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Prasanna Kumar Mookerjee Vs. Burn and Co. Ld. - Court Judgment

LegalCrystal Citation
Decided On
Reported in7Ind.Cas.270
AppellantPrasanna Kumar Mookerjee
RespondentBurn and Co. Ld.
Cases ReferredAngus v. Chifford
principal and agent - suit far accounts--suit for surcharging and falsifying accounts--reliefs in two classes of suit--fraud--errors--inconsistent pleas--amendment of plaint--account stated, whether balancing of an account is--money in agent's hands for specific purpose--burden of proof. - 1. the litigation, which has resulted in this appeal, was commenced by the respondent company against the defendant-appellant for accounts. the trial of the suit extended over many days in the original court, and the present appeal, which has been preferred against the preliminary decree, has been elaborately argued on both sides. the real merits of the case are, however, comprised in a very narrow compass, and the precise rights and liabilities of the contesting parties are, by no means, difficult to determine. the fact that the contest has been so keen and prolonged, is due to the circumstance that the plaint was not very artistically framed, and questions have been argued both here and in the court below, which do not properly arise for consideration at the preliminary stage. before we.....

1. The litigation, which has resulted in this appeal, was commenced by the respondent company against the defendant-appellant for accounts. The trial of the suit extended over many days in the original Court, and the present appeal, which has been preferred against the preliminary decree, has been elaborately argued on both sides. The real merits of the case are, however, comprised in a very narrow compass, and the precise rights and liabilities of the contesting parties are, by no means, difficult to determine. The fact that the contest has been so keen and prolonged, is due to the circumstance that the plaint was not very artistically framed, and questions have been argued both here and in the Court below, which do not properly arise for consideration at the preliminary stage. Before we deal, however, with the argument addressed to us in respect of the subject-matter of the controversy, it is desirable to give an outline of the facts and events which, in our opinion, are established beyond the possibility of doubt upon the evidence.

2. The plaintiffs are a joint stock company incorporated under the Indian Companys Act of 1882, and carry on business as contractors, manufacturers and merchants, at amongst other places, Howrah and Calcutta. From about 1870, the defendant has been in the service of the company, and has occupied positions of trust and responsibility; latterly he has been their Head Shipping Clerk. In this capacity he used to receive all goods which came to Calcutta and Howrah in ships for the plaintiff company, to land them at their premises and to pay all shipping charges, as also freight, duty and other incidental charges in respect of the goods. In the service of the company there were two Sircars, by name Narain Chandra Dey and Provash Chandra Banerji, who were employed to clear goods from the jetty and the docks, to take delivery orders in respect of bills of lading from steamer agents, to pay the freights at the offices of the latter and to pay the customs duties. When a particular consignment had to be cleared, one Hurry Charan Banerjee used to prepare what is called the challan from the invoice, and, it appears from the evidence, he used to fill up the columns in which the amount of duty leviable had to be entered. Hurry Charan then made over the challan to one or other of the Sircars, who usually made it over to one of the superior members of the staff, Mr. Dunn, for signature. In the absence of Mr. Dunn, the challan was signed by the defendant. The Sircar then received the money from either the defendant or from Mr. Dunn to enable him to make the necessary payments on account of customs-duty. It is abundantly clear that according to the usage which prevailed in the establishment, a larger sum was put into the hands of the Sircars than what had been calculated as the probable amount leviable on account of customs-duty. This circumstance is sought to be explained on the ground that, in the event of alarger demand made by the customs authorities, there might be delay in the delivery of the goods if the Sircars had not funds at their disposal to meet excess demands. It appears to have been taken for granted that, as the goods imported were of various classes and subject to different rates of customs-duty, the estimate, made in advance of the amount of duty payable might prove incorrect, and there might not inconceivably be a demand for a larger sum by the customs authorities. The Sircars, thus trusted with the money, were supposed to make the necessary payments, bring back to the defendant receipts for the sums actually disbursed, and refund to him the balance of the money in their hands. The defendant kept his accounts of these transactions in books, two of which have been put in, and marked as Exhibits (Exs. 14 and 15). These books are described on the face of them as the account books of the defendant, and they contain numerous entries, generally from day to day, of sums drawn by the defendant from the plaintiff company and disbursed by him in the payment of customs duties leviable in respect of imported goods. The entries in these books were not, so far as we can judge, from the evidence on the record, made from day to day, but they were substantially contemporaneous with the transactions; and generally at the end of every month the defendant submitted his account book to one of the superior European Assistants of the firm, who compared the entries with the receipts and thus checked their accuracy. It is doubtful to what extent this scrutiny of the monthly accounts extended, and it is fairly clear that some, at any rate, of the officers, who checked the entries, regarded the work as a mere matter of form. The business appears to have been conducted in this manner for many years, till, in fact, the end of the year 1905, when a discovery was made, precisely upon what information or by what method is not clear, and facts were brought to light, which led to the institution of criminal proceedings by the company against the defendant; these were speedily abandoned and were followed by the present suit. The fact, which was brought to light on the occasion, was of the simplest character, namely, that the receipts granted by the customs authorities for payment made to them on account of duty, had been fraudulently altered so as to make a difference of Rs. 300 in every case. The matter is best illustrated by a concrete example. For instance, if we take a customs receipt, dated the 5th August, 1905, as it stands at present in its altered condition, it runs as follows:

Received from Burn & Co., the sum of Rupees four hundred twenty-nine and annas two only (Rs. 429-2-0).

3. This is signed by the Customs House Officer to whom the payment was made. The receipt bears on it a pencil endorsement to the following effect.

S.S. Bavaria Rs. 429-2-0

4. A careful examination of the body of the receipt shows that what appears as the word 'four' was originally the word one, 'f' has been written before the 'o' the 'n' has been turned into 'u' and an 'r' has been added after it. When we come to examine the figures which indicate the amount, it becomes obvious also that the figure '4' was originally '1' which has been altered, as it could be altered without any difficulty, into '4'. An enquiry in the customs office disclosed the fact that the amount which had been actually paid in by the Sircar was Rs.129-2-0 only. The inference was, therefore, irresistible that the entry, made in the account book of the defendant, that Rs. 429-2-0 had been paid on account of duty of goods imported by S.S. 'Bavaria,' was incorrect. The company thereupon instituted a more comprehensive enquiry, and discovered from an examination of the receipts in their possession that in about one hundred and twenty instances the receipts had been fraudulently altered; in every instance the word One' had been changed into the word 'four,' and the figure ''1' had been changed into the figure '4.' The company thereupon commenced the prosecution of the defendant, and as soon as he was apprised of the action taken, ho, in his turn, began the prosecution of the Sircar Narain Chandra Dey. Narain, however, committed suicide, and so escaped trial. The plaintiffs company were then advised to abandon the criminal proceeding against the defendant, and on the 10th January, 1907, they instituted the present suit for accounts. Their allegation in the plaint, as originally framed, was substantially that the defendant, possibly in collusion and concert with the Sircar, had defrauded the company of large sums of money, and they prayed that an account might be taken of the receipts and disbursements by the defendant, and of his dealings with the moneys drawn and received by him from time to time. The case, therefore, as made in the plaint, was founded on the assumption that the defendant had never rendered any accounts, that his accounts should now be taken, and that he should be compelled to make good the sums which he had misappropriated. On the 31st July, 1908, the plaint was, however, amended by the insertion of the following in the prayer Clause (a):

That if necessary, the defendant's accounts may be opened, and the plaintiff company may have liberty to surcharge and falsify the same.

