RAM PRASAD DAGDURAM

VUAY KUMAR MOTILAL MIRAKHANWALA & OfIS.

April 18, 1966

A. K. SARKAR C. J., J. R. MuuHOLKAR AND R. S. BACHAWAT, JJ.J

Code of Civil Procedure (Act 5 of 1908), 0. 1, r. 10(1) and (2}- Scope of.

Indian Limitation Act (9 of 1908), s. 22 and Art. 132-Addition of partieuit when deemed to be filed-Suit for foreclosure-Period of limitation-Indian Act extended to Part B State-Period o! limitation abridged by Indian Act-Law of limitation applicable.

The appellant executed a mortga, qe in 1934 in favour of the proprietrix of a firm in the State of Hyderabad. The mortgage amount became due in 1943. The first respondent, who was the daughter's son of the mortgagee, claiming to be her adopted son. filed a suit for foreclosure of the mortgage, m 1954, after the death of the mortgagee. The trial Court dismissed the suit on the ground that the adoption was not established. The first respondent appealed to the High Court and, pending the appeal, applied for adding his natural mother as a co-plaintiff and her two sisters as defendants as they were not willing to join as plaintiffs, and sought consequential amendments in the plaint. The High Court granted the application under 0. !, r. 10(1), Civil Procedure Code, on 4th November, 1958 and thereafter, disp05ed of the appeal by passing a preliminary decree for foreclosure in favour of the added parties. The High Court did not go into the question of adoption but dismissed the first respondent's suit.

HELD: (Per Sarkar, C.J.) : The order adding parties cannot be supported under either sub-r.(l) of sub-r. (2) of 0. 1, r. 10. Sub-r. (1) provided for addition of plaintiffs and could not therefore justify the addition of defendants. In the case of addition of parties under sub-r. (2), the provisions of s. 22 of the Limitation Act admittedly apply and under it in the present case, a suit by the added porties, on the date they were added, would have been barred. It would have been futile, therefore, to make an order under sub-r. (2). (190 G-H: 191

D-EJ Ravji v. Mahadev's case (l.L.R. 22 Born. 672) doubted. There is no reason to think that s. 22 of the Limitation Act does not apply to

0. 1, r. 10, sub-r. (1 ). (191 G] A person suing as the proprietor of a firm does not sue in a representative capacity. He sues in his personal capacity. [192 E-F]

Per Mudholkar and Bachawat JJ: The High Court had power to G

Join the co-plaintiff under 0. 1, r. 10(1) and to join her sisters as defen- dants under 0. 1, r. (2). and to allow onsequential amendments of the plaint under 0. VI, r. 17, but, as regards the added partles, by reason of s. 22(1) of the Indian Limitation Act, 1908. the suit must be regarded as instituted on the date on which they were added and was therefore barred by limitation. [197 CJ

In 1951, the Hyderabad Limitation Act was repealed and the H Indian Limitation Act was extended to the State. The Indian Act ab tidged the period of limitation for the enforcement of the mortgage,

"! ,,

' I'"

ItAl PRASAD t', VIJAY KU~IAR (8arkar, 0. J.)

- - .-. ....,;,-~-r----·

A 'but did not impair or take away any vested right. Therefore, on the date of the institution of the suit, the Jaw of limitation applkable

ws the Indian Act. [194 E-F] \ -

The respondent, as theoriginal plaintiff, sued in his own right. and on his own behalf. There; fore, the parties added must be regarded as a new plaintiff and new defendant respectively. Section 22 of the Limitation Act in express terms applies \vhenever a new plaintiff or a new defendant is substituted under 0. 1, r .. 10(1) or (2). The effect of the section is that the suit must be deemed to have been instituted by the new plaintiff when he was made a party. [196 E-G]

Ravji v. Mahadev~-(1897) I.L.R. 22 Bom. 672, disapproved.

Since the suit in the instant ase was for foreclosure only it was governed by Art. 132 of the Limitation Act and must be regarded as .

C instituted in November 1958, beyond 12 years from the date when the mortgage money was due. [195 CJ

Vasudeva Mudaliar v. K. S. Shriniwas Pillai IL.R. 34 I.A. 186, applied-

OVJL APPELLATE JURISDICTION: Civil Appeal No. 1046 of

1963. ' -

., D Appeal from the judgment and decree dated November 17,

1959 of the Bombay High Court in First Appeal No. 484 of 1957 from Original Decree.

S. T. Desai, and J. B. Dadachanji, for the appellant.

Sarjoo Prasad, B. P. Singh and Naunit Lal, for. respondents Nos. 1 and 2.

Ganpat Rai, for respondent No. 4.

SARKAR, C. J. delivered a separate Opinion. The Judgment of MuDHOLKAR and BACHAWAT JJ. was delivered by BACHAWAT, J.

Sarkar C.J. This appeal arises 'out of a suit filed by the respondent Vijay Kumar against the appellant on February 9, 1954 to enforce a mortgage. The plaint stated that the appellant executed the mortgage on December 13, 1934 in favour of Tarabai, . the proprietor of the firm of Narayandas Chunilal, and that the amount secured on it became due on December 13, 1943. Vijay Kumar claimed that he was adopted by Tarabai on July 16, 1948 as a son to her deceased husband Motilal Hirakhanwala and became entitled to enforce the mortgage as her sole heir on her death on April 23, 1952. After setting out the particulars of the mortgage, Vi jay Kumar. asked for a decree for foreclosure.

In his written statement the appellant admitted the mortgage but denied that Vijay Kumar had been adopted by Tarabai and stated t:bat she had died leaving as her heirs three daughters, Rajkumari, Premkumari and Mahabalkumari, the mother of Vijay Kumar Besides denying Vijay Kumar's right to enforce the mortgage, the appellant took various other defences to the action to which it is unnecessary for the purpose. of this appeal to refer.

SUPREME COURT REPORTS

(1966] SUPP. 8.C.B.

The learned District Judge who heard the suit, held that the I adoption of Vijay Kumar had not been established and on that ground alone he dismissed it, having rejected he other defences raised by the appellant. Vijay Kumar appealed against that judgment to the High Court of Hyderabad but that appeal was, on a subsequent reorganisation of States, transferred to the High Court of Bombay. Thereafter on November 3, . 1958, Vijay . B Kumar made an application in the appeal for an order adding his mother Mahabalkumari as a co-plaintiff with him as she was willing to be so added, and her sisters Rajkumari and Premkumari "who were not available for joining in the suit as plaintiffs", as

defendants. He also sought permission to add a new paragraph to the plaint, in which after reiterating his right to enforce the mortgage as the adopted son of Motilal and Tarabai, he stated.

C "In case, however, the plaintiff's adoption is held not to be proved or not to be valid, the estate of Motilal and Tarabai Hirakhanwala and of Mis Narayandas Chunilal will vest in Tarabai's three daughters, viz.; Rajkumari,' Premkumari and Mahabalkumari".

The prayers in the plaint were also sought to be amended by asking that the decree sought might be passed in favour of Vijaykumar and Mahabalkumari. . . . n

The appellant opposed this application but it was allowed by the High Court. The records of the appeal were, thereafter, reconstituted by adding Mahabalkumari as an appellant and Rajkumari and Premkumari as respondents and amending the plaint

a~ sought. Premkumari filed a written statement denying the adoption of Vijay Kumar and his right to enforce the mortgage.

JI Rajkumari never appeared in the proceedings arising out of the suit. The appeal was thereafter heard by the High Court and allowed. The High Court refused to go into the question of adoption and passed a preliminary mortgage decree for foreclosure in

favour of Mahabalkumari, Rajkumari and Prcmkumari and furr ther directed that the suit as brought by Vijay Kumar would stand dismissed. . The present appeal has been brought by the original 11 defendant against this judgment of the High Court under a certificate granted by it.

I think that Mr. S. T. Desai for the appellant was right when he said that the order adding parties could not be supported. The High Court purported to make the order under sub-r. (I) of 0. 1, r. (10) of the Code of Civil Procedure. We were not called upon G • by counsel to consider any other provision. That sub-rule, however, cannot justify the order, for it only permits addition of a plaintiff and does not provide for the addition of a defendant while the order directs addition of both a plaintiff and two defendants. Was it then properly made in so far as it added a plaintiff?

I do not think so. The addition of Mahabalkumari as a plaintiff H -,, r could not be made under the sub-rule unless it was necessary for the determination of the real matter in dispute. Now, adding her

n.A.:r.I Plti\SAD I'. Vf.T.\Y KUMAR (8a.rko-r, (} .. /.) lDl

as a plaintiff would have availed nothing unless Rajkumari ; ind Premkumari were also added as defendants, and that could not be done under the sub-rule.

No decree could have been passed in her favour alone if the case of adoption failed, for she would then be entitled to the mortgagee's right along with her sisters.

The addition of Mahabalkumari as plaintiff only would have been futile: it would not have helped in the decision of any matter in dispute.

Now, sub-r. (2) of 0. I, r. (10) permits the addition of both plaintiffs and defendants in certain circumstances.

The order however was not sought to be justified under that provision and there was good reason for it.

It was conceded-and in my opinion rightly-that in view of s. 22 of the Limitation Act, the suit as regards the parties added under this sub-rule had to be deemed to have been instituted when they were added.

This was also the view expressed by the High Court.

Now it is not in dispute that a suit filed ot1 the date when the three >.isters were added. to enforce the mortgage would have been barred.

We may add that there is authority for the view that even the addition of defendants alone may attract the bar of limitation: see Ramdoyal v.

J1111me11joy('). Guravayya v. Datra1raya('). I think that the addition of Rajkumari and Prcmkumari as defendants was of the kind considered in these cases. Therefore, it would have been futile to add any of the parties under this sub-rule.

In view of the bar of limitation, such addition would not have resulted in any decree being passed and. therefore. the addition should not have been ordered.

I am, however, not to be understood as holding that apart from the difficulty created by s. 22 the order could have been properly passed under the sub-rule. I have the gravest doubts if it could. It is unnecessary to discuss the matter further.

The High Court. relying on Ravji v. Mahadev,(') expressed the view that when a party is added under sub-r. (I l of 0. I, r. (I 0), s. 22 of the Limitation Act does not app; y and no bar of limitation arises.

No other reason was given by the High Court or suggested by counsel in this Court to avoid the bar of limitation imposed by s. 22. If the bar operated, no addition of parties could, of oourse, be made.

As I am of opinion that the order could not be justified by the terms of that sub-rule, it is not really, necessary for me to consider this question of limitation.

