January •7

SUPREME COURT REPORTS [1961)

T. V. R. SUBBU CHETTY'S FAMILY CHARITIES

M. RAGHAVA MUDALIAR AND OTHERS. (P. B. GAJENDRAGADKAR, K. N. WANOHOO and

K. C. Das GuPTa, JJ.)

Hindu Law-Alienation by widow-Reversioner's suit to set aside alienation-Ratification of alienation by reversioner.

M, a Hindu, died leaving his mother, widow, sisters and sisters' son and daughters. There were disputes between the mother and the widow which were settled at the instance of certain arbitrators. Under this settlement a portion of one of the houses was given to a sister of M, another portion to , R son of another sister and his sister and a third portion to the daughter of the third sister. Certain properties, which had been agreed to be .sold under the settlement were sold to the appellant by the mother and the widow. After the death of the mother and the widow R filed a suit as the next reversioner of M for recovery of the properties sold on the ground that the alienation was without necessity and was not binding on him. The appellant contended

(i) that R was precfo.ded from disputing the settlement between the mother and the widow as he had received a benefit under it and had ratified it by his conduct and

(ii) that the transfer was for legal necessity.

Held, that the transfer was not binding on Rand he was entitled to avoid it. The settlement between the mother and the widow was also not binding on R. If a person having full knowledge of his rights as a possible reversioner enters into a transaction which settles his claim as well as the claim of the opponents at the relevant time, he cannot be permitted to go back on that arrangement when reversion actually .falls open.

But the mere fact that the reversioner has received some:benefit under the transaction or has not challenged its validity wheii'il:• took place cannot bar his rights as a reversioner. It will always be a question of fact as to whether the conduct of the reversioner on which the plea of ratification is based does in law amount to ratification properly so called. In the. present case the settlement was not in the nature of a family arrangement; at that time R was a minor .and was-not a party to any of the said transactions.

There was no conduct of R which could amount to ratification of the settlement or of the alienation. At the time when he accepted the gift he could not know about his rights .as a possible reversioner. Further, there was no legal necessity for the transfer. ·

Sahu Madho Das v. Pandit Mukand Ram [1955] 2 S.C.R.. 22, Dhiyan Singh v. fugal Kishore [1952] S.C.R. 478, Kanhai Lal v.

Brij LaJ (1918) L.R. 45 I.A. rr8, R•ngasami Gounden v. N achiappa Gounden (r9r8) L.R. 46 I.A. 72 and Ramgouda Annacouda v.

Bhausakb (r927) L.R. 54 I.A. 396, referred to.

CIVIL APPELLATE JmtISDICTION: Civil Appeal No. 1961

. 204/1956. ' Subbu Ch.tly's Appeal from the judgment a.nd decree dated Family Chari1ies February 23, 1951, of the Madras High Court in 0. S. v.

Appeal No. 13/1948.

Raghava Mudaliar R. Keshva Aiyangar and M. S. K. Aiyangarc, for the appellant.

A. V. Viswanatha Sastri and Naunit Lal,, for respondent No. 1.

B. K. B. Naidu, for respondent No. 6.

1961. January 27. The Judgment of the Court was delivered by GAJENDRAGADKAR, J.-This appeal a.rises out of a. Gajendragadkar J. suit filed by the respondent M. Rag ha. va. Mudaliar who claims to be the reversioner of Madha.va. Rama.nuja.

Mudaliar. In his suit the respondent alleges that after the death of Madha.va. Ramanuja Mudaliar which took place on March 22, 1893, his property came into the possession of his widow Manicka.mmal. Sub. sequently the said Manickammal and Rengammal, the widowed mother of the deceased Madhava Rama.nuja Mudaliar alienated the properties without any legal necessity. According to the respondent the . said alienation was not binding on him a.nd so he wa.s entitled to recover possession of the said property free of a.ny encumbrance or charge. Manickamma.l died on October 18, 1941, whereas Rengammal died in June, 1921. On the death of the widow Ma.nickammal reversion fell open and that has given a cause of action to the respondent for his present suit.

Madha.va Ramanuja Mudaliar died issueless and was survived by his widow, his widowed mother, his sister Anda.Jammal and the respondent and his sister Apurupamma.l who a.re the children of Amma.kannu Ammal the second sister of Madhava Ramanuja Muda.liar, and Ethirajamma.l the daughter of the third sister of Madhava Ramanuja Mudaliar. To his suit the respondent imple.aded the appellant Andalammal, Krishnasami Mudaliar, son of the said Apurupamma.l (defendant 1) and Susila Ba.i Aroma.I daughter of

'96' Ethirajammal as defendants 2 to 4. The Udayavar

Subbu Chelty's Temp!e. by the sole trustee Bysani Krishnaiah Chetty Family Charities was JOmed as defendant 5. v.

After her husband's death Manickammal obtained Raghava Mudaliar letters of administration to his estate from the High -- Court at Madras. It appears that the relations of the Gajendragadkar J. widow with her mother-in-law were embittered, and that led to disputes between them. These disputes were settled by the two widows in pursuance of the advice of certain arbitrators who mediated between

them. The settlement thus reached was recorded in writing on May 27, 1893 (Ex. D-2). It would be relevent to refer to the main terms of the settlement at this stage. This settlement set out the properties covered by it as Serial Nos. 1 to 5. Item No. 1 which was a house in three blocks was divided between the respondent and his sister Apurupammal who were to take one share; Ethirajammal who was to take another share ; and Andalammal who was to take the third share. House No. 62, which was Serial No. 2, and houses and shops Nos. 126 and 127 which were shown as Serial No. 3 were agreed to be sold, and it was settled that out of the sale proceeds the debts of the deceased Madhava Ramanuja Mudaliar and his father should be discharged ; expenses incurred in obtaining the letters of administration should then be deducted along with the expenses of sale, and the balance should be divided equally between the two widows subject to a payment of Rs. 1,000/- to the mother-in-law in lieu of her jewels. The two cawnies of lands which were Serial No. 4 were agreed to be given to the maternal uncle of the deceased Madhava Ramanuja Mudaliar, whereas the moveables which were shown as Serial No. 5 had to be divided half and half between the two widows. This document contained a clause which provided that "in case any one of us contravenes the terms the other party shall not only cancel this agreement but his title to the estate of Madhava Ramanuja Mudaliar prior to the agreement shall in no way be affected subject to which this agreement has been entered into. " The document thus eJ:ecuted was attested by four attesting witnesses.

It appears that soon after this agreement was I96r finalised; KrishnaRamy Mudaliar, defendant 3, object- 5 bbu Chell • ed to its validity and disputed the right of the widows Fa:nily cnarrii: . to deal with the property in the manner specified in it. v.

He was, however, persuaded to abandon his objectionsRaghava Mudalit and a sale deed was executed by him conveving his -- . h tht 'd f •ct" • Gajendragadkar J revers1onery ng ts to e wo w1 ows o! cons1 erat10n on September 10, 1894. By this document defendant 3 purported to recognise and grant an absolute title to the two widows in regard to the estate of the deceased (Ex. D-3).

Subsequent to this document the two widows began to enjoy the properties as agreed between them.

On February 4, 1895 the two widows sold item No. I in Schedule II attached to the plaint, i.e., Nos. 126 and 127, Anna Pillai Street and Audiappa Naick Street respectively to 'fhatha Venkata Raghava Subbu Chetty. The appellant is the successor in title of the said divisior: in respect of the said item No. 1 in

Schedule IL In the present appeal we are concerned only with this item.

On M:ay 27, 1895, a composite deed of partition and administration of property of the deceased was executed by and _between the two widows (Ex. D-5).

By this document the three blocks in the house shown as Serial Ne,. 1 in Ex. D-2 were delivered into the possession of the respective donees. The maternal uncle of the deceased was given two cawnies of lands as therein stipulated and the debts of the deceased were discharged and expenses incurred in respect of the letters of administration were met. It is under these circumstances that the respondent filed his present Suit No. 56 of 1946 on the Original Side of the Madras High Court; and he claimed that the alienations made by the two widows were not binding on him and he was entitled to the possession of the property left by the deceased Madhava Ramanuja.

The schedule attached to the plaint referred to four items of property, and as we have already pointed out it is only with item No. 1 out of these four items with which we are concerned in the present appeal,

In regard to the caid item the appellant urged that Subbu Cllelly's the agreement between the two widows (Ex, D-2) and Family Cllariti" the subsequent composite deed executed in pursuance v. . of it (Ex. D-5) were in the nature of a family arrange- 1/lagll•va Mudal1ar ment, and as such they were binding on the respond-

Gajendragadkar J. ent. In was also lleged by the appellant that the respondent had rec1eved benefit under the said arrangement and by his conduct had ratified it. The appellant further pleaded that the transfer in favour of his predecessor was supported by legal necessity.

Incidentally a plea of surrender was also raised by the appellant.

Mr. Justice Kunhiraman, who tried the suit, held that there was a family arrangement which bound the respondent. He also observed that the respondent had received benefit under the said arrangement and was therefore precluded from challenging its validity. The learned Judge incidentally made some observations which showed that he was inclined to uphold the plea of surrender raised by the appellant.

In the result the respondent's suit was dismissed.

The respondent then took the matter in appeal and succeeded. The appeal court held that the impugned arrangement cannot be said to be a bona fide family settlement which would bind the respondent. Before the appeal court it was conceded that the plea of surrender raised by the appellant could not be sustained, and that the contention that the respondent was bound by the family arrangement cot>ld not also be sustained. It was, however, urged on behalf of the appellant that the respondent's conduct precluded him from disputing the validity of the arrangement but this argument was rejected by the appeal court; likewise, the contentions that the transfer in favour of the appellant's predecessor was justified by legal necessity also failed.

As a result of these findings the respondent's appeal was allowed, the decree passed by the trial court was set aside, and the claim for possession made by the respondent was decreed. The respondent's suit was accordingly directed to go before the Official Referee for ascertainment of mesne profits

claimed by him. It is against this decree that the appellant has come to this Court in appeal.

S"1ib" c1uuy'• '!'he principal point which has been urged before us Family C4a1i1us by Mr. R. Keshav Aiyangar on behalf of the appellant v. ""' is that in substance the respondent has ratified theR•c""""-~""" impugned transaction, has received benefit under it, Gafmd.agaakar J and by his conduct has affirmed it, and so it is not open to him to challenge its validity and binding character. In support of this argument he has canvassed for our acceptance the proposition that if a person with full knowledge of his rights assents to a transaction which may otherwise be voidable at his instance and takes benefit under it, he is s'libsequently precluded from disputing its validity. In support of this argument he has relied on a decision of this Court in Sahu Madho Das v. Pandit Mukand Ram {1). In that case this Court, has held that it is settled law that an alienation by a widow in exercise of her powers is not altogether void but only voidable by the reversioners who may either singly or as a body be precluded from exercising their right to avoid it either by express ratification or by acts which treat it as valid or binding. This Court also observed that it is a principle of general application underlying many branches of the law that a person who with full knowledge of his rights has once elected to assent to a transaction voidable at his instance and has thus elected not to exercise his right to a void it, cannot go back on that election and a void it at a later stage; having made his election he is bound by it. The argument is that though the respondent may not be a party to the impugned transaction, if by his conduct it can be said that he has elected to uphold it and has received benefit under it he cannot be allowed to go back upon the election. There is of course no doubt about the correctness of the principle thus enunciated, but the difficulty in the way of the appellant arises when the applicability of the said principle is tested in the light of the relevant material findings in that case. That is why it is necessary to refer very briefly to the findings of fa.ct on which the decision in Sahw,

(1) (1955) 2 S.C.R. 22.

