Case: Link International and Another Vs. Mandya National Paper Mills Ltd

1. This appeal is against the judgment of the Karnataka High Court dated 6-11-1997. 2. Briefly stated, the facts are as follows:The respondent had in the year 1970 purchased from one Sutherlands (Equipment & Processes) Limited (hereinafter referred to as "the UK Company") a suction press roll machine for $ 13,043. In that transaction the appellants had acted as agents of the said UK Company. In 1978 the respondent desired to have an additional machine as a standby machine. They, therefore, called for quotation from the said UK Company. The UK Company chose not to correspond directly with the respondent but routed its correspondence through the appellants. Ultimately, an order came to be placed by the respondent for purchase of a suction press roll machine. The order specified that supply had to be as per the previous order. The contract in this behalf is through correspondence exchanged between the parties. Almost all correspondence has been routed through the appellants.3. Ultimately, what was supplied was merely the shell of a suction press roll machine and a save all tray. As even after further correspondence the UK Company did not supply the full machine, the respondent filed a suit for specific performance of the contract or in the alternative, for damages. Before the Trial Court the UK Company remained absent. However, the appellants contested the suit on all grounds including the ground that they being agents of a disclosed principal could not be made personally liable.4. The Trial Court came to the conclusion, on an analysis of the correspondence, that the appellants had entered into the contract with the respondent. It was held that as the appellants had acted as agent of a foreign party, they were liable. The Trial Court also gave a finding that the contract was for a suction press roll machine and not merely for a shell. It thereafter held as follows: "... Defendants 2 and 3 have contended that as per Ext. P-62 only suction press roll has been agreed to be supplied by the defendants and not the complete suction press roll. It is pertinent to note here that it is only after the goods are received by the plaintiff after transport of the same, Ext. P-62 has reached the plaintiff. Prior to that no intimation has been given to the plaintiff regarding the drawings mentioned in Ext. P-62. No material is placed on record by Defendants 2 and 3 to show that only suction press roll shell is agreed upon to be supplied by the defendants as per Ext. P-62. Further, no material is also placed on record by the defendants to show that Ext. P-62 has been served on the plaintiff prior to the receipt of the consignment of suction roll shell and save all tray by the plaintiff. In view of these facts, it can be said that the defendants have kept the plaintiff in the dark about the fact that they are going to supply only save all tray and the suction press roll shell...." Thus the Trial Court has categorically held that the appellants (herein) had kept the respondent (herein) in the dark. On the finding that the contract was for a suction press roll machine and the further finding that the appellants kept the respondents in the dark even though they were aware that only the shell was to be supplied, it is clear that the appellants as agents had facilitated playing of a fraud on the respondent. For this the appellants would in law also be personally liable.5. The High Court has dismissed the appeal of the appellants. The High Court has also, on an analysis of the correspondence, come to the conclusion that the appellants had entered into the contract on behalf of the UK Company. The High Court has held that the UK Company being a foreign party, the appellants remained liable for the loss caused to the respondent. The High Court has also noted as follows: "12. There is another important circumstance which is quite indicative of how the defendants, namely, the foreign merchant being the principal and their Indian agents, namely, the contesting defendants had conspired among themselves to defraud the plaintiff. It emerges out from the facts that when the complaint dated 5-3-1980 (Ext. P-55) was lodged by the plaintiff with the foreign merchant then they under their reply dated 22-4-1980 (Ext. P-59) inter alia communicated that:Kindly note that on our Invoice No. 661/79 we charged for shell only -- not a complete roll. Normally it is not necessary to carry a complete roll as a spare as only the shell needs to be replaced whilst the spare is being reground, etc.In order to avoid misunderstandings regarding the above order on 29-3-1978, we posted to our agents, Link International, a drawing AO 18.262 on which were tinted in red the parts included in our offer and we requested that this would be forwarded to you.13. But, the manager of the contesting defendants who stood in the witness box as DW 1 has clearly admitted that it is true that we never informed that we are going to supply shell only but not the suction press roll." Thus, the High Court has also, on facts, concluded that the appellants as agents had facilitated commission of a fraud on the respondent.6. It has been strenuously argued before us that the presumption under S.230 of the Contract Act, 1872 can only apply provided the agent has entered into the contract on behalf of the principal. It is, submitted that the term "entered into", as used in S.230, must necessarily mean not just participation in the contract