FIRM BANSIDHAR PREMSUKHDAS

STATE OF RAJASTHAN

March 29, 1966

[A. K. SARKAR, C. J. K. SUBBA RAO AND V. RAMASWAMI, JJ.]

Act of State-Contract with former Indian State-Enforceability after merger against successor State. The fonner State of Bharatpur sold some plots for establishing a Mandi, and the appellant was one of the purchasers. Under the terms of the sale, a person trading in the Mandi wouldl get a reduc• tion of 25% in the customs duty payable, if the commodities were imported into or exported out of the State through the Mandi. The Government of Bharatpur and after its merger the Government of the United State of Matsya, and thereafter, the present Rajasthan State (respondent herein) allowed the reduction to the appellant, who was also a trader. In 1951, the respondent revoked the concession. The appellant filed a suit for the recovery of the excess amount of customs duty paid on the basis that there was a valid contractual liability to grant the concession. The suit was dismissed by the High Court on appeal.

In appeal to this Court, HELD: (i) The appellant's suit must fail because there was no recognition of the contractual ri!>; ht to the succeeding State of Rajasthan.

E The contractual liability of a former State is binding on a succeeding sovereign State on~ if it recognises that contractual liability. The enjoyment of the concession by the appellant after the formation of the Rajasthan State did not show any implied recognition of the contractual liability by the respondent, because, the concession is referable to s. 33 of the Miatsya Customs Ordinance of 1948 under which the concession could be granted and recognised. [85Bi 880-DJ

Case law referred to.

(ii) Even upon the assumption that there was an implied recognition by the respondent of the contractual liability, the suit must fail, for the contractual liability mu!it be taken to have been superseded by the enactment of the Rajasthan (Regulation of Customs Duties) Ordinance No. 16 of 1949. [88 E-F].

Parliament and State Legislatures are, subject to any prohibition in the Constitution, competent to enact laws altering the terms and conditions of a previous contract or of a grant under which the liability of the Government of India or of the State Governments arises. There is nothing in the provisions of the Ordinance which preserves the alleged contractual rights of the appellant, and in the absence of any express language in the Ordinance preserving such rights. it must be held that the general law enacted in the Ordinance supersedes the previous contract of the appellant with the State of Bharatpur. [90 D-F]

Maharaj Umeg Singh v. The State of Bombay. [1955] 2 S.C.R. 164 and Maharaja Shree Umaid Mills Ltd. v. Union of India, [19631 Supp. 2 S.C.R. 515, f0llowed.

SUPRBME COURT REPORTS

[1966] SUPP. S.C.B.

(.iii) The levy of Customs duty is in conformity with Art. 306 of A the Constitution. (91 DJ •

QVIL APPELLATE JURISDICllON: Civil Appeal No. 203 of 1964.

Appeal from the judgment and decree dated January 29, 1963 B of the Rajasthan High Court in Civil Regular First Appeal No. 29 of 1956.

Sarjoo Prasad and T. Satyanarayana, for appellant.

R. Ganapapathy Iyer and B.R.G.K. Achar, for the respondent.

The Judgment of the Court was delivered by

Ramuwami, J. This appeal is brought by certificate against the judgment and decree of the Rajasthan High Court dated January 29, 1963.

The appellant firm Bansidhar Premsukhdas brought a suit D which is the subject-matter of this appeal against the State of Rajasthan on March 31, 1953 for the recovery of Rs. 86,646 I 3 /- in the Court of District Judge. Bharatpur. The case of the appellant was that the former State of Bharatpur with a view to increase the trade and commerce in the said State decided to establish a Mandi at Bharatpur where at the material time a T.B. Hospital was located. lt decided to sell plots for certain fixed amounts and, therefore, •

issued a notification on May 18, 1946 offering the plots by public advertisement for sale on certain terms and conditions. The notifification-Ex. 4-was published in Bharatpur Rajpatra and one of r'- the concessions proposed to be granted was embodied in cl. 3 of the notification which stated:

"If any commodity is imported from outside into the Mandi and is sold for consumption within the State, or if any commodity received in the Mandi from within the State and is exported in both cases, a reduction of 25 % in the customs duty prevailing at the time of the import and export of such commodities will be allowed. This concession shall not be available in case of vegetable Ghee."

The notification contained other terms and conditions relating to auction sale such as the prices for different kinds of plots available and the maximum number of plots which a person could purchase.

A committee for supervising the auction was also formed and the B noiification laid down the procedure for the sale of plots and certain other conditions such as deposit of one-fourth sale money at the

time of auction etc. The appe'lant purchased plots Nos. 8 and 9 for Rs. 4,600 at a public auction and two sale deeds (sanad nilam) were issued to the appellant on October 10, 1946. The Government of Bharatpur and after its merger, the Government of United State of Matsya and thereafter the present Rajasthan State carried out the promise contained in cl. 3 of the Bharatpur notification and allowed reduction of 25 per cent in the customs duty, but on January 16, 1951 the Rajasthan Government issued notification No. F.4(18) SR/ 49 which reads as follows:

"Now therefore Government of Rajasthan is hereby pleased to direct that with an immediate effect all free Mandies and Zones including the area comprising the former Kishangarh State and the Bhim District of the former Rajasthan State shall be abolished and that in consequence all the Customs concession hitherto enjoyed by or applicable to these Mandies or Zones shall cease to have force and duties of customs shall be levied and

collected in such Mandies or Zones in accordance with the revised tariff amended from time to time."

The appellant and other traders thereupon made representation to the Rajasthan Government on January 29, 1951 and pending the disposal of the representation the Customs authorities agreed to keep the amount of 25 per cent by way of 'Amanat'. The State of E.· Rajasthan ultimately decided on May 25, 1951 that the reduction in the customs duty could not be conceded. On March 31, 1953 the appellant filed the present suit in' the Court of the District Judge of Bharatpur for the recovery of the excess amount of customs duty paid to the Rajasthan Government.

The main defence of the State Government was that item F No. 3 of the Bharatpur notification was a matter of concession! and could not be claimed as of right and the Rajasthan State as successor State was not bound by the contracts of the former State and the applicability of the concessions had also become impracticable on the formation of Rajasthan. The District Judge of Bharatpur, by his judgment dated March 31, 1956, held that item No. 3 of Bharatpur notification was a term of sale between the parties and G the Rajasthan State was bound by it and the succeeding States have recognised the concessions granted to the appellant and therefore the suit of the appellant should be decreed. The State of Rajasthan took the matter in appeal to the Rajasthan High Court which allowed the appeal and dismissed the suit holding that item No. 3 of the Bharatpur notification was not a part of the contract of sale, and H even if it was held to be a part of the contract, the successor State of Rajasthan did not recognise it and was not, therefore, bound by it:

RUPREME COURT REPORTS

[1966] SUPP. B.C.R.