'96' Madho Das's case (1) rests.

In that case this Court Subbu Chetty's considered the question as to whether the plaintiff Family Cha1ities Mukand Ram had assented to the impugned family

 v. arrangement, and observed that as he was not a party qaghava Muda/iar t0 the arrangement his assent to the arrangPmerit

G . d--dk 1 itself and not to something else must be clearlv esta.

"1'" raga ar blished, and also his knowleJge of the facts. "Then,

having thus posed the question the material evidcuce

was examined, and it was held that the cumulative effect of the said evidence led to the reasonable inference that the plaintiff's assent was to the very arrangement itself, and his conduct as well as the conduct of his brother Kanhaiya Lal was consistent only with that hypothesis; in other words, the examination of the material evidence justified the inference that Mukand Ram had in fact elected to assent to the transaction and had recci yed benefit under it, and so the doctrine of election or ratification precluded him from disputing the validity of the said transaction. It is, however, significant that dealing with the case of the 1ainor sons, who were not parties either personally or through their guardians, and who did not claim title either through Pato or her daughters, this Court expressly observed that so far as they were concerned what they received were gifts pure and simple and the only assent that could be inferred from the mere acceptance of the gifts and nothing more would be assent to that particular gift and not assent to the gifts similarly made to others.

This observation brings out in bold relief by contrast the relevant findfogs in the light of which the plaintiff was held precluded from disputing the validity of the impugned transaction.

The appellant has also relied on another decision of this Court in Dhiyan Singh v. Jugal Kishore (2 ).

In that case it was held thttt even if the impugned award was invalid the plaintiff who disputed its ~-alidity wes barred from making that claim by reason of estoppel.

Brijlal against whom the plea of estoppel was effectively raised appeared to have made a claim te the estate in <JUAstion in 1884 when the impugned

(:<) [19521S.C.R.478

transaction took place, and it was as a result of this 1961 claim that settlement was reached and the impugned Subbu Chitty"• transaction effected. This Court held that even if Family Ch•rilios the award which was challenged was invalid Brijlal v. by his conduct had precluded himself from raising R•ghava Mudaliar the contention against the validity of the award. In G . d -:ik 1 coming to this conclusion this Court observed that "1'" rag •r the case before it was very similar to the one which the Privy Council had decided in Kanhai Lal v. Brij Lal('). When we turn to the privy Council decision itself we find that Kanhai Lal, who was held by the

Privy Council to be precluded from challenging the arrangement to which he was a party, had set up a title in himself on the strength of an alleged adoption, and when, having regard to the said title, a settlement was reached and a compromise arrangement was made, it was held by the Privy Council that the doctrine of estoppal came into play. Kanhai Lal, who subsequently became a reversioner according to the Privy Council, was bound by the previous arrangement and "cannot now claim as a reversioner." These two decisions also emphasise the fact that if a person having full knowledge of his rights as a possible reversioner enters into a transaction which settles his claim as well as the claim of his opponents at the relevant time, he cannot be permitted to go back on that arrangement when reversion actually falls open.

There are two other decisions of the Privy Council to which reference may be made. In Rangaswami

Gounden v. Nachiappa Gounden (')the Privy Council

had to deal mainly with the question of surrender, its theory and its essential features. Incidentally it had also to deal with the case of reversioner who had taken from an alienee from a Hindu widow a mortgage of a property which included a part of the property alienated, and the question raised was whelher by reason of the fact that the reversioner had a mortgage of the said property he was precluded from challenging the validity of the SR.id alienation ; and the Privy

Council held that he was not so precluded. In dealing with this aspect of the question the Privy Council

(1) (1919) L.R. 45 I.A. p8.

(2) (1918) LR. 46 I.A. 72.

1961 observed that it is well.settled that though he who

SNbbu C/JIU:/I may be termed a presumptive reversionary heir has a Family c11a,;,.,, title to challenge an alienation at its inception, he v. need not do so, but is entitled to wait till the death of R"lllava Mudali•• the widow has affirmed his character, a character

.GtlJ••d•"l!•dllar 1, which up to that date might be defeated by birth or hy adoption.

The Privy Council then examined the nature of the mortgage, the properties included in it, and observed that the said mortgage consisted of 2/14ths of the mitta which had come to the mortgagors in right of their own succession, and the remaining share had come to them through the impugned deed of gift. Then it was observed that at the time of the mortgage the mortgagee did not know whether he would ever be such a reversioner in fact as would give him a practical interest to quarrel with the deed of gift; and the Privy Council asked "why should he not take all that the mortgagers could give or propose to give." "To hold that by doing so ", observed the .

Privy Council, "he barred himself from asserting his own title to a part of what was mortgaged seems to their Lordships a quite unwarrantable proposition." This decision shows that the principle of election or estoppel or ratification must be applied with due circumspection and the mere fact that the reversioner has received some benefit under the transaction or has not challenged the validity of the transaction when it took place cannot bar his rights as a reversioner when reversion in his favour falls open.

The last case on which reliance has been placed by the appellant is the decision of the Privy Council in Ramgouda Annagouda v. Bhausaheb (1). In this case the widow of the last male holder had alienated nearly the whole of the property of her husband by three deeds executed and registered on the same day.

One of the deeds was in favour of a presumptive reversioner. The Privy Council held that the three deeds had to be regarded as forming one transaction entered into by all the persons interested in the properties, and that after the reversion fell open, the reversioners who were parties to the said transactions

(1) (1927) L.R. Si I.A. g6,

...

3 S.C.R.

SUPREME counT REPORTS 633

were precluded from disputing the two alienations by 1961 reason of their conduct.

According to the Privy Council the three deeds in question were inseparably FSubbul CCtly'_s . . d h ami y narities connected together and m that view Annagou a, t e v. reversioner, who challenged two of the three transac- Ragnava Mudaliar

tions, not only consented to the sale to Shivgouda and - the gift to Basappa-which were the two transactions Gaj1ndragadhar J. impeached-but these dispositions formed part of the same transaction by which he himself acquired a part of the e8tate. Thus it may be taken to be well-settled that if a presumptive reversioner is a party to an arrangement which may properly be called a family arragement and takes benefit under it, he would be precluded from disputing the validity of the said arrangement when reversion falls open and he becomes the actual reversioner. The doctrine of ratification ma.yalso be invoked against a presumptive reversioner who; though"DOt a party , to the transaction, subsequently ratifies it with full knowledge of his rights by assenting tp it and taking benefit under it.

It is, however, clear that mere receipt of benefit under an arrangement by which a Hindu widow alienates the property of her deceased husband would not preclude a presumptive reversioner from disputing the validity of the said alienation when he becomes the actual reversioner. It must always be a question' of fact as to whether the conduct of the said reversioner on which the plea of ratification is based does in law amount to ratification properly so-called. It is in the light of these principles that we must now consider the relevant facts in the present appeal.

There can be no doubt that the transaction which took place on May 27, 1893, as a result of the dispute between the two widows and with the intervention of the well-wishers of the family is not a family arrange. ment as understood under Hindu Law. This position was conceded before the High Court and is not disputed before us (Ex. D-2). Similarly, the sale deed which was executed by defendant 3 in favom of the two widows is of no assistance because it was obviously a sale by defendant 3 of his reversionary rights which were then no better than apes B'UCCe&Bionia and as

SUPR~MKCOURT REPORTS [1961]

t96z -- such this transaction (Ex. D-3) cannot help to validate

Subbu CINlly's the earier arrangement between the two widows .. Te Family Cllarilies composite document (Ex. D-5) of May 27, 1895, is m v. substance no more than an alienation no doubt Raillava Mudaliar executed for the purpose of carrying out the original . -- arrangement between the two widows. Thus in deal- Ga1•1111raiadllar f. ing with the question as to whether the respondent is precluded from challenging the validity of the impugned transaction it is necessary to bear in mind that the original transaction is not a transaction in the nature of a family arrangement. Besides, he was then a minor and admittedly he was not a party to any of the said transactions.

It is, however, urged that the respondent obtained a certificate or a patta from the Collector in regard to the property conveyed to him under Ex. D-5, and the argument is that he has deliberately withheld the said patta because he apprehended that if produced the patta would go against him. The explanation given by the respondent for not producing the patta is attacked as unsatisfactory, and it is urged that the said explanation cannot possibly conceal his intention to keep back the document from the Court. In his cross-examination the respondent stated that the Collector's certificate which had been given to him by

hls grandmother had been filed by him in Suit No. 495 of 1916 in the City Civil Court, and he added that his advocate in the said suit had not returned the document to him. We may assume that the respondent has not produced the document though it was in his possession; but we have on the record two documents which were issued to the other donees, and all that the appellant is entitled to assume is that a similar document had been issued in favour of the respondent. In our opinion, the two documents on the record do not assist the appellant's argument that any representation had been made by the respondent to the Collector before he obtained a patta in his favour. In fact the issue of the patta is a routine matter which would necessarily follow on the execution of the registered sale deed (Ex. D-5). On the registration of the said document persons who got certain immoveable properties

under it were given the certificates by .the Collector 1961 in ordinary course, and so no argument can be built up against the respondent that the acceptance of the FSvbbul cc~"'.:~.

h Ii f h . . l ""'' y _,.,_ patta amounts to t e rati cation o t e or1gma v. transaction of sale. 1lag1sa,,. M"4oli&r It is then urged that in Civil Suit No. 495 of 1916 . - filed in the City Civil Court at Madras by Apuru- G•J•"dragadilar f. pammal against the respondent and another, the respondent filed the written statement in which he admitted the validity of the impugned transaction. It appears that the plaintiff in that .sui~ had b.ased her claim on the said impugned transaction, a.pd in respect of the said claim the respondent had alleged in paragraph 2 of his written statement that he .admitted that in consequence of certain disputes which a.rose between the mother and the widow of th<J deceased Govinda Mudaliar a compromise settlement was arrived a.tin pursuance of which some transfers were effected.

This, it is said, a.mounts to an admission of the valid, ity of the si.id transaction (Ex. D-15). This argument, however, fails to take notice of the fa.ct that while referring to the said compromise settlement the respondent had expressly added .that the said compromise settlement was obviously to take effect only during the life tenancy of the widow of the deceased Govinda Mudaliar (Ex. P-3).