5. This amendment obviously proceeded on the assumption that accounts had been rendered by the defendant, but, as they were vitiated by fraud, the plaintiff company were entitled to re open them, and to surcharge and falsify. It may be remarked here that in the sixth paragraph of the plaint, it was specifically stated that, in the course of the four years from 1902 to 1905, the defendant had falsely and fraudulently showed in his account books that he had paid large sums on account of customs duty, and that he had debited the plaintiff company therewith; the difference between the sum actually paid and the sum shown as paid, in each case, amounted to Rs. 300 and aggregated about Rs. 25,000 if all the suspected instances were established to be true. No specific entry, however, was mentioned as fraudulent, and we may add that no claim was made for damages on account of the negligence of the defendant. The defence of the defendant consisted of a denial of every important allegation in the plaint. The defendant denied that he had improperly applied any of the funds of the plaintiff company and that he had any responsibility in respect of any of the alleged transactions and he maintained that the Sircars were the servants of the company, that he had no control over them, and that he could not be held liable even if it were established that they had fraudulently misappropriated the sums placed at their disposal by him. He, in substance, tried to shift the responsibility upon the superior European staff of the company; he asserted that, if he made any payments, he did so as a matter of form, and had no responsibility, as it was no part of his duty to satisfy himself that the Sircars actually applied the money entrusted to them for the appropriate purpose. Upon these pleadings, four issues were raised, at first, to which subsequently a fifth was added. The first of these issues related to the frame of the suit, and does not require serious consideration, as it has not been alleged before us that the suit is defective on account of non-joinder of parties. The second raised the question whether the defendant had already rendered an account to his immediate superior officer for the time being. This issue obviously arose upon the allegation in the plaint, as originally framed, that the defendant had never rendered any account, and was, consequently, apart from questions of fraud and misappropriation, liable to render one. The third issue raised the question of the scope of the duty of the defendant as an officer of the company, of his liability to account for sums which might have passed through his hands, and of the relation in which he stood to the Sircars. The fourth issue raised the question of misappropriation by the defendant of the funds of the company in his hands. The fifth issue, which was subsequently added, was in more comprehensive terms than the fourth, which it practically embraced, and raised the question whether the defendant had falsely and fraudulently shown in his accounts larger sums than those actually paid for customs duty, it further raised generally the question whether there were other false and fraudulent entries in the account. The learned Subordinate Judge, in a careful and exhaustive judgment, has discussed these questions, and made a preliminary decree which directs the opening of the accounts of the defendant up to November 1905, and gives the company liberty to surcharge and falsify the accounts, which are to be re-taken from 1902 to 8th January, 1906, the date on which the agency of the defendant terminated. The Subordinate Judge has found generally that there was conspiracy between the defendant and Sircars:--that the defendant in the monthly accounts, which he had passed by his immediate superior officer, made entries of disbursements in many instances in excess of the sums actually paid and that these entries were supported by receipts from the customs authorities which were fraudulently altered in the manner described, after they had been obtained in due course. The Subordinate Judge has also discussed the question of the precise position of the defendant as an officer of the company, and has overruled his contention that it was no part of his duty to satisfy himself that the sum entrusted by him to the Sircars had been actually expended for the proper purpose. The defendant has now appealed to this Court, and on his behalf the decision of the Subordinate Judge has been severely criticised and assailed on four grounds, namely, first, that the suit has not been properly framed, as it was originally framed as a suit for accounts on the assumption that no accounts had ever been rendered, and subsequently at a late stage and in spite of the protest of the defendant, converted into a suit to re-open a settled account on the ground of fraud, secondly, that the Subordinate Judge has made a new case for the plaintiff company, and has based his decree principally on the ground that it was the duty of the defendant to see to the application of the money which passed through his hands, and that the plaintiff company had suffered damage from the neglect of the defendant to discharge this duty properly; thirdly, that even if the suit be treated as one properly framed to re-open a settled account on the ground of fraud, inasmuch as no fraudulent entry was mentioned in the plaint and none has been proved in the evidence, even if any error has been established, it does not justify an order, the effect of which is to re-open the accounts for the four years immediately antecedent to the termination of the agency; and fourthly, that in the suit as framed, the plaintiff cannot succeed unless the whole case alleged in the plaint is proved, and that in substance the Subordinate Judge has condemned the conduct of the defendant as fraudulent, and directed the accounts to be re-opened upon a consideration of a few entries only, when no evidence has been adduced in respect of numerous other entries vaguely alleged to be fraudulent. These points thus taken, when analysed, may be reduced to two, namely, first, what is the scope of the suit as framed, and secondly, to what relief, if any, are the plaintiffs entitled upon the allegations contained in the plaint.

