory, Perambur, sent a letter to the plaintiff on 25-5-1971 (Exhibit P9) with reference to its letter dated 19-5-1971 that necessary letter of credit would be arranged to be established on receipt of instructions from the Railway Board, New Delhi. The Railway Board addressed the said officer on 27-7-1971 (Exhibit P. II) on the subject of import license in respect of the contract in question and endorsed a copy of the plaintiff with a request to ensure that the shipment was effected immediately the letter of credit was opened and it was asked to intimate that there would be no delay in shipment. The Financial Adviser & Chief Accounts Officer, Integral Coach Factory, Perambur, told the plaintiff through his letter dated 5/9-8-1971 that the requisite letter of credit had been established by the State Bank of India, Madras, with a particular Bank at Dusseldorf in favor of defendant No. 2. It is evident from this evidence that the plaintiff was very much in the picture as agent of defendant No. 2 in connection with the contract dated 19-4-1971 up to 9-8-1971 and the plaintiff's counsel submits that nothing remained to be done thereafter. Only one witness, Shri Jagdish Pershad (D1W1), has appeared from the side of the defendants and its has been conceded by him that Devendra Mohan Lakhotia was present at the time of the opening of the tenders, that a copy of the contract was sent to the plaintiff because up to that time it was shown by the records to be the Indian Agent of defendant No. 2, that as per the contract 2 per cent commission was payable to the Indian Agent of defendant No. 2, that when the contract was issued by defendant No. 1 the plaintiff was shown as Indian agent, that the document returned duly signed by defendant No. 2 did contain the name of the plaintiff as the Indian agent, that as far as defendant No. 1 was concerned the formal deletion of the name of the plaintiff as Indian agent of defendant No, 2 was made in August 1971 and it was only after that amendment that they started dealing with defendant No. 3, that vide contract dated 19-4-1971 the name of the Indian agent was communicated to the Calcutta cell of the Railway Board and the Integral Coach Factory on 26-4-1971 and those quarters were informed regarding the change of agent's name through their letter dated 27-8-1971, that defendant No. 3 did not send any letter to defendant No. 1 with regard to this tender between 19-4-1971 and 27-8-1971, that shipment regarding the stores took place between 28-5-1971 and 25-9-1971, that part of the quantity must have been inspected in Germany before the shipment on 25-8-1971, that after the inspection of the stores, the only thing to be done by the seller was to pack the stores and put them on board of the ship, that all such formalities like the opening of letter of credit and accelerating the date of supply are completed before the shipment is made, that the shipment in this case was made without the letter of credit being operative and that a letter of credit was established on 4-8-1971. The learned counsel for the plaintiff has urged in this context that by the time defendant No. 3 was recognised as agent of defendant No. 2 nothing remained to be done by the Indian agent of the said defendant and it must be conceded that there is not an iota of evidence on the record that any functions of agent were performed by defendant No. 3 for defendant No. 2 before or after 27-8-1971. No controversy has been raised before me again on the point that 2 per cent of the price quoted by defendant No. 2 was to be paid to its agent by the Union of India in Indian currency on successful completion of the contract and that the said contract has been duly performed. The Union of India insisted on the appointment of an agent in India by Defendant No. 2 obviously to serve the ends of its own convenience and it has not been alleged by this defendant or by the German Firm that the plaintiff was found wanting in any respect. It has also not' been controverter at the Bar that 2 per cent of the price payable for the supplies has been withheld by the Union of India and it is payable by way of commission to the Indian agent of defendant No. 2. The conclusion is inescapable that the said amount of commission is to be paid to the plaintiff and defendant No. 3 is entitled to no part of it.

(7) It has been urged on behalf of the Union of India that there was no privity of contract between the plaintiff and this defendant and the plaintiff had no right to sue this defendant for the amount in dispute. It has, however, been established as stated above beyond doubt that under the contract between the Union of India and the 2nd defendant, 2 per cent of the price of the goods was to be retained by the Union of India for payment as commission to the Indian agent of the German Firm on the completion of the contract and that amount has, in fact, been retained by it and the contract stands already performed by the German Firm. The contract aforesaid thus reserved a benefit for the plaintiff and the amount of the commission remains with the Union of India by way of trust for the plaintiff. The general rule of law, of course, is that only one or the other party to the contract can approach the court for its enforcement, not a stranger. But there are exceptions engrafted on this rule on equitable considerations and one of them firmly recognised is that if the contract has the effect of creating a trust in favor of a third person such person may sue to have the obligation arising for his benefit fulfillled. It was held by a Division Bench of the Lahore High Court in torabaz Khan and another v. Nanak Chand and another A.I.R. 1932 Lah 566 that the principle that a person who is not a party to a contract could not take advantage of its provisions is inapplicable to India. This ruling was followed by Tapp, J. in Gauri Shankar and another v. Mangal and others A.I.R. 1933 Lah 178 who found that a beneficiary under the contract can enforce the same in spite of not being a party thereto. Their Lordships of the Privy Council observed in Mt. Dan Kuer v. Mt. Sarla Devi , a case concerning a family arrangement, that it was too late to doubt the rule which had prevailed in India that where a contract is intended to secure a benefit to a third party as a beneficiary he may sue in his own right to enforce it. In Lingam Ramaseshayya v. Myneni Ramayya and others A.I.R. 1957 AP 964(4) Vishwanatha Sastri, J., discussed in detail the previous English and Indian case law on the subject and returned the finding that a person though a stranger to the contract can sue thereon if the same creates a trust in his favor. The Supreme Court had an occasion to deal with the issue in a more recent case, M. C. Chacko v. The State Bank of Travancore : [1970]1SCR658 and observed that 'it is settled law that a person not a party to a contract cannot, subject to certain well recognised exceptions, enforce the terms of the contract : the recognised exceptions are that beneficiaries under the terms of the contract or where the contract is a part of the family arrangement may enforce the covenant'.

(8) The learned counsel for the defendants have frankly admitted that there can be no quarrel with the view of the law propounded by the authorities cited above. I would in the circumstances decide the issues in favor of the plaintiff,

(9) Issue No. 3 : There is certainly no privity of contract between the Madhav Trading Company, the plaintiff, p.nd Messrs. Metal International Corporation, defendant No. 3, but defendant No. 3 does not lay claim to the commission sued for by the plaintiff and it is. thereforee, a proper party to the proceedings undeniably. If defendant No. 3 had not been imp leaded in the suit, any decree passed in favor of the plaintiff would not have been binding on it and a positive scope left for litigation to recover the same commission being launched by the said defendant. It is, thereforee, found that impleading of defendant No. 3 was fully justified, though there was no contractual link between this firm and the plaintiff.

(10) Issue No. 5 : It is indisputable that the contract between the Union of India and the 2nd defendant was amended by the 1st defendant vide Exhibit P-13 and this was done without the plaintiff being taken into confidence by this defendant or by defendant No. 2. De-recognition of the plaintiff as agent of defendant No. 2 was thus unilateral. The issue is decided accordingly.

(11) Issue No. 6 : It was pleaded by the 1st defendant that the name of defendant No. 3 was substituted for that of the plaintiff as agent of defendant No. 2 as per advice received from the last-mentioned defendant through the German Firm's letters dated 3-3-1971 and 29-4-1971. The aforesaid letters have not, however, been proved. It cannot, thereforee, be held that the plaintiff's contract of agency was terminated through the aforesaid letters.

(12) In consequence of the findings recorded above the plaintiff's suit is decreed for recovery of the aforesaid amount against defendant No. 1. There shall, however, be no order as to costs. As against defendants 2 and 3 the suit is dismissed, but without costs.


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