Case: Narandas Morardas Gaziwala &amp; Others Vs. S.P.A.M. Papammal &amp; Another

2. Narandas Morardas Gaziwala and Lakshmi Chand and Co. were two firms of partnership carrying on business in lace and silver thread at Surat in the State of Bombay. They had dealings with another firm at Kumbakonam - Krishna and Company- who acted as their agents for selling their goods in the three districts of Tanjore, Tiruchirapalli and Mathurai in the State of Madras on commission basis. The two partners of Krishna and Co. were Murugesa Chettiar and his wifes sisters husband Gopal Chettiar. It appears that Krishna and Co. was acting as commission agents on behalf of the two firms at Surat from 1944 till 1951 when the partnership of Krishna and Co. became dissolved by mutual agreement between the partners. Murugesa Chettiar, one of the partners of Krishna and Co. took over all the assets and liabilities of the firm on dissolution and the other partner Gopal Chettiar retired from the firm. In respect of the dealings of the two firms at Surat (hereinafter to be referred to as the Surat Firm) with Krishna and Co., the latter became indebted in 1951. On April 1, 1951 Murugesa Chettiar (hereinafter referred to as the plaintiff) executed a promissory note in favour of Narandas Morardas Gaziwala for a sum of Rs. 7,500 the amount ascertained as due and payable by Krishna and Co. in respect of the dealings of that firm with the Surat firm on a settlement of account. It is the case of the plaintiff that on April 1, 1951 the Surat firm constituted Murugesa Chettiar as the sole agent for selling their goods bearing the trade mark "Napoleon" "Vivekananda" and other marks for the three districts for period of 5 years from April 1, 1951 agreeing to pay commission at a flat rate of Rs.2 per mark for all sales effected in those territories either on orders booked by him or not. The case of the plaintiff was that the Surat firm circumvented the terms of this contract of sole agency and privately effected sales through others or direct to customers in those territories. The plaintiffs contention further was that the Surat firm as part of this agreement of sole agency agreed to have its indebtedness under the promissory note adjusted towards the commission that may be earned by him. The plaintiff therefore instituted O. S. No. 87 of 1954 in the District Munsifs Court, Kancheepuram praying for rendition of accounts from April 1, 1951 till the date of the suit in order to ascertain the amount due and payable to him. The Surat firm in its turn instituted O. S. No. 21 of 1954 in the court of Subordinate Judge, Chingleput against the plaintiff seeking to recover the amount due under the promissory note, viz., a sum of Rs. 7,500. By an order of the District Court, Chingleput O. S. No. 87 of 1954 on the file of District Munsif, Kancheepuram was transferred to the file of the Subordinate Judge, Chingleput and taken on his file as O. S. No. 35 of 1955. Both the suits were tried together by consent of parties. On December 12, 1956 the Subordinate Judge held that the plaintiff was constituted as the sole agent on commission basis for the three territories, Tanjore, Tiruchirappalli and Madurai for a period of 5 years as pleaded and proved by him and the Surat firm was liable to render an account of their sales in those territories from April 1, 1951 and accordingly granted a preliminary decree for rendition of accounts. In O. S. No. 21 of 1954 the Subordinate Judge granted a decree for the amount covered by the promissory note but directed that the decretal amount should be adjusted out of the commission that may be found due and payable on taking of accounts in O. S. No. 35 of 1955. The Surat firm preferred an appeal against the decree in O. S. No. 21 of 1954-A. S. No. 45 of 1957. They also preferred an appeal against the decree in O. S. 35 of 1955 to the District Court of Chingleput and that appeal was transferred to the High Court and heard along with A. S. No. 45 of 1957. The High Court, by its judgment dated September 20, 196l, dismissed both the appeals.

