BEFORE THE HIGH COURT OF JUDICATURE AT MADRAS DATE : 8.06.2010 CORAM THE HONOURABLE MR.JUSTICE V.PERIYA KARUPPIAH A.S.No.225 of 2000 & C.M.P.NO.9893 of 2000 M/s. Spencer and Company Ltd 769, Anna Salai Chennai -2 .. Appellant/1st Defendant Vs. 1. Sudarsan Trading Co.Ltd Sudarsan Building Whites Road Madras -14 ..Respondent/Plaintiff 2. The Oriental Fire and General Insurance Co.Ltd., Division No.2 165, Thambu Chetty Street Madras 1 3. United India Insurance CO.Ltd Whites Road, Madras – 14. .. Respondents/2nd and 3rd Defendant Prayer :- This appeal has been preferred under Section 96 of CPC against the decree and judgment in O.S.No.2779 of 1996, dated 29.9.1998 on the file of the VIII Additional Judge, City Civil Court, Madras. For Appellant : Mr.Krishna Srinivasan for M/s. S.Ramasubramanian Associates For R1 : Mr.P.M.Baskaran For R2 : Mr.Nageswaran For R3 : Mr.M.B.Raghavan JUDGMENT This appeal has been directed against the decree and judgment in O.S.No.2779 of 1996 on the file of the VIII Additional Judge, City https://hcservices.ecourts.gov.in/hcservices/ Civil Court, Chennai. 2.The averments in the plaint in brief for the purpose of deciding this appeal would run as follows:- (i) The plaintiff, a registered company under the Companies Act, 1956, entered into an agreement on 13.3.1978 with the first defendant company for displaying various items of handicraft articles in their show room situated at Mount Road, Chennai and for which the plaintiff paid Commission to the first defendant depending upon the various turnover. As per the agreement, the plaintiff has to pay a sum of Rs.72,000/- p.a. towards commission. The plaintiff paid the commission to the first defendant up to December 1980. The plaintiff further states that some items of handicrafts valuing Rs.9,64,441.66 were kept in the show room for sale and as fixtures as on 13.2.1981 and the same were insured with the third defendant for a sum of Rs.6,60,000/-. The plaintiff states that as per the agreement, the position of the first defendant was that of a Bailee for reward since they were enjoying a portion of the benefits/ profits of the sale effected by the plaintiff and the first defendant was in constructive possession of the items of the goods kept in their premises. The plaintiff states that on 13.2.1981, the main building belonging to the first defendant was gutted by fire and most of the items of articles kept in the show room were completely destroyed. Therefore, the plaintiff claimed a sum of Rs. 6,60,000/- from the third defendant insurance company. (ii) The plaintiff states that M/s. Velayutham & Co. was appointed as Surveyors to assess the damage caused to the plaintiff and while they were making their survey, some of the articles were lying in the first defendant's premises as "salvage items". Since the plaintiff's claim was getting delayed due to the question of disposal of the said salvage items, the plaintiff requested the third defendant to settle their claim after deducting the value of the said salvage items lying at the first defendant's premises. The plaintiff also agreed to take the matter with the first defendant in respect of the said salvage items. By agreeing the said terms and settlement, the third defendant sent a cheque for a sum of Rs.6,01,146/-, after deducting the value of the salvage items, towards settlement of insurance claim. In the meantime, the first defendant in collusion with the other defendants unauthorisedly sold the salvage items by auctioning to one M/s.P.M.A.Kader & Co. for a sum of RS.2,00,000/-. When the defendants were not lawful owners of these items, they should not have sold them by auctioning as the salvage items undoubtedly belonging to the plaintiff. (iii) Since the first defendant failed and neglected to comply with the plaintiff's request for the return of the proceeds of the sale, the plaintiff on 19.3.1983 issued a legal notice to the first defendant and demanded a sum of Rs.2,00,000/- being the value of the proceeds of the salvage auctioned to M/s. P.M.A.Kader & Co. In the https://hcservices.ecourts.gov.in/hcservices/ reply notice, the first defendant admitted the fact that the salvage items were in their possession. The first defendant further admitted that since the salvage items were not identifiable individually, they were auctioned to M/s. P.M.A.Kader & Co. The plaintiff, thereafter, approached the second defendant for the return of the proceeds of sale but they refused to return the proceeds of the salvage items on the ground that there was no privity of contract. The plaintiff states that the first and second defendants without any justification hastily and fraudulently auctioned the salvage items not belonging to them. The defendants' auction in auctioning the salvage items