Case: Bharat Suryodaya Mills Company Limited Vs. Shree Ram Mills

4. The plaintiffs purchased sometime in the year 1948, a quantity of Sudan Scarto cotton. It was found that the cotton was unsuitable for manufacture of cloth in the plaintiffs factory. Accordingly, the plaintiffs asked Messrs. Bombay Cotton Export Import Company, which we will hereafter refer to as the Bombay Cotton, to find out a customer for that cotton. The Bombay Cotton contacted one Souvajogm, a Greek national carrying en business in Ahmedabad in cotton and other commodities in the name and style of Messrs. Eastimex, to find a customer for the plaintiffs cotton. In the first week of October 1948, Souvajoglu met Seth Gwdharlal Mohatta the then Managing Agent of the defendant Mills and negotiated the terms on which 50 bales of Sudan Scarto cotton were to be purchased by the defendant mills. The contrast was not reduced to writing. In the year 1948, risers was in operation the Foreign Cotton Control Order of 1945, issued by the Central Government in exercise of the powers conferred by(2) of Rule 81 of the Defence of India Rules. By clause 4 of that Order, a licence from the Textile Commissioner for purchase and sale of foreign cotton was required to be obtained. Sudan Scarto which was theof the agreement of sale was admittedly foreign cotton and licence was required to be obtained from the Textile Commissioner both for purchasing and selling that cotton. Onthe plaintiffs submitted an application to the Textile Commissioner for a licence to sell 50 bales of Sudan Scarto cotton. In that application (Exhibit 137), it was stated by the plaintiffs Managing Director that the sale was effected in favour of Messrs. Bharat Suryodava Mills Ltd., at the rate of Rs. 1,287 pet candy F.O.R., Ahmedabad. The reason for sale mentioned in the application was that the cotton bales had been imported for consumption by the plaintiff Mills, but the cotton was found to be "a slightly inferior type of cotton" and unsuitable for the plaintiffs purposes. OnMessrs. Eastimex addressed a letter to the defendant Mills confirming the order for 50 bales of Sudan Scarto cotton sold by Messrs. Eastimex to the defendants on behalf of the plaintiffs at the rate of Rs. 1,287 per candy. It was also stated in the fetter that Messrs. Eastimex understood that the defendants had already applied to the Textile Commissioner for a necessary licence and that the plaintiffs had done likewise. Messrs. Eastimex requested the defendants to send the licence to the plaintiffs to enable them to "rail the cotton." On this letter there was an endorsement recorded in the handwriting of someone in the employment of the defendant company to the foil owing effect : "Accepted subject to terms and conditions as laid down in the enclosed letter, dated8, the defendants addressed a letter to Messrs. Eastimex acknowledging receipt of the letter, datedand a contract form for sale of 50 bales of African Sudan Scarto, and stating that the defendants were applying to the Textile Commissioner, Bombay, for the requisite licence. The letter proceeded to state that the weighment was to be made at their (defendants) Mills and the payment was to be made on receipt of actual goods in their Mill premises. Onthe defendants Managing Agents, Messrs. Mohatta Brothers, applied to the Textile Commissioner application Exhibit 128 for a licence authorising the defendants to purchase from the plaintiffs 50 bales Sudan Scarto cotton at the rate mentioned therein. A copy of the letter was also forwarded to the plaintiff Mills through Messrs. Bombay Cotton. The plaintiffs received the requisite licence Exhibit 85 onBy that licence, the Deputy Assistant Director (Cotton) authorised the plaintiffs, in exercise of authority Winder clause 4 of the Foreign Cotton Control Order, 1945, to sell 50 bales Sudan Scarto at the rate specified to the defendants for the consumption by the latter. It appears that a similar licence was also issued to the defendant Mills authorising them to purchase cotton but that licence has not been produced in this case.5. In and after the month of October, 1948, there was difficulty in securing wagons for transporting the cotton bales to Ahmedabad. Ultimately, in the month of April, 1949, the cotton bales were transported to Ahmedabad by rail. Exhibit 52 is a letter addressed by the Bombay Cotton to the United Commercial Bank Ltd., enclosing the Railway receipts and a draft for Rs. 42,000 together with the invoice