In other words, taking the statement as a whole, as we must, the respondent looked upon 'the said compromise settlement as an alienation macle by the widow and as intended to take effect during her lifetime and no more. lo other words, far from supporting a plea of ratification against the respondent this statement strengthens his case that he took the benefit with the knowledge and under the belief that the arrangement under which the said benefit flowed was intended to be operative during the lifetime of the widow, and as such he had no occasion to challenge its validity whilst the widow was alive.

A somewhat similar argument is based on the conduct of the respondent in relation to Civil Suit No. lll7 of 1921 filed by Masilamani Mudaly, the sister's son, and the deceased Govinda Mudaliar in the Madras High Court (Ex. P-16). To this suit the

z96z respondent was impleaded as defendant 7. In this

S .. __ c•- , suit the said plaintiff had challenged the validity of uu~ -ttys th t d k d -" ' ' ' Fa,,.ily Charities e arrangemen , an as e ior a ppropnate IIlJLmcv. tions against defendant 6 to the suit, Thuggi Kondiah Raghava MudaliarChetty, Trustee of Udayavar Koil, and other defendants from dealing with the property to the prejudice of G•j•ndragadkar f. the reversionary right of the plaintiff. It is unnecessary to refer to the pleadings in the said suit or to specify in detail the reliefs claimed. The only point which is relevant to consider is that the reversioner had challenged the arrangement in question. The respondent by his written statement had purported to support the plea made by the plaintiff, and had added that he was not personally aware of any attempt on the part of defendants 2 to 4 to alienate the properties in respect of their possession and enjoyment. This suit, however, did not proceed to a trial as it was dismissed for want of prosecution, and the argument is that since the respondent had supported the plaintiff in the said suit it was necessary that he should have got himself transposed as a plaintiff, when he found that the original plaintiff was allowing the suit to be dismissed for non-prosecution. In our opinion, this argument is far-fetched and cannot possibly sustll.in the plea of ratification against the respondEnt. If the respondent took possession of the property under the arrangement with the distinct understanding that the arrangement was to last only during the lifetime of the widow, we see no justification for the assumption that he should have carried on Civil 8uit No. 1117 of 1921 or should in fact have challenged the said arrangement at all.

The last argument urged in support of the plea of ratification is based on the oral evidence given by the respondent in the present case. The respondent was asked about the quarrels between the mother and the widow of the deceased Mudaliar, and he said that they were living together and that there were quarrels between them. Then he was asked as to whether he got the property under the impugned arrangement, and he said that his gni.ndmother gave him the house with the Collector's certificate and told him that she

was going to die soon and so he may take the house. 1961 The respondent abo admitted that since the house bb c1uu,• was thus delivered to him and to his sister they were FS.:;,; Charil~• in possession of it and in enjoyment of its income. v.

The respondent then stated that he was not aware of Raghava Msulal••• the document of 1895 until 1916, and that he came - to know about the division between the two widows Gajend••c•dh•• J. only in 1910. It is urged that this statement should not be believed, and that the reluctance of the respondent to disclose the truth should lead to the inference that he knew .i.ll about the impugned transaction and its effect, and that when he took possession of the property allotted to him under the said transaction he knew fully well about his ri!l'hts and he accepted the benefits with the object of rabfying the whole transaction. In our opinion there is no substance in this argument.

In this connection it is relevant to remember that until Act II of 1929 was passed a sister's son, like the respondent, would havo had very fow chances of becoming an actual reversioner; he would have come in the list of bandhas; and so it would be difficult to assume that at the time when the respondent accepted the gift of the house he knew about his rights as a possible reversioner. Besides, the benefit which he obtained under the impugned transaction could also in substance have been claimed by him under an earlier arrangement entered into between Govinda Mudaliar and Madhava Ramanuja Mudaliar on February 7, 1887 (Ex. D-1). Having regard to the arrangement disclosed by the said document the benefit given to the respondent and the other children of the sisters of the deceased Mudaliar may as well have been based on the said arrangement, and all that the transactions of 1893 and 1895 did was to give effect to it (Exs. D-2 and D-5). Besides, as we have already pointed out, in 1893 the respondent was a minor, and when subsequent to 1895 he took possession of the property it does not appear on evidence that he knew that the intention of the widows was to treat the property as absolute owners and to convey absolute titles to the respective donees and transferees under

1961 the said transaction. He also could not ha. ve known s bb -;,, • a.out his rights as a. possible reversioner. Therefore, Fa:il; ch:r, i:s in our opinion, the High Court was right in holding v. that the appellant had failed to establish his plea. of Raghava Mudali•• ratification against .the respondent. Indeed, to hold . - otherwise would be in the words of the Privy Council Ga; endragadha• f." a. quite unwarrantable proposition " (1) (p. 87).

That leaves the question of legal necessity to be considered. The High Court has held that the impugned transfer cannot be said to have been justified by legal necessity ; and, in our opinion, the finding of t.he High Court on this point is obviously right. In dealing with this question it may be relevant to recall that the widow of the deceased Mudaliar had obtained letters of administration to the estate of the deceased on April 26, 1893, and, as usual, in issuing the letters limitation had been imposed upon the widow that she could not deal with or transfer the property in qustion without the • requisite sanction. There is some force in the argument urged before us by Mr. Sastri on behalf of the respondent that it was with a view to avoid the necessity to obtain the requisite sanction that the widow of the deceased Mudaliar was persuaded by her motherin-law to enter into the impugned transaction under the guise of a family arrangement. The document itself (Ex. D-5) does not purport to be justified by legal necessity. In terms it purports to give effect to the original arrangement of 1893 (Ex. D-2); and if the said arrangement is not valid as a family arrangement the subsequent transfer would also be invalid.

Besides, out of a total consideration of about Rs. 10,000/- the amount of Rs. 776/- can be taken to represent the debts due by the deceased Muda.lia.r ; the rest of the items of considemtfon cannot be treated as constituting a legal necessity at a.II.

The a.mount of Rs. 558/- was the expense incurred for executing the document; similarly the a.mount of .Rs. 409/- representing the funeral expense of the deceased Mudalia.r, had apparently been spent by the widow who wanted to reimburse herself and that cannot be a legal necessity. The other items of consideration do

(1l (1918) L.R. 46 I.A. 72,

not even purport to be for legal necessity. Therefore, '96' in our opinion, the conclusion is inescapable that the Subbu C/utty's impugned transfer is not justified by legal necessity.

Family Charilie< The result is the appeal fails and is dismissed with v. costs.

Raghava Mudaliar Appeal, dismissed.

MAHABIR PRASHAD RUNGTA

DURGADATT. (J. L. KAPUR, M. HIDAYATULLAH and J. C. SHAH, JJ.)

Contraet-Commercial transaction-Breach-Time, •if of the essence of the contraet-Aggrieved party, if can rescind the contractlnterest-Rate-Awarding of-Principfe-lndian Contract Act, z87z (IX of z87z), s. 55.

The respondent had agreed to transportcoalfrom the appellant's colliery to the railway station. The appellant had to keep the road in repair and arrange for petrol and had to make the payment for the actual coal despatched by the roth of the following month. The appellant complained that he was suffering loss as the respondent had slowed down the work and the respondent complained that by not arranging for the petrol, not keeping the road in repairs and not making payments of amounts due the appellant had made it impossible to fnlfil the contract.

The quantity of coal transported was a fact within the knowledge of the appellant and the agreement merely provided for payment of the bills by roth of the following month, without stating expressly that the presentation of bill was a condition precedent to the payment. The appellants contended that time was not of the essence of the contract and in any case the payment of the bills depended npon the presentation of bills in time and also challenged the award of the interest.

Held, that in commercial transactions time is ordinarily of the essence of the contract and was made so in the contract and when this important condition of the agreement was broken, s. 55 Of the Indian Contract Act could be invoked by the aggrieved party and he was entitled to rescind the contract.

In the present case by withholding the payment of the bills

cl. (5) of the contract was breached by the appellant.

Held, further, that interest for'a period prior to the commencement of suit is claimable either nnder an a'greement or usage of trade or under a statutory provision or nnder the

Interest Act for a sum certain where notic11 is given. These

Gojendragadkar J.

z96I

January 31.

M. RAGHAVA MUDALIAR AND OTHERS

K. C. Das GuPTa, JJ.

L.R. 46 I.A. 72

L.R. 54 I.A. 396

Subbu Ch.tly

Madras High Court

Raghava Mudaliar R. Keshva Aiyangar

M. S. K. Aiyangarc

A. V. Viswanatha Sastri

Naunit Lal

B. K. B. Naidu

GAJENDRAGADKAR

Gajendragadkar

M. Rag ha. va. Mudaliar

Madha.va. Ramanuja Mudaliar

Rengammal

Madhava Rama.nuja Mudaliar

Manickamma.l

October 18, 1941

Ma.nickammal

Madha.va Ramanuja Mudaliar

Anda.Jammal

Amma.kannu Ammal

Madhava Ramanuja Muda.liar

Madhava Ramanuja Mudaliar

Andalammal

Krishnasami Mudaliar

Susila Ba.i Aroma

Udayavar

Manickammal

High -- Court at Madras

May 27, 1893

Apurupammal

Ethirajammal

Andalammal

KrishnaRamy Mudaliar

objectionsRaghava Mudalit

September 10, 1894

February 4, 1895

Schedule II

Schedule IL

Madhava Ramanuja

Subbu Cllelly

Kunhiraman

R. Keshav Aiyangar

Gafmd.agaakar

Sahw

(1955) 2 S.C.R. 22

Madho Das

Subbu Chetty

Kanhaiya Lal

Mukand Ram

Pato

Brijlal

Kanhai Lal

(1918) LR. 46 I.A. 72

R"lllava Mudali••

Shivgouda

Basappa

Subbu CINlly

Raillava Mudaliar

Govinda Mudaliar

Masilamani Mudaly

Thuggi Kondiah Raghava MudaliarChetty

Udayavar Koil

Mudaliar

Raghava Msulal•••

February 7, 1887

Raghava Mudali••

April 26, 1893

Sastri

(1918) L.R. 46 I.A. 72

MAHABIR PRASHAD RUNGTA

J. L. KAPUR

M. HIDAYATULLAH

J. C. SHAH

s. 55

s. 55

Indian Contract Act

Interest Act

Gojendragadkar

January 31.


3S.C.R.

SUPREME COURT REPORTS 639

not even purport to be for legal necessity. Therefore, '96' in our opinion, the conclusion is inescapable that the Subbu C/utty's impugned transfer is not justified by legal necessity.

Family Charilie< The result is the appeal fails and is dismissed with v. costs.

Raghava Mudaliar Appeal, dismissed.

MAHABIR PRASHAD RUNGTA

DURGADATT. (J. L. KAPUR, M. HIDAYATULLAH and J. C. SHAH, JJ.)

Contraet-Commercial transaction-Breach-Time, •if of the essence of the contraet-Aggrieved party, if can rescind the contractlnterest-Rate-Awarding of-Principfe-lndian Contract Act, z87z (IX of z87z), s. 55.

