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Union of India (Uoi) and anr. Vs. Chinoy Chablani and Co. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtKolkata High Court
Decided On
Case NumberA.F.O.O. No. 331 of 1976
Judge
Reported inAIR1982Cal365
ActsContract Act, 1872 - Section 230
AppellantUnion of India (Uoi) and anr.
RespondentChinoy Chablani and Co.
Advocates:D.K. Sen, Adv.
DispositionAppeal dismissed
Cases ReferredUmed v. Raj Singh
Excerpt:
- .....to exist as between the agent and the third party, viz., the appellants herein, so as to make the agent liable by attracting clause (3) of section 230. the learned judge of the court below has held that in order to make an agent personally liable, the first pre-requisite is that there must be a contract entered into by an agent on behalf of the principal. indeed, section 230 of the contract act is in respect of cases where the agent has entered into the contract as the contracting party visa-vis a third party. the section deals with the agent's rights and liabilities in respect of his acting as such agent. this section does not in any way deal with a contract where the principal has entered into the contract directly with a third party. in such a case the question of agency does not in.....
Judgment:

Ramendra Mohan Datta, J.

1. This is an appeal from the judgment and order of Sabyasachi Mukharji, J. dated March 15, 1976 (reported in : AIR1976Cal467 . The learned Judge allowed the application and directed the plaint to be taken off the file. The application before him was made praying for such an order, inter alia, on the ground, that the plaint did not disclose any cause of action and, alternatively for dismissing the suit on the ground that this Court had no jurisdiction to try or to entertain the suit. The petitioner in the further alternative prayed for stay of the suit.

2. The point involved in this appeal relates to the interpretation of Section 230(3) of the Contract Act, 1872. The appellant No. 1 and the Food Corporation of India, the appellant No. 2 filed the suit against the respondents who were carrying on business, inter alia, as steamer agents of one Black Sea Steamship Company of U.S.S.R. The said Steamship Company was the owner of the vessel 'S.S. SUDGA'. The plaintiff-appellant No. 2 acted on behalf of the Ministry of Agriculture, Government of India in respect of all importations of fertilizers and foodstuffs. According to the plaintiffs, on October 31, 1973 one Mineral and Metal Trading Corporation of India Ltd. had shipped for and on behalf of the Ministry of Agriculture, Union of India on board the said vessel 81956 bags of Urea and further 820 empty spare bags from the Port of Odessa in U.S.S.R. to be carried to any Port in India. A Bill of Lading was issued by the said Black Sea Steamship Company which agreed to carry the same in accordance with the terms and conditions mentioned in the said contract of carriage.

3. The said vessel had discharged at Visakhapatnam 51933 bags of urea of which certain quantities were cut and torn and certain quantities contained sweepings only from and out of the said consignment. She completed discharge of the goods in the port of Calcutta also to the extent of 28747 hags of which 3201 were cut and torn and further 50 bags contained sweepings only. The same were duly surveyed at both the ports of Visakhapatnam and Calcutta. According to the plaintiff, the loss occurred thereby was due to the negligence and wrongful acts of the carriers and the plaintiffs-appellants claimed a sum of Rs. 73,285 from the respondent who were acting asthe Steamer Agents,

4. In paragraph 10 of the plaint, the plaintiffs-appellants have pleaded:

'The said Black Sea Steamship Company appears to be the concern of U.S.S.R. and as such cannot be sued in India, In the circumstances, the defendant or its agents is liable and is sued as such.'

5. The above, in short, is the frame of the suit. In short, although the contract was entered into with the said Shipping Company which issued the bill of lading but the said document did not mention anything about the respondent Chinoy Chablani & Co, which acted as the agents in the Calcutta Port for discharging the said consignment from the said vessel as the steamer agents.

6. The defendant-respondent herein contends that the contract of carriage was entered into by and between the appellants and the Black Sea Steamship Co. which issued the bill of lading. The defendant-respondent merely acted as the steamer agent and, accordingly, it could not have been sued in any event. No privity nor any jural relationship was established by and between the plaintiffs-appellants and the defendant-respondent.

7. On behalf of the appellants, it is contended that even though the defendant-respondent did not enter into the contract, still it became liable by reason of the legal fiction created by statute as would appear from the second paragraph of Section 230 of the Contract Act whereby such a contract would be presumed to exist in a case where the principal, though disclosed, could not be sued.

8. To appreciate the argument, it would be convenient to set out Section 230 of the Contract Act which runs as follows:--

'230. In the absence of any contract to that effect, an agent cannot personally enforce contracts entered into by him on behalf of his principal, nor is he personally bound by them,Such a contract shall be presumed to exist in the following cases:--

(1) Where the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad;

(2) Where the agent does not disclose the name of his principal;

(3) Where the principal, though disclosed, cannot be sued.'