I wish however to observe that, as at present advised, I am not <it all sure that s. 22 does not apply to an addition of parties under sub-r. (I) of r. (I Ol of 0. I. There is no principle to support such a view.

Nor do l think that Ravji's case(') clcorly expresses it.

All that is held-and that too in the judgment of one of the learned Judges only-was that when in a suit by a benamidar the real owner is

(1) (1887) f.L.R. 14 f\11. 'if1J.

(2) (!' 04) LL.R. :!R Ho; . ._ IT. :21 118!-tS) I.I .R. :2~ TI1v11. li72.

SVPHEME COURT REPORTS [ 1966] SUPP. s.LR.

added, it was really the original suit that was continued. Obvious- A ly, the learned Judge thought that he was dealing with a case where there was no real addition of parties.

It would seem that that is not the case where an order under the sub-rule is made.

That would be a case like that of a correction of a misdescription of a party for which a resort to the sub-rule would not be ncces F sary: Purslmtam Vmedbhai & Co. v. Manila/ & Sons.('). Then again Rarji's case(') does not seem to have been approved in later Bombay cases: see e.g. Krishnaji, v.

Hanmaraddi('). Further Ravji's easel'! would not support the order in hand if my reading of it is correct. The present is not a case of a continuation of the wiginal suit.

Herc parties were :1dded to press their own rights which are in conflict with and antagonistic to those which were being pressed in the suit as originally framed.

I do not consider it necessary to pursue this matter further on the present occasion.

It was then said that in the present case there was no substantial addition of parties as the original suit was in the capacity

of a proprietor of the firm of Narayandas Chunilal and all that was done was to add persons who might be the real proprietors.

This was said in order to get out of the bar of limitation by show- D ing that it was the original suit that was continued in spite of the addition of parties. There seems to be authority for the view that when a suit is filed in a representative capacity, if it turns out to be doubtful w17cther that capacity existed or had continued, the proper representative or the owner, as the case may be, might be added even after the date when the suit would be barred.

I will assume that these cases lay down the law correctly. hut they E do not, in my view. afford any assistance in the present case.

First, a suit by a person claiming to be the sole owner of the properties of a business carried on in a firm name, as Vijay Kumar's suit was, is not a suit in a representative capacity; he represents no one but himself.

A firm is not a legal entity which could or had to be represented by any one else.

As is well known, a firm F means only the partner' taken together.

There is no such thin!! as the capacity of a prorrietor of a firm; the capacity of a proprietor of a firm is only the proprietor's individual capacity.

Secondly, no authority has been brought to our notice which shows that if parties are added with a claim which is antagonistic to the claim of the original plaintiff in the suit, as has happened here. that would still be a case where the original suit should be deemed to have been continued.

It may be that if the suit had initially been filed in the fom1 in which it stood after the amendment, it would have been a good suit. as to which however I do not say anything on the preent occasion. If it were so. that would have been under the other

( 1) f IQ61 l 1 S.C.R. 9H2.

(1J (IR!IB) I.I .. R. 2~ B .. 111. 1\12. (') ( 1934) I.L.R. 58 Born. 630.

>- -·

F -·

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RAM PRASAD v. VIJAY KUMAR (Bachawat, J.) 19:3

provisions of the Code permitting joinder of parties and erhaps also of causes of action when instituting a suit, none of which was or could be pressed for our consideration. These provisions are "merely permissive and relate to what the plaintiff might do if he is so minded": Sri Mahant Prayaga Doss v. The Board of Commissioners for Hindu Religious Endowments, Madras.(') That is not the case where addition of parties is sought under 0. l, r. (10), sub-rr. (]) and (2); such additions can only be made under the provisions of these sub-rules only.

For these reasons, I think that the order adding parties is insupportable. If that order goes, as it should, the decree which it; in favour of the added parties cannot stand, for they are then strangers to the suit.

As there is no decree in favour of Vijay Kumar and as in fact the suit considered as brought by him has been dismissed by both the courts below-by the High Court with the tacit approval-and there is no appeal by him, this appeal must be allowed.

In this view of the matter, I do not feel called upon to deal with the other grounds advanced by Mr. Desai.

I would allow the appeal and set aside the judgment of the High Court and restore that of the trial Court. The appellant will not get the costs in any of the courts below or this Court.

Bachawat, J. On December 13, 1934 the appellant executed a mortgage in favour of one Tarabai, widow of Motilal Hirakhanwala. Tarabai had three daughters, Mahabalkumari, Rajkumari and Premkumari.

On July 16, 1948, Tarabai is said to have adopted Vijay Kumar as a son to her deceased husband.

Vijay Kumar is the natural son of Mahabalkumari.

On April 23. 1952, Tarabai died.

On February 10, 1954, Vijya Kumar claiming to be the adopted son and heir of Tarabai, instituted a suit for foreclosure of the mortgage executed in her favour.

The appellant contested the suit.

On December 30, 1955, the District Judge, Aurangabad dismissed the suit, holding that Vijay Kumar was not the adopted son and heir of Tarabai. Vijay Knmar preferred an appeal to the former High Court of Hyderabad. After the reorganisation of States, the appeal was transferred to the Bombay High Court. On an applicatior> made by Vijay Kumar on November 3, 1958, the High Court on November 4, 1958 made ah order for addition of Mahabalkumari as plaintiff and Rajkumari and Premkumari as defendants to the suit and for consequential amendments of the plaint. After the addition of the parties, the appeal came up for final disposal before the Higb Court. At the hearing of the appeal, the respondents submitted that the question whether Vijay Kumar was the adopted son of Tarabai should not be decided in this litigation and a decree should be passed in favour of the added parties on the footing that they were the heirs of Tarabai. The High Court accepted this submission, set aside the finding of the trial Court on the question of the adoption of

(1) 1927 I.T .. R. 50 ?tin.cl. 41.

[JB6tij St:Pl'. S.l".I<.

V1jay Kumar. dismissed the suit as brought by him and directed the trial Court to pas' the usual preliminary decree in favour or Mahabalkumari, Rajkumari and Premkumari.

The High Court held that the mortgage money tdl due on February 9, 1943 anu

the suit being inqituted within 12 years from this date, was not barred by limitation. lhe appellant now appeals to this Court on a cer11ticate granted by the High Court. The main question in this appeal is whether the claim of Mahabalkumari, Rajkumari and Premkumari to enfurcc the mortgage is barred by limitation.

I he mortgage deed dated December 13, 1934 provided that the mortgage money wuuld be payable m annual instalment> within a period of nine Fasli years, and in the event of non-pay ment of live instalments, the mortgagee would be entitled to recover tbe entire mortgage money. The appellant did not pay any of the instalments.

The High Court rightly held that the deed gave the mortgagee an option to enforce the mortgage in the event ol non-payment of live instalments.

It was open to the mortgagee !lot to exercise this option. As the mortgagee did not exercise the option, the mortgage money fell due on the expiry of nine years. that is to say, on February 9. 1943. and limitation commenced to run from this date.

On December 13. 1934 when the mortgage was executed and on February 9. 1943 when the mortgage money fell due, the Hyderabad Limitation Act was in force.

By art. 133 of the Hyderabad Limitation Act, the pcrio:.J of limitation for a suit by a mortgagee for foreclosure was thirty years from the date when the money secured by the mortgage became due.

But as from April 1. 1951. the Hyderabad Limitation Ac.t was repealed and the indian Limitation Act. 1908 was extended to the State o[ Hyderabad by the PartB States

(laws) Act (Act III of 19511 Prima facie. the Indian Limitation Act. 1908 which was in force on the date of the institution of the suit was the law of limitation applicable to the suit.

On behalf of the respondents, it was argued that by reason of the proviso to s. 6 of the Part-B States

(laws) Act, 1951. art. 113 of the Hyderabad Limitation Act con tinued to apply to the suit.

There is no substance in this contention.

The respondents had no vested right in the law of procedure for enforcement of the mortgage.

They did not acquire under art. 133 of the Hyderabad Limitation Act any right or privilege as contemplated by the proviso to s. 6 o[ the Part-B States <Lawsl Act. 1951.

No doubt. art. 132 of the Indian Limitation Act. 1908 abridged the period of limitation for the enforcement of the mortgage.

But this abridgment did not impair or take away any vested right.

Section 30 of the Indian Limitation Act. 1908 inserted by the Part-B States (Laws) Act, 1951 made suitable provi sion safeguarding vested rights in cases where the period prescribed was shorter than that prescribed by the corresponding law previ ously in force in the Part-B State.

_;...

'I.

RA>I ¥ltASAJJ /', \'l.L\Y K; .\[.\]( (Bachawat, J.) 195

It was argued on behalf of the respondents that art. 14 7 of the indian Limitation Act applied to the suit.

We are unable to accept this contention.

In Vasudewi Mudaliar v. K. S. Shriniwas Pillai,(') the Privy Council held that Art. 147 applied only to an English mortgage as defined in the Transfer of Property Act before its amendment in 1929, as, in respect of such a mortgage only, the mortgagee could sue for "foreclosure or sale." That decision has never been questioned and we see no ground for differing from it. The deed dated December 13, 1934 created an anomalous mortgage and conferred a right of foreclosure only upon the mortgagee. 1he mortgagee had no right to sue for sale in the alternative. The present suit was for foreclosure only, and was governed by art. 132 and not art. 147. The suit would be b"rrcd by limitation if it were instituted on November 4, 1958 when Mahabalkumari, Rajkumari and Premkumari were added as purties to the suit.

The question is whether the suit should be regarded as having been instituted on November 4. 1958 having regard to s. 22(1) of the Indian Limitation Act, 1908. Section 22 (I) reads:

"Where, after the institution of a suit, a new plaintiff or defendant is substituted or added, the suit shall. as regards him, be deemed to have been instituted when he was so made a party."

Admittedly, the name of the original plaintiff is not a misclescription of the names of Tarabai's daughters. This is also not a case where a wrong defendant has been sued as representing the estate of a deceased person and subsequently the real representative is added as a defendant.

Nor is this a case where a wrong plaintiff has sued in a representative capacity and the person whom he intended to represent was subsequently added as a plaintiff.

This is a case where the original plaintiff sued in his own right and on his own behalf. No doubt, Vijay Kumar claimed the right to enforce the mortgage as the legal representative of Tarabai.

But he made this claim on his own behalf and not as representing the daughters of Tarabai. Mahabalk11mari must be regarded as a new plaintiff and Rajkumari and Premkumari must be regarded as new defendents and by reason of s. 22( I) the suit must as regards them be deemed to have been instituted when they were made parties.