The respondent had agreed to transportcoalfrom the appellant's colliery to the railway station. The appellant had to keep the road in repair and arrange for petrol and had to make the payment for the actual coal despatched by the roth of the following month. The appellant complained that he was suffering loss as the respondent had slowed down the work and the respondent complained that by not arranging for the petrol, not keeping the road in repairs and not making payments of amounts due the appellant had made it impossible to fnlfil the contract.

The quantity of coal transported was a fact within the knowledge of the appellant and the agreement merely provided for payment of the bills by roth of the following month, without stating expressly that the presentation of bill was a condition precedent to the payment. The appellants contended that time was not of the essence of the contract and in any case the payment of the bills depended npon the presentation of bills in time and also challenged the award of the interest.

Held, that in commercial transactions time is ordinarily of the essence of the contract and was made so in the contract and when this important condition of the agreement was broken, s. 55 Of the Indian Contract Act could be invoked by the aggrieved party and he was entitled to rescind the contract.

In the present case by withholding the payment of the bills

cl. (5) of the contract was breached by the appellant.

Held, further, that interest for'a period prior to the commencement of suit is claimable either nnder an a'greement or usage of trade or under a statutory provision or nnder the

Interest Act for a sum certain where notic11 is given. These

Gojendragadkar J.

z96I

January 31.

z96z conditions not being satisfied and this being not a case in which - Court of Equity grants interest, interest was not awardable as M aiabir Prashad. damages.

Ru•gl• Held, further, that interest pendente lite being in the discre- "· tion of Court, should be fixed in accordance with the circumstances Dur1• Dan and practice of the Court and should not be too high.

Bengal Nagpur Railway Co. Ltd. v. Ruttanji Ramji, (1937) L.R. 65 I.A. 66, referred to.

CrVIL APPELLATE JURISDICTION: Civil Appeals Nos. 54 and 55 of 1957.

Appeals from the judgment and decree dated March II, 1953, of the Judicial Commissioner's Court, Rewa, in First Appeals Nos. 104 and II6 of 1952.

B. 0. Misra, for the appellant.

Tarachand Brijmohan Lal, for the respondent.

1961. January 31. The Judgment of the Court was , delivered by

Hidayalullah ].

HIDAYATULLA~, J.-Mahabir Prashad Rungta, appellant in these two appeals, was plaintiff in his own suit and defendant in a counter-suit filed by Durga Datt, the respondent. The two appeals have been filed on certificates granted by the Judicial Commissioner, Vindhya Pradesh against a common judgment and decree of the Judicial Commissioner's Court in four appeals filed by the rival parties, two in each civil suit. Certificate was also granted to the respondent ; but he did not take steps in that behalf, and we are, therefore, concerned only with the appeals of Mahabir Prashad Rungta.

The two suits were filed -in the following circumstances: Rungta owns a colliery at Budhar in Madhya Pradesh. On October 30, 1950, an agreement was executed between Rungta and the respondent, Durga Datt. Durga Datt agreed to transport coal from the colliery to the railway station at the rate of Rs. 2-8-0 per ton for a period of two years commen_cing from November II, 1950, to November IO, 1952. That agreement is Ex. P-1. The case of Rungta was that Durga Datt broke the contract from July 29, 1951, by stopping the work of transport. Durga Datt in his suit, on the other hand, averred that Rungta had

broken the agreement and work of carriage as a. result 1961 was stopped from July 30, 1951. The difference of a. Mahabid'rasllad day between them is of no consequence. Rungta's

R""''" case wa.s that as a result of the breach of the contra.ct v. on the part of Durga Datt, he was required to employ Duri• Da11 other carriers and to pay them at Rs. 3 per ton, and • • Hidayalullola ]. he incurred demurrage and damages to his constituents for delay in supplies. He, therefore, claimed a sum of Rs. 60,000 as damages, irrcluding Rs. 20,000 as general damages for loss of business, credit and reputation. He admitted that a sum of Rs. 15,087-5-0 was owed by him to Durga Datt on account of coal carried by the latter, and he thus ola.imed Rs. 44,912-11-0, after allowing credit for that sum.

Du :ga Datt, in his suit, asked for a decree for Rs. 49,544-12-0. This included Rs. 26,139-ll-O on account of arrears of bills and Rs. 905-1-0 as interest on the amount. The balance (Rs. 22,500) was claimed

as damages for loss of busineBB and profits of the unexpired period of the contra.ct a.t Rs. 1,500 per month.

In giving the particulars for Rs. 26,139-ll-O, Durga.

Datt stated that he had transported 15,844 tons 2 Cwts. of coal to the end of July, 1951, which were loaded in the wagons and despatched. He also claimed Rs. 7,500 in respect of 3,000 tons of coal which he had transported to the railway yard, but which had not heed loaded in the wagons. After adjusting sundry a.mounts and allowing credit for Rs. 21,861-7-6, he claimed Rs. 26,139-11-0, as stated above. Durga Datt alleged that Rungta was guilty of breach of the contract, particularly of els. (4), (5) and (8) thereof, which compelled him to rescind the contract. These clauses may be quoted here :

"(4) Petrol :-It will be arranged by party no. l himself but party no. 2 will help in time of need to get the petrol ; the expenses incurred by party no. 2 for securing such petrol will be borne by party no. I.

If party no. 2 in spite of his best efforts cannot arrange for petrol then in such case party no. l will not be responsible for any loss in regard to transportation of coal.

I96I

Mahabir Prashad

Rung ta v.

Durga Datt

H idayalullah ].

(5) Payment of Bills :-Party !10. 2 will make payment of Bills of party no. 1 for actual despatch of coal on the 10th of the following months ;

 (8) The road will be kept in repair by party no. 2." The two suits were consolidated by the trial Judge, and evidence was partly recorded separately and partly for the two suits together. The trial Judge held that the breach of the contract proceeded from Durga Datt, and the suit of Rungta was decreed in the sum of Rs. 12,900 as damages due to him. In the other suit, the trial Judge held that Durga Datt was entitled t.o a payment of Rs. 26,695-6-6 and a decree for Rs. 13, 795-6-6 was passed in his favour after setting off the two amounts against each other. The rest of the claims in the two suits were dismissed.

The parties were dissatisfied with the decrees, and four appeals were filed. The learned Judicial Commissioner reversed the decision of the trial Judge. He held that Rungta. was guilty of the breach of the contract, because he had not made payments to Durga Datt as la.id down by cl. (5) of the agreement and had not kept the road in repair. He ordered the dismissal of Rungta.'s suit in its entirety, and reducing the amount decreed in Durga Da.tt's favour by Rs. 918-6.0 for which there was a double charge, he passed a decree for Rs. 25,113-4-0 a.warding interest at 6 per cent. per annum on the amount from August 1, 1951, till date of realisation.

In these two appeals, Rungta challenges (a) the dismissal of his suit for damages based on the finding that the breach proceeded from him; (b) the inclusion of Rs. 7,500 in respect of 3,000 tons of coal said to have been transported to the railway ya.rd but not loaded in the wagons; and (c) the award of, and in the alter, native, the rate of, interest.

The ma.in question in these appeals is, who was responsible for the breach of the" contract? The admitted position is that work stopped about the end of July, 1951. Previous to the closure of work, ea.ch party had written letters of protest to the othe~; Rungta. complaining that Durga Datt had slowed his work and he wa.s suffering loss, and Durga Datt

complaining that lack of arrangements for petrol, failure to repair the road and the withholding of the money due to him were making it impossible for him to fulfil the contract. The trial Judge did not accept the case set up by Durga Datt, and held that he had wilfully stopped work. The learned Judicial Commissioner, on the other hand, held that Rungta had unreasonably and in breach of the agreement, .withheld large payments and had left the road in a poor state of repair and thus caused the breach of the 1contract. He did not attach much importance to the controversy over the supply of petrol, which controversy was not mooted before us again.

Of the two reasons on which Rungta was held responsible for the breach of the contract, the important one was the withholding of payment. Learned counsel for Rungta contended that time was not of the essence of the contract, and that, in any case, the payment of bills to Durga Datt depended upon the presentation. of the bills in time. From the evidence, it appears that when the trucks were loaded, coal was not weighed. It was weighed at the bridge where the wagons were loaded, details of which were either with the railway company, or with the representative of Rungta at the station. Durga Datt was required to obtain the information from one source or the other, before he could make his bills. How much coal was transported by Durga Datt was a fact also within the knowledge of Rungta, and the clause quoted above merely provided for payment of the bills by the 10th of the following month, without stating expressly that the presentation of bill was a condition precedent to the payment. The learned Judicial Commissioner held, on both the points, against Rungta, and in our opinion, rightly. Even if the presentation of the bills be regarded as a condition precedent to payment, it is clear enough that Rungta paid not the whole of the amounts due under the bills but only small sums from time to time.

Learned counsel for Rungta contended that Durga Datt, by receiving such pay"1'.lents and by not insisting on his rights, must be deemed to have waived payment in a lump sum under cl. (5). But no case of waiver

Mahabir Prashi:id

Rungta v.

Durga Datt

H idayatullah J.

'96' was pleaded by him, and the evidence, if any, cannot MdabiY Prasload be looked into. In any event; an examination of the

Ruxgta accounts between the parties discloses that payments v. were, in fa.ct, withheld. Under the agreement, 10 per Durg• Datt cent. of the bills was to be withheld to build up a security deposit of Rs. 2,000, and an amount in excess Hidayatullail ]. h of this was with eld by the end of May.

No doubt, the bills were not presented by Durga Datt at the end of each month; hills for April and May were submitted on July 16, 1951 and bills for June and July, on August 6 and 12 respectively. Even so, the indebtedness of Rungta to Durga Dutt stood as follows: 16th July, 1951 about Rs. 7,835 27th July, 1951 ,, Rs. 6,790 6th August, 1951 ,, Rs. 11,170 12th August, 1951 ,, Rs. 15,590 These sums were in addition to a security deposit of Rs. 2,038. Whatever might be the intent and purpose of the clause in question, it is clear enough that Rungta was withholding substantial amounts over a very long period without any reasonable cause. To Durga Datt, the receipt of money in time was a vital consideration if he was to fulfil his contract at all. It was not to be expected that he would go on carrying thousands of tons of coal from the colliery without receiving payments. In our opinion, these facts speak for themselves, and amply support the finding of the learned Judicial Commissioner th .. t Rungta was really responsible for hamstringing the work of Durga Datt. Why Rungta did so is not very clear from the record of the case, though an attempt was made to show that the quantity of coal transported from month to month was falling. An abstract of the quantities transported does not support this allegation. This abstract is of the quantity loaded in wagons. The figures are almost constant, except in one month (April). There were, of course, variations in the quantity of coal loaded in the wagons from month to month ; but the evidence shows that some coal remained at the siding in heaps and was not loaded immediately. The variahion in the quantity also might have been due as much to Durga Datt as to the colliery and its output. In our judgment, no

inference can be drawn from the abstract, showing the quantities of coal loaded into the wagons, that Durga Mahabir Prashad Datt had slackened work after May. Learned counsel Rungta for Rungta cited some cases in which time was not considered as of the essence of the contract. Most of these cases deal with immovable property, where a different rule applies. In commercial transactions, time is ordinarily of the es.sence, and in the agreement, with which we are concerned, the payment of bills by a particular date was expressly mentioned.