6. In so far as the first of these points, upon which elaborate arguments have been addresser to us on both sides, is concerned, there can, in our opinion, be no doubt that considerable confusion has arisen from the mode in which the plaint was framed and the proceedings were conducted in the Court below. The plaint, as originally drawn up, was proper to a suit by a principal against an agent for accounts, on the assumption that no account had ever been rendered. In a suit so framed, allegations of fraud and misappropriation are superfluous. Whether the conduct of the agent has been thoroughly honest or wholly fraudulent, if no accounts have been rendered, the principal is entitled to have accounts taken. If, on the other hand, accounts have been already rendered and they are sought to be re-opened or leave is asked to surcharge and falsify them, allegations of fraud and misappropriation obviously become material. In the case before us, when the defendant alleged in his written statement that he had rendered accounts in due course to his superior officers in the establishment, the company found themselves in a difficulty. They realised that, if this allegation was established, the suit was bound to fail, and they consequently obtained an order, on the 31st July, 1908, after the case had been opened, for amendment of the plaint. The learned Subordinate Judge overruled the contention of the defendant that the amendment ought not to be allowed, as the result would be to convert a suit of one character into a Suit of a different and inconsistent character. We are not wholly prepared to accept this view as well-founded. A suit by a principal for accounts on the allegation that the defendant, his agent, has not rendered any account, has manifestly an entirely different scope from that of a suit in which a principal alleges that the defendant, his agent, has rendered accounts, but prays to have them re-opened or to have liberty to surcharge and falsify them on the ground of fraud or material error. In the first class of cases, if it is established that the defendant is the agent of the plaintiff and has not rendered accounts, a preliminary decree must follow as a matter of course. In the second class of cases, if the plaintiff seeks to re-open settled accounts on the ground of fraud such fraud must be specifically alleged in the plaint and proved in the evidence. If, on the other hand, he seeks merely to surcharge or falsify the accounts, the particular grounds upon which he seeks such relief, must be specially stated and some substantial errors pointed out so as to enable the defendant to controvert the charges and allow the Court to judge whether the plaintiff ought to be allowed to surcharge and falsify. If any authority were needed to support this proposition, reference might be made to the cases of Drew v. Power (1803) 1 Sch. & Lef 182, Parkinson v. Hanbury (1867) L.R. 2 H.L. 1 : 36 L.J. Ch. 292 : 16 L.T. 243 : 15 W.R. 642 ; Whyte v. Ahrens (1884) 26 Ch. D. 717 at p. 723 : 54 L.J. Ch. 145 : 50 L.T. 344 : 32 W.R. 649 and Mohesh Chunder v. Radha Kishen Bhattacharjee 6 C.L.J. 580 : 12 C.W.N. 28. In the first of these cases, Lord Rodesdale observes that where an account has been settled, the Court will not open it unless the whole transaction appears fraudulent upon evidence founded on a Bill, charging such fraud and specifying the errors. In the second case, Lord Chelins-ford observes that where a party seeks to open asettled account, there must be some direct, distinct and specific averment of errors to entitle the party to open the account. No doubt, as was pointed out by this Court in the case of Alikjan Bibi v. Rambaran Shah 7 Ind. Cas. 166 and by Lord Justice Lindley in Owen v. Morgan (1887) 35 Ch.D. 492 at p. 499, a plaintiff may put forward inconsistent claims; he may rely upon one set of facts if he can succeed in proving them, and may rely upon another set of facts if he can succeed in proving them; but as observed by Thesiger, C.J., in Davy v. Garrett (1878) 7 Ch.D. 473 at p. 487 : 47 L. J.Ch. 218 : 38 L.T. 77 : 36 W.R. 225, if alternative cases are alleged in this manner the facts ought not to be mixed up, leaving the other party to pick out the facts applicable to each case; but facts ought to be distinctly stated, so as to show on what facts each alternative of the relief sought is founded; [see Wilde v. Gibson (1848) 1 H.L.C. 605 at p. 626 : 12 Jur. 527; Hickson v. Lombard (1866) L.R. 1 H.L. 324 at p. 336; Guthrie v. Abool Mozuffer 14 M.I.A. 53 at p. 66]. Even if therefor it be conceded that, as ruled in the cases of Cross v. Sacraments (1885) 66 Cal. 462 : 6 Pac. 94, Costin v. Baxter (1849) 41 N.C. 197, and Lamb v. Trogden (1838) 22 N.C. 190, the plaintiffs might be allowed to amend the plaint and to put forward two inconsistent cases, namely, first, that the defendant had never-rendered accounts, and, therefore, should be called upon to render them and, secondly, that the defendant had rendered accounts but that they ought to be re-opened on the ground of fraud or the plaintiffs should be given liberty to surcharge and falsify them because vitiated by overcharges and material errors, the plaint ought to have been further amended so as to make it appropriate to a suit to re-open settled accounts [Dawson v. Dawson (1737) 1 Atk. 1]. In our opinion, there is considerable force in the argument of the appellant that the proceedings in the Court below in this respect were not regularly conducted but we are not prepared to accede to his further contention that he has been substantially prejudiced thereby. In so far as the first alternative prayer is concerned, namely, the prayer for accounts on the ground that no accounts have been rendered, it is manifest from the evidence that the plaintiff company cannot succeed, except in respect of the brief period for which the defendant admits that he has not rendered any accounts, that is December, 1905, and January, 1908. The evidence proves beyond all disputes that the accounts of the defendant were month by month submitted to his superior officers, they were examined, and the entries were checked by reference to the Customs House receipts. No doubt, it is well, settled that the mere balancing of an account in a book of accounts, does not, of itself, constitute an account stated [Clancarty v. Latouche (1810) 1 Ball & B. 429]. But here matters have proceeded further, the defendant and his superior officer met month by month and went over the accounts, the balance was struck and was accepted as correct, in fact it was subsequently transferred to the shipping cash book of the plaintiffs, and thereafter to the ledger; consequently it cannot be disputed that the defendant has rendered accounts, and to all intents and purposes there is account stated between the parties. In so far, therefore, as the company seek to make the defendant liable to render accounts on the footing that no accounts have been rendered at any time, the claim is clearly unsustainable, so that the alternative claim to re-open the settled account requires careful consideration. Here the grievance of the defendant is that the plaint contained merely general allegation of fraud and misappropriation and no details were given of any specific items impeached. It must be conceded that the plaint is, to this extent, defective. Indeed the position of the defendant would have been stronger if, when the plaintiff company asked for leave to amend the plaint, he had invited them to set out the details upon which the alternative claim to re-open the account was sought to be founded. But although the plaint may have been defective, it does not follow that the suit should fail on that ground alone. In matters like these a distinction should obviously be made between form and substance. A mass of evidence has been adduced on both sides, and there has been considerable discussion and minute scrutiny of several items in the accounts. In so far as these particular entries are concerned, the defendant cannot possibly maintain that he was not afforded the fullest opportunity to meet the allegations of the company. ,. If, therefore, upon the materials before us, the respective rights and liabilities of the parties may be substantially determined, it would be futile to set aside the whole of the proceedings in the Court below, to grant leave to the plaintiffs to amend the plaint so as to make it appropriate to a suit to re-open settled accounts and thus to compel the parties to repeat the process they have already followed. We must consequently proceed to determine what relief may be awarded to the plaintiff upon the materials placed before us.