In Moyappa Chetty v. Supramanian Cherry('), the Privy Council had occasion to consider the similar provisions of s. 22 of the Straits Settlements Ordinance No. 6 of 1896, which read:

"When. after the institution of a suit, a new plaintiff or defendant is substituted or added, the suit shall as

11) L.H

~4- T.A. 181\. (~\ \l!Hfi) L.R . . i3 IA. 113.121.

196 [1966) St; PP. 9.<'."·

regards him be deemed to have been instituted when he was so made a party ... "

Construing this section. Lord Parker of Waddington observed:

"Their Lordships are of opinion that s. 22 contemplates cases in which a suit is defective by reason of the person or one of the persons in whom the right of suit is vested not being before the Court.

Section 133 of the Civil Procedure Code provides against the defence of a suit on this ground and enables the proper party to be added or substituted. If A is the right person to sue, it would be clearly wrong to allow him, for the sake of avoiding the Limitation Ordinance. to take advantage of a suit improperly instituted by B."

Similarly, in this case the daughters of Tarabai cannot, for the purpose of avoiding the Limit<.tion Act, take advantage of the suit improperly instituted by Vijay Kumar.

In Subodi11i Devi v. Cwnur Ga11oda Kalli Roy Bahadur('), the Calcutta High Court held that there was a difference between substituting a new person as plaintiff under s. 27 of the Code of Civil Procedure. 1882 and the addition of a new person as defendant under s. 32 of the Code and that the change of parties as plaintiffs did not affect the question of limitation. This decision was followed by Parsons. J. in Rav; i v. Malwded'). But the learned Judges deciding those cases did ll<lt refer to s. 22 of the Indian Limitation Act. 1877 and they a:ipear to have completely overlooked that section. Section 22 mat es no distinction between sub-r. ()) and sub-r. (2) of 0. I. r. 10. The section in express terms applies whenever a new plaintiff or a new defendant is substituted after the fastitution of a suit.

The Court has power to add a new plaintiff at any stage of the suit, and in the absence of a statutory provision like s. 22 the suit would be regarded as having been commenced by the new plaintiff at the time when it was first instituted.

But the policy of s. 22 is to prevent this result, and tb effect of the section is that

the suit must be regarded as having been instituted by the new plaintiff when he is made a party. see Ramsebuk v. Ramlall Koondoo('l. The rigour of this law has been mitigated by the proviso to s. 21<1) of the Indian Limitation Act, 1963. which en- 0 ables the Court on being satisfied that the omission to include a new plaintiff or a new defendant was due to a mistake made in good faith, to direct that the suit as regards such plaintiff or defendant shall be deemed to have been instituted on any earlier date.

Unfortunately, the proviso to s. 21<1) of the Indian Limitation Act, 1963 has no application to this case, and we have no H ---- -- ----- -·----~ ( 1\ (l~R7) l.L.R. 14 Cnl. 400.

(1 ) 1IRQ7) I.L.R. (') (HISI) LL.H. fi CnL RJ; i, 823---824.

RAM PRASAD r. \'JJAY Kt;;!AR (Bachawal, J.) 197

; uwer to direct that the suit should be deemed to have instituted , m a date earlier than November 4, 1958.

It follows that as regards Mahabalkumari, Rajkumari and Premkumari the suit must be regarded as instituted on November 4, J 958. As far as they are concerned, the suit is barred by limi- R talion and no decree can be passed in their favour.

The decree passed by the High Court in their favour cannot be sustained and must be set aside.

We think that the High Court had power to join Mahabalkumari as a party plaintiff under 0. I, r. 10 of the Code of Civil Procedure and to join Rajkumari and Premkumari as defendants under 0. I, r. 10(2) and to allow consequential amendments of the plaint under 0. 6, r. 17. But having regard to the bar of limitation, the added parties are not entitled to obtain any relief.

So far as Vijay Kumar is concerned, the suit as brought by him was dismissed by the High Court. There is no appeal by him.

On his behalf, it was not contended that we should exercise in his favour our powers under 0. 41, r. 33' of the Code of Civil Procedure, or that we should set aside the decree of dismissal of the suit against him and remand the case to the High Court for decision of the question whether he is the adopted son and heir of Tarabai. Even if such prayer were made, on the facts of this case we would not be inclined to exercise our powers under 0. 41, r. 33 and to set aside the decree of the High Court as to the dismissal of the suit against him.

In the result, the appeal is allowed, the decree passed by the High Court in favour of respondents Nos. 2, 3 and 4, Mahabalkumari, Rajkumari and Premkumari, is set aside and the decree of the trial Court dismissing the suit is restored. The suit is dismissed.

We direct that the parties will pay and bear their own costs in this Court and in the Courts below .

Appeal allowed.

RAM PRASAD DAGDURAM

VUAY KUMAR MOTILAL MIRAKHANWALA & OfIS

A. K. SARKAR

R. S. BACHAWAT, JJ

Code of Civil Procedure

Indian Limitation Act

s. 22

Art. 132

Civil Procedure Code

s. 22

Limitation Act

s. 22

Limitation Act

s. 22(1)

Indian Limitation Act, 1908

Limitation Act

Limitation Act

Section 22

Limitation Act

Art. 132

Limitation Act

L.R. 34 I.A. 186

the Code of Civil Procedure

s. 22

Limitation Act

s. 22

s. 22

Limitation Act

s. 22

s. 22

cl. 41

Limitation Act

art. 133

Limitation Act

Limitation Act

Limitation Act

s. 6

art. 113

Limitation Act

art. 133

Limitation Act

s. 6

art. 132

Limitation Act

Section 30

Limitation Act

art. 14

Limitation Act

Art. 147

art. 132

art. 147

s. 22(1)

Indian Limitation Act, 1908

Section 22

s. 22( I)

s. 22

s. 22

Section 133

s. 27

the Code of Civil Procedure

s. 32

s. 22

Limitation Act

Section 22

s. 22

s. 22

s. 21

Indian Limitation Act, 1963

s. 21

Indian Limitation Act, 1963

the Code of Civil Procedure

the Code of Civil Procedure


MADRAS V. RADIO & ELEOT!\ICALS LTD. (Shah, J,) 199

It is contemplated in sec. 7 and the Rules that the certificate of registration may only be issued after an objective satisfaction by the notified authority that the spec1fi0d goods are l!kely to be needed ior the purpose of business of the registered dealer, and that satsfaction is open to challenge in an appropnate proceedmg before the High Court and even before this Court. Correctness or propriety of satisfaction of the notified authority in issuing the certificate in Form 'B' that the goods are likely to be required for the purpose of the business would not however be again open to challenge before another taxing authority in proceedings for assessment of tax.

[206 G-207 BJ.

Indian Copper Corporation Ltd, v. Commissioner of Commercial Taxes, Bihar & Others 16 S.T.C. 25~ and J.K. Cottoro Spinning & Weaving Co. Ltd. v. The Sales Tax Officer, Kanpur & Another 16 S.T.C. 563, referred 1to.

CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 334, 335 and 338 of 1965.

Appeals by Special Leave from the judgment and orders dated January I, 1963, November 7, 1962 and November 4, 1963 of the Madras High Court in Tax Case No. 170 of 1961 Civil Revision Petition No. 105 of 1961 and Tax Case No. 153 of 1963 res- D pectively.

Bishan Narain and A. V. Rang am, for the appellants (in C.As. Nos. 334 and 335 of 1965).

A. V. Rangam, for the appellant (in C.A. No. 338/1965).

K. R. Chaudhuri, for the respondent (in C. A. No 334/1965).

N. D. Karkhanis, O.C. Mathur, J.B. Dadachanji and Ravinder Narain. for the respondents (in C.As. Nos. 335 and 338/1965).

The Judgment of the Court was delivered by Shah. J. This is a group of appeals filed by the State of Madras against orders passed by the High Court of Judicature at Madras which raises the following common question as to appli cability of concessional rate of sales tax to transactions of inter- State sale and taxable under the Central Sales Tax Act, 1956:

"When a purchasing dealer in one State furnishes in Form 'C' prescribed under the Central Sales Tax (Registration & Turnover) Rules, 1957, to the selling dealer in another

State a declaration, certifying that the goods ordered, purchased or supplied are covered by the certificate Clf registration obtained by the purchasing dealer in Form 'B' prescribed under r. 5(1) of the Central Sales Tax (Registration & Turnover) Rules, 1957, and that the goods are intended for resale, or for use in manufacture of goods for sale, or for nse in the execution of contracts, or for packing of goods for resale, and that declaration is produced by the selling dealer, is it open to the Sales Tax authority under the Central Sales Tax Act to deny to the selling dealer the benefit of concessional rates under s. 8(1) of the Central Sales Tax Act, 19S6.

J, IS5SCI-15

SUPREME OOURT REPORTS

(1966] SL'PP. B.O.R,

on the view that the certificate in Form 'C' mentions more purposes than one for which the goods arc intended to be used, or that the goods are incapable of being used for the purpose for whic~ they are declared to be purchased, or that the goods are applied for some other purpose not mentioned in the certificate in Form 'C'?'' We may briefly set out the facts which give rise to two out of the appeals: Civil Appeals Nos. 334 & 335 of 1965.

Civil Appeal No. 334 of 1965. MI s Radio & Electricals Ltd., respondents in this appeal-<:arry on business in the State of Madras in electrical equipment and are registered as dealers under the Central Sales Tax Act. The Bombay State Electricity Board, Saurashtra Division, which is engaged in the production of electric energy purchased transformers and other goods of the total value of Rs. 1,42,020/- from Mis. Radio & Electricals Ltd. and the latter claimed in proceeding for assessment for Central sales-tax for the year 1957-58 that they were liable to pay tax at the rate of I per cent on the turnover under s. 8(1) of the Central Sales Tax Act.

The Deputy Commercial Tax Officer rejected the claim on the ground that the Bombay State Electricity Board was not a dealer engaged in selling goods and merely because they held a registration certificate, the goods sold to the Board could not be admitted to the concessional rate of tax under s. 8(1) of the Act. The Appellate Assistant Commissioner of Commercial Taxes confirmed the order on the ground that transformers and other goods purchased by the Electricity Board for use in the production of electrical energy were not intended to be used in the manufacture of goods for sale within the meaning of s. 8(3) (b) of the Central Sales Tax Act, because electricity was not at the material time "goods" within the meaning of the Act. The order passed by the Appellate A<iSistant Commissioner was confirmed by the Sales Tax Appellate Tribunal, Madras. The High Court, follawing an earlier judgment in Deputy Commissioner of Commercial Taxes, Madras Division, v.