The intention, obviously, was thatDurga Datt would receive payments for work executed as soon aS' the amounts became due. Rungta did not pay these amounts, which were also within his own knowledge either by the 10th of the following month or even within a. reasonable time after the presentation of the bills. In these circumstances, we are of opinion that cl. (5) was breached by Rungta.

In addition to this, there were difficulties of the road being in a bad state during the rainy season. The evidence shows that the wheels of the trucks used to sink in the mu<l frequently and the trucks had to be dragged out. For this state of affairs, Rungta was mainly responsible under cl. (8).

The inclusion of the clause in the agreement itsel:l;,:, sh">ws. that the parties realised that there might be hindra.nce to the trucks, if the road• was , not repaired. The finding of the Judicial Commissioner on this part of the case is, therefore, sound, though that .reason by itself might not have been sufficient for stopping the work altogether and rescinding the contract.

The case is thus covered by s. 55 of the Indian Contract Act, and Durga Datt was entitled to rescind the contract, when the very important condition of the agreement was broken by Rungta. We confirm the finding of the Judicial Commissioner on this part of the case.

This brings us to the inclusion of Rs. 7,500 on account of 3,000 tons of coal alleged to have been transported.

The evidence on this part of the case is somewhat unsatisfactory. Fortunately for Durga Datt, some of the witnesses of Rungta admitted that besides coal

Durga Dalt

Hidayatullah J.

- z96z which was loaded in the wagonR, there were three large

Mahabir Prash•i heaps of coal lying in the yard and tht this coal was Rungta transported by Durga Datt. The estimate of Durga

Datt was 3,000 tons. That is no more than a mere Durga Da11 guess. A railway official was examined in the case, and he stated that loose coal was sufficient to fill " 100 Hidayatul/ah ]. or 50 wagons" From the schedule filed, it appears that a wagon carries on an average 20 tons. Taking the number of wagons as 75, the quantity could not exceed 1,500 tons. A sum of Rs. 3,750 as payment for 1,500 tons at Rs. 2-8·0 per ton ought to have been included, instead of Rs. 7 ,500. To that extent, the decree in favour of Durga Datt would be modified.

There remains the question of interest. Interest for a period prior to the commencement of suit is claimable either under an agreement, or usage of trade or under a statutory provision or under the Interest Act, for a sum certain where notice is given. Interest is also awarded in some cases by Courts of equity. (Bengal Nagpur Railway Co. Ltd. v. Ruttanji Ramji (1)).

In the present case no agreement aboqt interest was made, nor was it implied. The notice which was given did not specify the sum which was demanded, and, therefore, the Interest Act does not apply. The preserit case also does not fall within those cases in which Courts of equity grant interest. Learned counsel for Durga Datt claimed interest as damages; but it is well-settled that interest as damages cannot be awarded. Interest up to date of suit, therefore, was not claimable, and a deduction shall be made of such interest from the amount decreed. As regards interest pendente lite until the date of realisation, such interest was within the discretion of the Court. The raLe fixed is 6 per cent. which, in the circumstances and according to the practice of Courts, appears high.

Interest shall be calculated at 4 per cent. per annum instead of at 6 per cent., and the decree shall be modified accordingly. • Except for reduction in the amount decreed by Rs. 3,750 and of interest up to the date of the filing of the suit which has been disallowed and of the rate of

(1) (1937) L.R. 65 I.A. 66.

interest pendente lite until realisation, the appeals shall stand dismissed. In view of the substantial failure of the appeals, the appellant shall pay the costs in this Court. One hearing fee.

GOVERNOR GENERAL IN COUNCIL

MUSADDI LAL. (J. L. KAPUR and J. C. SHAH, J.T.)

Railway-Non-delivery of goods-Suit for compensation for non-delivery, if distinct from compensation for loss, 1iestruction or deterioration-Notice of claim for compensation, if condition precedent -Limitation from when to run-Indian Railways Act,

I890 (IX of z890), ss. 72 and 77-Indian Limitation Act, x<)08, Arts. 30, JI.

The respondent served on the Railway Administration a composite notice under s. 77 of the Indian Railways Act and under s. 80 of the Code of Civil Procedure and sued for price of goods and for Joss on account of non-delivery. The claim was resisted by the Railway Administration on pleas amongst others that the suit was not maintainable without an effective notice under s. 77 of the Railway Act and that. the suit was barred because at the date of the suit the period of limitation prescribed by Art. 31 of the Indian Limitation Act had expired.

A full bench of the Allahabad High Court upheld the decree of the trial court in favour of the respondent holding that a claim for compensation for non-delivery Of goods was a claim distinct from the claim for compensation for loss, destruction or deteriora tion of the goods, and to the enforcement of a claim of the former variety by action in a court of law under s. 77 was not a condition precedent.

Held, thats. 77 of the Indian Railways Act imposes a restriction on the enforcement of liability declared by s. 72 of the Act and prescribes a condition precedent to the maintainability of a claim for compensation for goods lost, destroyed or deteriorated while in the custody of the railway Administration who are bailees and not insurer of goods. The section is enacted with a view to enable the railway administration to make enqniries and if possible to recover the goods and deliver them to the consignee and to prevent stale claims. Failure to deliver goods is the consequence of loss or destruction and the cause of action for it is not distinct from the cause of action for loss or <!estruction,

M habir Prasad

Rungt•

v. 'nwrga Dalla

Hidayat•llah ].

January 3x.

MAHABIR PRASHAD RUNGTA

L. KAPUR

M. HIDAYATULLAH

C. SHAH, JJ.

s. 55

s. 55

Indian Contract Act

Interest Act

Gojendragadkar

(1937) L.R. 65 I.A. 66

Tarachand Brijmohan Lal

Hidayalullah

HIDAYATULLA~

Durga Datt

Mahabir Prashad Rungta

Rungta

Budhar

Madhya Pradesh

October 30, 1950

Durga Datt

July 29, 1951

July 30, 1951

Hidayalullola

ga Datt

Durga

Datt

Mahabir Prashad

Durga Datt

H idayalullah

Durga Da.tt

August 1, 1951

Rungta

Mahabir Prashi

MdabiY Prasload

Durga Dutt

12th August, 1951

Durga Mahabir Prashad Datt

s. 55

Indian Contract Act

Durga

Datt

Interest Act

Interest Act

(1937) L.R. 65 I.A. 66

GOVERNOR GENERAL IN COUNCIL

MUSADDI LAL

ss. 72 and 77

Indian Limitation Act

Arts. 30

s. 77

Railways Act

s. 80

the Code of Civil Procedure

s. 77

Art. 31

Limitation Act

Allahabad High Court

s. 77

Railways Act

s. 72

nwrga Dalla


3 S.C.R.

SUPREME COURT REPORTS 647

interest pendente lite until realisation, the appeals shall stand dismissed. In view of the substantial failure of the appeals, the appellant shall pay the costs in this Court. One hearing fee.

GOVERNOR GENERAL IN COUNCIL

MUSADDI LAL. (J. L. KAPUR and J. C. SHAH, J.T.)

Railway-Non-delivery of goods-Suit for compensation for non-delivery, if distinct from compensation for loss, 1iestruction or deterioration-Notice of claim for compensation, if condition precedent -Limitation from when to run-Indian Railways Act,

I890 (IX of z890), ss. 72 and 77-Indian Limitation Act, x<)08, Arts. 30, JI.

The respondent served on the Railway Administration a composite notice under s. 77 of the Indian Railways Act and under s. 80 of the Code of Civil Procedure and sued for price of goods and for Joss on account of non-delivery. The claim was resisted by the Railway Administration on pleas amongst others that the suit was not maintainable without an effective notice under s. 77 of the Railway Act and that. the suit was barred because at the date of the suit the period of limitation prescribed by Art. 31 of the Indian Limitation Act had expired.

A full bench of the Allahabad High Court upheld the decree of the trial court in favour of the respondent holding that a claim for compensation for non-delivery Of goods was a claim distinct from the claim for compensation for loss, destruction or deteriora tion of the goods, and to the enforcement of a claim of the former variety by action in a court of law under s. 77 was not a condition precedent.

Held, thats. 77 of the Indian Railways Act imposes a restriction on the enforcement of liability declared by s. 72 of the Act and prescribes a condition precedent to the maintainability of a claim for compensation for goods lost, destroyed or deteriorated while in the custody of the railway Administration who are bailees and not insurer of goods. The section is enacted with a view to enable the railway administration to make enqniries and if possible to recover the goods and deliver them to the consignee and to prevent stale claims. Failure to deliver goods is the consequence of loss or destruction and the cause of action for it is not distinct from the cause of action for loss or <!estruction,

M habir Prasad

Rungt•

v. 'nwrga Dalla

Hidayat•llah ].

January 3x.

z96z

Gawrnor-G1n1ral

in Council

Mtuaddi Lal

Shah].

Held, further, that merely because Arts. 30 and 3I of the I.ndian Limitation Act prescribe different points of time from which the limitation is to run for suits against carriers it cannot be inferred that the claim covered by either article is not for compensation for loss, destruction or deterioration of the goods; and the said Arts. 30 and 3r cannot be projected upon ss. 72 and 77 of the Indian Railways Act for holding that suit for compensation for non-delivery of goods does not fall withins. 77.

The Madras and Southern Mahratta Railway Co. Ltd. v.

Haridoss Banmalidoss, {r9r8) l.L.R. 4r Mad. 871, Hilt Sawyers and Co. v. Secretary of State, {r92r) I.L.R. 2 Lah. r33, Martab Ali v.

Union of India, (1954] 56 Born. L.R. 150, Union of India v.

Mitayagiri Pullappa; I.L.R. [r958] A.P. 323, Assam Bengal Railway Co. Ltd. v. Radhika Mohan Nath and Others, A.I.R. (1923)

Cal. 397 and Bengal Nagpur Railway Co. Ltd. v. Hamir Mull Chhagan Mull and Another (r926} I.L.R. 5 Pat. ro6, approved.

Governor-General in Council and Others v. Mahabir Ram and Another, {r953} I.L.R. I All. 64 and ]ais Ram Ramrekha Das v.

G.I.P. Railway and Another (1929) I.L.R. 8 Pat. 545, overruled.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 313/1956.

Appeal from the judgment and decree dated July 25, 1952, of the Allahabad High Court in Second Appeal No. 2547of1946.