had deprived the lawful gain of the plaintiff. The defendants were well aware of the substance and effect that the handicraft goods were insured and that pending disposal of their claim with the Insurance Company, the property damaged in the fire accident could not legally be sold. (iv) The first defendant as Bailee for reward of the goods is legally bound to return the salvage items or in the alternative to pay Rs.2,00,000/- being the proceeds of the sale of salvage items apart from their liability to answer the Plaintiff's claim for the value of the goods stored and displayed at the suit premises. The plaintiff states that the defendants are jointly and severally liable to pay a sum of Rs. 11,80,278.70. But they are in a position to substantiate claim only to the extent of Rs. 9,64,441-66. Since the defendants failed and neglected to comply with the plaintiff's several demands, they filed this suit praying for a judgment and decree against the defendants jointly and severally: (1) for a sum of Rs.7,38,537.19 (b) interest @ 24% on Rs.4,29,382.19 from the date of plaint till the date of realisation; (c) for the costs of the suit; and (d) for such other relief. 3.The first defendant in his written statement would contend as follows:- (i) The agreement entered into between the parties are admitted. Even though the permission was granted for a period of two years from 16.3.1978, as per the existing terms and conditions, the agreement continued after the date of expiry of the agreement i.e. after 15.3.1980. The plaintiff has to pay a sum of Rs.72,000/- per annum towards total minimum commission and the same has to be paid in equal monthly installments. The first defendant states that though various items of handicrafts valued at Rs.9,64,441.66 were kept, the claim is not substantiated. The first defendant did not have any means to assess the value of the goods or their variety. Moreover, the agreement between the plaintiff and the first defendant prohibits the storage of goods of hazardous nature. It does not mention the value of the kinds of goods that can be stored. The first defendant was interested only in the value of sales of the display at show Room for the purpose of calculating the accruing commission. (ii) The first defendant states that the plaintiff puts the value https://hcservices.ecourts.gov.in/hcservices/ in the plaint at Rs.9,64,441.66 whereas in the lawyer's notice, the claim is mentioned as Rs.11,83,278.70. The defendant admitted the damage caused due to the fire accident. The first defendant states that he was not aware of the insurance arrangement made between the plaintiff and the third defendant. The first defendant denied the allegation that in collusion with the other defendants, he unauthorsidely sold the salvage items by auctioning them to one M/s. P.M.A. Kader and company for a sum of RS.2,00,000/-. There is a contradiction between the statement of the plaintiff in the lawyer's notice dated 19.3.1983 saying that the value of the salvage items would be around Rs.45,000/- as per the estimation of the surveyor, M/s. Velayutham and Compay and the claim in para 6 of the plaint for a sum of Rs.2,00,000/- from the first defendant in regard to the auction of the salvage items. Hence, the claim is patently an afterthought and "ex-facie" untenable. The claim of the plaintiff that a first defendant was a Bailee for reward and therefore, liable to answer the claim for the value of the goods stored and displayed at the first defendant's premises is totally base less and there is no such clause in the agreement entered into between them on 13.3.1978. The first defendant denied the claim of Rs.7,38,537.19 as it is totally baseless and cannot be justified either on facts or on law. Therefore, he prayed the Court to dismiss the suit with costs. 4. The second defendant in his written statement would contend as follows:- (i) The second defendant denied the averments made in the plaint. The second defendant states that there is no cause of action or privity of contract with him and the suit as instituted in ill-conceived and illegal for want of cause of action. The second defendant denied the allegations that he hastily and fraudulently auctioned the salvaged item to the credit of the plaintiff and he never made any unlawful gain as alleged in the plaint. The second defendant denied the allegation made in the plaint that he realised a sum of Rs.2,00,000/- as salvage value in respect of Brass scrap which was available to the credit of the plaintiff. The first defendant by their letter dated 12.6.1981 addressed to various addressees called for quotations for brass scrap and other items and after proper scrutiny, the surveyors by their letter dated 29.6.1981 accepted and recommended some of the