Manohar Brothers(') modified the order holding that if the selling dealer within the State produces a certificate in Form 'C' setting out one or more of the purposes in s. 8(3)(b) of the Act, and if the Sales Tax authorities on behalf of the State do not deny that th.; purchasing dealer is a registered dealer, the selling dealer will not be denied the concessional rate of tax under the Act, even if it transpires that the purchasing dealer has utilised the goods for purposes other than those mentioned in the certificate of registration. The High Court then held that out of the certificates in Form 'C' produced by the selling dealer, certificates in respect of a turnover of Rs. 42,080 /. set out the purpose as "manufacture of electrical energy" and since this was not one 0f the purposes mentioned in s. 8(3)(b) of the Act as it stood at the relevant time, the Sales Tax authority was right in denying the benefit of the rate under s. 8(1) to the assessee. but with regard to a turnover of - ·-- Ill 13 8.T.O. 686.

MADRAS v. RADIO & ELECTRICALS LTD. (Shah, J.) 201

Rs. 47,340 / - the Sales Tax authority was bound to accept the

certificates in Form 'C' produced by the assessee even though the. certificates contained all the purposes mentioned in the prescribed form, and no purpose was struck out.

The facts which give rise to Civil Appeal No. 335 are these; Mis Stanes Motors (South India) Ltd.-respondents in this appeal -are dealers in automobiles, tractors and spare parts. For the year 1957-58 they claimed benefit of concessional rates under s. 8(1) on a turnover of Rs. 1,38.572/12/- resulting from sale of tractors supplied to certain "tea factories" in the State of Kerala. The purchasing dealers who were four "tea factories" registered as dealers under the Act delivered to the respondents certificates in Form 'C' declaring that the tractors purchased by them were in tended for use in the manufacture of tea for sale. In the view of the Tax Officer benefit of the concessional rate could not be claimed in respect of those sales, since the tractors were not for resale and the tractors "were not directly relatable to the manufacturing process". In appeal, the order passed by the Tax Officer was confirmed by the Appellate Assistant Commissioner. He held that the tractors which were used for transporting tea leaves from the plantations to the factories cannot be said to be used in the manufacture of goods for sale. In appeal to the Sales Tax Appellate Tribunal, it was held that the respondents were entitled to the concessional rate in respect of sales to two out of the four factories, which held certificates of registration in Form 'B' specifying "machinery" as one of the items under s. 8(3)(b). The High Lourt of Madras confirmed the order passed by the Tribunal in exercise of its revisional jurisdiction.

Counsel for the State of Madras contends that the Commercial Tax Officer is invested with authority under the Act to scrutinise the transactions in respect of which the claim to concessional rate of tax is made, and he is competent to ascertain not only whether the certificate in Form 'C' is genuine, but whether the certificate is valid in law, whether the purchasing dea'er holds a valid certificate of registration in Form 'B', whether the goods specified in the purchasing dealer's certificate can be used for the purpose mentioned in the certificate in Form 'C', and whether the goods were applied for the purpose for which they were purchased. Counsel also submitted that a certificate in Form 'C' which specifies more purposes than one for which the goods are intended to be used by the purchasing dealer is invalid.

We may in the first instance set out the relevant provisions of the Act and the Rules. The Central Sales Tax Act 7 4 of 1956 was enacted by the Parliament to formulate principles for determining when a sale or purchase of gocds takes place in the course of inter- H State trade or commerce or outside a State or in the course of import into or export from India. By Ch. II principles for determining when a sale or purchase of goods takes place in the course of L/85SCI-15(al

20;!

SUPRJ<:~IE COL'RT REPORTS fl966] Sl'PP. s.c.R.

inter-State trade or commerce or outside a State or in the course of impon or export are enacted. Chapter III deals with inter-Stllte sales tax. By s. 6 liability is imposed upon every dealer to pay tax under the Act on all s.1les effected by him in the course of inter- State trade or commerce during any year. Section 7 provides for registration of dealers. Section 8. as originally enacted, provided:

"(!) Every dealer who. in the course of inter-State trade or commerce sells to a registered dealer goods of the descrip

tion referred to in sub-section (3) shall be liable to pay tax under this Act, which shall be one per cent of his turnover:

Provided that, if under, the sales tax law of the appropriate State, the sale or purchase of any goods by a dealer is exempt from tax generally and not in specified cases or in specified circumsttnces or is subject to tax (by whatever name called) at a rate or rates which is or are lower than the rate specified in sub-section (I), the tax payable under this Act on the turnover in relation to the sale of such goods in the course of inter-State trade or commerce shall be nil or shall be calculated at the lower rate. as the case may be.

(2)

(3) The goods referred to in sub-section W- -

(a) in the case of declared goods. are goods of the class or classes specified in the certificate of registration of the registere<I dealer purchasing the goods as berng intended for resale by him; and

(b) in any other case, are good> of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for resle by him or for use by him in the manufacture of goods for sale or for

use by him in the execution of any contract; and in either case include the containers or other materials used for the F packing of goods of the class or classes of goods so specified.

Explanation-

(4) The provisions of sub-section (I) shall not apply to any sale in the course of inter-State trade or commerce unlCS6 the dealer selling the goods t:urnishes to the prescribed authority in the prescribed manner a declaration duly filled and G signed by the registered dealer to whom the goods are sold, containing the prescribed particulars on a prescribed form obtained from the prescribed authority.

(5)

(With effect from October I, 1958, by Act 31 of 1958, s. 8 was ex- R tensively amended, but we are. in these appeals. not concerned v.ith the statute as amendedl.

MADRAS 'V. RADIO & ELECTRICALo LTD, (8hah, J.) 203

A Section 10 provides for penalties, The section at the material time provided:-

" If any person-

(a) fails to get himself registered as required by section 7; or

(bl being a registered dealer. falsely represents when purchasing any class of goods that goods of such class are covered by his certificate of registration; or

(c) not being a registered dealer, falsely represents when purchasing goods in the course of inter-State trade or commerce that he is a registered dealer; or

(d) after purchasing any goods for any of the purposes specified in clause (b) of su!J..section (3) of section 8 fails, without reasonable excuse. to make use of the goods for any such purpose;

(e) has in his possession any form prescribed for the purpose of sub-section (4) of section 8 which has not been obtained by him or by his principal or by his agent in accordance with the provisions of this Act or any rules made thereunder; he shall be punishable with simple imprisonment.

Section 14 deals with declared goods in respect of which by s. 8(1) read with s, 8(3)(a) the concessional rate of tax applies when the . goods are purchased as being intended for resale. Reading s. 8(1) with s, 8(3)(b), it is clear that the Legislature intended to grant the benefit of concessional rates of tax under the Act to registered dealers, provided that the goods sold were of the class or classes specified in the certificate of registration of the purchasing dealer and the goods were intended to be used for re-sale by him or for use in the manufacture of goods for sale, or for use in the execution of contracts, or for packing of goods for resale,

In exercise of the power under s. 13 the Central Government made rules called "The Central Sales Tax (Registration & Turnover) Rules, 1957". Rules 3 to 8 provide for registration and issue of certificate of registration. Rule 5(1) provides that when the notified authority is satisfied, after making such enquiry as it thinks necessary, that the particulars contained in the application are correct and complete, it shall register the dealer and grant him a certificate of registration in Form 'B' and also a copy of such certificate for every place of business within the State other than the principal place of business mentioned therein, The material part of Form 'B' is as follows : This is to certify that . , ,. , ... ,. . ,. . ,. ,. . ,. . ,. , ,. .. ,. ..... whose principal place of busins .within the State of . ,. ,. . ,. ,. ,. ,. , ,, ..... .. ,. ,. .... ,. ................ ,, .. ts situated at ..... ,. ",.,,.,. .,. .. ,. ......... .

BUPREMB COURT REPORTS

(1966) BUPP. s.o.R.

has been registered as a dealer under section 7(1) /7(2) of the Central Sales Tax Act, 1956.

The business is: wholly mainly partly partly partly

The class(es) of goods specified for the purpose of subsection (!) of section 8 of the said Act is I are as follows and the sales of these goods in the course of inter-State trade to the dealer shall be taxable at the rate specified in that subsection subject to the provisions of sub-section (4) of the said section:-

(a) For resale, (b) For use in manufacture,

(c) For use in the execution of contracts.

The dealer's year for the purpose of accounts runs from ........................ day of ........................ to the ........... . day of .............................. ".

Rules 9 & 10 deal with cancellation of registration, and Rules 11 & 12 deal with determination of turnover. By r. 12 the declaration referred to in sub-s. (3) of s. 8 of the Act has to be in Form 'C' consisting of three sections-a counterfoil, a duplicate and the original. -The duplicate section of the Form (which in terms is identical with the original section) is as follows:

"Form 'C'-Form of Declaration (See rule 12). (to be used at the time of making purchases from out of State

sellers).

Name of issuing State .. . .. .. .. .. . . .. . . . . . . . . . .. .. . . . . . .. .. .. . . . .. . . . .

F Issued to holder of Registration Certificate No ............ _ ..... .

Serial No. . ............................... .

To . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Seller) ...............

Certified that the goods ••ordered for in our purchase order No .......... dt .. _ ......... _ •Purchased from you as per bill/cash memo stated below.

Supplied under your cha Ian No. _ .... _ ......... dated _ .......... . are for .. resale

••use in manufacture of goods for sale/use in the execution of contracts/packing of goods for resale.

~' I; >- fr

t I!

MADRAS v. RADIO & ELECTRICALS LTD. (Shah, J.) 205

A and are covered by my J our registration certificate No ......... . dated ............... issued under the Central Sales Tax Act, 19!56.

(Name of the purchasing dealer in full).

··/··························· (Signature and status of the person signing the declaration). *Particulars of Bill I Cash Memo . . . . . . . . . . . . . . . . . . . . . . . . . . . Dated ..................... iNo. . . . . . . . . . . . .. . . . . . . . . . . . Amount ........... . **Strike out whichever is not applicable. (Note-To be retained by the selling dealer)".