R. Ganapathy Iyer and T: M. Sen for the appellant K. P. Gupta, for the respondent.

1961. January 31. The Judgment of the Court was delivered by

Slj:AH, J.-On January 30, 1943, Bhola NathSambhu Ram as agent of the respondent L. Musaddilal delivered a bale of cloth to the railway administration E. I. Rly. at Agra railway station for carriage by railway to the Chola Station in the E. I. !Uy. The consignment was accepted by the railway administration and a railway receipt was issued in the name of the consignor Bhola Nath Sambhu Ram. Bhola Nath Sambhu Ram endorsed the railway receipt in favour of the respondent and sent it by post to the respondent. The bale of cloth did not reach Chola,

and the railway administration was unable despite efforts to trace it. There was correspondence between the railway administration and the respondent, about the consignment. Failing to obtain satisfaction

for the loss suffered by him, the respondent served z96z a composite notice under s. 77 of the Indian Railways G

--G , A <l 80 f h 0. .1 p d C d D overnorenera~ ct an s. o t e 1v1 roce ure o e on ecemin coun, u her 7, 1943, and thereafter on May 18, 1944, filed v. suit No. 283 of 1944 in the court of the II Munsif, Musaddi Lal Bulandshahr, for a decree for Rs. 782-3-6 being the "price of the bale " and Rs. 200 " for loss on account of non-delivery." The railway administration resisted the claim on the pleas. among others that the suit was not maintainable without an effective notice under s. 77 of the Railways Act and that the suit was barred because at the date of the institution of the suit, the period of limitation prescribed by Art. 31 of the Limitation Act had expired. The trial court decreed the suit. In appeal, the Additional Civ, il Judge, Bulandshahr, reversed the decree passed by the trial court and dismissed the suit. A Full Bench of the High Court of Allahabad reversed the decree passed by the first appellate court and restored the decree of the trial court. With certificate of fitness under Art. 133(1 )( c) of the Constitution, this appeal has been preferred by the Union of India.

Section 77 of the Railways Act in so far as it is material provides :

"A person shall not be entitled to ......... compensation for the loss, destruction or deterioration of ... goods delivered to be ......... carried, unless his claim to ...... compensation has been preferred in writing by him or on his behalf to the railway administration within six months from the date of the delivery of the ...... goods for carriage by railway." Section 77 manifestly prescribes a condition precedent to the maintainability of a claim for compensation for goods lost, destroyed or deteriorated while in the custody of the railway administration. The notice prescribed w!Ls not served by the respondent upon the railway administration within six months from the date on which the goods were delivered for carriage, and prima facie the suit would be barred for non-compliance of a statutory condition precedent.

But the respondent pleaded and the plea has found favour with the High Court that the suit filed by him

Shah].

z96z was for compensation not for loss, destruction or

- -G 1 deterioration of the goods, but " for non-delivery of Governor enera h -- d h h H' h C 1 in council t e goo s." In t e vrnw of t e 1g ourt, a c aim v. for compensation for non-delivery of goods is a claim Musaddi Lal distinct from -a claim for compensation for loss, destruction or deterioration of goods and to the Shah J. enforcement of a claim of the former variety by action in a court of law s. 77 is not a condition precedent.

The railway administration in India is not an insurer of goods: it is merely a bailee of goods entrustedto it for carriage. Section 72 of the Railways Act prescribes the measure of the general responsibility of a railway administration as a carrier of goods.

By that section, the responsibility of a railway administration for loss, destruction or deterioration of goods delivered to be carried by railway is subject to other provisions of the Act to be that -of a bailee under s. 152 and s. 161 of the Indian Contract Act,

1872. Sections 151 and 152 of. the Indian Contract Act deal with the duties of a bailee. If a bailee takes as much care of the goods bailed to him as a person of ordinary prudence would under similar circumstances of his own goods of the same bulk, quality and value as the goods bailed to him, in the absence of a special contract, he is not responsible for loss, destruction or deterioration of the goods bailed. By ss. 160 and 161 of the Indian Contract Act, tb, e bailee is under an obligation to return or deliver according to the bailor's direction the goods. bailed as soon as the time for which the goods were bailed has expired or the purpose for which the goods were bailed has been accomplished and if on account of default of the bailee the goods are not returned, delivered or tendered at the proper time, he is responsible to the bailor for any loss, destruction or deterioration of the goods. The railway administration being a bailee of the goods delivered for carriage to it is therefore a bailee during the period when the goods remain in its custody for the purpose and in the course of carriage and for the purpose of delivery after the goods are carried to the destination.

But the quantum of care which the railway adminis- ~~ tration is required to take is that care which it would Governor-G•neral take having regard to the bulk, quality and value of in Couni; il its own similar goods. v.

Section 77 of the Railways Act is enacted with a Musaddi Lal view to enable the railway administration to make enquiries and if possible to recover the goods and to deliver them to the consignee and to prevent stale claims. It imposes.a restriction on the enforcement of liability declared by s. 72.

The liability declared by s. 72 is for loss, destruction or deterioration.

Failure to deliver is the consequence of loss or des. truction of goods; it does not furnish a cause of action on which a suit may lie against the railway administration, distinct from a cause of action for loss or destruction. By the use of the expression, " loss, destruction or deterioration," what is contemplated is loss or destruction or deterioration of the goods and the consequent loss to the owner thereof. If because of negligence or inadvertence or even wrongful act on the part of the employees of the railway administration, goods entrusted for carriage are lost, destroyed or deteriorated, the railway administration is guilty of failing to take the degree of care which is prescribed by s. 72 of the Railways Act.

There are undoubtedly two distinct articles, Arts.· 30 and 31 in the first schedule of the Indian Limitation Act dealing with limitation for suits for compensation against carriers. Article 30 prescribes the period of limitation for suits against a carrier for compensation against loss or injury to goods and Art. 31 prescribes the period of lim.itation for suits for compensation against a carrier for non-delivery or delay in delivering the goods. The period of limitation under each of these articles is one year but the points of time from which that period is to be reckoned are different.

But because the Indian Limitation Act provides different points of time from which the period of limitation is to run, it is not possible to infer that the claim covered by either article is not for compensation for loss, destruction or deterioration of the goods. We are unable to project the provisions of Arts. 30 and 31

Shah J.

GovernorGeneral

in Council

Musaddi Lal

Shah].

January JI.

of the Limitation Act upon ss. 72. and 77 of the Railways Act and to hold that a suit 'for compensation for loss because of non-delivery of goods does not fall withins. 77. The view we have expressed is supported by a large volume of authority in the c.ourts in India. -for instance The Madras and Southern M ahratta Railway Co., Ltd. v. Haridoss Banmalidoss ('), Hill Sawyers and Co. v. Secretary of State('), Martah Ali v. Union of India('), Union of India v. M itayagiri Pullappa (' ), Assam Bengal Railway Co., Ltd. v. Radhika Mohan Nath(') and Bengal Nagpur Railu; ay Co. Ltd. v. Hamir .Wull Chhagan Mull(').

The view expressed to the contrary in the Allahabad High Court in Governor-General in Council v Mahabir Ram (7) and by the Patna. High Court in Jais Ram Ramrekha Das v. G. I. P. Railway('), is in our judgment erroneous.

This appeal will therefore be allowed and the respondent's suit will stand dismissed. As the Union of India was permitted to appeal for obtaining the decision of this Court which may settle the conflict of views even though the amount involved is small, we think that it is just and proper that there should be no order as to costs throughout.

Appeal allowed.

THE ORIOL INDUSTRIES LTD. v.

THE BOMBAY MERCANTILE BANK LTD. (P. B. GAJENDRAGADKAR, K. N. WANCHOO and K. c. DAS GUPTA, JJ.)

Bank-Payment in company's account-Cheques drawn by authorised agents without so describing themselves or stating as on behalf of the company-Payment if wrongfully made-Indian Companies Act, I9I3 (VII of I9IJ), s. 89.

The Managing Agents of the appellant company withdrew certain sums of money from its account with the respondent

(1) (1918) I.L.R. 41 Mad. 871.

(5) A.LR. 1923 Cal. 397.

(2) (1921) !.L.R. 2 Lah. 133. (61 (1926) I.L.R. 5 Pat. 106.

I .

) I

(3) [1954] 56 Bom. L.R. 150. (71 (19531 I.L.R. l All. 64.

(4) I.L.R. [1958) A.P. 323.

(8) (1929) I.L.R. B Pat. 545

GOVERNOR GENERAL IN COUNCIL

MUSADDI LAL

L. KAPUR

C. SHAH, J

ss. 72 and 77

Indian Limitation Act

Arts. 30

s. 77

Railways Act

s. 80

the Code of Civil Procedure

s. 77

Art. 31

Limitation Act

Allahabad High Court

s. 77

Railways Act

s. 72

nwrga Dalla

Arts. 30 and 3I

Limitation Act

Arts. 30 and 3

ss. 72 and 77

Railways Act

CIVIL APPELLATE JURISDICTION

R. Ganapathy Iyer

M. Sen

K. P. Gupta

Bhola NathSambhu Ram

L. Musaddilal

Bhola Nath Sambhu Ram

Chola

s. 77

May 18, 1944

II Munsif

Musaddi Lal Bulandshahr

s. 77

Railways Act

Art. 31

Limitation Act

High Court of Allahabad

Art. 133(1 )( c)

Union of India

Section 77

Railways Act

Section 77

Musaddi Lal

z96z was for compensation not for loss, destruction or
-G 1 deterioration of the goods, but " for non-delivery of Governor enera h -- d h h H' h C 1 in council t e goo s." In t e vrnw of t e 1g ourt, a c aim v. for compensation for non-delivery of goods is a claim Musaddi Lal distinct from -a claim for compensation for loss, destruction or deterioration of goods and to the Shah J. enforcement of a claim of the former variety by action in a court of law s. 77 is not a condition precedent.

Shah

s. 77

India

Section 72

Railways Act

s. 152

s. 161

Indian Contract Act

Sections 151 and 152

Indian Contract Act

ss. 160 and 161

Indian Contract Act

Section 77

Railways Act

s. 72

s. 72

s. 72

Railways Act

Limitation Act

Article 30

Art. 31

because the Indian Limitation Act

Arts. 30 and 31

Limitation Act

ss. 72

Railways Act

Bengal Nagpur Railu

Patna. High Court

ORIOL INDUSTRIES LTD

BOMBAY MERCANTILE BANK LTD

P. B. GAJENDRAGADKAR

K. N. WANCHOO

K. c. DAS GUPTA

Companies Act

s. 89


GovernorGeneral

in Council

Musaddi Lal

Shah].

January JI.

SUPREME COURT REPORTS [1961)

of the Limitation Act upon ss. 72. and 77 of the Railways Act and to hold that a suit 'for compensation for loss because of non-delivery of goods does not fall withins. 77. The view we have expressed is supported by a large volume of authority in the c.ourts in India. -for instance The Madras and Southern M ahratta Railway Co., Ltd. v. Haridoss Banmalidoss ('), Hill Sawyers and Co. v. Secretary of State('), Martah Ali v. Union of India('), Union of India v. M itayagiri Pullappa (' ), Assam Bengal Railway Co., Ltd. v. Radhika Mohan Nath(') and Bengal Nagpur Railu; ay Co. Ltd. v. Hamir .Wull Chhagan Mull(').

