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Pravudayal Agarwala Vs. Ramkumar Agarwala - Court Judgment

LegalCrystal Citation
CourtKolkata High Court
Decided On
Case NumberA.F.O.D. No. 121 of 1948
Reported inAIR1956Cal41
ActsSpecific Relief Act, 1877 - Section 21; ;Trusts Act, 1882 - Sections 88, 89 and 90; ;Contract Act, 1872 - Sections 73 and 74
AppellantPravudayal Agarwala
RespondentRamkumar Agarwala
Appellant AdvocateAtul Chandra Gupta, ;Satindra Nath Roy Chowdhury and ;Sovendra Madhab Basu, Advs.
Respondent AdvocateNaresh Chandra Sen Gupta and ;Jogesh Chandra Sinha, Advs.
Cases ReferredWilson v. United Counties Bank Ltd.
- .....required to consider the amount of damages which the plaintiff is entitled to. there had been a breach of contract for which the defendant is liable. that is the finding of the trial court which we affirm for reasons already indicated above. 20. a question has been raised as to whether damages are to be calculated on the basis that there has been a breach of contract or that the defendant had constituted himself as a trustee attracting the provisions contained in section 88, indian trusts act. 21. section 88, indian trusts act is attracted in the case of claims by one partner against another and such trust may arise either from actual fraud (as indicated in sections 89 and 90) or from constructive fraud (referred to in sections 91 to 93) as also from some equitable principle.....

R.P. Mookerje, J.

1. The plaintiff respondent filed the suit out of which this appeal arises praying for specific performance of a contract, in the alternative for declaration of title in respect of certain lands--the plaintiff and the defendants being partners, or for damages and certain other reliefs. The learned Subordinate Judge decreed the suit in part in a preliminary form holding inter alia that the plaintiff was entitled to damages which were to be determined in the manner indicated in the judgment.

2. The defendant 1 has preferred this appeal and it has been maintained that the plaintiff was not entitled to any relief. The plaintiff has also preferred a cross objection claiming a larger amount of compensation than what has been allowed.

3. Prabhudayal Agarwalla defendant 1 had been trying to 'obtain settlement from the khas Mahal department of the Government a plot of land for starting a rice mill at Alipore Duars in the district of Jalpaiguri. Other parties also entered into competition for obtaining the said plot. The plaintiff was one of those who also attempted to obtain settlement. To avoid competition among themselves an agreement was executed on 25-8-1945 between the plaintiff Ramkumar and the defendant Prabhudayal and Maidhan.

They agreed that Prabhudayal alone would submit tenders for the settlement of the plot in question and such offer will be deemed to be on behalf of all three. Prabhudayal would be merely a benamdar for three of them and they as partners were to contribute their shares ofcapital within one month from the date of the execution of the Pattah to be obtained from the Government; a regular deed of partnership for the business including the right over the land to be executed by them. Prabhudayal would have a 7 annas share and the other two would have 41/2 annas share each.

4. In pursuance of the above agreement an offer was made by Prabhudayal alone on 31-8-1945. Ultimately the Khas Mahal officer informed Prabhudayal on 14-2-1946 that settlement of the plot would be made with him at a certain annual rent and a lump sum selami. Prabhudayal was sent a copy of the order with the intimation that the lease would be liable to cancellation if the business be shared in partnership. On the 3rd April following a lease was actually executed to run for '30 years, subject to certain other terms and conditions.

One of the conditions imposed was that in the event of failure to set up the mill in a working order within six months from the date ofexecution of the lease for whatever cause it might be, the lease was liable to be cancelled without any compensation. Rs. 2050, fixed as selami was deposited by Prabhudayal. On 17-4-1946 a ceremony was held at the site for laying the foundation of the Mill.

5. On 13-5-1946 Prabhudayal wrote toRamkumar stating inter alia that it had already been intimated by the former to the latter that as the Deputy Commissioner of Jalpaiguri was against allowing a partnership business the idea of a partnership between themselves had been abandoned. Prabhudayal accordingly took steps to start the mill with his own money and as a personal business of his. A large sum of money had already been invested by him personally.

6. On the 8th June following Ramkumar wrote back denying that the agreement previously entered into had been abandoned, or, that Prabhudayal had informed the former of the objections raised about a partnership business being started. Certain letters were exchanged between the parties repeating the allegations and counter allegations. The last of the correspondence was dated 9-9-1946 and the present suit was filed on the 11th September.

7. Ramkumar alone filed the suit for the alternative reliefs already mentioned. Defendant 1 resisted the plaintiff's claim on the various grounds.