7. Now, upon the evidence, we may state at once, it is clear that there are errors and overcharges in the accounts submitted by the defendant and passed by his superior officers. The defendant does not deny--in fact, the criminal prosecution, which he commenced against Narain, was based on the assumption--that there are entries in his account-books of sums paid out of the funds of the company on account of customs duty, which are in excess of the sums actually levied in that behalf by the customs authorities; that this has happened in at least four instances, has been conclusively proved, while the case for the plaintiff company is, that in the course of the four years which immediately preceded the termination of the agency of the defendant, there were about one hundred and twenty instances in which this took place. There is also one instance at least, in which the money paid by the Calcutta Head Office to one of the Sircars upon the requisition of the defendant has not been credited in her accounts. This has been described in the proceedings before us as the 'cheque incident.' It appears that on the 11th July, 1905, a chattan was drawn up in usual course, and on the 18th July, the defendant made a requisition for a cheque to pay the amount due thereunder. The original of the requisition cannot be traced on the record. It appears to have been contained in a small slip of country paper, and though it was produced and marked as an exhibit in the Court below, it seems to have disappeared when the record was transmitted from the lower Court to this Court. There cannot, however, be any dispute upon the evidence that such a requisition was made; a cheque was issued on that very date, and it was presented to the customs authorities, two days later, on the 20th July, 1905. In the account-book of the defendant, the amount of this cheque, Rs. 102-12-0 is nowhere shown as received while there is an entry of a sum of Rs. 402-12-0 which purports to have been paid out to the Sircar in respect of the very challan. The net result of this transaction was, therefore, that in the account-book of the defendant, the amount of the cheque was not credited and, on the other hand, on the expenditure side an entry was made of Rs. 402-12-0, that is, Rs. 300 in excess of the amount actually levied by the customs authorities on account of that Challan. Consequently upon this one transactions the plaintiff company lost to the extent of the amount of the cheque Rs. 102-12-0 and Rs. 300 in addition. Apart from the question whether the entry was fraudulent or not, we are clearly of opinion that the plaintiffs are entitled to surcharge and falsify the accounts which disclose a grave error of this description. It has, indeed, been strenuously contended by the learned Vakil for the defendant-appellant that the duty of his client was merely to make over the money to the Sircars, and that it was no concern of his to ascertain whether the money had actually been applied for the purpose for which it was taken by them. This position is, in our opinion, entirely unsustainable and is completely negatived by the account-books of the defendant himself. The entries in these, which we have carefully examined, show that the defendant professed to have spent the sums drawn out by him from the funds of the company, not for payment to the Sircars, but for payment of customs duty. It is an elementary principle that, when an agent has been entrusted with the money of his principal to be expended for a specific purpose, he may be required to account on equitable grounds and that, upon such accountings, the burden is upon him to show that his trust duties have been performed and the manner of their performance [Makepeace v. Rogers (1865) 11 Jur. (N.S.) 215 at p. 314 : 4 De. G.J. & S. 649 : 34 L.J.Ch. 396 : 12 L.T. 221 : 13 W.R. 566]. For this purpose, it is the duty of the agent, where his agency is of such a nature as to require it, to keep true, regular and accurate accounts of all his transactions as agent, both of receipts and disbursements, and to be ready to render to his principal a full and complete statement of his dealings and of the state of the account between them, supported by proper vouchers. If, therefore, the agent fails to apply the fund raised by him to the purpose for the performance of which they were placed in his hands, the principal may recover the sum [Stainton v. Carron 24 Beav. 346 : 27 L.J.Ch. 89 : 3 Jur. (N.S.) 1235 : on appeal 30 L.J. Ch. 713 : 7 Jur. (N.S.) 645 : 4 L.T. 659]. In the present case, the very circumstance, amply established by the evidence, that the defendant used, from month to month, to submit his accounts supported by the Customs House receipts to his superior officer, shows conclusively that it was his duty, not merely to make over the sums payable to the Sircars, but also to satisfy himself that they were actually applied for the purpose for which they were taken. If this, then, was the true position, what are the precise rights and liabilities of the parties The defendant has submitted his monthly accounts, which, it has now been discovered, contain entries that, even in the most favourable view we can take of