The view expressed to the contrary in the Allahabad High Court in Governor-General in Council v Mahabir Ram (7) and by the Patna. High Court in Jais Ram Ramrekha Das v. G. I. P. Railway('), is in our judgment erroneous.

This appeal will therefore be allowed and the respondent's suit will stand dismissed. As the Union of India was permitted to appeal for obtaining the decision of this Court which may settle the conflict of views even though the amount involved is small, we think that it is just and proper that there should be no order as to costs throughout.

Appeal allowed.

THE ORIOL INDUSTRIES LTD. v.

THE BOMBAY MERCANTILE BANK LTD. (P. B. GAJENDRAGADKAR, K. N. WANCHOO and K. c. DAS GUPTA, JJ.)

Bank-Payment in company's account-Cheques drawn by authorised agents without so describing themselves or stating as on behalf of the company-Payment if wrongfully made-Indian Companies Act, I9I3 (VII of I9IJ), s. 89.

The Managing Agents of the appellant company withdrew certain sums of money from its account with the respondent

(1) (1918) I.L.R. 41 Mad. 871.

(5) A.LR. 1923 Cal. 397.

(2) (1921) !.L.R. 2 Lah. 133. (61 (1926) I.L.R. 5 Pat. 106.

I .

) I

(3) [1954] 56 Bom. L.R. 150. (71 (19531 I.L.R. l All. 64.

(4) I.L.R. [1958) A.P. 323.

(8) (1929) I.L.R. B Pat. 545

Bank, which the company had by a resolution authorised the r96r Managing Agents to operate on.

The Managing Agents had no other account with the said Bank. The company brought the Oriol Industries suit, out of which the present appeal arises, against the Bank for Ltd. recovery of the said amounts on the ground that the cheques v. issued by the Managing Agents had been wrongfully honoured Bombay Mmantile by the Bank in that they were signed by them without describ- Bank Ltd. ing themselves as Directors of the Managing Agents firm and on behalf of the company, as required by the resolution. The trial Judge decreed the suit except with regard to a part of the claim which he found to have actually been received by the company.

The appeal court dismissed the suit holding that the Bank had paid in good faith and that the company was not entitled to rely on s. 89 of the Indian Companies Act.

Held, that the court of appeal' was right in holding that s. 89 of the Indian Companies Act could not be invoked by the appellant in the present case.

There can be no doubt that before a negotiable instrument can be enforced against a company under s. 89 of the Indian Companies Act, it must on the face of it show that it was drawn, made, accepted or endorsed by the company, and this may be done either by showing the name of the company itself on the instrument, or by statement of the person making the instrument that he was doing so on behalf of the company.

Sadasuk fanki Das v. Sir Kishan Pershad, (1919) I.L.R. 46 Cal. 663, applied.

•The Bank of Bombay v. H. R. Cormack, (1880) I.L.R. 4 Born. 275 and Miles' claim, L.R. 9 Ch. App. 635, referred to.

But the said principle is applicable only to the claim made against a company on a negotiable instrument and cannot be extended to a dispute between a bank and its constituent where the claim is not so based and proceeds on the basis that in honouring the cheques wrongfully drawn the bank acted improperly.

Mahony v. East Holiford Mining Co., (1875) 7 Eng. & Irish Reports 869, referred to.

Held, further, that the object of the resolution as well as its effect was merely to conform to the requirements of s. 89 of the Indian Companies Act, 1913, and not to prescribe any condition precedent independently of that section.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 221of1956.

Appeal from the judgment and decree dated August 5, i955, of the Bombay High Court in Appeal No. 128/X of 1954.

S. N. Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, for the appellants,

r96r A. V. Viswanatha Sastri , and Tamiharul Brijmohan

Oriol Industries Lal, for the respondents.

Ltd.

1961. January 31. The Judgment of the Court was v. delivered by Bombay M ercantilc Bank Ltd.

GAJENDRAGADKAR, J.-This appeal which has come . -- to this Court with a certificate issued by the Boiµbay G•Jendragadkar J. High Court raises for our decision a short and interesting question about the scope and effect of the provisions contained in s. 89 of the Indian Companies Act, 1913, in relation to the law of banking. This question arises in this way. The appellant, the Oriol Industries, Ltd. (hereafter called the company) was incorporated on May 15, 1945, and it appointed a.s its managing a.gents M/s. Poddar Chacko & Co. Soon after its incorporation the company passed a. resolution on May 21, 1945, whereby it decided to open an account with the respondent, th.e Bombay Mercantile Ba.nk, Ltd. (hereafter called the bank) and in accordance with the said resolution an account was opened with it on May 28, 1945.

Twenty-eight cheques were drawn on this account aggregating the total amount of Rs. 28,882-13-0 during the period between May 28, 1945 and July, 31, 1945. These cheques were:dratvn by K. Podda.r and M. J. Chacko in pursuance of the authority conferrad on them by the company. On September 28, 1948, by, its liquidator the company brought the pesent suit claiming to recover from the bank the said amount of Rs. 28,882-13-0. The case for the company as set out in the plaint was that the payment of the said amount had been ma.de by the bank wrongfully and negligently and the amount drawn under the said cheques had been wrongfully debited to the company in its account kept by the bank. It appears that the resolution for winding up of the company was held by the court to be null and void, and so the plaint was subsequently amended whereby the name of the Iiquida.tl?r was struck out and the suit then purported to be one which was instituted by the company itself. The plea. raised by the company that the cheques in question had been negligently and wrongfully honoured by the bank was

3 S.C.R.

SUPREME COURT REPORT& 655

seriously disputed by the bank in its statement. Mr. 1961 Justice Tendolkar, who tried the suit on the Original Oriol Industri" Side of the Bombay High Court, however, upheld the Lid. plea raised by the company and came to the conv. . clusion that the cheques had been wrongfully Bombay Mercanl•I• honoured. Even so, Mr. Justice Tendolkar held that Bank Lid. out of the total amount fo. dispute an amount of Gajendragadkar J.

Rs. 8,882-13-0 had been actually received by the company and so on equitable grounds he rejected the company's claim in regard to the said amount. The company's claim was, however, decreed in respect of the balance of Rs. 20,000.

The decree thus passed by Tendolkar, J. was challenged by the bank in its appeal, whereas the rejection of the company's claim in respect of Rs. 8,882-13-0 by the trial judge gave rise to crossobjections by the company. The Court of Appeal has reversed the finding of Tendolkar, J., and has held that the bank was not liable to repay any amount to the company since it had accepted and honoured the cheques issued on it in good faith. It may be stated at this stage that the plea of negligence which had been originally urged by the company in its plaint was expressly given up at the trial. Since the Appeal Court accepted the bank's case on the principal question of law it did not think it necessary to consider the question of limitation or the question about the appli cability of the equitable doctrine on which the trial judge had relied. In the result the appeal filed by the bank was allowed, the cross-objections preferred by the company were rejected, and the suit filed by the company was dismissed with costs. The company then moved the High Court for a certificate, and. on a certificate being granted it has come to this Court ; and on its behalf Mr. Andley has urged that in coming to the conclusion that the company's claim was unsustainable the Appeal Court has misjudged the effect of the provisions of s. 89 of the Indian Companies Act in relation to the conduct of the bank in the present oase. That is how the principal question which fa.lls for our decision is a.bout the scope and effect of the provisions of s. 89 of the Indian Companies Act,

r96r Before dealing with the said question of law it is necessary to dispose of a minor point raised by Mr.

Oriol I ndust1'i1s A di H Ltd n ey. e contends that the cheques issued by

v. K. Poddar and M. J. Chacko and honoured by the Bomboy Mercantile bank had not been issued in the form required by the Bank Ltd. resolution which gave them authority to operate on . -- the company's aacount with the bank. The relevant Ga; endragadkar f. resolution passed by the company provided that "the

banking accounts of the company be opened with the bank and another bank and that the said banks be and hereby authorised to honour cheques, bills of exchange and promissory notes, drawn, accepted or made on behalf of the company by the Managing Agents M/s.

Poddar Chacko & Co., by both the Directors of the Managing Agents firm, namely, Mr. Keshavdeo Poddar and Mr. M. J. Chacko and to act on any instructions so given relating to the account whether the same be overdrawn or not or relating to the transactions of the company." The argument is that two conditions had to be satisfied before the bank could accept a cheque issued under this resolution ; the cheque had to be signed by both the Directors of the Managing Agents firm, and it bad to be drawn on behalf of the company. In point of fact, all the cheques have been signed by the two individuals without describing themselves as Directors of the Manging Agents firm and without showing that they had drawn them on behalf of the company. These defects, it is urged, made the cheques irregular and inconsistent with the mandatory requirements of the resolution, and the bank was therefore not justified in honouring the said cheques. In our opinion, this argument is unsound.

On a fair and reasonable construction of the resolution it is difficult to uphold the contention that the resolution required .the drawers of the cheques to specify on each cheque that they were made or drawn on behalf of the company. The object of the resolution as well as its effect merely was to conform to the requirements of s. 89 of the Indian Companies Act to which we will presently refer. It cannot be said that the resolution required that the drawers of the cheques had to comply with the said condition apart from the requirements of s. 89; and so it would be unre11osonable

to treat the said requirement as a condition prescribed z96z by the resolution independently of s. 89.

Oriel Indw:ries In this connection the subsequent resolution passed Lid. by the comp!l.nY is significant. It appears that on v.

October 22, 1945, a resolution was passed by theBombay M"'anlile company authorising M. J. Chacko to sign cheques Bank Lid. for the company, and when thi~ resolution was com- -- municated to the bank it was told that the cheques on Gajendragadkar J. behalf of the company would thereafter be signed as: " For and on behalf of the Oriol Industries Limited, For .Poddar Chacko & Co."; in other words, by this communication the bank was told that it is. only chcqu€S signed by M. J. Chaeko in the manner specified in the communication that the bank should honour.

This communication affords an eloquent contrast to the communication made by the company to the bank in regard to the earlier resolution by which M/s. Poddar and Chacko were authorised to issue

cheques; on its behalf. Therefore, in our opinion, the argument that the impugned cheques accepted by the bank were inconsistent with the specific mandatory requirements authorised by the resolution cannot be accepted.

That takes us to the principal question of law. In dealing with the said question it is first necessary to refer to s. 26 of the Negotiable Instruments Act, 1881 (26 of 1881). This section provides that "every

person capable of contracting according to the law to which he is subject, may bind himself and be bound by the making, drawing, acceptance, endorsements, delivery and negotiation of a promissory note, bill of exchange or cheque." This section further provides, inter alia, that " nothing herein contained shall be deemed to empower a corporation to make, indorse or accept such instruments except in cases in which, -under the law for the time being in force, they are so empowered." This section does not purport to make any pro'f'ision of substantive or procedural law. The latter part of the section merely brings out that a company cannot claim authority to issue a cheque under its first part. The law in regard to the company's power to issue negotiable instruments has to be found in the rillevant provisions of the Companies Aot

SUPREME COUR1' REPOR1'S [1961]

z96z itself.