8. The plaintiff claimed not only that the agreement dated 5-8-1945 had been acted upon but certain articles had been supplied by the plaintiff for the building up of the mill. The learned Subordinate Judge on an examination of the evidence adduced before him came to the conclusion that the story set up by the Plaintiff about the supply of materials and the purchase of certain articles by him for the Mill had not been proved.

It was also held that the allegations made by defendant 1 that he had before the execution of the lease, informed Ramkumar, the plaintiff of the objections raised by the Deputy Commissioner about the starting of a partnership business as also the abandonment of the rights of the plaintiff under the agreement had not been substantiated. The business started on the disputed land by defendant 1 alone was not a partnership business and defendant 1 himself was responsible for the breach of the contract in as much as the plaintiff had not made any contribution so far as the selami for taking settlement of the land was concerned or for the construction of the Mill.

9. The written agreement was found to contain all the terms settled amongst the parties regarding the business in question. As there was no mention about the duration of the partnership the partnership envisaged was merely a partnership at will. No useful purpose could be served by specific performance of the contract in question, however objectionable the conduct of defendant 1 might have been in the matter. The defendant 1 was responsible for the breach of the contract.

The business started on the disputed land by Defendant 1 is not a partnership business. With regard to the lands in question the plaintiff has only an equitable estate in 4 1/2 anna share of it. The plaintiff is entitled to compensation for the equitable estate. The damages were to be assessed as indicated in the Judgment. A commissioner was to be appointed toascertain the amount of damages in the light of the judgment of the learned Subordinate Judge.

10. Defendant 1 Prabhudayal has appealed against the decision so far as it went against him. A memorandum of cross objection has also been filed on behalf of the plaintiff respondent directed against defendant 1 for the price of the materials alleged to have been supplied by the plaintiff and for further compensation in respect of the contract in question.

11. It is contended on behalf of the defendant appellant that the learned Subordinate Judge should have held that the plaintiff had been informed by the defendant of the termination of the contract after the receipt of the letter from the Khas Mahal and before the intimation as conveyed by the letter dated 13-5-1946.

12. We have been taken through the evidence but we are not satisfied that the defendant has been able to prove that he had sent any such intimation as alleged.

13. An alternative argument however was put forward on behalf of the defendant to the effect that from the conduct of the plaintiff it was only reasonable to conclude that the plaintiff had abandoned whatever rights or claims he had on the agreement to enter into the partnership. It is pointed out in this connection that the plaintiff did not take any steps to ascertain from the defendant as to when the lease was sanctioned by the Khas Mahal Authorities not to speak of ascertaining the terms of the lease.

Even after the sanction had been obtainedfrom the Khas Mahal the plaintiff had not beenable to show that he had taken any steps for thestarting of the mill. Reliance was placed in thisconnection -- 'Lindsay Petroleum Co. v. ProsperArmstrong Hurd' (1874) 5 PC 221 (A). Thefacts in the present case, however, are not suchas to attract the line of reasoning adopted in thatcase.

14. We have noticed already that an application for lease had been filed near about August, 1945 but the lease in question was not executed until 20-3-1946. Because of the long period during which the matter had been kept pending by the Khas Authorities it was necessary that the defendant should have given some information when the sanction was obtained. The plaintiff also had attempted to meet this latter case, but the same has not been accepted either by the trial Court or by us. After the execution of the lease the events moved very rapidly.

The foundation day ceremony by Prabhudayal alone was on 17-4-1946. On the 13th May following Prabhudayal purported to take up the position that the agreement had already been terminated and that fact had also been intimated to the plaintiff. On this question of fact also we accept the finding of the trial Court. The period which elapsed between the execution of the lease by the Khas Mahal authorities and the letter dated 13th May sent by the defendant to the plaintiff was so short that we would not bejustified in drawing a conclusion as was done in (1874) 5 PC 221 at pp. 239-240 (A).

15. The attempt which was made on behalf of the defendant to prove that there was an actual abandonment of the rights under the contract but the plaintiff has failed to prove the same.

16. Although there is no such case made in the written statement an attempt was made during the trial that Golap Chand D. W. 2 an officer of defendant 1 had on receipt of the Memorandum from the Deputy Commissioner during the absence of the defendant from Hashimara himself informed the plaintiff and defendant 2 the very next day; the defendant thereupon is alleged to have abandoned the rights and interest under the contract

On a material part of the evidence Golap Chand is contradicted by Benoy D.W. 3 who had however been brought in to corroborate the former. The learned Subordinate Judge has given sufficient reasons for refusing to accept this belated case attempted to be made by the defendant. It is likely that on such information even if it had been given by Golap the defendant would have attempted to move in the matter and examine the details and the conditions of the lease. The story of abandonment has rightly been dismissed by the learned Subordinate Judge.