9. It is further contended that this is a case where the said Shipping Company belonged to the Soviet Government and as such it could not be sued in India. Accordingly, this case would fit in with andwould attract Clause (3) of the second paragraph of Section 230. It is further contended that whether or not such a principal could be sued in view of Section 86 of the Civil P. C. would be a matter to be gone into at the hearing of the suit but there is sufficient pleading in para. 10 of the plaint, as set out above, by virtue whereof the plaint should not be ordered to be taken off the file at such initial stage.

10. The first and the foremost question to be determined in this matter is whether in a case, where the principal has entered into the contract but the agent has not, a contract would be presumed to exist as between the agent and the third party, viz., the appellants herein, so as to make the agent liable by attracting Clause (3) of Section 230. The learned Judge of the Court below has held that in order to make an agent personally liable, the first pre-requisite is that there must be a contract entered into by an agent on behalf of the principal. Indeed, Section 230 of the Contract Act is in respect of cases where the agent has entered into the contract as the contracting party visa-vis a third party. The section deals with the agent's rights and liabilities in respect of his acting as such agent. This section does not in any way deal with a contract where the principal has entered into the contract directly with a third party. In such a case the question of agency does not in any way come up for consideration.

11. In general it is an undisputed proposition that only the parties to the contract can be made liable in case of any breach thereof and a contract can be enforced only by and against the parties thereto; but when it comes to the law of agency the position becomes different. Ordinarily the agent can neither personally enforce the contract entered into with third parties nor can he be made liable in respect thereto when he has entered into the contract on behalf of his principal as such agent. It is the principal and the principal alone who, under such circumstances, becomes the main contracting party and as such becomes liable in case of breach and also becomes entitled to sue in his personal name unless the agreement provides to the contrary,

12. Under Section 230, however, the agent under certain circumstances would become personally liable to the third party. Such liabilities have been enumerated in the second para, of the said section oh the basis of presumption that sucha contract with the agent existed. The second para, deals with the liabilities of an agent where an agent has entered into the contract and not where the principal has entered into the contract directly with the third party. The second para, does not deal with any case of enforcement of the contract by the third party where the contract has been entered into by him with the principal.

13. Clause (1) of the second para, of the said section creates no difficulty. The language creates no ambiguity. It specifically provides therein that the liability of the agent would only arise under that clause where the contract has been made by the agent. With regard to Clauses (2) and (3), however, it is not mentioned so specifically and, the same would require to be construed in relation to the whole of the section to find out their true meaning and import. In respect of Clause (2) the language thereof primarily suggests that the agent is a party to the contract with the third party inasmuch as the principal is not disclosed. Accordingly, the question of the principal entering into a contract does not arise at all. The third party in the contract knows the agent to be the principal although the agent is not so acting vis-a-vis his principal. Under such circumstances, the law presumes such an agent to be the principal contracting party and not to be an agent vis-a-vis the third party. Under such circumstances, a contract will be presumed to exist by and between the agent and the third party in which a third party would be entitled to look forward to the agent as a principal contracting party,

14. In my opinion, Clause (3) is directly linked up with Clause (2) of the second para of Section 230. It is a corollary to Clause (2) and the two clauses must be read together in the context of the whole section. Clause (3) relates to a case where the principal is disclosed in entering into the contract with the third party. The statutory presumption of a contract by legal fiction cannot be extended to cover a case where the principal has entered into the contract directly. In Clause (3) the word 'principal' has been used in relation to the agent and not otherwise. The expression 'though disclosed' must obviously have reference to the agent's act. The question of disclosure here cannot be an act of the principal if the principal has to be disclosed, He has to be disclosed by an act of the agent.

15. Chapter X of the Contract Act, 3872 containing the group of sections from 182 to 238 deals with agency and the rights and obligations of the principal and of the agent. The group of sections from. Sections 226 to 230 deals with the effect of agency on contracts with third parties. Section 226 provides that contracts entered into through an agent and obligations arising from acts done by the agent are enforceable in the same manner and would have the same legal consequences as if the contracts were made and the acts were done by the principal personally. Thus, it is clear, that a contract entered into through an agent is not enforceable against the agent but only against the principal. Under Section 231 if a person enters into a contract with an agent not knowing that he is an agent, the agent's principal may require the performance of the contract by the other contracting party and the other contracting party also has the same rights as against the principal which he would have had against the agent if the agent had been the principal. But if the principal discloses himself before the contract is completed, the other contracting party has also the right to refuse to fulfil the contract in certain circumstances.