We must, therefore, turn to s. 89 of the said .

Act.

Oriol lndust, i1s

Ltd.

Section 89 provides that " a bill of exchange, hundi v. or promissory note shall be deemed to have been Bombay Mercantile made, drawn or accepted or endorsed on behalf of a Bank .Ltd. company if made, drawn, accepted or endorsed in the

G . d -k 1 name of, or by or on behalf of, or on account of, the

•J•• raga "' • company by any person acting under its authority express or implied." It is clear that in order that a company may be bound by a negotiable instrument purporting to have been issued on its behalf two conditions must be satisfied; the instrument must be drawn, made, accepted or endorsed in the name of or by or on behalf of or on account of the company, and the person who makes, draws, endorses or accepts the instrument must have the authority given to him by the company on that behalf. This authority may be either express or implied. There is thus no doubt that before a company can be bound by a negotiable instrument one of the essential conditions is that the instrument on its face must show that it has been drci.wn, made, accepted or endorsed by the company.

This may be done either by showing the name of the company itself on the instrument, or by the statement of the person making the instrument that he is doing so on behalf of the company.

In other words, unless the plain tenor of the negotiable instrument on its face satisfies the relevant requirement the instrument cannot be va:lidly treated as an instrument drawn by the company. This position is not disputed.

The importance and significance of the said requirement can be illustrated by reference to a decision of the Privy Council which had occasion to consider a similar requirement under s. 27 of the Negotiable Instruments Act. The said section provides that "every person capable of binding himself or of being bound, as mentioned in Section 26, may so bind himself or be bound by a duly auU!orised agent acting in his name." In Sadasuk Janki Das v. Sir Kish.an

Pershad (1) the Privy Council held that the name of the person or the firm to be charged upon a negotiable document should be stated clearly on the face or on

(1) (1919) I.L.R. •6 Cal. 663.

the back of the document so that the responsibility is '96' made plain and can be instantly recognised as the Oriol 1'•4..,1, u, document passes from hand to hand. It is not suffici- Liil. ent that the name of the principal should be in some v. way disclosed; it must be disclosed in such a way thatBomb•.l' Mm•.Uilfi on any fair interpretation of the instrument his name Banh Lid. is the ea! name of. the perso.n liable on the bill. " G•j•n<l••; u,•, J.

Accordmg to the Pnvy Council " ss. 26, 27 and 28 of the Negotiable Instruments Act contained nothing inconsistent with the principles just set out, and there was nothing to support the contention urged before it that in an action on a bill of exchange or promissory note against a person whose name properly appears as a party to the instrument it is open either by way of claim or defence to show that the signatory was in reality acting for an undisclosed principal." This decision was no doubt given under s. 27 of the Negotiable Instruments Act, but the principles enunciated in it apply with equal force to a negotiable instrument issued under s. 89 of the Indian Companies Act.

The inevitable consequence of this requirement is that wherever a negotiable instrument is issued without complying with the said requirement it would not bind the company and cannot be enforced against it. In The Bank of Bombay v. H. R. Cormack(') it was held by the Bombay High Court that in order to make a company liable on a bill or note it must appear on the face of such bill or note that it was intended to be drawn, accepted or made on behalf of the company, and no evidence dehors the bill or note is admissible under s. 4 7 of the Indian Companies Act, X of 1866, equal to s. 89 of the present Act. In support of this decision Sargent, C.J., has cited the observations of Lord Justice James in Miles' Claim(') "that it is the law of this country, and always has been the law of this country, that nobody is liable upon a bill of exchange, unless his name, or the name of some partnership, or body of persons of which he is one, appears either on the face or the back of the bill. " Thus there can be no doubt that the failure to comply with the essential requirements of s. 89 must necessarily mean that the neg0tiable instrument in question

(1) (1880) l.L.R. 4 Bom. •75 (•) (1874) L.R. 9 Ch. App. 635, 643,

1961 defectively issued cannot be enforced against the

OriollndustrieJ company.

But the question which arises for our decision is Lid.

v. whether this principle can be invoked in the present o/Jombay Mercantilecase where the action is not based on a negotiable

Bad Lid. instrument. The present dispute is between the bank . -- , and its constituent the company, and the claim made G•Jendr•gadnar ]. b . h l tt d th h y t e a er procee s on e assumpt10n t at m honouring the cheques irregularly drawn the bank has acted improperly and exposed itself to the charge that it has honoured the cheques wrongfully and improperly. In considering this question it may be relevant to recall that both the courts below have found that the bank has acted bona fide and that the charge of negligence levelled against it by the company had been expressly given up. It is also necessary to bear in mind that when the company opened its account with the bank it was furnished with a book of cheques and it is from the said book that the impugned cheques have been issued. Evidence also shows that K. Poddar and M. J. Chacko had no other joint account with the bank so that it is clear that when the impugned cheques were issued the bank was justified in thinking that the said cheques must have been issued by the two drawers on behalf of the only account on which they could operate, and that the bank thought was done in pursuance of the authority conferred on them by the company by its resolution. In such a case, if the bank honours the cheques can it be said that th11 company on whose behalf the cheques were purported to have been issued can contend that the cheques should not have been honoured aud that the amount debited to the company by the bank in its accounts has been improperly and wrongfully debited? It would be noticed that the principle underlying s. 89 which is a very healthy and salutary principle affords to the companies protection against claims madeon negotiable instruments defectively or irregularly drawn; but, when we deal with a dispute between a company and the bank of which it is a constituent it is difficult to extend the said principle. The said principle in terms is applicable only hen a claim is made against a company on negotiable instrument; in other words,

' I

it is only in the matter of enforcement of negotiable r96r instrument against a compa.ny that the principle Oriol Indust1i1s comes into play. It is, therefore, difficult to see how the principle enunciated in s. 89 can be extended to a

L~~· claim made by the company against the hank. In our Bombay Mercantil, opiniou, therefore, the High Court was right in coming Bank Ltd. to the condusion that s. 89 cannot be invoked by the - company against the bank in making the present Gojendragadkor J. claim. The decisions on which the company relied are all decisions in cases where a negotiable instrument was sought to be enforced against the company and had thus given rise to a cause of action. No case has been cited before us in which s. 81l has been extended to a claim like the present.

On the other hand, there is authority of the House of Lords in support of the view which .the High Court has taken in the present case. In Mahony v.

East H <ilyf ord Mining Go. (' ), a similar point arose for the decision of the House of Lords. One of the two points in that case had reference to eight cheques which had been defectivllly or irregularly drawn on behalf of the company and honoured by the bank. In rejecting the company's claim against the bank in respect of the amount covered by the said cheques Lord Chelmsford observed as follows :

"With respect to the objection that the name of the company is not on eight of the cheques paid by the Bank, and therefore by the Companies Act, 1862, they are invalid, and the official liquidator is entitled, at all events, to the amount of these cheques the short answer is, that although the bankers might have perhaps required that these cheques should be made formally correct before they were.paid; yet having paid them upon the demand of the only persons whom they knew as represent; ing the company in the operations upon the accou_nt, there is not the slightest pretence for insisting upon the liability of the. Bank to repay the amount of these cheques on the ground of an unauthorised payment of them." - The Lord Chancellor Lord Cairns disposed of the point in these words : " The question being merely aa

(I) (1875) 7 Eng. & Irish Repo1ts, 869.

1961 to the authority given to the bankers to make the

Oriollnd.., tries payment, it appears to me that when those who drew Ltd. and those who honoured the cheque knew the account v. on which it was intended to operate, the result was Bowbay MercanWe the same as if the account had been mentionerl. on the

Bank Ltd. face of the cheque, and that no distincti0n is to be

G•j•ndrag•dkar J. mLaddePas to the modneY_tphaihd' upo!l .these dchebques." or enzance agree w1 t 1s opm10n an o served that "looking at the way in which the cheques were drawn, and understood by those who dre~·· them,

and by those who paid them, they stand in no different way from the rest of the cheques in the case." It would thus be clear that the authority of this decision of the House of Lords is in favour of the view taken by the High Court that the principle enunciated by s. 89 of the Indian Companies Act cannot be extended to a claim made by a company against its bank on the ground that the cheque which the bank accepted and honoured was defective in that it did not comply with the requirements of s. 89 and could not ha. ve been enforced against it. We ought to add that s. 4 7 of the corresponding English Act of 1862 is exactly in the same terms as s. 89 of the Indian Act.

It also appears that Chalmers has expressed the same opinion for he says, "So, too, bankers may be justified in paying cheques out of the funds of a company, where clearly, by the form of the cheques the company would not be liable as drawers if they should not be paid" (1). Similarly, Halsbury approves of the same principle in these words: " although documents omitting the name of the company therefore cannot be relied on as against the company, monies paid under them to persons known to represent the company are not on that account payable over again " (').

The result is the appeal fails and is dismissed with costs.

Appeal dismissed.

(i) Chalmers on "Bills of Exchange", p. 63.

(2) Halsbury's Laws of England, 3rd Edn., vol. 6, p. '429, paragra.ph 830.

Musaddi Lal

Limitation Act

ss. 72

Railways Act

India

Allahabad High Court

Patna. High Court

Union of India

THE ORIOL INDUSTRIES LTD

K. N. WANCHOO

K. c. DAS GUPTA, JJ.

Companies Act

s. 89

Bank for Ltd.

s. 89

Companies Act

s. 89

Companies Act

s. 89

Companies Act

s. 89

Indian Companies Act, 1913

August 5, i955

S. N. Andley

B. Dadachanji

Rameshwar Nath

P. L. Vohra

A. V. Viswanatha Sastri

Tamiharul Brijmohan

GAJENDRAGADKAR

Boiµbay G•Jendragadkar

s. 89

Indian Companies Act, 1913

Oriol Industries, Ltd.

May 15, 1945

Poddar Chacko & Co.

May 21, 1945

Bombay Mercantile Ba.nk, Ltd.

May 28, 1945

July, 31, 1945

K. Podda.r

M. J. Chacko

September 28, 1948

Tendolkar

Gajendragadkar

Andley

s. 89

Companies Act

s. 89

Companies Act

v. K. Poddar

Bomboy Mercantile bank

Keshavdeo Poddar

s. 89

Companies Act

s. 89

s. 89

October 22, 1945

Oriol Industries Limited

M. J. Chaeko

Poddar

Chacko

s. 26

Negotiable Instruments Act, 1881

s. 89

Section 89

s. 27

Negotiable Instruments Act

Section 26

Banh Lid

ss. 26, 27 and 28

Negotiable Instruments Act

s. 27

Negotiable Instruments Act

s. 89

Companies Act

Bombay High Court

s. 4

Companies Act

s. 89

Sargent

James

s. 89

OriollndustrieJ company

s. 89

s. 89

s. 89

s. 81

Chelmsford

Companies Act, 1862

Cairns

s. 89

Companies Act

s. 89

s. 4

s. 89

Chalmers

Halsbury

England