for 50 bales of cotton. By that letter, the Bombay Cotton requested the Bank to present the draft to the addressee at the risk of the plaintiff and to credit the proceeds to their account in Bombay after deducting the necessary charges. A similar letter was also posted on(Exhibit 53) to the defendant company and office copies of the invoices and the weighment notes of 50 bales of Sudan Scarto cotton and 50 bales of Jarilla cotton were enclosed therewith. The defendants were also intimated that the documents in original will be presented by the United Commercial Bank Ltd. The defendants were requested to honour the draft for Rs. 42,000 on presentation. Similar information was also given to Messrs. Eastimex by letter Exhibit 208. The defendants, on presentation of the documents declined to return the game and addressed a letter (Exhibit 164) to the Bombay Cotton informing them that their bargain was with Messrs. Eastimex, Ahmedabad, and as such the documents pertaining to the despatch of 50 bales of Sudan Scarto cotton may be drawn on Messrs. Eastimex, Ahmedabad. and not on the defendants. A copy of that letter was sent to Messrs. Eastimex at Ahmedabad. On receipt of this letter, the Bombay Cotton wrote to the United Commercial Bank Ltd. by their letter, dated(Exhibit 56), asking the Bank to hand over the documents to Messrs. Eastimex, Ahmedabad, without any payment. It was stated in the letter that there was arrangement between the Bombay Cotton and "the buyers" regarding payment. Intimation was also given by Exhibit 55 to Messrs.Eastimex to take over the documents from the United Commercial Bank Ltd., and to collect payment from the defendants. Messrs. Eastimex were informed by the letter that there should be no delay in remitting the price and were also told that the remittance should be made by T.T. or by draft payable in Bombay and it should not be by a cheque on any Ahmedabad Bank. Thereafter, Messrs. Eastimex took delivery of the goods and delivered them at the Mill premises of the defendants on or aboutSome dispute was raised by the defendants about the quality of cotton delivered, but it was not persisted in. OnMessrs. Eastimex called upon the defendants to pay the amount due for the 50 bales of cotton Sudan Scarto delivered to the defendants. The defendants were informed that a. representative of Messrs. Bombay Cotton was in Ahmedabad with the object of seeing that all the outstandings with the defendants should be squared up without delay. Messrs. Eastimex acknowledged receipt of Rs. One Lakh and called upon the defendants to pay the balance. In the last paragraph of the letter, it was stated : "We have been putting off daily Messrs. The Bombay Cotton Export Import Company but we regret we cannot shoulder this responsibility any longer." OnMessrs. Eastimex addressed a letter to the defendants stating that Rs. 92,000 were due by the defendants for goods supplied and requested the defendants to credit the amount to the account of Messrs. Kishanprasad and Co. Ltd., Bombay, subject to the understanding that the amount will not be made available to Messrs. Kishanprasad and Co. Ltd., prior toIt was stated that the instructions for payment for Messrs. Kishanprasad and Co. Ltd., "were irrevocable and payment may be made accordingly to that Company." By their letter datedaddressed to Messrs. Eastimex, the defendant company agreed to abide by the instructions of Messrs. Eastimex and to make the payment of Rs. 92,000 onThereafter, by letter, datedMessrs. Eastimex modified the instructions regarding payment to Messrs, Kishanprasad and Co. Ltd. They requested the defendants to pay Rs. 92,000 before the due date, i.e.or forthwith. Ona representative of Messrs. Eastimex called upon the defendant company and the management of the defendant company obtained a receipt for Rs. 92,000 reciting that the amount of Rs. 92,000 had been debited to the account of Messrs. Eastimex and credited to the account of Messrs. Kishanprasad and Co. Ltd., Bombay. The defendants also posted entries consistently with the instructions given by Messrs. Eastimex and in their books of account credited an amount of Rs. 92,000 to Messrs. Kishanprasad and Co., Ltd.6. The Bombay Cotton sent their representative, one Potnis, with instructions to ascertain why the value of 50 bales of cotton was not received by the plaintiffs or by them. Onthe plaintiffs addressed a telegram Exhibit 115 to the defendants calling upon them to pay the price of 50 bales