The first question involved in this appeal is whether cl. 3 of the A Bharatpur notification-Ex. 4, was a term of the contract of sale between the appellant and the State of Bharatpur. It was argued on behalf of the appellant that Ex. 4 which is the notification dated May 18, 1946 regarding the sale of plots by the Bharatpur State was an offer of purchase of plots on terms and conditions made in that B notification. It was contended that the offer was made to the public as a whole and after it was accepted by the appellant a valid contract came into existence. The opposite view point was presented on behalf of the respondent.

It was submitted that the concession granted in cl. 3 did not relate to, nor did it form a part of the contract of sale of the plots of the Mandi. It was pointed out that the concession of 25 per cent reduction in customs duty will not merely enure to the benefit of the purchaser of the plots but also cnure to the benefit of the person trading in the shop. The benefits were generally offered for trade and business in the Mandi and cannot be considered as an offer of benefit only to the prospective purchasers of the plots. The commodities for which the concession was granted might be in the hands of purchasers and builders of plots, their tenants and licensees or other dealers. It was therefore not possible to hold that the State Government offered the tax concessions as a reciprocal promise in connection with the contracts of sale with the appellant and the latter had no justification for treating the benefits offered as consideration in return for the purchase of the plots and the construction of shop buildings. It is also pointed

out by learned Counsel on behalf of the respondent that there are

certain conditions in the Bharatpur notification-Ex. 4, which can- • not, in the nature of things. be treated as terms of the sale. Reference was made, in this connection, to els. 5, 6, 7, IO and 11. In our opinion, there is much force in the argument advanced on behalf of the respondent but it is not necessary to express any concluded opinion on this aspect of the case. We shall assume in favour of the appellant that cl. 3 of the Bharatpur notification, Ex. 4, was a term r of the contract of sale of plots 8 and 9 of the Mandi. Even upon that assumption the suit of the appellant must fail, for we shall presently show that there was no recognition of the contractual right by the succeeding State of Rajasthan. and in the absence of such recognition the contract between the former State of Bharatpur and the appellant cannot be legally enforced.

We shall proceed, therefore, to consider the next question, G namely, whether the term of the contract was binding upon the successor State of Rajasthan on the assumption that cl. 3 of the Bharatpur notification. Ex. 4, was an integral term of the contract between the appellant and the Government of Bharatpur State.

It is not correct to say as a matter of law that the successor H State automatically inherits the rights and obligations of the merged State. There is no question of suborgation-the successor State is not

-<' . r

' -f..

-¥.

subrogated ipso jure to the contracts with the merged State. The true legal position is that the contract of the predecessor State terminates with the change of sovereignty unless the contract is ratified by the succeeding sovereign State. It is now well-established in law that the contractual liability of a former State is binding on a B succeeding sovereign State only if it recognises that contractual lia- . bility. The season is that the taking over of sovereign powers by a

State in respect of territory which was not till then a part 0£ it is an "'act of State" and the municipal courts recognised by the new sovereign. have the power and jurisdiction to investigate and ascertain only such rights as the new sovereign has chosen to recognise

or acknowledge; and such recognition may be express or may be implied from circumstances. In other words, accession of one State to another is an "act of State"' and the subjects of the former State may claim protection of only such rights as the new sovereign recognises as enforceable by the subjects of the former State in his municipal courts. In The Secretary of State in Council of India v.

Kamachee Boye Saheba(') the jurisdiction of the courts in India to adjudicate upon the validity of the seizure by the East India Company of the territory of Rajah of Tanjore as an escheat, on the ground that the dignity of the Raj was extinct for want of a male heir, and that the property of the late Rajah lapsed to the British Government, fell to be determined. The Judicial Committee held that as the seizure was made by the British Government, acting as a sovereign power, through its delegate, the East India, Company, it was an act of State and the Municipal Court had no jurisliiction

to inquire into the propriety of the action. At page 529 of the Report Lord Kingsdown observed:

"The transactions of independent States between each other are governed by other laws than those which Municipal Courts administer: Such Courts have neither the means of deciding what is right, nor the power of enforcing any decision which they may make."

In another case-Vajesingji Joravarsingji v. Secretary of State for India in Council(')-the Judicial Committee observed as follows:

" ...... when a territory is acquired by a sovereign State for the first time that is an act of State. It matters not how the acquisition has been brought about. It may be by conquest, it may be by cession following on treaty, it may be by occupation of territory hitherto unoccupied by a recognized ruler. In all cases the result is the same. Any inhabitant pf the territory can make good in the municipal courts established by the new sovereign only such rights as that sovereign has, through his officers, recosnised. Such rights as he had under the rule of precedes-

(') Moore's LA. 476.

(') 61 LA. 367.

[1966) SUPP. S.C.R.

sors avail him nothing. Nay more even if in a treaty of cession it is stipulated that certain inhabitants should enjoy certain rights, that does not give a title to those inhabitants to enforce these stipulations in the municipal courts. The right to enforce remains only with the high contracting parties."

B In Secretary of State v. Sardar Rustom Khan and Others(') a question arose whether the rights of a grantee of certain proprietary rights in lands from the then Khan of Kalal, ceased to be enforceable since the agreement between the Khan and the Agent to the Governor-General in Baluchistan under which the Khan had granted to the British Government a perpetual lease of a part of the Kalal territory, at a quit rent, and had ceded in perpetuity with 0 full and exclusive revenue civil and criminal jurisdiction and all other forms of administration.

In delivering the opinion of the Judicial Committee, Lord Atkin observed as follows:

"In this case the Government of India had the right to recognise or not recognise the existing titles to land.

In the case of the lands in suit they decided not to recognize them, and it follows that the plaintiffs have no recourse against the Government in the Municipal Courts."

The principle that cession of territory by one State to another is

an act of State and the subjects of the former State may enforce only those rights which the new sovereign recognises has been iCte1'fed by this Court in MI s. Dalmia Dadri Cement Co. Ltd. v.

B The Commissioner of Income-tax(').

The State of Saurashtra v.

Jamadar Mohamat Abdulla and others('). Maharaja Shree Umaid

Mills Ltd. v. Union of India ('), and State oi Gujarat

v. Vora Fiddali Badruddin Mithibarwa/a(').

On behalf of the appellant it was contended that there was an implied recognition by the Rajasthan State of the contractual liability since the exemptions were continued upto January 13, J !951 and were revoked with effect from that date by the notification No. F.4(18JSR/49. We arc unable to accept this argument as correct. Before the process of integration began, each Covenanting State was a separate geographical unit for customs purposes and had its own customs laws and barrier. After the formation of the Matsya Union on March 18, 1948 there was a promulgation of G the Matsya Customs Ordinance by the Raj Pramukh on September 21, 1948. The United State of Rajasthan was constituted on May JS, 1949 when there was merger of Matsya Union in the United State of Rajasthan. On August 9, 1949 the Raj Pramukh promulgated the Rajasthan (Regulation of Customs Duties) Ordinance

(') 68 I.A. 100.

('I [1002] 3 8.G.R. 970.

l'I [1964] 6 A.C.R. •61.