17. We may at this stage consider the allegations made by the plaintiff of the actual part played by him in the starting of the mill. It is not the case of the plaintiff that he had taken any part in the foundation Day Ceremony, and the evidence adduced to prove actual participation in supply of articles for the mill are wholly insufficient to prove the allegation. In this Court only a faint attempt was made to support this case but with no better success.

18. There was a concluded contract between the parties on 25-8-1945 and the application for the lease was made thereunder. The parties had also agreed to enter into partnership to run a mill if the land were made available by the Khas Mahal Authorities. The agreement was subsisting when steps were taken by the defendant for the erection of the mill and the parties had not put an end to the same as alleged by one of them.

The plaintiff has come up with various alternative prayer and reliefs. One is for a declaration that the property described in the schedule belongs to the parties according to the shares indicated in the agreement. This prayer cannot be entertained. There was an agreement for entering into a partnership but no such sup-sequent document was created. Title in the property in suit was vested in the defendant. It was at best an asset of proposed partnership. Whether the defendant holds the land subject to the equities enforceable by the plaintiff will be considered hereafter.

19. The other alternative prayer is for directing the defendant to execute a proper deed of partnership in accordance with the deed of agreement and to perform all other acts and deeds necessary to put the partnership ona complete legal basis. Under Clause (d) of Section 21, Specific Relief Act a contract which is in its nature revocable cannot specifically be enforced. In view of the terms of the agreement the partnership even if entered into would be a partnership at will and even if such a contract were to be specifically enforced it could be terminated immediately thereafter. Moreover, as observed by Lindley on Partnerships (11th Edn., p. 582) on principles also such a contract should not be specifically enforced.

'If two persons have agreed to enter into a partnership, and one of them refuses to abide by the agreement, the remedy for the other is an action for damages, and not, excepting in the cases to be presently noticed, for specific performance. To compel an unwilling person to become a partner with another would not be conducive to the welfare of the latter, not more than to compel a man to marry a woman he did not like would be for the benefit of the lady.

Moreover, to decree specific performance of an agreement for partnership at will would be nugatory, inasmuch as it might be dissolved the moment after the decree was made; and to decree specific performance of an agreement for a partnership for a term of years would involve the Court in the superintendence of the partnership throughout the whole continuance of the term. As a rule, therefore courts will not decree specific performance of an agreement for a partnership'.

We are consequently required to consider the amount of damages which the plaintiff is entitled to. There had been a breach of contract for which the defendant is liable. That is the finding of the trial Court which we affirm for reasons already indicated above.

20. A question has been raised as to whether damages are to be calculated on the basis that there has been a breach of contract or that the defendant had constituted himself as a trustee attracting the provisions contained in Section 88, Indian Trusts Act.

21. Section 88, Indian Trusts Act is attracted in the case of claims by one partner against another and such trust may arise either from actual fraud (as indicated in Sections 89 and 90) or from constructive fraud (referred to in Sections 91 to 93) as also from some equitable principle independent of the existence of any fraud as indicated in Section 94 of that Act. In the special circumstances of the case now before us there was no subsisting partnership but an agreement to enter into a partnership.

On the parties entering into a partnership as under the agreement certain duties and responsibilities would be cast upon each. It is therefore doubtful whether in the peculiar circumstances of this case where parties were not already partners the relevant provisions of the Trusts Act would be attracted. We do not however give a final opinion on this point as in our view the case is governed as giving rise to claims on the breach of a contract.

22. The principles governing assessment of damages on the breach of a contract are now well settled. The measure of damages in a contract for sale was held to be the difference between the contract price and the market price at, the date of the breach -- 'Jamal v. Moolla Dawood Sons and Co.' AIR 1915 PC 48 (B). The date of repudiation' is to be taken as the date of the breach. The special facts and circumstances of the present case are out of the ordinary. According to the agreement the parties were to contribute towards the capital cost as also other charges. At one stage it was argued that as the plaintiff had not made any contribution towards the capital as under the Agreement he was not entitled to any benefits under the contract.

A distinction, however, is to be made between the rights and liabilities of the partners as such and an agreement between two persons to execute a partnership deed and the conditions under which the partnership is to be run being specified therein.