The Scheme of the Rules read with the Act is that the purchasing dealer as well as the selling dealer must register themselves under the Central Sales Tax Act. If declared goods are specified in the certificate of registration of the purchasing dealer and if it be certified that the goods are intended for resale by him, the sale is subject to concessional rate of tax under s. 8(1). In respect of sales of other classes of goods specified in the certificate of registration of the purchasing dealer, if the goods are purchased either for resale by him, or for use in manufacture of goods for sale, or for use in the execution of contracts, the concessional rate of tax is available, provided the selling dealer obtains from the purchasing dealer the declaration in the prescribed form duly filled in and signed by the latter containing the particulars that the goods are ordered, purchased or supplied under a certain specific order, bill or cash memo or chalan, for all or any of the purposes mentioned and that the goods are covered by the registration certificate of the purchaser described therein and issued under the Act. If the certificate is defective in that it does not set out all the details, or that it contains false particulars about the order, bill, cash memo or chalan, or about the number and date of the registration certificate and specifications of goods covered by the certificate of the purchasing dealer, the transaction will not be admitted to concessional rates.

Now in certain certificates in Form 'C' furnished by the purchasing dealer in this group of appeals all the alternatives in the printed form were retained, and in others one or more but not all the alternatives were retained. Counsel for the State of Madras urged that a certificate in Form 'C' is defective unless it specifie~ only one purpose for which the goods purchased a.re intended to be used. But that contention is not borne out by tb.e Act and the Rules. Goods may be sold to a purchasing dealer under a. single order, bill, cash memo or chalan, one part to be usea for resale, another to be used in the execution of contracts, and the rest in manufacture of goods for sale, but it is not enacted that separate certificates should be issued each relating to the quantity intended to be used for a specified purpose. A purchasing dealer may again be carrying on business as a, manufacturer, as a building, installation or repair contractor, and as a dealer in goods, and if he purchases goods specified in his certificate, but without making up hi5

SUPRBM~ COURT REPORTS [ 1966] St:PP. S.C, R.

min~ about .the precise purpose for which the goods will be used, provided 1t ts one .of the purposes, he will still be complying with the statutory requirements 1f he declared in Form 'C' that the goods arc purchased for more than one purpose. The Act and the Rules do not impose an obligation upon the purchasing dealer to declare that goods purchased by him are intended to be used for one purpose only. even though under his certificate of registration he is entitled to purchase goods of the classes mentioned ins. 8(3)(bl for more purposes than one. When the purchasing dealer furnishes a certificate in Form 'C' without striking out any of the four alter natives, it is a representation that the goods purchased are intended to be used for all or any of the purposes, and the certificate complies with the requirements of the Act and the Rules. The Sales Tax authority is, of course, competent to scrutinise the certificate to find out whether the certificate is genuine. He may also, in appropriate cases, when he has reasonable grounds to believe that the goods purchased arc not covered by the registration certificate of the purchasing dealer. make an enquiry about the contents of the certificate of registration of the purchasing dealer. But it is not for the Tax Officer to bold an enquiry whether the goods specified in the certificate of registration of the purchaser can be used by him for any of the purposes mentioned by him in Form 'C', or that the goods purchased have in fact not been used for the purpose declared in the certificate.

The authority issuing the certificate under r. 5(1). as expressly stated in the rule, has, before issuing a registration certificate, to be satisfied after making such enquiry as it thinks necessary that the particulars contained in the application are correct and com plete. The enquiry would obviously be made in the light of the nature of the business and goods which are likely to be needed either for re-sale, or for use in the manufacture of goods for sale, or for use in the execution of contracts. Satisfaction which is con templated by r. 5 is objective, and may be arrived at upon a quasi. judicial enquiry. This Court has in several cases had occasion to consider the legality of orders of the notified authority refusing to grant certificates of registration in Form 'B' in respect of cer tain classes of goods which it was claimed by the tax-payer were nccessarv for the purpose of his business and were thcrefoce re quested to be specified in the certiftcate of registration: e.g. Indian Copper Corporation Ltd. v. Commissioner of Commercial Taxe.1.

Bihar & Others(') and J. K. Cotton Spinning & Weaving Co. Ltd ..

v. The Sales Tax Officer. Kanpur & Another('). On the plain words used in s. 7 and the Rules, it is contemplated that the certificate of registration mav only be issued after an objective satisfaction by the notified authority that the specified goods are likelv to be needed for the purpose of the business of the registered dealer, and that satisfaction is open to challenge in an appropriate proceeding before the High Court and even before this Court. Correctness or

(11 R.T.C. 259. ('I [19661 ll. 8 0.R. <lOO; IO S.T.C. r.n1.

B , . -

F •

MADRAS V. RAO!O & ~LBCTRIUAL' LTJJ. (8/ia/i, J.) 2lli

propriety of satisfaction of the notified authority in issuing the certificate in Form 'B' that the goods are likely to be required for the purpose of the business would not however be again open to challenge before another taxing authority in proceedings for assessment of tax. If therefore gocds are specified in the certificate of registration in Form 'B'. it is not open, when a claim is made in respect of the purchases of those goods for the application of concessional rate of tax, to the Sales Tax Officer to deny to the selling dealer of those goods the benefit on the ground that the goods specified cannot be used by the purchasing dealer for the purpose of his business. It is open to the Tax Officer to ascertain whether the goods in respect of which a claim for concessional rate is made are specified in the certificate of registration. but if the class of goods is included in the certificate of registration in Form 'B' he cannot say that the class of goods should not hwe been specified.

The ,\ct seeks to impose tax on transactions, amcngst others, of sale and purchase in inter-State trade and commerce. Though the tax under the Act is levied primarily from the seller, the burden is ultimately passed on the consumers of goods because it enters into the price paid by them. Parliament with a view to reduce the burden on the consumer arising out of multiple taxation has, in respect of sales of declared goods which have special importance in inter-State trade or commerce, and other c'asses of goods which are purchased at an intermediate stage in the stream of trade or commerce, prescribed low rates of taxation, when transactions take place in the course of inter-State trade or commerce.

Indisputably the seller can have in these transactions no control over the purchaser. He has to rely upon the representations made to him. He must satisfy himself that the purchaser is a registered dealer, and the goods purchased are specified in his certificates: but his duty extends no further. If he is satisfied on these two matters. on a representation made to him in the manner prescribed by the Rule; and the representation is recorded in the certificate in Form 'C' the selling dealer is under no further obligation to see to the application of the gooc!s for the purpose for which it was represented that the goods were intended to be used. If the purchasing dealer misauplies the gods he incurs a penalty under s. 10. That penalty is incurred by the pu"chasing dealer and cannot be visited upon the selling dealer. The selling dealer is under the Act authorised to collect from the purchasing dealer the amount payable by him as tax on the transaction, and he can collect that amount only in the light of the declaration mentioned in the certificate in Form 'C'.

He cannot hold an enquiry whether the notified authority who issued the certificate of registration acted p:operly, or ascertain whether the purchaser, notwithstanding the declaration, was likely to use the gcods fer a purpose other than the purpose mentioned in the certificate in Form 'C'. There is nothing in the Act or the Rules

208 8Ul'REME OOURl' REPORTS [1966) SUPP. s.c.R.

that or infracion of the law committed by the purchasing dealer A by rn1Sapphctmn of the oods aftr he purchased them. or for any fraudulent m1srepresentatmn by htm. penalty may be visited upon the selling dealer.

Counsel for th.e appe.llant contended that the view expressed by the Htgh Coort tn the Judgments under appeal was in any case erroneous, because they held that a 'C' Form certificate produced by the selling dealer is conclusive of the right to the concessional rate of tax, and that no enquiry whatever may be made by the assessing authority. He invited our attention to the following passage from the judgment which is under appeal in Civil Appeal No. 335 of 1965:

"We are of the opinion that whether or not the goods were in fact used for the stated purposes or even usable for such a purpose, so long as the purchasing dealer has furnished the required declaration to the selling dealer, the selling dealer becomes under law entitled to the benefit of section 8(1) of the Act. It is no function of the selling dealer to enter into a judicial examination of whether the goods arc in fact used or usable for the manufacture or processing of goods for sale by the purchasing dealer. The purchasing dealer declares that they are required for such a purpose and are further so specified in his form of registration granted by the sales tax authorities. It is not the function of the selling dealer to enquire whether the requirement of the purchasing dealer L~ bona fide or even is or is not within the certificate of registration of that dealer." It is implicit in the context in which these observations occur that if the purchasing dealer holds a valid certificate specifying the goods which arc to be purchased, and furnishes the required declaration to the selling dealer, the selling dealer becomes on production of the certificate entitled to the benefit of s. 8(1). It is of course open to the sales tax authority to satisfy himself that the goods which are purchased by the purchasing dealer under certificate in Form 'C' arc specified in the purchasing dealer's certificate in Form 'B'. Observation of the High Court that the selling dealer may not enquire whether the requirement is not within the certificate of registration of the purchasing dealer is not accurate. But whether the goods specified in the registration certificate in Fom 'B' can be used for the purpose is not for the selling dealer to determine. That is a matter which has already been determined by the notified authority issuing the certificate of registration.

Appeal No. 334 therefore fails and is dismissed with costs. In Appeals Nos. 335 & 338 the respondent is the same asscssec, and common questions for different periods are raised. These appeals also fail and arc dismissed with costs. One hearing fee.

Appeals dismissed.

ELEOT!\ICALS LTD. (Shah, J

sec. 7

Central Sales Tax Act, 1956

Central Sales Tax Act

s. 8(1)

Central Sales Tax Act

Central Sales Tax Act

s. 8(1)

Central Sales Tax Act

s. 8(1)

s. 8(3)

Central Sales Tax Act

s. 8(3)(b)

s. 8(3)(b)

s. 8(1)

s. 8(1)

s. 8(3)(b)

Central Sales Tax Act

s. 6

Section 7

Section 8

s. 8

Section 10

section 7

section 8

section 8

Section 14

s. 8(1)

s. 8(1)

s. 13

section 7(1)

Central Sales Tax Act, 1956

section 8

s. 8

Central Sales Tax Act

Central Sales Tax Act

s. 8(1)

s. 7

s. 10

section 8(1)

s. 8(1)


GORDON WOODROFFE & CO.

SHEIKH M. A. MAJID & CO.

March 22, 1966

[K. SuBBA RAO, V. RAMASWAMI AND J. M. SHELAT, JJ.J

Contract-Difference between sale and agency to se!!-Accaunt stated, what is-When can be re-opened.

The respondent was a trader in hides and skins and the appellant was an exporter. During the periad January to August 1949, there were several contracts betweelli them. The contracts mentioned that the appellant was buying the goods for resale in U.K. The price quoted was C.I.F. less 2! %. The contracts also provided that time should be the essence of the contract, that the sales tax was on respondent's account, that the respondent was answerable for weight as well as quality, that there should be a lien on the goods for moneys advanced by the appellant, and that any djspute regarding quality should be settled by arbitration according to the custom of the trade in the U .K.