I') [1050) 8.C.I\. 729. r'I 11963] Supp. 2 ~.C.R. 51,.

--+

FIRM BANSIDHAH v. HAJASTHAN (Ramaswami, J.) 87

No. 16 of 1949. Section 3 of this Ordinance abolished duties on the transport of goods within the territory of Rajasthan. Section 3 reads as follows :

"3. No duty leviable on internal transport-With effect from such date as may be notified by the Government in the Rajasthan Gazette, no duties of Customs shall be levied and collected in respect of any goods transported within Rajasthan, notwithstanding anything to the contrary in any law, or rule, instrument of usage having the force of law, in any part of Rajasthan; and any such law, rule instrument or usage shall be deemed to be repealed to that extent:

Provided that the Government may, by notification in the Rajasthan Gazette-(a) Impose a duty of customs on the transport of goods from or to any part of Rajasthan to or from such other part thereof at such rate or rates and with effect from such date as may be specified in the notification, or (b) direct that, in respect of the transport of goods of such description and from or to such part of Ra jasthan as may be specified in the notification, a sum of money equal to the amount of the duty leviable on the export on such goods shall be deposited with the appropriate Customs Officer of the place from where the goods are intended to be transported."

Section 4 is the charging section with regard to import and export duties. Section 4(1) states:

"4. Duties on export and import: (])Until a revised tariff is introduced under sub-section (2) Customs duties on the export or on the import of goods shall be levied and collected in accordance with the tariff for the time being in force in the place from or into which goods leviable with a duty of Customs have been exported or imported, as the case may be."

Sub-section (2) of s. 4 provides:

"The Government may, by notification in the Rajasthan Gazette, issue a revised tariff specifying the goods G or class of goods in respect of which, and the rate at which, duties of Customs shall be levied and collected with effect from such date as may be specified in the notification on the export or on the import of such goods or class of goods."

H Eventually on August 15, 1949 a uniform revised tariff was made applicable to the whole of Rajasthan. Section 6 provided that the existing law in force of the covenanting States shall regulate the

L/S5SCGI-S

88 SUPRE!dE COURT REPORTS [1066] SUPP. s.c.R.

collection of such duties and other ancillary duties in relation A thereto, unless altered. modified or repealed by a competent legislative authority of Rajasthan and thus saved existing law with regard to the procedure and ancillary matters. It is manifest on examination of the provisions of this Ordinance that there was a repeal of all Customs laws C1f the Covenanting States in so far as they provided for the levy and collection of duties in the parti- B cular territorial limits of the Covenanting States and the Ordinance introduced a new law imposing duty on export and import into Rajasthan State as a whole. Further, after the issue of a revised tariff the old tariffs under the various laws of the Covenanting States •tlso stood repealed. There is no express provision in the Ordinance saving the previous contractual rights with regard to C customs duty. In the absence of any such express provision it must be held that all existing contracts were repudiated and cancelled. The enjoyment of the concession by the appellant after the formation of the Rajasthan State is clearly referable to the law under which customs concessions could be granted and recognised.

This is borne out by the notification dated January 16. 1951 which appeared in the Rajasthan Raj Patra, which itself refers to ss. 10 D and 33 of the Matsya Customs Ordin:mce No. 14 of 1948 by which customs concessions were revoked. We are, therefore, of the opinion that the High Court has rightly taken the view, upon an analysis of the evidence adduced in the case, that there was no recognition of the contractual liability by the succeeding State of Rajasthan.

We shall, however. assume in favour of the appellant that E the State of Rajasthan recognised the contractual right of the appellant with regard to the exemption of tax. Even upon that assumption the suit of the appellant must fail, for the contractual liability must be taken to have been superseded by the enactment of the RajaSthan (Regulation of Customs Duties) Ordinance No. 16 of 1949 promulgated by the Raj Pramukh on August 9,

1949. Before we deal with this question it is desirable to indicate p the constitutional developments which resulted in the inclusion of the former Bharatpur State into the Part B State of Rajasthan. which came into existence on January 26. 1950.

The former Dharatpur State remained a separate entity till March 18, 1948, though it had acceded to the Dominion of India after August 15, 1947 with respect to three subjects, namely. communications. G defence and external affairs. In 1948. however, the process of merger in Rajasthan began and the first merger that took place was of the former States of Alwar, Bharatpur. Dholpur and Karauli. which formed the Matsya Union as from March 18,

1948 by a Covenant entered on February 28. 1948.

After the formation of the Matsya Union the Raj Pramukh H promulgated the Matsya Customs Ordinance 1948 on September 21, 1948. Section 2 of 1ha1 Ordinance repealecl the levy of

customs duty in force in all the Covenanting States and applied the provisions of the new Ordinance to the whole of the United State of Matsya. Section 10 of the Ordinance provided for the charge of customs duty on goods or class of goods to be notified in the State Gazette from time to time. Section 33 of the Ordinance similarly granted power to the State Government to exempt any goods or class of goods imported or exported from the United State of Matsya from payment of customs duty leviable thereon.

Then came another union of certain other Rulers in Rajasthan in March 1948 by which these Rulers united under the Ruler of Udaipur to form what later came to be known as the Former State of Rajasthan. In March 1949, the United State of Rajasthan was formed by Covenant entered into by fourteen Rulers of Rajasthan, including those who had formed the Former State of Rajasthan, and this State came into existence from April 7. 1949. There was a merger of the Matsya Union in the State of Rajasthan on May 15, 1949 and thus the former Bharatpur State came to be included in the United State of Rajasthan through the Matsya Union. As we have already stated, the Raj Pramukh promulgated the Rajasthan (Regulation of Customs Duties) Ordinance No. 16 of 1949 on August 9, 1949. It is well-established that Parliament or State Legislatures are competent to enact a law altering the terms and conditions of a previous contract or of a grant under which the liability of the Government of India or of the State Governments arises. The legislative competence of Parliament or of the State Legislatures can only be circumscribed by express prohibition contained in the Constitution itself and unless and until there is any provision in the Constitution expressly prohibiting legislation on the subject either absolutely or conditionally, there is no fetter or limitation on the plenary powers which the Legislature is endowed with for legislating on the topics enumerated in the relevant Lists.

This view is borne out by the decision of the Judicial Committee in Thakur Jagannath Baksh Singh v. The United Provinces(') in which a similar complaint was made by the taluqdars of Oudh against the United Provinces Tenancy Act (U.P. Act 17 of 1939).

Tt was held by the Judicial Committee that the Crown cannot deprive itself of its legislative authority by the mere fact that in the exercise of its prerogative it makes a grant of land within the territory over which such legislative authority exists, and no court can annul the enactment of a legislative body acting within the legitimate scope of its sovereign competence. If therefore, it be found that the subject-matter of a Crown grant is within the competence of a Provincial legislature nothing can prevent that legislature from legislating about it unless the Constitution Act itself expressly prohibits legislation on the subject either absolutely or conditionally.