16. Section 230 has two parts. The first part provides that an agent can neither personally enforce nor he is personally bound by contracts entered into by him on behalf of his principal unless there is a contract to the effect that the agent may personally enforce or be bound by such contracts. The second part of the section engrafts an exception to the above rule. It says that although there is no specific contract to the effect that the agent may personally enforce the contracts or be personally bound by them, yet the law will presume the existence of such a contract that the agent may personally enforce the contracts and be bound by them in the three cases mentioned therein. As observed herein-above, in order to appreciate the scope and effect of the section, the two parts of the section cannot be read disjunctively but have to be read as a whole.

17. In the first case the words 'where the contract is made by an agent for the sale or purchase of goods' are merely descriptive of the nature of the contract. The above read in the context of the entire section would read; 'a contract to the effect whereby the agent may personally enforce contracts and be personallybound by them shall be presumed in contracts entered into by tha agent on behalf of his principal where the contract is made by the agent for the sale or purchase of goods for a merchant resident abroad.' Similarly the second case read in the same manner would read; 'a contract to the effect whereby the agent may personally enforce contracts and be personally bound by them shall be presumed in contracts entered into by the agent on behalf of his principal where the agent does not disclose the name of his principal'. The third case would accordingly read : 'a contract to the effect whereby the agent may personally enforce contracts entered into by him on behalf of his principal and be bound by them shall be presumed where the principal, though disclosed, cannot be sued,'

18. It was observed by the Supreme Court in Umed v. Raj Singh reported in : [1975]1SCR918 ............'but it is equallywell settled and authorities abound in support of it -- that in order to ascertain the true intention of the legislature the court must not only look at the words used by the legislature, but also have regard to the context and the setting in which they occur.'

19. There is no question of any redundancy in the first case in the second part of Section 230 nor the maxim expressio unius exclusio alterius has any application in interpreting the three cases in the second part of Sec. 230 or any of them. Neither is there any possibility of two interpretations in the section, It may be pertinent in this context to refer to two other sections of the Contract Act, namely, Section 233 and Section 234. Section 233 provides that in cases where the agent is personally liable the party dealing with the agent may hold either the agent or the principal or both of them, liable. An option is given to the other party to the contract, Under Section 234 where the other party to the contract while entering into the contract with the agent induces the agent to act upon the belief that the principal will be only liable. He cannot afterwards hold the agent liable and again if he induces the principal to act upon the belief that only the agent will be liable he cannot afterwards hold the principal liable.

20. In my opinion, there is both principle and logic in providing for the statutory presumption of contract so as to make the agent and not the principal personally liable in respect of contractvis-a-vis the third party in respect of the three cases enumerated under the said section. The third party's rights are protected by reason of the difficulties that might be created in respect of contracts which are envisaged thereunder. The third party's rights will not suffer any loss or prejudice if the agent is personally made liable in respect of such cases. The section further provides that if the parties to the contract would so intend they can agree to make the agent personally liable even without recourse to the principal. Likewise, under such circumstances the parties can also confer on him the right to enforce such contract personally in his own name. That will depend on the terms of each contract.

21. In any event, by any stretch of imagination it could not be contended that the said Clause (3) would cover a case where the principal has entered into the contract himself and not through the agent. If the principal would enter into the contract directly with the third party there could not be any question of the principal being required to be disclosed as a principal. In such event, the agent could not possibly come into the picture at all and, as such, the agent could not be made liable by creating a legal fiction whereby a contract would be presumed to exist by and between the agent and the third party. If the agent has not done anything in the formation of the contract it is difficult to see how the agent could be made liable without his knowledge and consent by statutory fiction of such a nature. It is difficult to imagine why the legislature should think of exonerating a principal who has himself entered into the contract by foisting his contractual liability on to the agent without his knowledge and consent by means of statutory presumption that a contract existed by and between the agent and the third party simply because the principal contracting party could not be sued.

22. To my mind, to accept the appellant's contention would be disastrous for the agents who might be otherwise foisted with heavy liabilities without their knowledge and consent. If the argument advanced on behalf of the. appellant would be accepted, nobody would think of acting as a handling agent or a shipping agent or for any other, purpose inasmuch as he might be saddled with heavy liability at the sweet will of the third party. The legislature would hardly intend to foist such liability on the agenteven though he has not directly participated in the formation of the contract 23. In the case of Twycross v, Dreyfus reported in (1877) 5 Ch. D. 605 it was held that an agent could not be sued in the absence of a principal. Mr. D. K. Sen, on behalf of the appellant contends that the Indian law in this respect is different from the English common law because under Clause (3) of Section 230 a legal fiction has been created by Statute so as to make the agent liable in a case when the principal, though disclosed, cannot be sued. The language in Section 230(3) is nothing but a legal fiction and the Court has to presume liability in the manner as provided therein. The Court has to examine for what purpose the fiction is created and after ascertaining the same, the Court has to assume all facts and consequences which are incidental to the giving effect to such a fiction. Mr. Sen has referred to the Supreme Court decision in the case of State of Bombay v. Pandurang Vinayak reported in : 1953CriLJ1049 . According to Mr. Sen the Statute has gone so far as to provide for his liability even though the agent has not acted personally. He is presumed to have acted, though not acted in fact. The expression 'such a contract' in the second paragraph of the section would refer to the opening words herein, viz, 'in the absence of a contract to that effect.' That contract means a contract whereby the agent has agreed to take upon himself the liability arising out of the contract on behalf of the principal or the principal has agreed that the agent would personally enforce the contract entered into by the agent on behalf of the principal.