as an agent but the agent signing the contract for and on behalf of the principal. In support of this contention, reliance was placed upon the authorities in the cases of Union of India v. Chinoy Chablani and Co., AIR 1982 Cal 365 , Deoki Nandan and Sons v. Ram Lal Qulak and Lockwood Bros., AIR 1923 Lah 296 and V.R. Mohanakrishnan v. Chimanlal Desai and Co., AIR 1960 Mad 452 This Court was also taken through the correspondence and it was contended that the finding of the Trial Court as well as the High Court that the appellants had entered into the contract on behalf of the principal was not correct. It was submitted that the appellants had merely acted as a post office between the respondent and the UK Company. It was submitted that the contract was a direct contract between the respondent and the UK Company. It was submitted that as the appellants had not entered into the contract on behalf of the UK Company, the appellants could not be made liable as they merely acted as agent. 7. A reading of the judgments of the Trial Court and the High Court does indicate that both these courts have given an extended meaning to the term "entered into" as used in S.230 of the Contract Act. In our view, on the facts of this case, it is not at all necessary for us to decide whether or not such an extended meaning can be given to the term "entered into" in S.230 of the Indian Contract Act. It is also not necessary for us to decide whether the finding that the appellants had entered into the contract on behalf of the UK Company is correct.8. In this case, admittedly, the appellants had acted as agents. We will presume that they had not entered into the contract on behalf of the principal. The fact still remains that two courts have, on the basis of evidence, concluded that the appellants had facilitated playing of a fraud upon the respondent. If that be so, the appellants as agents would be personally liable to the respondent for whatever loss is caused to the respondent. S.233 of the Contract Act permits the respondents to recover either from the agent or from the principal or from both. Nothing could be shown to us that the findings given by the Trial Court and the High Court that the appellants had facilitated fraud are not correct. In this view of the matter, even if the reasoning given by the two courts below is not correct, the appellants would still be liable to the respondent for the loss caused to them. We clarify that we have not concluded that the reasoning of the Trial Court and the High Court is not correct. 9. The next question is what would be the liability of the appellants. It is pointed out to us that the respondent has made a claim on the following basis: Table It will be seen that the actual loss caused to them is only Rs. 5,93,820/-. The other claims are for customs duty which would have been payable if those non supplied parts had come to India. Similarly, the claim for insurance, clearing and forwarding charges and transportation charges is in respect of parts not supplied. In our view, for these items the claim could not have been allowed. Therefore, while confirming the decree passed by the Trial Court as affirmed by the High Court, we clarify that the decree will only be in a sum of Rs. 5,93,820/- with interest thereon at the rate of 18% p.a. from 22-4-1980 till date of payment.

Decision reasoning: 0[ds]7. A reading of the judgments of the Trial Court and the High Court does indicate that both these courts have given an extended meaning to the term "entered into" as used in S.230 of the Contract Act. In our view, on the facts of this case, it is not at all necessary for us to decide whetheror not such an extended meaning can be given to the term "entered into" in S.230 of the Indian ContractAct. It is also not necessary for us to decide whether the finding that the appellants had entered into the contract on behalf of the UK Company is correct.8. In this case, admittedly, the appellants had acted as agents. We will presume that they had not entered into the contract on behalf of the principal. The fact still remains that two courts have, on the basis of evidence, concluded that the appellants had facilitated playing of a fraud upon the respondent. If that be so, the appellants as agents would be personally liable to the respondent for whatever loss is caused to the respondent. S.233 of the Contract Act permits the respondents to recover either from the agent or from the principal or from both. Nothing could be shown to us that the findings given by the Trial Court and the High Court that the appellants had facilitated fraud are not correct. In this view of the matter, even if the reasoning given by the two courts below is not correct, the appellants would still be liable to the respondent for the loss caused to them. We clarify that we have not concluded that the reasoning of the Trial Court and the High Court is notwill be seen that the actual loss caused to them is only Rs.The other claims are for customs duty which would have been payable if those non supplied parts had come to India. Similarly, the claim for insurance, clearing and forwarding charges and transportation charges is in respect of parts not supplied. In our view, for these items the claim could not have been allowed. Therefore, while confirming the decree passed by the Trial Court as affirmed by the High Court, we clarify that the decree will only be in a sum of Rs. 5,93,820/with interest thereon at the rate of 18% p.a. fromtill date of payment.