Accordingly, in the absence of any such express prohibition, the

(') [1946] F.O.R. III.]

J:,/85SOI~(a)

90 SUPREME COL'JtT REPORTS

[!966) SUPP. S.C.R.

United Provinces Tenancy Act. 1939. which in consolidating and A amending the law relating to agricultural tenancies and other matters connected therewith in Agra and Oudh. dealt with matters within the exclusive legislative competence of the Provincial legislature under item 21 of List II of the 7th Sch. to the Government of India Act. 1935. was intra vire.1 the Provincial legislature notwithstanding that admittedly some of its provisions cut down the absolute rights claimed by the appellant taluqdar to be comprised in the grant of his estate as evidenced hy the sanad granted by the Crown to his predecessor. The same principle has been reiterated by this Court in Maharaj Umeg Singh and others v. The State of Bombay and others('). It was pointed out that in view of Art. 246

of the Constitution. no curtailment of legislative competence can he C spelt out of the terms of clause 5 of the Letters of Guarantee given by the Dominion Government to the Rulers of "States'" subsequent to the agreements of Merger. which guaranteed. inter alia, the continuance of Jagirs in the merged 'States". This principle also unde•lies the recent decision of this Court in Maharaja Shree Umaid Mills Ltd. v. Union of India(') in which it was pointed out that there is nothing in Art. 295 of the Constitution which prohibits D Parliament from enacting a law altering the terms and conditions of a contract or of a grant under which the liability of the Government of India arises. It was further held that there was nothing in Art. 295 prohibiting Parliament from enacting a law as to excise duty or income-tax in territories which became Part B States. and which were fonnerly Indian States. and such a prohibition cannot be read into Art. 295 by virtue of some contract that might have been made by the then Ruler of an Indian State with any person.

As we have already indicated. there is nothing in the provisions of the Rajasthan (Regulation of Customs Duties) Ordinance No. 16 of 1949 which preserves the alleged contractual ri)!hts of the appellant, and in the absence of any express language in the Ordinance preserving such alleged contractual rights. it must he held that the general law enacted in the Ordinance supersedes the previous contract of the appellant with the State of Rharatpur.

Lastly. it was argued on behalf of the appellant that the notification dated January 16, 1951 revoking the tax concessions was

in \'iolation of Art. 306 of the Constitution which provides as follows: ' ·; rr

"Notwithstanding anything in the foregoing provisions of this Part or in any other provisions of this Constitution. any State specified in Part R of the First Schedule which before the commencement of this Constitution was levying any tax or duty on the import of goods into the State from other States or on the export of goods

{t) [19.;!IJ 2 S.C.It 161. (_2J i 1!163] upp. 2 S.C.lt. 515.

_.,< -

--; l,

riRM BANS!DHAR V. RMASTilAN (Ramaswami, J.) 91

from the State to other States may, if an agreement in that behalf has been entered into between the Government of India and the Government of that State, continue to levy and collect such tax or duty subject to the terms of such agreement and for such period not exceeding ten years from the cornmencement of this Constitution as may be specified in the agreement.

" ...... : .............................. .

The argument is based on the assumption that the appellant was enjoying concessions under s. 40 of the Customs Circular No. 15 and continued to enjoy the concessions in the State of Matsya under s. 34 of the Matsya Customs Ordinance No. 14 of 1948, and subsequently in the State of Rajasthan under s. 6 of the Rajasthan (Regulation of Customs Duties) Ordinance No. 16 of 1949. It is the admitted position that the agreement entered between the Government of India and the United State of Rajasthan on February 25,

1950 incorporated certain recommendations of the Federal Finance Enquiry Committee Report 1948-49. The agreement having been executed and the condition under Art. 306 having been satisfied in this case, the continuance of the customs duty is in conformity with the provisions of this Article. In any case, the claim of the appellant is not basd on any provision of Bharatpur law but upon a contractual liability of Bharatpur State and to a case of th; s description the provisions of Art. 306 cannot be attracted.

For the reasons expressed, we hold that the judgment of the High Court is right and this appeal must be dismissed with costs.

Appeal dismissed .

FIRM BANSIDHAR PREMSUKHDAS

STATE OF RAJASTHAN

A. K. SARKAR

K. SUBBA RAO

V. RAMASWAMI, JJ.

s. 33

[1955] 2 S.C.R. 164

Art. 306

cl. 3

cl. 3

cl. 3

cl. 3

cl. 3

cl. 3

Section 3

Section 3

Section 4

Section 4(1)

s. 4

Section 6

S

88

ss. 10

Section 2

Section 10

Section 33

United Provinces Tenancy Act

Art. 246

clause 5

Art. 295

Art. 295

Art. 295

Art. 306

First Schedule

s. 40

s. 34

s. 6

Art. 306

Art. 306


ELLERMAN & BUCKNALL STEAMSHIP CO. LID.

SHA MISRIMAL BllERAJEE

March 29, 1966

IK. SunnA RAO A1'D V. RAMASWAMI, JJ.J

Mercantile Law-Deceit-Shipowner had knowledge matenals ordered to be supplied in new drums-giving 'clean bill of lading'- though packing in old drum-taking indemnit11 bond-whether liable for deceit for loss caused to buyer-"Letters of Credit", "bil! of lading", "clean bi!l of lading", considered.

The respondent entered into two contracts with the B Company C

(sellers) of New York to purchase certain chemicals and in pursuance of the contracLo; placed three indents for the material in December 1950 and January 1951. The indents specified that the materials were to be packed in new fibre drums.

The respondent thereafter opened and confirmed irrevocable letters of credit to be negotiated by his bankers' agents in New York.

These agents were authorised to make payment to the sellers against "clean on board" bills of lading.

When the sellers shipped the goods by one of the appellant's vessels. the Mate's receipt given to the sellers on the arrival of the goods at the wharf described them as bemg packed in re-used drums. The seilers then approached the appe!knt with a request to grant them a clean bill of lading as <1gainst the reference in the Mate's receipt to re-used drums. Upon the sellers furnishing the appellant with an indemnity bond against any claims etc., the appcilant issued them a clean bzll of lading which described the drums simpl)· as drums.

The sellers then negotiated the bills of lading against the letters of c1edit and obtained payment of the contract price. When the shipment arrived in India it was discovered that the drums contained on!y coal dust and not the chemicals ordered.

The respondent took appropriate proceedings aAainst the sellers in the American Courts and rerovcre<l part of his loss. H(' then instituted the present suit against the bank and the appellant. The Trial Court dismissed the claim against the appellant but decreed the suit in part against the bank. Hov .. cver, the IIigh Court, on appeal, held that the appellant, with the knowledge that the bills of lading \l,:ould be negotiated, gave at the request of the seller, clean bills of lading though only unclean bills of lading should have been given.

It therefore held the ship-owners responsible for the loss caused to the respondents and allowed a oO!Xlrate appeal filed by the bank.