offers in respect of metal scrap etc., In the said letter, the surveyor made a specific reference to the brass scrap held by the first defendant to the account of the plaintiff and recommended to defer acceptance of offer made for the brass scrap. Therefore, whatever was sold for a sum of Rs.1,63,511/- to P.M.K.Kadar was the property of the first defendant and the plaintiff has no title, right or interest. (ii) The second defendant states that the plaint averments are themselves contradictory. The plaintiff admitted the fact in the plaint that the third defendant appointed one M/s. Velayuthan and Co. https://hcservices.ecourts.gov.in/hcservices/ to assess the loss of the plaintiff. It is further admitted in the plaint that the plaintiff agreed to receive a sum of Rs.6,01,146/- after deducting the salvage value out of total sum assured viz., Rs.6,60,000/- and agreed to take up the matter with the first defendant with regard to realisation of salvage. Thus it is clear from the pleadings of the plaintiff that they have agreed to receive a particular amount for their immediate advantage and have waived their right if any against their underwriters viz., the third defendant, to have immediate settlement of their claim, under their policy of insurance and also obtained payment thereunder by an agreement. The second defendant further states that no scrap or salvage belonging to the plaintiff was sold by him. The second defendant further states that they have no contractual relationship with the plaintiff to indemnify the loss arising out of fire accident and they cannot claim any amount or part of the amount as claimed by the plaintiff. The second defendant states that there cannot be any joint and several liability amongst the defendants to satisfy the claim of the plaintiff. Therefore, he prays the Court to dismiss the suit. 5. The third defendant in his written statement would contend as follows:- (i) The third defendant denied the allegation contained in the plaint. The third defendant is neither a necessary party nor a proper party to the suit. The third defendant was the insurer of the Handicrafts whilst stored and/or lying at the Sudarsan Counter on the main floor of the Spencer Buildings and occupied as shop for sale of non hazardous goods, similar stocks at the Handicrafts Bazaar at all four sides of the baloonies of the Spencer Buildings sales counter and other permanent fixtures at that place for a total sum insured of Rs.6,60,000/- against perils of fire and strike in consideration of a premium of Rs.1,505/-. A claim was made on the third defendant by the plaintiff for the loss occurred to the property covered due to fire. The insurance claim so made on the third defendant by the plaintiff was settled in terms of the policy after obtaining full and final discharge of claims upon the third defendant. Hence, no amount is due as claimed by the plaintiff under the said insurance. Therefore, the suit is not maintainable as against the third defendant. (ii) The liability under the policy was admitted by the plaintiff and the quantum was also determined. If the plaintiff had any dispute to the quantum, the plaintiff ought to have called for arbitration on the same as per condition No.19 of the policy. Hence, the suit against the third defendant is barred as per the terms of the said policy. The third defendant states that the claim was made for a total loss and in the claim form, the plaintiff stated the value of the salvage as Nil. As per fundamental principles of insurance whenever claim is settled on the basis of total loss i.e by payment of the entire sum insured, the insured is liable to surrender the salvage to https://hcservices.ecourts.gov.in/hcservices/ the insurer. But the plaintiff, who availed the claim as per the said principles, did not hand over the salvage to the third defendant. Considering the request of the plaintiff, the defendant agreed to adjust the value of the salvage from the amount paid under the policy. As per authorisation from the plaintiff, after adjusting a sum of Rs.5991.41 towards arrears of tax, the defendant paid the claim amount to the plaintiff. The third defendant is not aware of the sale of the salvage for Rs.2,00,000/- as stated by the plaintiff. (iii) The third defendant further states that if the salvage was sold for a sum of Rs.2,00,000/-, the plaintiff is liable to refund a sum of Rs.1,55,000/- of the total amount in proportionate because the claim was settled on the belief that the salvage would fetch only Rs.45,000/-. The third defendant is not a party to the sale of the salvage and however, if the salvage was sold for any amount over and above Rs.45,000/-, the third defendant alone is entitled to recover the same from the plaintiff. The third defendant further states that the claim of the plaintiff was settled in terms of the policy and the same has been accepted by the plaintiff. Therefore, he prays the Court to dismiss the suit with costs. 