The course of dealing between them showed that before the goods were shipped they were subjected to a process of trimming and reassortment in the godowns of the appellant with a view to make them conform to London standards, that the goods were marked with the respondent's mark and that premiums were paid to the respondent in case the goods supplied were of special quaLity. The respondent filed a suit on the original side of the High Cou!'t praying that an account should be taken of the dealings between himself and the appellant on the ground that the appellant was his agent. The appellant's case was that there was an outright purchase of the respondent's goods and that the appellant was not an agent of the respondent. The trial Judge dismissed the suit. On appeal, the High Court held that the appellant acted as a de! credere agent of the reSpOndent and directed the taking of accounts.

In appeal to this Court, it was contended by the appellant that:

(i) the terms of the contracts and the course' of dealing between the parties showed that the appellant was not the agent of the respondent but was an outright purchaser of the goods. and (ii) that there was a settled account between the parties which the respondent could not reopen.

HELD: (i) The appellant was the purchaser of the respondent's goods under the several contracts and not his agent for sale, and therefore, the view taken by the High Court was not correct.

The essence of sale is the transfer of title to the goods for pi'ice paid, or to be paid, whereas the essence of the agency to sell is the delivery of the goods to a person who is to sell them, not as his own property but as the property of the principal who continues to be the

owner of the goods, and the agent is liable to account for the proceeds.

On the terms of the contract and the course of dealing between the parties, the contract was not one of agency for sale hut was an agreement of sale. The appellant purchased the goods from the respondent 2i% less and sold them to the London purchasers at the full pic~ so that the 2!% was its, margin of profit and not its agency comm1SS10n. The fact that the goods were sent with the respondent'&

SUPREME COURT REPORTS

[1966] SUPP. S, C, R.

mark, that the premium was paid outside the terms of the contract, A that the appellant considered it fair and just to pay the whole of the premium to the respondent or to share it with him, and that additional burden with respect to weight and quality was thrown on the respondent, have no significance, in deciding the nature of the contract. The clause with regard to lien is consistent with the transaction being an outright sale, because the appellant was acting as creditor of the respondmt and charged interest on advances only till B the date of shipment of the goods when it became the purchaser of the goods from the respondent. An agent can become a purchaser when the agent pays the price to the principal on his own responsibility. The clause regarding arbitration in the U.K., though unusual, is not also inconsistent with there being a sale of goods between the parties in India. [3H-4B; 5G-H.]

(ii) The accounts were settled between the parties and the respondent could not be allowed to r>eopen the settled account as there was no proof of fraud, mistake or any other sufficient ground.

Accounts are "settled or started" if they are submitted and accepted as correct by the other side to whom they have been rendered.

For almost every shipment the appellant prepared a full and detailed statement of account and sent it to the respondent. The account contained items both of credit and debit and the figures on both sides were adjusted between the parties and a balance struck and the respondent accepted their accuracy and never raised any objection_ to them. [llH; 14 E-F].

Bishnu Chand v. Girdhari La!, (1934) L. R. 61 LA. 273 and Laycock v. Pickles, 4 B and S 497, applied.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 164 of 1964.

Appeal from the judgment and decree dated December 15, 1959 of the Madras High Court in 0.S. Appeal No. 22 of 1955.

P. Ram Reddy and A. V. Velayudhan Nair, for the appellant.

K. R. Chaudhuri, and K. Rajendra Choudhury, for the respondent.

The Judgment of the Court was delivered by

Ramaswami, J. This appeal is brought against the judgment of the High Court of Madras dated December 15, 1959 in O.S.

Appeal No. 22 of 1955.

The respondent was a trader at Madras in hides and skins.

J:he appellant was a firm, Gordon Woodroffe and Company (Madras), Limited, doing business among other things as exporters G of hides and skins. For the period of 8 months commencing from January, 1949, there were as many as 101 contracts entered into between the appellant and the respondent. The case of the respondent was that he entered into an agreement with the appellant to act as agents for shipping the goods (hides and skins) to United Kingdom and for finding purchasers there. It is alleged that the H appellant used to make payment to the respondent in respect of the goods sent to it for shipment in the nature of advances and he

WOODROFF>O & co. '' MAJID & co. (Rarn<tswami, J.)

used to set off these advances when payment was made to the respondent after the goods were shipped. The respondent will hereinafter be referred to as the plaintiff and the appellant as the defendants.

The plaintiff tentatively claimed a sum of Rs. 56,564 /- and odd as due to him as balance of the price of the goods and a further sum of Rs. 40,275 /- as representing the loss sustained by him by reason of the defendants' conduct in not shipping his goods •under the "Shaik mark". The plaintiff accordingly prayed that an account should be taken of the dealings between the parties for the period in question. The defendants contested the suit on the ground that it was not an agent of the plaintiff but it purchased hides from the plaintiff for export and for resale in the United Kingdom.

The case of the defendants was that there was an outright purchase of the goods from the plaintiff for the purpose of resale in the United Kingdom.

The defendants also contended that a sum of Rs. 4,35 I /- and odd was due to it from the .Plaintiff and it prayed for a decree against the plaintiff for that amount by way of counter-claim. The trial Judge held, by his judgment dated May 6, 1954 that the defendants were only purchasers of the goods from the plaintiff and the idea of agency was quite inconsistent with the nature of the transactions between the parties. The trial Judge came to the conclusion that the plaintiff was bound by the statements of account rendered by the defendants from time to time.

After giving an opportunity to the parties to produce further evidence, the trial Judge held that since there was no fraud the accounts could not be reopened and the claim of the plaintiff with regard to Rs. 157 /- in respect of the marine insurance alone was sustainable. The trial Judge accordingly dismissed the suit and decreed that counter-claim of the defendants after deducting the said sum of Rs. 157 /-. The plaintiff preferred an appeal to the High Court of Madras under the Letters Patent. By its judgment dated December 15, 1959 the High Court reversed the decision of the trial Judge and held that the defendants acted as del credere agents of the plaintiff for effecting the sale of the plaintiff's goods in the United Kingdom. On this basis the High Court decreed the plaintiff's suit and directed the taking of accounts, as prayed for, from the defendants, though in respect of some of the items the claim of the plaintiff was negatived.

The High Court also held that the plaintiff was liable to pay to the defendants the amount claimed by them by way of counter-claim.

The first question presented for determination in this case is whether the defendants were acting as del credere agents of the plaintiff or whether the defendants were outright purchasers of the goods supplied to them by the plaintiff. In tbe approach to this question it is necessary to notice the distinction between a contract of sale and a contract of agency. The essence of sale is the transfer of the title to the goods for price paid or to be paid. The transferee in such case becomes liable to the transferor of the goods

SUPRgMJ<: COUHT REPORTS [1966] SUPP. s.c.R.

as a debtor for the price to be paid and not as agent for the proceeds of the sale.

On the other hand, the essence of agency to sell is the delivery of the goods to a person who is to sell them, not as his own property but as the property of the principal who contimoes to be the owner of the goods and who is therefore liable to account for the proceeds.

The true legal relationship between the parties in the present case has, therefore, to be inferred froqi the nature of the contract, its terms and conditions and the nature of respective obligations undertaken by the parties.

It is necessary, at this stage, to set out briefly the course of the dealings between the parties which has been summarised by the c High Court as follows :

"The plaintiff used to purchase tanned hides of all sorts in Periamet (Madras), and in his godown assort them according to quality, pack them into bales and mark them with his mark, viz., Shaik or S. M. A. Mark. Then the bales would be delivered into the defendants' godown where the bales would be opened and re-assorted so as to conform to London specification and standard. In the process of putting the goods into that shape, there used to be necessity for the defendants to cut and trim the pieces and sometimes call on the plaintiff for replacement of the pieces which fell below the standard. Thereafter, the defendants used to re-pack them into bales each weighing 600 pounds and then ship the goods themselves as shippers and obtain the necessary shipping documents on the basis of c.i.f. contracts. The goods would be shipped to the defendants' London Office where they were sold to London purchasers. All the expenses incurred in connection with the goods prior to shipment, such as carriage, trimming and assortment in the defendants' godown were all to be borne by the plaintiffs. So also expense in connection with the shipment, such as freight, insurance, short weight, etc., were all to be borne by the plaintiff.

After the goods were shipped and as soon as the shipping documents were got ready, the price of the goods was calculated at the price fixed in the contract notes and after deducting the expenses and the advances with interest thereon, the balance, if any, was paid to the plaintiff either by cheque or by credit being given in his accounts.

For every shipment a contract note was being sent by the defendants to the plaintiff. So also, a statement of account with a covering letter as well as a cheque for the balance found due to the plaintiff were being sent to the plaintiff from time to time. In all, there were 101 contract forms and several statements of accounts sent to the plaintiff

.,.

WOODROFFE & co. v. MA.TID & 00. (Ra.maswam.i,

J.) 5

A in respect of the shippers. To none of those contracts or statements of account did the plaintiff raise any objection at any time."

The question whether the defendants took delivery of the plaintiff's goods as agents for sale or whether they puchased the goods outright must largely depend upon the terms of the contract of which a sample is Ex. P-1.

All the 101 contracts were prepared in the same printed form.

Exhibit P-1 is the contract dated January 21, 1949. It is in the form of a letter sent by the defendants to the plaintiff. It opens with the sentence "We confirm buying from you for resale the following subject to U .K. Import Licence".

Then follows a description of the goods giving the number of bales, the average weight and range, the assortment and the price per lb. in pennies. The price quoted is said to be c.i.f. less 2! per cent. The goods were already shipped by the s.s. 'City of Florence'.

The seller is said to be liable to pay brokerage at the rate of one pie per lb. Then follow the terms of the contract which are to the following effect:

"Landed weight to be accepted, payment on presentation of documents in order. It is understood that the above goods are for re-sale in United Kingdom. You are responsible irrespective of any inspection by us in Madras for selection and quality of the goods at destination where inspection and acceptance thereof will be made by our agents or the ultimate buyers. In the event of any dispute or claim in respect of goods covered by this contract, failing amicable settlement with buyers, such claim is to be submitted to arb'tration according to lhe custom of the trade in the United Kingdom and the result of such settlement or arbitration is binding on you. We have a charge or lien on all goods covered by this contract for all moneys advanced by us including expenses incurred and interest thereon. Insurance through Gordon Woodroffe Company, Madras, Limited. Time is an essence of the contract."

In the first place, it is important to notice that the contract in the opening portion specifically makes a mention of the fact that the defendants were buying the goods for resale, and in the paragraph containing the terms of the contract it is reiterated that the goods were intended for resale in the United Kingdom. On the face of it. therefore, the contract is clearly not one of agency for sale but it reads as an agreement of sale. If the defendants were intended to be constituted as the agents for sale the terms of the contract would have been entirely different.