On appeal to this Court it ''""' "or.tended on behalf of the rppcl1ants that \vhilc rcspondf'nt had based his cause of action on a breach of contract, the High Court had given relief founded 0n deceit. that under common law or contract the appellant had no dutv or obligation to make a statement in !ht.· bills of lading that the drums \\ere 0ld ones; and that the bills of lading were c}{'an onl'S,

for the oldnes.c; or ne\vncss of drums hGd no real impart on the contents thereof. as both \\•ere equally suitable containers for the H materials to be supplied.

-+-

_,,._

, A.

ELLERMAN & BuCKNALL W'D. v. MISRIMAL (Subba Rao, J.) 93

HELD: (i) There was no merit in the contentiOn that the High Court gave relief founded on deceit whereas the respondents cause of action was based on a breach of contract. It was clear from the pleadings that a claim on the basis of. misrepreentation was made in the plaint, denied by the appellant m the written statement and argued in the Courts below. [96 G-H]

(ii) The High Court was rfght in holding that the appellant was liable in damages for the Joss incurred by the respondent.

It was one of the terms of the contract between the seller and the buyer that the goods should be placed in new fibre drums. The standard of good order and condition of the packages was agreed upon by the parties to the contract. The shipowners knew that condition as disclosed by the Mate's receipt, If the drums had been mentioned as old in the bill of lading, that bill would not have been a C clean bill. Though the apparent condition of the drums was old, the shipowners made an assertion that they were not old drums, i.e., they gave a clean bill. This representation was obviously intended, in collusion with the sellers, to enable them to operate upon the credit with the Bank. This collusion was also apparent ; from the indemnity bond they took from the sellers to guard themselves against the consequences of the said representation. All the elements of deceit were therefore present. [102 D-F]

D Case law reviewed.

C!v11 APPELLATE JuRJSDICTJON: Civil Appeal No. 274 of 1964.

Appeal from the judgment and decree dated November 3, 1960 of the Madras High Court in C.C.C. Appeal No. 61 of 1957.

A. K. Sen, V. BhagQf and D. N. Gupta, for the appellant.

E S. T. Desai, Kesaw/a/ and R. Ganapathy Iyer, for the respondent.

The Judgment of the Court was delivered by

Subba Rao, J. The appellant, Ellerman Bucknall Steamshi; i Company Ltd., hereinafter called the shipowners, arc a limited liability company incorporated under the law in the United Kingdom F carrying on business as common carriers by sea. They own a ship named "CITY OF LUCKNOW". Messrs. Best & Co., Ltd., having their office at Madras, arc the local agents of the shipowners.

Sha Misrimal Bhcrajee, the respondent herein, here-in-after called the buyer, entered into two contracts with the British Mercantile Company Limited, New York, herein-after called the seller, for the purchase of Fresh Monsanto Polystyrene Injection Moulding Power (not reground) in granuclcs manufactured by Monsanto Chemical of New York. In respect of the first contract, the purchaser placed two indents dated December 26, 1950, and December 27, 1950, for the said stuff of value of Rs. 13,500/- and Rs. 6,750 Irespectively. The buyer entered into a second contract with the seller for the purchase of 24 drums of the same material of the value of Rs. 16,000/- under an indent dated January 23, 1951. In respect of the first contract and indents the

SUPREM& COURT REPORTS [!966J SUPP. s.c.ll.

buyer opened and confirmed an irrevocable Letter cf Credit No.

A 4748 dated December 28, 1950. for U.S. $4535 plus war risk with the Eastern Bank Limited. In regard to the second contract he opened another irrevocable Letter of Credit No. 5012 dated January 31, 1951 for U.S. 53,330. As the said Bank had no branch of its own at New York. it arranged with the Marine Midland Trust Company of New York for payment of the bills that might be presented by the seller in New York. Pursuant to the said contracts, the seller deliwrcd to the shipowners certain consignments in reused fibre drums. The bills of lading issued by the shipowners described the drums simply as drums. After taking a letter of indemnity to cover against any loss, the shipowners issued clean bills of lading. The seller negotiate<.! the bills of lading with the Marine Midland Trust Company, New York and obtained payment of U.S. $6,998.75 under the letters of credit.

Thereafter, the bills of lading were forwarded to the Eastern Ban" Limited, Madras, and the buyer paid to the said Bank a sum of Rs. 33,012-5-9 against the said letters of credit. When the shipment arrived it was discovered that the goods sought to be delivered did

not answer the description given in the documents. Indeed, the D drums contained only coal dust and factory shavings. 1 he buyer took appropriate proceedings ag•inst the seller in the American courts and realized a sum of Rs. 13.604-9-0. Thereafter. he instituted the present suit in the City Civil Court, Madras, for the recovery of a sum of Rs. 23.760-15-6 against the Bank as well as thcshipowners. To that suit the Bank was made the lst defendant and the shipowners, the 2nd dekndant. Broadly stated, the basis of the claim against the Bank was that, though under the letters of credit the Clank had the authority to pay only against dean bills of lading. it paid against unclean bills of lading. The cause of action against the shipowners was that they made a misrepresentation that the bills of lading were clean whereas in fact they were not so, with the result, acting on that misrepresentation, the agent of the Bank paid against the said bills of lading which it would not have done had it known the real facts.

The learned City Civil Judge held that the bills of lading were clean ones but m respect of one nf the letters of credit the Bank should not have accepted the shipping documents which related only to a part of the goods contracted for. On that finding the learned Judge held that the Bank was liable to refund the amount paid only under one of the letters of credit. As against the shipowners he came to the conclusion that even if the bills were not clean. the Bank would nevertheless have P"id the amount. as the terms of the letters of credit were comprehensive enough to authoriic such payments. In the result. he dismissed th~ suit against the shipowners but decreed it in part aainst the flank.

The flnk and the shipmvners preferred appeals to the Hieh Court against the said decree insofar as it went against each of them.

ELLERMAN & lmckNALL LTD. v. llSRJMH (Bubba Rao, J.) 95

The appeals were heard by a Division Bench of the Madras High Court. The learned J udgcs of the High Court came to the conclusion that the shipowners with the knowledge that the bills of lading would be negotiated gave, at the request of the seller, clean bills of Jading while as a matter of fact only unclean bills of lading should have been given. They further held that the purchaser was damnified, as on the basis of the misrepresentation found in the bills of lading the Bank paid the amount against the shipping documents which it would not have done if it had known that the bills of lading were unclean. In the result, they gave a decree for the entire suit claim against the shipowners. They allowed C.C.C.A. No. 61 of 1957 against the shipowners but dismissed it against the Bank. C.C.C.A. No. 54 of 1957, the appeal filed by the Bank, was allowed. The shipowners have preferred the present appeal against the decree given by the High Court against them.