Court's reasoning:
In our opinion, the statute is not exhaustive and the right of the agent to sue the principal for accounts is an equitable right arising under special circumstances and is not a statutory right.In our opinion, the legal position in India is not different. Though an agent has no statutory right for an account from his principal, nevertheless there may be special circumstances rendering it equitable that the principal should account to the agent. Such a case may arise where all the accounts are in the possession of the principal and the agent does not possess accounts to enable him to determine his claim for commission against his principal. The right of the agent may also arise in an exceptional case where his remuneration depends on the extent of clearings which are not known to him or where he cannot be aware of the extent of the amount due to him unless the accounts of his principal are gone into. This view is borne out by the decision of the Madras High Court in Ramachandra Madhavadoss Co. v. Moidunkutti Birankutti and Bros, AIR 1938 Mad 707  , of the Lahore High Court in Ram Lal Kapur and Sons v. Asian Commercial Assurance Co. Ltd., AIR 1933 Lah 483, and of the Nagpur High Court in Basant Kumar v. Roshanlal, ILR (1954) Nag 435: (AIR 1954 Nag 300). In the present case the High Court has found that the transactions in respect of which the plaintiff is entitled to commission are peculiarly within the knowledge of the principal alone, viz., of the Surat firm. There is also prima facie evidence adduced on behalf of the plaintiff in this case in support of his allegation that the Surat firm had made direct sales to customers in contravention of the contract of sole agency granted to the plaintiff. The High Court referred in this connection to the evidence of the plaintiff - Exs. A-26 and A-28-which are complaints made by the plaintiff to the Surat firm with regard to direct sales made to Mr. M. K. Iyengar. The High Court has also observed that to none of the letters or telegrams from the plaintiff the Surat firm or their accredited representative Ratilal cared to send any reply. We are, therefore of the opinion that in the special circumstances of this case, the plaintiff is entitled to sue the Surat firm for accounts for the materialfinding of the High Court is that there was a collateral oral agreement that the obligation under the promissory note will not be enforced for 5 years and unless the amount was due after accounting for the period of the commission agency. In our opinion, the agreement was not related to the mode of discharge of the obligation under the promissory note but that it was a condition precedent to the enforceability of the promissory note and it is open to the plaintiff to adduce evidence of oral agreement under the 3rd proviso to S. 92 of the Evidence Act. The view that we have taken is borne out by the decision of the Judicial Committee in Rowland Ady. v. Administrator-General of Burma, AIR 1938 PC 198  . In that case it was observed by the judicial Committee that it is necessary to distinguish a collateral agreement which alters the legal effect of the instrument from an agreement that the instrument should not be an effective instrument until some condition is fulfilled, or, to put it in another form, it is necessary to distinguish an agreement in defeasance of the contract from an agreement suspending the coming into force of the contract contained in the promissory note. It was therefore held by the Judicial Committee in that case that where the promissory note is, by its express terms, payable on demand, that is at once, the obligation under the note attaches immediately. A collateral oral agreement not to make demand until a certain specified condition is fulfilled has the intention and effect of suspending the coming into force of that obligation, which is the contract contained in the promissory note. Such an oral agreement constitutes a condition precedent to the attaching of the obligation and is within the terms of Proviso 3 of S. 92 of the Evidence Act. On the facts of that case the Judicial Committee held that by terms of the oral agreement no liability under the note could arise until the happening of an event and that being so, the case fell within the 3rd proviso to S. 92 of the Evidence Act. It was further made clear that unless the agreement had the effect of making the liability conditional upon the happening of an event, proof of an oral agreement at variance with the terms of the note would not bethe present case also we are of opinion that the oral agreement found to have been proved by the High Court constituted a condition precedent to the attaching of the obligation under the promissory note and falls within the terms of the 3rd proviso to S 92 of the Evidence Act and it was therefore, open to the plaintiff to lead evidence and to prove such an oral213 of the Indian contract Act specifically provides that an agent is bound to render proper accounts to his principal on demand. The principals right to sue an agent for rendition of accounts is, therefore, recognised by the statute. Butthe question is whether an agent can sue the principal for accounts.There is no such provision in the Indian Contractare unable to accept the submission of theas correct. Thefinding of the High Court is that there was a collateral oral agreement that the obligation under the promissory note will not be enforced for 5 years and unless the amount was due after accounting for the period of the commission agency. In our opinion, the agreement was not related to the mode of discharge of the obligation under the promissory note but that it was a condition precedent to the enforceability of the promissory note and it is open to the plaintiff to adduce evidence of oral agreement under the 3rd proviso to S. 92 of the Evidence Act. The view that we have taken is borne out by the decision of the Judicial Committee in Rowland Ady. v.of Burma, AIR 1938 PC 198  . In that case it was observed by the judicial Committee that it is necessary to distinguish a collateral agreement which alters the legal effect of the instrument from an agreement that the instrument should not be an effective instrument until some condition is fulfilled, or, to put it in another form, it is necessary to distinguish an agreement in defeasance of the contract from an agreement suspending the coming into force of the contract contained in the promissory note. It was therefore held by the Judicial Committee in that case that where the promissory note is, by its express terms, payable on demand, that is at once, the obligation under the note attaches immediately. A collateral oral agreement not to make demand until a certain specified condition is fulfilled has the intention and effect of suspending the coming into force of that obligation, which is the contract contained in the promissory note. Such an oral agreement constitutes a condition precedent to the attaching of the obligation and is within the terms of Proviso 3 of S. 92 of the Evidence Act. On the facts of that case the Judicial Committee held that by terms of the oral agreement no liability under the note could arise until the happening of an event and that being so, the case fell within the 3rd proviso to S. 92 of the Evidence Act. It was further made clear that unless the agreement had the effect of making the liability conditional upon the happening of an event, proof of an oral agreement at variance with the terms of the note would not bepermitted. At page 202 of the Report, Lord Wright observed ascase like the present is to be distinguished from that dealt with in Ramjibun Serowgy v. Oghore Nath Chatterjee, (1898) ILR 25 Cal 401in which the promissory note, though absolute in its terms, was said to be subject to an oral agreement, providing that it was not to be enforceable by suit until the happening of a particular event. Sale J., in rejecting this evidence, expressed his opinion that the proper meaning of Proviso (3) was that the contemporaneous oral agreement to be admissible must be to the effect that a written contract was to be of no force at all and was to constitute no obligation until the happening of a certain event. This description in their Lordships judgment applies to the present case To the same effect Page J., in Walter Mitchell v. A. K.52 Cal 677: (AIR 1925 Cal 1007  )held that the collateral agreement alleged in that case constituted a condition precedent to the attachment of any obligation under the cheques in question so that they remained inoperative until the condition was fulfilled."