6. On the above pleadings, the trial Court had framed the relevant issues. P.W.1 and P.W.2 were examined and Exs.B1 to Ex.B26 were marked on the side of the plaintiff. On the side of the defendant, D.W.1 to D.W.3 were examined and Exhibits D1 to D14 were marked. 7.After going through the evidence on record and after giving due deliberation to the submissions made on both sides, the learned trial judge partly decreed the suit, which necessitated the 1st defendant to approach this Court by way of this appeal. 8. Heard Mr. Krishna Srinivasan, the learned counsel appearing for the appellant and Mr.P.M.Baskaran, the learned counsel appearing for the 1st respondent, Mr.Nageswaran, the learned counsel appearing for the 2nd respondent and Mr.M.B.Raghavan, the learned counsel appearing for the 3rd respondent. 9. On a careful perusal of the pleadings, evidence adduced on either side and the judgment and decree passed by the trial court and the grounds raised in the appeal memo and the arguments advanced on either side, I could see the following points emerged for disposal of this appeal. 1. Whether the claim made by the plaintiff could be covered under commercial transactions? 2. Whether the award of interest at 24% p.a on the decreed sum of Rs.28,464/- from the date of the fire accident namely 13.02.1981 is sustainable? 3. Whether the finding of trial court regarding interest is https://hcservices.ecourts.gov.in/hcservices/ liable to be set aside? 4. To what relief the appellant is entitled for? 8. Learned counsel for the appellant/ 1st defendant would submit in his argument that the appellant/ 1st defendant before the trial court and the suit was decreed against him partly for a sum of Rs.28,464/- with interest at 24% p.a from the date of the fire accident namely on 13.02.1981 till date of realisation with proportionate costs. 9. He would further submit that the lower court had come to a wrong conclusion that the suit transaction was a commercial one and therefore the plaintiff is entitled for 24% p.a on the outstanding amount. He would further submit in his argument that the lower court did not consider the issue of interest elaborately but in one line it has stated that it was a commercial transaction. He would also submit that the said claim was made by him due to the fire which took place on 13.02.1981 at the 1st defendant's premises. It has been categorically found by the lower court that damages caused to the plaintiff was indemnified by the 3rd defendant in full and the costs of the salvage articles would be only Rs.45,000/- as per the evidence of the Inspector the 3rd defendant, it was awarded a sum of Rs.28,464/- towards the loss sustained by the plaintiff and the lower court had mistaken it as a commercial transaction which is actually a case of compensation for the damages sustained by the plaintiff. 10. Moreover, he would submit that the award of interest from the date of accident cannot be sustained since the damages could be ascertained only at a later point of time and the plaintiff could have a just claim on interest from the date of plaint and not from the date of accident. According to him the presuit interest is not maintainable in the case of damages as per section 3 of the Interest Act. He would also rely upon the judgment of this court reported in 2006 (1) CTC 35 Batliboi & Company Ltd., Bombay-400 001, rep. By its Managing Director, Mr. Nirmal Bhogilal and another vs. Beema Manufacturers P. Ltd., Madras-600 058 rep. by one of its Directors, Mr.M.B.Kuttappa for the principle that 24% cannot be maintained under the Interest Act towards the presuit interest. He would also submit that the interest awarded by the trial court at 24% on the reason that it is a commercial transaction cannot also be maintained for the calculation of interest during the pendency of the suit and thereafter since they are governed by Section 34 C.P.C. 11. He would request the court that a reasonable interest may be levied and the order passed by the lower court directing the 1st defendant to pay interest at 24% p.a on the outstanding sum of Rs.28,464/- from the date of accident till the date of realisation may be modified and the appeal may be allowed. 