Another important feature in this case is that there is a definite price fixed in the contract for the plaintiff's goods.

According to the plaintiff the rates fixed in the contract were the ones at which the goods were sold to London

SUPREME COURT REPORTS (1966)

SUPP. S.C.R.

purchaser and not a different rate and the defendants were agents who were obtaining for him only the price at which the goods were sold at London. It is true that the defendants admit that before fixing the price as between themselves and the plaintiff they used to ascertain the London price by cable. It is also true that the plaintiff was debited in the statement of account with the expenses of the cable. Even so, if the defendants were simply acting as agents for the sale there was no need at all to fix the price in the contract as between them and the plaintiff. It was contended for the plaintiff that according to the contracts the prices fixed are

c..i.f. less 2! per cent and discount of 2! per cent was the commission for the defendants as agents. There is no use of the word "commission" in the contracts and we see no reason to hold that 2! per cent should be taken as commission and not as a margin of profit. The important point is that if the contract was one of agency there was no need to mention the price at all as between the plaintiff and the defendants. It may be that in most cases the prices which the defendants obtained from the London purchasers were the same as the prices stipulated in the contracts with the plaintiff but the fact remains that they obtained 2! per cent discount on the sale price, that is to say, they purchased the goods from the plaintiff 2! per cent less and sold them to their London purchasers at the full price, so that 2± per cent was their margin of profit. It is possible that sometimes they sold the goods to the London purchasers at a higher price in which case they would be entitled to the difference in prices as a profit in addition to the 2! per cent which they got from the plaintiff.

In all there are IOI contract forms and in accordance with these contract forms statements of account were furnished by the defendants to the plaintiff. Exhibit P-lA is the statement of account dated January 25, 1949 based upon the contract note Ex.

P-1. It is true that the plaintiff did not sign any one of the contract F forms, but all of them were received by the plaintiff without any objection. Statements of account were prepared in terms of these contracts and the plaintiff was receiving moneys from the defendants on the basis of these contracts and according to the price fixed therein. He did not, at any time, raise the slightest protest against the terms of the contract or against the price fixed therein. On the other hand, he received all the contract forms and statements of G account as well as the moneys sent to him by cheque. The plaintiff cannot, therefore, be heard to say that he was not a consenting party to the contracts.

There is also the circumstance that before the goods were shipped to London they were subjected to a process of trimming and reassortment in the godowns of the defendants with a view to H make them conform to London standard and selection.

In that process the defendants often called upon the plaintiff to replace the

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WOODROFFE & co. v. MAJID & co. (Ramaswami, J.) 7

pieces found defective. If the defendants were merely acting as a aents the process of trimming and reasserting in the god owns to ake the goods conform to London standards and specifications will be unnecessary, for in that case the defendants were merely bound to ship the goods as they were delivered to them. Another important feature of the transaction is that in several contracts time was fixed for delivery of the goods. In some cases like the contracts in forms like P-1 to P-3 the shipment has been effected before the contract forms were issued but there are some contracts which contained the stipulation that the bales were to be sent to the godowns of the defendants for shipment to be effected "promptly" which according to D.W. I, Ayyalu Chetti meant two weeks.

There were also some contracts like Ex. D-2(a) which required the goods to be sent for shipment to be effected within one month, and some other contracts within two months.

All the contracts. provided that time should be the essence of the contract. If the defendants were acting only as agents for the sale there is no reason why there should be a stipulation in the contract as to the time fixed for the delivery and the stipulation that time should be the essence of the contract. There is also a further .condition in the contracts that the sales-tax was on selier's 'accdunt, the seller being the plaintiff. This circumstance also indicates that the legal relationship between the parties was that of a seller and a purchase! and not of a principal and agent.

On behalf of the plaintiff it was argued that according to the contract the goods were to be marked with the plaintiff's mark. It is true that in some of the defendants' letters such as Ex. P-10 it was mentioned that the bales were sent with the plaintiff's mark in some shipments but this circumstance has not significance. It only means that the buyer resold the goods to the London purchaser with the mark of the plaintiff. It was also contended on behalf of the plaintiff that "premium" was paiil to the plaintiff in case the goods supplied were of special quality. It is in evidencnhat the "premium" was extra price obtained in London if the Boad of Control was satisfied about the special quality .of the goods (vid~

D-10). It was pointed out that if the defendants were purchasers the premium should go to them but in some cases the premium was paid to the plaintiff. Exhibits P-7, P-10 and P-18 show that for some shipments the premium was paid to the plaintiff. The expl:ai1ation of D.W. I, Ayyalu Chetti is that in some cases the premium was paid to the plaintiff ex gratia. lf in London the quality of tl)C goods was found particularly good the premium was obtained from the London purchaser, that is to s~.y. the premium was obtained not as in terms of the contract "but as a special payment if the goods happened to be of good quality: It is a "payment therefore,

L/S5SCI-3

8 8U!'&Ddl COURT BllPORT8 (!966) 8Ul'P. 8.C, R.

made outside the terms of the contract and there is nothing significant if the defendants considered it fair and just to pay the whole

of the premium to the plaintiff or to share it with him in some cases. It was also contended by the plaintiff that according to the terms of the contract the landed weight was to be accepted and the plaintiff was to be respo!lliible for the selection and quality of gcxxjs at the destination where inspection would be made by the defendants' agents or the ultimate London buyers. In some statements of account sent by the defendants the plaintiff has been debited various amounts for shortage in weight at London. The plaintiff was also informed about the claims made by the London purchasers on the ground of low standard and selection, that is to say, the plaintiff was made answerable for weight as well as quality.

It is true that the liability of the plaintiff is an additional burden thrown upon him under the terms of the contract but it is of no significance in collsidering the question as to whether there was transfer of title to the goods at the time of sh'pment from the plaintiff to the defendants. On behalf of the pla'.ntiff reference was also made to the fact that the contracts provided for a lien on all the goods covered by the contracts for all moneys advanced by the defendants, including expensei incurred and interest thereon. It is the admitted position that for purchasing skins and hides, the plaintiff was taking large sums of money as advances from the defendants. We find from the several statements of account that reference is made to all such advances. These advances together with interest thereon are deducted from the sale-price payable to the plaintiff and for the balance alone cheques were sent to him.

It appears that on a later date, i.e., in June, 1949 the defendants took a regular hypothecation deed, Ex. P-19 from the plaintiff in respect of all the advances to be made by the defendants. But it should be noticed that in making such advances, the defendants were only acting as creditors of the plaintiff and were, therefore, ent!tled to charge interest on such advances till they actually purchased the goods from the plaintiff. After the purchase of the goods they did not charge any interest on the moneys paid by them. It appears from the statements of account that interest was charged on advances upto the date of shipment. In other words, the title in the goods passed to the defendants at the moment of shipment of the goods and the fact was that interest was charged on all advances only upto the date of shipment. The charge or lien on the goods, therefore, subsisted till the time of shipment i.e., till the title in the goods passed to the defendants under the contract of sale. We are, therefore, unable to agree with the Counsel for the plaintiff that the clause with regard to the lien is not con- 1istcnt with the theory of the transactions being an outright sale.

There was also a suggestion on behalf of the plaint•ff that there cannot be a contract of sale subject to c.i.f. terms if there was an outright sale at Madras between the parties.

We do not think

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WOOD)WFFE & co. v. MAJID & co. (Ramaswami, J.) 9

there is any substance in this argument. The primary object of the contract was that there was a purchase by the defendants from the plaintiff of the goods for resale in the United Kingdom and in keeping with this object the buyer stipulated with the seller for delivery of the goods abroad and for that purpose adopted a c.i.f. form of sale. It is also contended on behalf of the plaintiff that the term with regard to arbitration "according to the custom obtaining in United Kingdom" was not compatible with the theory of a sale between the parties. It is not possible to accept this argument as correct. It is open to the plaintiff to agree that even after the sale had taken place any dispute with regard to the quality of the goods and selection may be submitted to arbitration in the United Kingdom. It is true that a clause of this description is unusual but it is not inconsistent with the theory that there was a sale of goods between the parties at Madras. We have already observed that the contracts in this case were not c.i.f. contracts but the price alone was fixed on a c.i.f. basis.

It is well-established that even an agent can become a purchaser when an agent pays the price to the principal on his own responsibility. In Ex parte White, In re Nevil,(') T & Co. were in the habit of sending goods for sale to N who was a partner in the firm of N & Co., but received these goods on his private account. The course of dealing between T & Co. and N was that the goods were accompanied by a price list. N sold the goods on what terms he pleased, and each month sent to T & Co., an account of the goods he had sold, debiting himself with the prices named for them in the price list, and at the expiration of another month he paid the amount in cash without any regard to the prices at which he had sold the goods, or the length of credit he had given. On these facts it was held by the Court of Appeal in Chancery that though both the parties might look upon the business as an agency, N did not, in fact, sell the goods as agent of T & Co., but on his own account, upon the terms of his paying T & Co. for them at a fixed rate if he sold them, and the moneys he received for them were therefore his own moneys, which T & Co., had no right to follow.

A similiar principle has been expressed in W. T. Lamb and Sons v. Goring Brick Company, Ltd.(') In that case, certain manufacturers of bricks and other building materials, by an agreement in writing, appointed a firm of builders' merchants as "sole selling agents of all bricks and other materials manufactured at their works". The agreement was expressed to be for three years and afterwards continuous subject to twelve months' notice by either party. While the agreement was in force the manufacturers informed the merchants that they intended in the future to sell their goods themselves without the intervention of any agent,

(I) (1871) 6 Ch. 397 LIS5S0!-3(a)

(2) [!932] I K.B. 710.

BUPRU!B OOUIIT RBPORTS

[1966) SUPP. S.C, R.

and thereafter they effected sales to customers directly.