The argument of Mr. A. K. Sen, learned counsel for the appellant, may broadly be placed under the following three heads: (1) While the respondent based his cause of action on a breach of contract, the High Court gave the relief founded on deceit; (2) under common law or contract the appellant had no duty or obli gation to make a statement in the bills of lading that the drum9 were old cnes and, therefore, the non-mention of that fact could not have misled the Bank into paying against the shipping docu ments under the letters of credit; and (3) the bills of lading were clean ones, for the oldness or newness of drums had no real impact on the contents thereof, for both, were equally suitable containers of the articles to be supplied.

Mr. S. T. Desai. learned counsel for the respondent, while made a faint attempt to sustain the decree of the High Court on the basis of breach of contract, seriously sought to support it on the doctrine of deceit. He argued that there was a fraudulent misrepresentation by the appellant in collusion with the seller to the effect that the bills of lading were clean while in fact they were not and that, acting on that misrepresentation, the Bank, through its agent at New Yark, paid the amount to the seller under the letters of credit against the shipping documents, which it would not have done if such a misrepresentation had not been made. He countered the contentions of the learned counsel for the appellant that the High Court gave a decree on a cause of action different from that on which the plaint was based.

The first contention turns upon the pleadings as well as on the conduct of the parties during the trial and the appcJI.

A perusal of the plaint discloses that the 2nd defendant was sought to be made liable both in contract and in tort. Paragraph 9 of the plaint reads thus:

"If the first defendants state that they acted on the terms of the bills of lading and are therefore protected, the plaintiffs

SUPREME COURT REPORTS [1966) surP. s.c.n.

also charge that in any event the second defendants are liable, for issuing the bills of lading without disclosing the true state of facts and for in, crting statements in the bills of lading which are now admitted to be untrue. The plaintiffs also charge that

the defendants arc precluded from denying the correctness of the statement in the bills of lading as regards the apparent good order and condition as mentioned in the bills of Jadig. B The plaintiffs charge that the second defendants and the shippers acted collusively with a view to enable if possible the shippers to obtain moneys against goods which were not the goods agreed to be sold and which were not consigned according to the contract. The very fact that the second defendants have obtained an indemnity for issuing the bills of Jading without disclosing the real state of facts would show their consciousness that they were not right in issuing the bills of la.ding in the terms they did and whatever their rights as against the shippers may be on the indemnity, the plaintiffs

are not concerned with the same. but the second defendants are liable to the plaintiffs to make good the loss resulting by reason of a representation acted on by which the plaintiffs have D been damnified ".

This passage in the plaint contains all the necessary allegations to sustain a claim in tort. It is clear. therefore, that the claim of the buyer against the shipowners was also based upon the misrepre sentation made by the latter in the bills of lading. In the writtenstatement the appellant denied the allegations in para 9 of the plaint and stated that there was no secret arrangement between E them and the seller in regard to the goods or the containers. The shipowners also denied that they inserted any untrue statement in the bills of lading acting in collusion with the seller to enable the latter to obtain money against the bills of lading. Issue 6 framed by the learned City Civil Judge reads:

"Did the second defendant act bona fide throughout in issuing the bills of Lding and in taking an indemnity from the F shippers?".

The judgment of the learned City Civil Judge discloses that the question of misrepre, entation by collusion was argued and the learned Judge held that the Bank W<'s not misled. as under the letters of credit it had to pay the amount against the bills of lading. whether clean or unclean. Before the High Court also the question G of misrepresentation by the shipowners was expressly raised and was accepted by it. We cannot. therefore, agree with the contention of the learned counsel for the appellant that the High Court had made out a new case which was not raised in the plaint: indeed. the claim on the basis of misrepresentation was made in the plaint. denied by the appellant in the written-statement and argued in both H the courls below. There are, therefore, no merits in the first contention.

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EtLERMAN & BUCKNALL LTD. v. MISRIMAL (Subba Rao, J.) 97

On the question of the appellant's liability t? the buyer in contract we are satisfied that there 1s no basis for it. Indeed, learned

cousel for the respondent did not seriously press the point, though he did not give it up altogether.

A bill of lading serves three purposes, viz., (i) it is receipt for the goods shipped containing the terms on which they have been received; (ii) it is evidence of the contract for carriage of goods; and

(iii) it is a document of title for the goods specified therein. The contract of the shipowners in the bill of lading is that they will de· liver the goods at their destination "in the like good order and condition" in which they were when shipped. In terms cf the contract the shipowners delivered the goods to the buyer in the drums.

The consignee incurred damages not because of any defect in the drums but because the seller sent goods different from those he had agreed to sell to him. Therefore, the shipowners were not liable for any damages to the purchaser on the basis of breach of any of the terms of the contract. No further elaboration on this point is called for, as finally this point was not seriously pressed by the learned counsel for the respondent.

Now we shall consider the main point raised in the appeal, namely, the liability of the appellant in tort. Before we advert to the question of law it would be convenient to notice the relevant facts.

Exhibit A-1 dated December 26, 1950, the indent placed by the buyer with the seller in respect of Fresh Monsanto Polystyrene Injection Moulding Powder of value of Rs. 13,500/-. The packing was to be in new fibre drums each containing 250 lbs. nett. Exhibit A-2 is another indent dated December 27, 1950, placed by the buyer with the seller. The quantity required thereunder was of the value of Rs. 6,750/- and the packing was to be in new fibre drums each containing 250 lbs. nett. Exhibit A-5 is the third indent dated January 23, 1951, for the same goods worth Rs. 16,500/- with similar terms. The buyer opened two letters of credit, Exs. B-1 and B-2, with the Eastern Bank Limited, Madras, for U.S. $ 7,625. Exhibits B-28 and B-29 arc the letters written by the Eastern Bank Limited, Madras. to the Marine Midland Trust Company, New York, to open letters of credit for payment of the bills that might be presented by the seller.

Exhibit B-1 reads:

"We hereby authorise and request you and/or your Agents and I or Representatives at New York to open a confirmed and irrevocable bank credit in favour of Messrs. British Mercantile Company Limited etc., and to make payment or payments thereunder on our behalf ............ against documents purporting to be invoices, shipping specifications, Bills of Lading and Policies and/or Certificates of Insurance covering Marine and War Risks ............ We agree that this credit is subject to U.S.A. regulations and practice."

SUPRE~E COURT ltEPORTS [19GG] SUPP. s.c.11.

Exhibit B-2 is also a similar letter of credit. Clause 3 of Ex. 28 A reads:

"Clean on Roard" Bills of Lading in complete sets of at least two signed copies to be made out to the order of the Eastern Bank Limited, or to order blank endorsed and marked by the shipping company 'Freight paid'." B

Exhibit B-29 also contains similar recitals. It will be seen that though the words ''clean on board" bills of lading arc not found in Ex. B I and B-2, but in the directions given to the Marine Midland Trust Company. New York. the sa:d words are clearly fcund. The following rekvam recitals arc found in a sample of the bills of lading: "Received in apparent good order and condition from British \1crcantilc Company, Limited. City of Lucknow, to be transported by the good Vessel City of Lucknow to sail from the Port of New York for the East Indies ....................... ..