24. Mr. Sen has gone even to the extent of contending that by virtue of his position as an agent, wherever he might be, he can be sued by the said party even in a case where he has not been madg a party to the contract in any manner entered into by and between the principal and the third party once it is proved that such a principal cannot be sued. It is difficult to appreciate the arguments advanced by Mr. Sen, Such a construction, if made, would require the language of the Statute to be changed altogether by inserting various words into the Statute. Under such circumstances, the first and the second paragraphs could hardly be read in a harmonious manner and the exceptions engrafted in the general principle and the legal fiction and/or the presumption in Clause (3) ofthe second paragraph must necessarily give rise to an anomalous position which the legislature could not have intended to provide therein.

25. That being the position, I have no hesitation to hold that the learned Judge of the court below was quitp correct in his findings on this point. As observed hereinabove, the contract of carriage was entered into by and between the appellants and the principal, viz., the said Black Sea Steamship Company of U.S.S.R. by issuing the said bill of lading and there is no mention therein of the respondent as the agent or otherwise. Mr. Sen has referred to several decisions but in all such decisions the contracts were entered into by the agent but that is not the case here. Such cases are : B. K. Gupla v. State, : AIR1959Cal286 ; Dharmeswar Kalita v. Union of India, AIR 1955 Assam 86; Durga Prasad Manna Lal v. Cawnpore Flour Mills Co. Ltd., AIR 1929 Oudh 417. Mr. Sen has also referred to several Supreme Court decisions on the point as to how a statute has to be construed under the circumstances. Such decisions are to be found in the cases of N. T. Veluswami Thevar v. Raja Nainar, : AIR1959SC422 ; Shri Ram Ram Narain v. State of Bombay, : AIR1959SC459 , R. G. Jacob v. Republic of India; AIR 1964 SC 166, Ghanshyamdas v. Regional Assistant Commissioner, Sales Tax; : [1964]7SCR456 , V. S. Rice & Oil Mills v. State of Andh Pra; : [1973]1SCR172 , S. Narayanaswami v. G. Punnerselvam; Umed v. Raj Singh, : [1975]1SCR918 ; Maxwell on Interpretation of Statutes (12th Edition) 293 to 297; Craies on Statute Law (6th Edn.) 108.

26. In my opinion, the principles enunciated in the said decisions are well-known and it is not here to discuss the same in details.

27. Mr. Sen next contends that under Clause (3) of Section 230 the expression 'cannot be sued' should be restricted to mean 'cannot be sued in India'. It is contended that the principal being in a foreign State could not be sued except with the consent of the Central Government, as provided by Section 86 of the Civil P. C. According to Mr. Sen, whether in a case like this, the consent of the Central Government could be obtained or not could be a relevant matter for consideration at the stage of the trial of the suit herein but such a question cannot be decided at this stage and on the basis thereof the plaint cannot be ordered to be taken off the fileas ordered by the court below. The pleading as set out hereinabove is good enough to cover all possible points that might be raised at the trial of the suit. Mr. Sen has further argued that inasmuch as Clause (3) is restricted to cases in India alone, it is irrelevant for the purpose of the suit to consider whether or not the principal in this case could be sued by the appellants in U.S.S.R.

28. In my opinion, in view of our finding in respect of the first point, it is not necessary to decide this point. In any event, I am of the view that the expression 'principal......cannot be sued' doesnot bear a restricted meaning so as to confine the question to the territories in India only. The said expression has a wider amplitude and would cover cases where the principal can be sued in a foreign country as well, as is the case here. There in no pleading to that effect to suggest that the principal here could not be sued even in U.S.S.R. Furthermore, the plaintiffs-appellants herein got the opportunity to state in this application whether or not the Central Government was approached to give its consent or whether such consent could not have been obtained in any event for suing the foreign principal.

29. The result, therefore, is that the appellants cannot succeed and the appeal must be and is hereby dismissed with costs.

C.K. Banerji, J.

30. I agree.


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