23. The learned Subordinate Judge has given the following direction for calculating the quantum of damages:

'For the equitable estate of the plaintiffs in plaint land the damages should be the present market price of the plaintiff's 4 annas share of the plaint land minus the costs that were incurred in taking the lease of that share. The damages of the breach for the remaining portion of the contract should be one of the years net profit of the business started by the Defendant 1 on the plaint land. The plaintiff in the circumstances of the case may claim profit of any of the years from 1948 to 1950. It may be noted here that the total amount of damages under no circumstances will exceed Rs. 25,000/-.

A commissioner is to be appointed to calculate the damages according to the direction given above. The method adopted by the learned Subordinate Judge is one which is not warranted by law nor is a practicable or a reasonable one.'

24. On behalf of the plaintiff it was contended that he was entitled to Rs. 25,000/- being the amount mentioned in the agreement as liquidated damages. As laid down in 'Bhai Parma Singh v. Firm Bhai Arjun Singh Bhajan Singh' AIR 1929 P. C. 179(C), where an agreement for sale provides that whichever party retracts from the contract will pay a certain sum as damages when the contract is broken, the other party cannot under Section 74, Indian Contract Act recover simpliciter that sum whether as penalty or liquidated damages.

He must first prove the actual damages he has suffered. It is not necessary that the Court has to come to a decision that the penalty mentioned is an unreasonable one before the Court can proceed to assess the actual amount of damages.

25. The damages are to be assessed on the basis of the natural and probable consequences of the breach within the general principles laid down in 'Hadley v. Bazendale' (1854) 9 Ex. 341 (D). The measure of damages vary according to, not only the time at which breach is brought, but the special circumstances of the particular case. Contract may be of varied types and when it is not possible to calculate accurately or in a reasonable manner the actual amount of loss incurred or even when the plaintiff has not been able to prove the actual loss incurred the plaintiff is prima facie entitled in a breach of contract to recover nominal damages.

26. In the case of a claim for damages for breach of a contract for entering into a partnership it is not contended that no damages are incurred. The question before the Court is what damages are fairly attributable to the breach as a natural result or consequence of the same. It will not be sufficient if the loss be merely a remote consequence or an accidental mischief, for , in such a case the maxim 'causa proxima non remota, spectatur will be attracted.

All that is required to be found is that the loss was 'a real loss or actual damage, and not Imerely a probable or possible one'. For the principles so enunciated reference may be made to 'Jhonston v. Braham & Campbell' (1917) 1 K. B. 586(E), and 'Salvesen and Co. v. Rederi Akti. Nordstjeran' (1905) A. C. 302(F).

27. If the partnership had been entered into in terms of the contract the plaintiff would have been bound to contribute for the partnership business and become entitled to an interest In the leasehold interest and the business itself. Moreover, the differences that have ensued and the conditions which were introduced by the khas mahal authorities make it very doubtful whether they could have continued the partnership for any length of time. The partnership even if entered into would have been a partnership at will.

28. Although we are convinced that the plaintiff has suffered damages as a direct consequence of the breach of contract by defendant 1, it is difficult to calculate the same with mathematical accuracy by instituting enquiries. The defendant 1 is liable for a breach of duty as under the agreement; in the absence of specific amount of damages, the party is to be presumed to have sustained damages which may be liquidated damages or in some cases nominal damages. The same principle as applied between principals and agents may be applied. Mayne on Damages (11th Edn., p. 587) remarks that such principles 'are in fact applicable to any other case where compensation is sought for a breach of contract, and present a summary of general theory of damages.'

29. Awarding of nominal damages does not I connote that a trifling amount is to be assessed. I Even when awarding nominal damages substantial amounts were awarded in 'Rolin v. Steward' (1854) 14 C. B. 595(G), and 'Wilson v. United Counties Bank Ltd.' (1920) A. C. 102(H).What is to be the amount of nominal damages depends on the facts of each particular case. Keeping in view the relevant facts and circumstances of this case we allow Rs. 8000/- (Rupees eight thousand only) as damages in this case. The amount mentioned in the agreement is on the face of it unreasonable and excessive.

30. The appeal and cross-objection are allowed in part and the judgment and decree of the Court below are modified. The Plaintiff's suit is decreed in part. He will be entitled to a decree for Rs. 8000/- (Rupees eight thousandonly) against the defendants. The plaintiff will also get proportionate costs in the trial Court.

31. Each party will bear the respective costs in this Court.

Renupada Mukherjee, J.

32. I agree.

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