Total 21 packages, said to weigh 9,920 lbs. said to be marked and numbered as below !weight. gauge. measurement, contents. conditions. quality and value unknown, statements of D same herein being made solely on shipper's d'Cclaration and this bill of lading not to be deemed any evidence therecf) to be delivered as provided hereunder lliability as carrier to end without notice) in like good order and condition at Madras ,)r so ne,1r thereto as the essel may safely get unto order of the Merc; mtile Bank of India. Limited, er to his or their Assigns . ............................. ".

The bill of J;1ding gives the number of packages as 21 drums and under the cclumn "cbcription of goods" it states "Polystyrene Powder". The lo.fate's receipt given to the seller on the arrival of the goods at the wharf for being carried by S.S. City of Lucknow describes them as being packed in re-used drums. The seller gave an indemnity bo;1d to rhe shipowners and the material part of it r reads:

"We shall be obliged by your granting us Clean Bills of Lading for the unJermcntirn1ed goods, Mate's receipt being cla used Reused Drumsa nd in consideration of your so doing we undertake to pay on demand all freight and/or General and particular Aver- G age and' or charge, there may be thereon, to indemnify you and e'1ch of you against all claims and for demands which may be made against you or any of you in respect of the undermentioned goods and to hold you harmless from any and all consequences that may arise by your granting such clean B/L

and acting thercnn including losse.s. damages, costs or any H other expenses which you or any of you may sustain or incur by reason of the premises or in any way relating thereto."

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ELLERMAN & BUCKNALL LTD. v. MTSRIMAL (Hubba Rao, J.) 99

After obtaining the said indemnity bond, the shipowners issued the bill of lading wherein instead of "reused drums" only "drums" was mentioned. It will be seen from the said documents that according to the indents the seller had to pack the goods in new fibre drums, that the Bank opened letters of credit for payment against bills of lading, that the Marine Midland Trust Company of New York, th_e agent of the Eastern Bank Limited, Madras, opened letters of credit whereunder payments could be made only against clean bills of lading, that in the Mate's receipt given to the seller on the arrival of the goods at the wharf for being carried by S.S. City of Lucknow the drums were described as reused drums and that thereafter, after giving indemnity against any loss to the shipowners, in the bill of lading the drums were not described as reused drums but only as drums. The learned City Civil Judge on the said documents gave the following findings:

"Thus, if the Bills of Lading were unclean certainly the banks would not have paid the money to the shippers. In fact it was for the very purpose of enabling the shippers to obtain monies from the banks that they wanted clean Bills of Lading and were prepared to give letters of indemnity to the shipping company. With such description in the Bills of Lading it is extremely doubtful whether even the under-writers would have insured the goods as required under the letters of credit.

If the shippers had not produced either clean Bills of Lading or Certificates of Insurance as required under the letters of credit then certainly the shippers could not have realised the money from the bank. Thus the second defendants have certainly helped the shippers in this matter by suppressing the real condition of the goods from the Bills of Lading." The High Court, agreeing with that finding, held "the shipowner with the knowledge that the bills of Jading would be negotiated, gave at the request of the seller clean bills of lading, while as a matter of fact only unclean bills of lading should have been given".

The question is whether on the said facts and the findings given by the courts below the purchaser could maintain an action for deceit against the shipowners.

_ "Deceit is a fals~ statemnt of a fact made by a person knowmgly or recklessly with the mtent that it shall be acted upon by another who does act upon it and thereby suffers damage"; see "A Text-book of the Law of Tort" by Winfield; 5th Edn., at 6. 379. In order to make the shipowners liable for deceit, the first ingredient to be atisfied is that they knowingly issued a clean bill of lading, when It should not have been given. with intent that on that basis payment would be made to the holder of the bill under the letters of credit. In order to come to a correct conclusion whether the ingredients of the definition of "deceit" have been satisfied in the present case, it is necessary to know the exact scope of the followmg three terms : "letters of credit'', "bill of lading", and "clean bill

100 SUPRl'.llE CXll1RT REPORTS

(196Q)

SUPP.

S.C.I\.

of lading". The said three expressions are evolved in the law A merchant to facilitate international trade. The origin and import

ance of letters of credit in the international commerce has been stated by Denning. L. J .. in Pa via & Co •. A.P.A. v. Thurmann Neilsen(') as follows:

"The sale of !!OOds across the world is now usually arrang B ed by means of confirmed credits. The buyer requests his banker to open a credit in favour of the seller and in pmsu ance of that request the banker. or his foreign agent. issues a confirmed credit in favour of the seller. This credit is a promise by the banker to pay money to the seller in return for the shipping documents. Then the seller. when he presents the docu ments, gets paid the contract price. The conditions of the credit C must be strictly fulfilled. otherwise the seller would not be entitled to draw on it." But when issuing banker has no branch in the relevant country where the beneficiary operates. the services of an intermediary banker may be requisitioned. The intermediary banker may be asked to advise the beneficiary of the credit or may be asked to add his confirmatory undertaking to it. In the latter event the beneficiary D has the promise of both the bankers.

As letters of credit are issued or opened on conditions on which the request is made. the banker can only negotiate the shipping documents if the conditions are strictly complied with. If, for in stance. the mandate of the buyer is that the banker shall pay on a clean bill of lading. the banker can only honour a clean bill and not an unclean one. When a purchaser specifically directs the banker E to pay against a clean bill of lading, the condition for payment is an obvious one. But, when a credit calls for bills of lading without any qualification, in normal circumstances it means clean bills of lading: see British Im ex Industries Ltd. v. Midland Bank Ltd.(').

A clean bill of lading is defined in Halsbury's Laws of England, 3rd Edn., Vol. 2. at p. 218. as "one which does not contain any reservation as to the apparent good order and condition cf the goods or the packing". Carver in his book "British Shipping Laws".

Vol. 2. Part 1. in para. 82. explains the expression "good order and condition" thus:

"The general statement in the bill of lading that the goods have been shipped "in good order and condition" amount' (if it is unqualified) to an admission by the shipowner that. so far as he and his agents had the opportunity of judging. the goods were so shipped. If there is no clause or notation in the bill of lading modif)ng or qualifying the statement that the goods were "shipped in good order and condition" the bill is known as a clean bill of lading."

Decisions have held that the "condition" refers to external and ap- H parent condition, and quality, to some thing which is usually not

( 1) [196212 Q.B. 84, Rt 88. (') L.I\. [IU"8] 1Q.B.642, at f>l!I.

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ELLERMAN & BUCKNALL LTD. v MISRIMAL (Subba Rao, J.)

IOI

apparent at all events to an unskilled person: see Compania Navi• era Vasconzada v. Churchill & Sim('). The words like "quality and measure unknown" found in Compania Naviera Vasconzada v.