his case, must be treated as erroneous, because clearly in the nature of overcharges. The plaintiffs, therefore, are entitled to surcharge and falsify the accounts. If any authority is needed for such an elementary proposition, it is sufficient to refer to the case of Williamson v. Barbour (1877) 9 Ch. D. 529 : 50 L.J. Ch. 147 : 37 L.T. 698 [see also Rothschild v. Brookman 5 Bligh (N.S.) 165 : 2 Dow. & Cl. 188 : 30 R.R. 147 : 3 Sim. 153 : 7 L.J. Ch. 143; Broadbent v. Barlow 3 DeG. F. & J. 570 : 30 L.J. Ch. 569 : 7 Jur. (N.S.) 479 : 4 L.T. 193; Beaumont v. Boultbee 7 Ves. 599 : 5 Ves. 485; Daniell v. Sinclair (1881) 6 App. C. 181 : 50 L.J.P.C. 50 : 44 L.T. 257 : 29 W.R. 569]. In the first of these cases, it is pointed out that, if there are errors in the account of sufficient number and sufficient magnitude, it is not necessary that the errors shown should amount to fraud; if they are sufficient in number and importance, whether they were caused by mistake or caused by fraud, the Court has a right to open the accounts. The position of the principal becomes stronger when, as here, the parties stand in a confidential relation, because in a case of this description, the Court will much more freely interfere than where such conditions do not exist, and will open accounts upon much slighter grounds. There can, therefore, be no doubt whatsoever that the plaintiff company should be allowed to surcharge and falsify the accounts with reference to the cheque and the Customs House receipts already proved and exhibited in the case. Although the large majority of these receipts and the transactions to which they refer have not yet been minutely scrutinised, there is, in our opinion, sufficient ground for suspicion that the errors or mistakes were not accidental, and they certainly justify enquiry and require explanation. In this view, it is not very material to consider whether the plaintiffs have liberty to re-open the whole account, because in the Court below, as also here, stress has been laid principally upon the particular items covered by the cheque and the receipts mentioned. Upon the materials on the record, we may add, however, that we are not prepared to hold that the whole accounts should be reopened. It is well-known that the power to re-open accounts that have been settled, specially to the extent of requiring a general accounting, must be exercised with caution and with due regard to the security of business transactions between parties who were sui juris and dealt with each other at arms' length [Gething v. Keighley (1878) 9 Ch. D. 547 : 48 L.J. Ch. 45 : 27 W.R. 283]. No doubt, if fraud is established, accounts will be re-opened without hesitation. In the case before us, however, the plaintiffs have given evidence of a general character only, and have not adduced specific evidence with regard to a sufficient number of entries to enable the Court to pronounce definitely that the whole series of entries was part of a fraudulent scheme, ingeniously devised and successfully carried out for a number of years, mainly by reason of the strange laxity of management and want of supervision on the part of the plaintiffs company. In fact, if we were to direct that the accounts be re-opened on the ground that the entries were fraudulent, we would have to prejudge the whole case, and this is, in substance, the weak point in the judgment of the learned Subordinate Judge. In so far as he has given directions that the plaintiffs should be at liberty to surcharge and falsify the accounts of the defendant from 1902 to November 1905, his decision, in our opinion, cannot be successfully challenged. But in so far as he has given a direction to re-open the accounts generally, his order cannot be supported. To entitle the plaintiffs to any such order, they ought to have, in the Court below, gone into the charges in much fuller detail than they have done. In this Court, indeed, one of the learned counsel for the respondents company addressed to us a weighty argument upon selected items in the accounts specially some in the accounts of February, March and September 1905 and invited our attention to what must be regarded, if unexplained, as circumstances of grave suspicion, for instance, number of over-charges in comparison with correct entries, excess of expenditure over the cash in the hands of the defendant, failure to test the accounts of the Sircars by reference to the chalan book and other like circumstances. But the defendant had no opportunity in the Court below to meet these and similar criticisms; it would not be right, therefore, to direct a general re-opening of the accounts on the ground of fraud especially as there is no suggestion of any erroneous entries besides those covered by the forged receipts. The learned Subordinate Judge should not also have given a vague direction that a Commissioner should be appointed for examination of the accounts of the defendant, and for other purposes stated in connection with the consideration of the fourth issue; an indefinite Commission of this character is likely to lead to considerable disputes in subsequent stages of the case; this part of the order, therefore, must be valied.