12. Learned counsel for the 1st respondent would submit in his https://hcservices.ecourts.gov.in/hcservices/ argument that the plaintiff and the 1st defendant have contracted to sell the articles belonging to the plaintiff on the premises of the 1st defendant on commission basis and the articles were left with the 1st defendant as a bailee for reward and therefore, what are all the damages caused to the articles should have been made good by the 1st defendant and the said agreement entered into between parties for the commercial transaction. Any outstanding sum payable by 1st defendant should be considered as for commercial transaction and it cannot be termed as damages caused to the goods. He would further submit in his argument that the lower court had considered this aspect and had come to a conclusion that this is a commercial transaction and therefore, the plaintiff is entitled for interest at the rate of 24% p.a from the date the defendants were liable to pay the same to the plaintiff which need not be interfered. 13. Learned counsel for the respondents 2 and 3 have submitted that the matter is in between the appellant/ 1st defendant and the 1st respondent/plaintiff and therefore the court may pass suitable order in the circumstances of the case. 14. I have given anxious thoughts to the arguments advanced on either side. Points 1 and2: Aggrieved 1st defendant has preferred the first appeal against the award of interest at the rate of 24% p.a by the lower court on the ascertained sum of Rs.28,464/- payable by the 1st defendant to the plaintiff from the date of accident namely 13.02.1981 till the date of realisation. The simple reason adduced by the lower court was that the transactions had in between the plaintiff and 1st defendant was commercial in nature. According to the 1st defendant, the plaintiff cannot be awarded interest even it is construed as commercial transaction prior to the suit since the Sections 3 and 4 of the Interest Act alone would govern the said issue. The suit was filed by the plaintiff for compensation towards damages caused to his articles kept in the premises of 1st defendant on the basis of agreement had in between the plaintiff and the 1st defendant. The lower court had come to a conclusion that the actual compensation payable by the 1st defendant to the plaintiff would be at Rs.28,464/- despite the claim was made to an extent of Rs.7,38,537.19ps. The said decision reached by the trial court was not challenged by the plaintiff by filing any cross appeal in this appeal. The 1st defendant had also not challenged the decision of the lower court in respect of the finding towards the quantum of compensation. No doubt an agreement was reached in between the plaintiff and the 1st defendant to sell the articles by placing them in the premises of the 1st defendant on commission basis. There is no relationship of buyer and seller. According to the plaintiff, the 1st defendant was a bailee for reward. No doubt the articles were kept in https://hcservices.ecourts.gov.in/hcservices/ the premises of 1st defendant for reward not for safeguarding the said property. It is only an agreement reached in between parties for commission. There is no dispute arising in the said promise and reciprocal promise had in between them. The point at issue is the payment of damages caused by the fire accident happened in the premises of the 1st defendant. Therefore, it is purely a suit for compensation towards the damages caused to the articles kept in the custody of the 1st defendant. Therefore, the reason given by the lower court that the transactions emanated are commercial and therefore the 1st defendant was liable to pay 24% p.a on the outstanding sum cannot sustain. According to the judgment of this court reported in 2006 (1) CTC 35 Batliboi & Company Ltd., Bombay-400 001, rep. By its Managing Director, Mr. Nirmal Bhogilal and another vs. Beema Manufacturers P. Ltd., Madras-600 058 rep. by one of its Directors, Mr.M.B.Kuttappa it has been categorically mentioned as follows: "15. Section 34 therefore covers the question of payment of pendente lite and future interest. However, payment of pre-suit interest depends not upon Section 34 CPC, but on the substantive law. Section 3 of the Interest Act, 1978 is relevant for the aforesaid purpose. The said provision is quoted hereunder :- 3. Power of court to allow interest.- (1) In any proceedings for the recovery of any debt or damages or in any proceedings in which a claim for interest in respect of any debt or damages already paid is made, the court may, if it thinks fit, allow interest to the person entitled to the debt or damages or to the person making such claim, as the case may be, at a rate not exceeding the current rate of interest, for the whole or part of the following period, that is to say: (a) if the proceedings relate to a debt payable by virtue of a written instrument at a certain time, then, from the date when the debt is payable to the date of institution of the proceedings; (b) if the proceedings do not relate to any such debt, then, from the date mentioned in this regard in a written notice given