Churchil & Sim(') "weght, contents and value unknown" in The

Peter der Grosse('); "weight, quality, condition and measure unknown" in The Tromp(") were held to be not qualifying words. In The Restitution Steamship Co., Ltd., v. Sir John Pirie and Co.(') it was held "if you insert in the margin of a bill of lading weights, quantities, or anything that is not contained in the bill of lading

itself, that is not a clean bill of lading". If such words found a place in the body of a bill of lading, they would not have the effect of making the bill an unclean one, we do not see how their mention in the margin would make a difference. But we need not express our final opinion thereon, as in the present case the words are found in the body of the bill itself.

But it is said that the omission of the adjective "new" qualifying the word "drums" or indeed the addition of the adjective "old" to qualifying the same would not necessarily make the bill any the less a clean bill, if oTd drums were suitable vehicles for conveying the articles supplied therein. The newness or the oldness of the container, the argument proceeded, was not decisive of its suitability, for in the main it depended upon its condition and contents. This argument as a proposition of law appears to be sound. In The Tromp(') potatoes, to the knowledge of the defendants' master who signed the bill of lading, were shipped in wet bags and in a damaged condition. The court held that as in the bill of lading the potatoes were described as shipped in good order and condition, which represented the external condition of the bags, the defendants were estopped from denying that the bags were dry when shipped. But it would be noticed that the packing in that case was defective and that was the main cause for the rotting of the potatoes and, therefore, the bill of lading was not a clean one. In Silver v. Ocean Steamship Co., Ltd.('), damage was caused to frozen eggs as the can:

wherein they were packed were gashed, perforated or punctured and the eggs were insufficiently packed. So the court held that having given a clean bill of lading the shipowner was esotpped from proving that the cans were not in apparent good order and condition. In Brown .Jenkinson & Co., Ltd. v. Percy Dalton (London) Ltd.(') orange juice was shipped in barrels. Some of the barrels were old and frail and some were leaking. Yet the shipowners gave a clean bill of lading. They were estopped from denying that the barrels were in apparent good order and condition.

These decisions establish that good order and condition of packages depends upon the suitability of the packages for the

(') L.R. [1906] I K.B. 237. (') L.R. [1921] p. 337.

(') L.R. [1930] I K.B. 416.

( 2) L.R. (1876] I p. 414.

(') L.R. [1889] 5 T.L.R. 641.

(') L.R. [1957] 2 Q.B. 621,

SUPRE~IE COURT REPORTS [1966] SUPP. s.c.n.

particular goods or articles packed therein and other relevant circumstances of each case.

What is the real scope and legal effect of the statement in the

bill of lading that the goods were shipped in good order and condi -. tion? We have already noticed that a bill of lading with such a statement. which does not contain any further reservation or quali- B fication, is known as a dean bill of lading. The said words arc affirmation of a fact. It is an admission creating an cstoppel :1s between the shipowners and an endorsec. who on the faith of that admission has become endorsee for value of the bill of lading.

The shipowners are estopped from denying that the goods and the packages were not in good order and condition. The cstoppel applies only where the bad condition is discernible on a reasonable O examination of the containers, having regard to their contents.

Any qualification of the said affirmation must only refer to the external and apparent condition of the containers: see The Skarp('). Silver v. Ocean Steamship Co •. I.rd.(') Companies Navicra

Nazconzada v. Churchill & Sim('), and The Tromp('). It is not necessary to consider the said decisions in detail as the principle is we!I settled.

Now let us look at the relevant facts of the present case. It was one of the terms of the contract between the seller and the buyer that the goods should be packed in new fibre drums. The standard of good order and condition of the packages was agreed upon by the parties to the contract. The shipowners knew that condition as the Mate's receipt disclosed the same. If the drums E had been mentioned as old in the bill of lading. the said bill would not have been a clean bill. Though the apparent condition of the drums was old. the shipowners made an assertion that they were not old drums. i.e., they gave a clean bill. This representation was obviously intended, in collusion with the seller. to enable him to operate upon the credit with the Bank. This collusion is also apparent from !he indemnity bond they took from the seller to F guard themselves against the consequences of the said reprcsenta- " tion. All the clements of deceit are present.

The decision in Brown Jenkinson & Co .. Ltd. v. Percy Da/- 1011 (Lo11don) Ltd.(') is apposite. There. the defendants had a • quantity of orange juice which they wish to ship to Hamburg. The plaintiffs, as agents of the owners of the vessel on which the orange juice was to be shipped. informed the defendants that the barrels G (, containing the orange juice were old and frail and that some of .~.,. them were leaking and that a claused bill of lading should be granted. The defendants required a clean bill of lading. and the shipowners. at the defendants' request and on a promise that the defendants would give to them an indemnity, signed bills of lading H

- --- -· . - -··---- --

('> J .. R. [1!135] 134. 1'1 l..R. fi030J I K.11. 410.

('I ! .. It. [HJ 1fi] I K.B. 23i.

('I J..n.. [Ifl21] P. :i37,

I') J • .R [1967] 2 Q.B. 621.

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ELLERMAN & BUCKNALL LTD. v. MISRIMAL (Subba Rao, J.) 103

stating that the barrels were "shipped in apparent good order and

condition". The defendants, pursuant to their promise, entered into an indemnity whereby they undertook unconditionally to indemnify the master and the owners of the vessel against all losses which might arise from the issue of clean bills of lading in respect of the goods. The barrels when delivered at Hamburg, were leaking and the shipowners had to make good the loss. The plaintiffs sued the defendants under the indemnity. the benefit of which had been assigned to them. The defendants refused to pay, alleging that the contract of indemnity was illegal, because it had as its object the making by the shipowners of a fraudulent misrepresentation. The court held that the shipowners by making in the bill of lading a representation of fact that they knew to be false with intent that it should be acted upon were committing the tort of deceit, and that the defendants' promise to indemnify the shipowners against loss resulting from the making of that representation was accordingly unenforceable. The only difference on facts between that case and the present one is that in that case the barrels were not only old and frail but also some of them were leaking. But there, as here, the shipowners made a representation of fact which they knew to be false with intent that it should be acted upon. If so, it follows that the High Cct't was right in holding that the appellant was liable in damages for the loss incurred by the respondent.

Learned counsel for the appellant sought to raise three further points, namely, (i) the shipowners were not bound by the representation made by the ship's mate; (ii) the bill of lading was governed by the American law and not by common law; and (iii) the plaintiff-buyer, having obtained a decree against the seller in the American court, could not maintain the present suit for damages. ·

The first point was not raised till now and, therefore, we can not permit the learned counsel to raise it for the first time before F us.

The second point, namely, what is the American law? is a question of fact. We have not got sufficient material on the record to know what the American law on the subject is. We cannot, therefore, permit the appellant to raise this point either.

The third point is also one not pressed in the courts below G and, therefore, does not call for our decision.

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

Appeal dismissed.

L/ ; a.scI-.n

ELLERMAN & BUCKNALL STEAMSHIP CO. LID

SHA MISRIMAL BllERAJEE

IK. SunnA RAO A1'D V. RAMASWAMI, JJ

S. 53

Clause 3