8. The real difficulty in the case will arise, when the Commissioner completes his investigations into the items of the account which the plaintiffs company seeks to surcharge and falsify. Let us assume that it is established upon the evidence that the Customs House receipts in question have been altered and that the sums actually paid to the customs authorities on account of duty were less in these instances than the sums entered in the account-books of the defendant as paid for that purpose. 'What is the precise measure of the liability of the defendant? One of three contingencies is possible; first, the defendant might have honestly paid these sums to the Sircars who misappropriated them in spite of reasonable diligence on his part or because he failed to exercise such control as might be expected of an average prudent manager; secondly, he might never have paid the excess sums to the Sircars, but misappropriated them, himself, which would be fraud on his part and breach of faith towards his employers; or, thirdly, he might have paid these sums to the Sircars, and subsequently divided the spoil with them, which would be clearly conspiracy to defraud the company. The case for the plaintiffs company is that the defendant conspired with the Sircars, and misappropriated, in collusion with them the excess amounts; if this is established there can be no question of his liability to refund the sums appropriated. The determination of the true nature of these transactions may, however, be a matter of some difficulty, as no direct evidence is likely to be available of the alleged fraud which must be a matter of inference from the surrounding circumstances. For this purpose, the Court must have regard to all the circumstances under which an individual payment is alleged to have been made and determine whether it is likely that the defendant did pay out the money in full and was imposed upon by the Sircars who misappropriated the money without any suspicion on his part as to their dishonest conduct, or whether it is more likely that the defendant himself was a participator in this elaborate scheme to defraud the company. This question has to be answered in respect of each item, though it is conceivable that if fraud is established in numerous instances, the inference may be almost irresistible as regards the remainder that a similar view must be adopted as to their true character. In the solution of this matter, material elements will obviously be the number of such fraudulent transactions in the course of any selected period, the number of transactions as to the genuineness of which there is no question during the same period, as also the manner in which the business of the establishment was conducted in this particular. The burden of proof is, in the first instance, upon the company to show what funds were placed at the disposal of the defendant; the onus is then shifted upon the defendant as agent to account for the property proved to have been received by him, and he does not discharge this burden merely by the production of receipts which are shown to have been fraudulently altered. If it is conclusively shown, as we have no doubt in many instances it will be shown, that the sums entered in the account-books of the defendant as spent in the payment of customs duties, have not been actually applied for the purpose, the burden will lie upon the defendant to show how he escapes liability. The surrounding circumstances may point to the conclusion that his conduct has been fraudulent. In that view, no question arises that he is liable. On the other hand, if fraud is not established, and he is shown to have acted honestly, the question arises how far does his liability extend? In the suit as framed he cannot be held liable. o doubt, if the suit had been framed as one for damages for negligence, the test to be applied would have been whether he had exercised reasonable skill and ordinary diligence? The question would then have arisen, had ho shown that capacity in the discharge of his duties and had he exercised that degree of diligence which persons of common prudence are accustomed to use about their own business affairs? If he had used reasonable skill and diligence, he could not be made liable, because an agent cannot ordinarily be deemed an insurer for any loss which could not have been prevented by the exercise of reasonable skill and diligence [Common Wealth v. Weber (1905) A.C. 66 : 74 L.J.P.C. 25 : 91 L.T. 813 : 53 W.R. 337 : 10 Asp. M.C. 27 : 21 T.L.R. 149]. The paramount and vital principle of all agencies is good faith and loyalty to the principal, which is the only question raised in the suit as framed. If the defendant establishes this, he cannot be held liable. In this connection we may add that it was argued by the learned Vakil for the defendant-appellant that the plaintiffs company cannot be allowed to join in an action for accounts, a claim to recover damages for negligence. This is a perfectly sound position [Great Western Insurance Co. v. Cunliffe (1874) L.R. 9 Ch. App. 525 at p. 538 : 43 L.J.Ch. 741 : 30 L.T. 681], but the answer is that the plaintiffs company do not seek any such relief--their claim is founded on fraud and fraud alone, they do not seek damages for any alleged negligent act of the defendant. If it is established that there are errors in the account of the defendant, that entries have been made therein fraudulently for sums in excess of what has been actually paid to the customs authorities, he has obviously to account for the difference. He may escape liability by proof that he has been himself thoroughly honest, and that, inspite of his skill and diligence, the Sircars were able to perpetuate a fraud. It is from this point of view only that the question of negligence is raised incidentally by the defendant. The question was also argued before us, whether gross negligence might not amount to fraud, and reference was made to the oases of Rance's Case (1870) L.R. 6 Ch. App. 104 : 40 L.J. Ch. 277 : 23 L.T.828 : 19 W.R. 291; In re Denham and Co. (1883) 25 Ch. D. 752 : 50 L.T. 523 : 32 W.R. 487; Western Bank v. Addie (1867) L.R. 1 H.L. (Sc.) 145; Derry v. Peek (1889) 14 App. Cas. 337 at p. 368 : 58 L.J. Ch. 864 : 61 L.T. 265 : 38 W.R. 33 : 54 J.P. 148 : 1 Meg. 292; Angus v. Clifford (1891) 2 Ch. 449 : 60 L.J. Ch. 413 : 65 L.T. 274 : 39 W.R. 498; LeLievre v. Gould (1893) 1 Q.B. 491 at p. 500 : 62 L.J.Q.B. 353 : 4 R. 274 : 68 L.T. 626 : 41 W.R. 468 : 57 J. P. 484 and Dovey v. Cory (1901) A.C. 477 : 70 L.J. Ch. 753 : 85 L.T. 257 : 85 W.R. 65. In the view we take of the matter, it is not necessary for us to discuss this question at any length; but we may indicate our opinion that it is an inaccurate use of language to say that gross negligence is fraud; it is no more evidence of fraud than gross carelessness is evidence of design [Angus v. Chifford (1891) 2 Ch. 449 : 60 L.J. Ch. 413 : 65 L.T. 274 : 39 W.R. 498]. An agent may be liable because he has acted negligently or he may be liable because he has acted fraudulently. The line of demarcation may, in some instances, be very fine and by no means easy to draw but there can be no room for discussion, though loose expressions are to be found in the books, that negligence and fraud must be placed in two distinct categories; in the present case, we are concerned with the latter alone.