An action was then brought by the merchants for breach of the agreement. It was held by the Court of Appeal that the effect of the agreement was to confer on the plaintiffs the sole right of selling the goods manufactured by the defendants at their works, so that neither the defendants themselves nor any agent appointed by them, other than the plaintiffs, should have the right of selling such goods. It was also held that the agreement was one of vendor and purchaser and not one of principal and agent. Though the term 'agent' was used in the agreement. the Court of Appeal considered that the substance of the transaction was that the manufac- 'turers sold their bricks to the so-called agent who in turn sold them on their own responsibility to customers. The price charged by the manufacturers to the sole selling agents was the ruling market price and the sole selling agents were allowed a deduction of 10 per cent by way of commission on that price. The manufacturers had no concern at what rate the sole selling agents sold the goods to customers. It was clear from these facts that the sale by the selling agents to customers was a transaction in which the manufacturers were not interested and there was no privily of contract between the manufacturers and the ultimate purchasers. Reference may be made, in this connection to the following passage from Blackwood Wright, 'Principal and Agent', Second &In. page 5:

"In commercial matters, where the real relationship is that of vendor and purchaser, persons are sometimes called agents when. as a matter of fact, their relations are not those of principal and agent at all, but those of vendor and purchaser. If the person called an 'agent' is entitled to alter the goods, manipulate them, to sell them at any price that he thinks fit after they have been so manipulated, and is still only liable to pay for them at a price fixed beforehand, without any reference to the price at which he sold them. it is impossible to say that the produce of the goods so sold was the money of the consignors, or that the relation of principal and agent exists-Ex parte White, In re Nevill (1871), 6 Ch. 397- A purchaser has not to account to his vendor; his only duty is to pay him; and all the other rights and duties which exist between principal and agent do not exist between vendor and purchaser-Ex parte Bright, In re Smith (1879), 10 Ch. Div. 566; Ex parte White. In re Nevill-0871) 6 Ch. 397-." For the reasons already given we are of the opinion that the defendants were purchasers of the plaintiff's goods under the ;\C'Veral contracts and not his agents for sale and the view taken by the High Court on this aspect of the case is not correct and must be overruled.

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WOODROFFE & co. v. MAJID & co. (Rarnaswarrvi, J.) 11

We pass on to consider the second question involved in this case, viz., whether there was a settled account between the parties and whether it is open to the plaintiff to reopen it.

It is admitted in this case that for almost every shipment the defendants prepared a statement of account and sent it to the plaintiff giving full particulars of the amount due to him together with the deduction and showing the net balance payable to him and enclosing a cheque for such balance or giving a credit for the sum in the accounts. Copies of such accounts are Ex. P-lA, P-2A and P-3A corresponding to the contracts Exs. P,1, P2 and P-3. Copies of other accounts have been filed by the defendants in the Court and marked Ex. D-18 series. The plaintiff in bis evidence did not deny the receipt of these accounts. On the contrary, he admitted in cross-examination that for every shipment he was getting accounts and cheques for the balance due. It is an admitted fact that to these statements of account no objection was raised by the plaintiff at any time. Nor a single document has been produced on his side to show that he ever wrote to the defendants raising an objection to the statements of account. Not only the plaintiff failed to raise objection to the several statements of account but at one stage sent a memorandum to the defendants accepting the accuracy of the accounts. On June 20, 1949, the defendants wrote a letter, Ex. P-16, to the plaintiff stating that there was a balance of Rs. 1,26,37917 /2 payable by him, and that against the balance they were holding certain goods belonging to the plaintiff and asking him to confirm the statements. On June 22, 1949 the defendants again wrote a letter-Ex. D-5, enclosing a statement of account Ex. P-17 showing the said balance of Rs. 1,26,37917 /2 and asking the plaintiff for confirmation. On receipt of this statement the plaintiff signed the memorandum, Ex. D-4 on June 22, 1949 and sent it to the defendants confirming the correctness of the balance as due by him and also confirming the stock of his goods remaining with the defendants. The plaintiff conceded in his evidence having signed Ex. D-4 after the receipt of the statement of account, Ex. P-17. The plaintiff explained that he did not look into the correctness of the figures but believed Ex. P-17 to be correct '&as it was sent by an English firm".

The plaintiff also said that he was told by the defendants' broker that if he did not sign it, it would be harmful to him. The trial Judge refused to accept the explanation of the plaintiff and held that the plaintiff had accepted all statements of acc.ount as correct and, therefore, it must be held in law that the accounts were settled and the plaintiff could be allowed to reopen it only by proof of fraud or mistake or any other sufficient equitable ground.

H The legal position is that the accounts are settled or state<l if they are submitted and accepted as correct by the other side to whom the accounts have been rendered. Such a statemP.nt of

12 SUPREllB OOURT RBPORTS [1966] SUPP. s.o.R.

accounts need not be in writing, nor is it necessary that before the accounts are settled, they should be gone into by the parties and scrutinised and supported by vouchers. It is sufficient if the accounts are accepted and such acceptance may be inferred by conduct of parties.

As observed in Daniell's Chancery Practice, eighth edition, Vol. I, p. 419:

"The mere delivery of an account will not constitute a stated account without some evidence of acquiescence which may afford sufficient legal presumption of a settlement." There is also the following passage in Bullen and Lcake's Precedents of Pleadings, ninth editioo, p. 584: C "It is not enough for the accounting party merely to deliver his account; there must be some evidence that the other party has accepted it as correct. But such acceptance need not be express; contemporaneous or subsequent conduct may amount to a sufficient acquiescence."

Again, in Willis v. Jernegan(') the Lord Chancellor was dealing with the two objections raised by the plaintiff's counsel to the defendant's plea of a stated account. It was observed by the Lord Chancellor that there was no absolute necessity that the account should be signed by the parties who had mutual dealings to make it a stated account, for even where there were transactions, suppose, between a merchant in England and a merchant beyond sea, and an account was transmitted to England from the person who was abroad, it was not the signing which would make it a stated account, but the person to whom it was sent, keeping it by him any length of time, without making any objection which should bind him and prevent his entering into an open account afterwards. In another case, Tickcl '" Short, (') the Lord Chancellor expressed the opinion that it is the rule of the Court that where a merchant kept an account current by him for about two years without objection, the Court will consider that the accounts are stated or settled. The same principle has been expressed by the Bombay High Court in Seth Manek/a/ Mansukhbhai v.

Jwaladutt Rameshwar Pillani(') in which it was pointed out that it was sufficient if the accounts were accepted and such acceptance might be inferred by conduct of parties.

The contention on behalf of the defendants is that there has been a "stated" or "settled" account in this case and in the absence of fraud, mistake or any other sufficient equitable ground it is not liable to be reopened at the instance of the plaintiff. In this connection it is necessary to state that the expression "account

Cl) (17•1) 2 A\k. 251. (~) (1750-.11) ! v ... (Sen.) 239.

(I) I.L.R. [1947] Born. 378.

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WOODROFFE & co. v. MAJID & co. (Ramaswami, J.) lS

stated" has more than one meaning. It sometimes means a claim to payment made by one party and admitted by the other to be correct. An account stated in this sense is no more than an admission of a debt out of court, whi!e it is no doubt cogent evidence against the admitting party, and throws upon him the burden of prov mg that the debt 1s not due, it may, like any other admission, be shown to have been made in error. Where the transaction is of this character, it makes no difference whether the account is said to be "stated" or to be "stated and agreed"; the so-called agreement is without consideration and amounts to no more than an admission. There is however a second kind of account stated where the account contains items both of credit and debit, and the figures on both sides are adjusted between the parties and a balance struck. This is called by Mr. Justice Blackburn, in Laycock v. Pickles(') a "real account stated," and he describes it as follows:

"There is a real account stated, called in old law an insimul computassent, that is to say, when several items of claim are brought into account on either side, and, being set against one another, a balance is struck, and the consideration for the payment of the balance is the discharge of the items on each side. It is then the same as if each item was paid and a discharge given for each, and in consideration of that discharge the balance was agreed to be due. It is not necessary, in order to make out a real account stated, that the debts should be debts in praesenti, or that they should be legal debts. I think equitable claims might be brought into account, and I am not certain that a moral obligation is not sufficient.

It is to be taken as if the sums had been really paid down on each side; and the balance is recoverable as if money had been really taken in satisfaction; subject to this, that where some of the items are such that, if they had been actually paid, the party paying them would have been able to recover them back as on a failure of considera ti on, the account stated would be invalidated." In the present case, the "settled account" between the parties falls within the second kind of "account stated" and it is to an account of this description that the equitable doctrine of "settled account" has to be considered.

This statement of the law has been affirmed by Lord Wright in delivering the opinion of the Judicial Committee in Bishnu Chan v. Birdhari Lal(') as the follows:

"Indeed, the essence of an account stated is not the H character of the items on one side or the other, but the

(1) 4 B. and S., 497.

(2) A.I.II. 1984 P.O. 147.

I~ SCl'REUE COURT RF.PORTH [1966) Sl'PI'. 8.~.R.

fact that there arc cross items of account and that the parties mutually agree the several accounts of each, and by treating the items so agreed on the one side as discharging the items on the other side pro tanto, go on to agree that the balance only is payable. Such a transaction is in truth bilateral and creates a new debt and a new cause of action. There are mutual promises, the one side agreeing to accept the amount of the balance of the debt as true (because there must in such cases be, at least in the end, a creditor to whom the balance is duel and to pay it, the other side agreeing the entire debt as at a certain figure and then agreeing that it has been discharged to snch and such an extent, so that there will be complete satisfaction on payment of the agreed balance.

Hence, there is mutual consideration to support the pro mises on either side and to constitute the new cause of action. The account statdd is accordingly binding, save that it may be re-opened on any ground for instance, fraud or mistake which would justify setting aside any other agreement." In the present case, the correctness of the statements of account furnished by the. defendants has been challenged by the plaintiff under 13 heads. In view of our finding that the transactions between the parties were not on the basis of an agency but on the basis of an outright sale the accounts cannot be reopened under any of these heads of challenges. The trial court has already gone into the evidence and ha~ reached the finding that there was no fraud, mistake or any other sufficient equitable ground for reopening the finality of the accounts.

As regards one item, viz .. rebate in marine insurance, the trial court has ordered that the plaintiff should be given credit for a small sum of Rs. 157 /- though there was no evidence of fraud on the part of the defendants. The trial court has rejected the claim of the plaintiff for reopening the accounts on any other ground and in view of otir finding that the legal relationship between the parties was not one of agency, we see no reason for interfering with the decision of the trial court on this aspect of the case also.

For the reasons expressed, we allow this appeal and set aside the judgment and decree of the High Court in 0.S. Appeal No. 22 of 1955 dated the 15th December, 1959 and restore the judgment and decree of the trial )udge dated May 6, 1954 dismissing the suit of the plaintiff and h'Tanting a decree for the counter-claim of the defendants. The defendants arc entitled to the costs oi this appeal in this Court and in the High Court.

Appeal allowed.

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GORDON WOODROFFE & CO

SHEIKH M. A. MAJID & CO

K. SuBBA RAO

V. RAMASWAMI

M. SHELAT, JJ

S 497