9. The result, therefore, is that this appeal must be in part allowed and the order of the Subordinate Judge varied. The preliminary decree will direct that the defendant do render accounts for December 1905 and the first eight days of January 1906, and that for the antecedent period, the plaintiffs company be at liberty to surcharge and falsify the accounts of the defendants with reference to the cheque mentioned and the Customs House receipts produced and exhibited in the suit: that a Commissioner be appointed for this purpose; that he do take the account for the period mentioned, and also examine each item of the account challenged by the plaintiffs company with reference to the corresponding receipts; that he do investigate the circumstances under which each payment is alleged to have been made, and determine the liability of the defendant with regard to such item; that the defendant be held liable in respect of the items with regard to which his conduct has been fraudulent; but that in respect of the other items, with regard to which he may prove that he has acted in good faith, he be absolved from liability; that the defendant be held liable for the acts of the Sircars during October, November and December, 1905, when they were under his contract; and that the Subordinate Judge, upon the receipt of the report of the Commissioner, do proceed to adjudge upon the matters in controversy. As the case has not yet been investigated on the merits, we direct that the costs of this appeal do abide the result.

10. It is manifest that the proceedings which have now to be taken in this suit will involve the production of Customs House books and possibly an examination of Customs House officers; we also observe that the plaintiffs company have offices in Calcutta and Howrah. and the defendant is a resident of Howrah, it will, therefore, be obviously more convenient to all parties concerned if the case is tried out at Alipore instead of at Hooghly. We direct accordingly that the remanded suit be transferred from the file of the Subordinate Judge of Hooghly to that of the first Subordinate Judge of 24-Pergannas.

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