of cotton. This telegram was replied to by the defendants by telegram, datedin which they expressed surprise at the demand and stated that they had already made payment to Messrs. Eastimex. The plaintiffs then wrote a letter to the defendants on 4th July, 1949, asking to be supplied copies of the invoice on the basis of which payment was made to Messrs. Eastimex, the particulars regarding the payment and enquiring whether the payment was made by cheque for cash to that firm. Thereafter, there was further correspondence between the plaintiffs and the defendants, which it is unnecessary to set out in detail because it has no material bearing on the dispute between the parties. Ultimately, the plaintiffs filed the suit onout of which this appeal arises.7. As we have already observed, it was the contention of the defendants that they had been dealing throughout with Messrs. Eastimex and they purchased the goods from Messrs. Eastimex and they had nothing whatever to do with the plaintiffs. The defendants suggested that the 50 bales of cotton belonging to the plaintiffs may have been sold to Messrs. Eastimex and that is why Messrs. Eastimex agreed to sell and sold the same to the defendants.

Court's reasoning:
As we have already observed, there is no written contract for the sale of 50 bales of cotton. Again, direct oral evidence as to what transpired at the meeting between Seth Girdharlal Mohatta, Managing Agent of the defendant Company, and Souvajoglu, owner of Messrs. Eastimex is also not available. Neither Souvajoglu nor Seth Girdharlal Mohatta have been examined. It is true that one Rasiklal Krislmalal Mehta who claims that he was present at the meeting between Souvajoglu and Seth Girdharlal Mohatta gave evidence and he deposed to the conversation which took place between Souvajoglu, and Seth Girdharlal Mohatta and the subsequent correspondence between the parties. It may at once be observed that the learned trial Judge was not impressed by the testimony of this witness. In his view, the witness persisted in denying facts which he had ultimately to admit "under stress ofThe witness also appeared unwilling to give answers to questions put to him if they were inconvenient. The learned trial Judge has observed, it was only after "if great higgling" that the witness had ultimately to admit certain facts which have previously been denied by him. Evidently, the learned trial Judge was not impressed by the testimony of Rasiklal Krishnalal Mehta. We will presently deal with that part of the oral evidence of the witness Rasiklal Krishnalal Mehta and other witnesses which has a bearing on this part of the case, but in our view the documentary evidence and the circumstances of the case establish it beyond doubt that Messrs. Eastimex were merely acting as agents of the plaintiffs and were not acting as principals in the sale transaction relating to cotton bales. We have referred to the application submitted by the defendants Exhibit 128, datedto the Textile Commissioner for a licence to purchase the cotton bales from the plaintiffs. Similarly, in the letter, datedEx. 51 there is a reference to an agreement to purchase the bales from the plaintiffs. Exhibit 137 which is an application submitted by the plaintiffs to the Textile Commissioner also states that the defendants had agreed to purchase cotton from the plaintiffs. Even from the letter Exhibit 89, datedwritten by Messrs. Eastimex to the defendants, it is clear that Messrs. Eastimex were acting for and on behalf of the plaintiffs and not on their own behalf. As we have already observed, the licence for purchasing the scales granted by the Textile Commissioner has not been produced by the defendant Company. Under Cl. 4 of the Foreign Cotton Control Order, 1945, prohibition was imposed upon all persons against selling or otherwise disposing of or purchasing or otherwise acquiring any foreign cotton of the description mentioned in the Schedule except under and in accordance with the terms, of a licence granted by the Textile Commissioner or in pursuance of a direction given under cl. 5. It is evident, that both for purchasing and selling foreign cotton, a licence was required and if the defendants, submitted an application to the Textile Commissioner expressly reciting that cotton was to be purchased from the plaintiffs, it would be difficult to accept the explanation given by the defendants that the statement in the application was untrue. Contravention of the Foreign Cotton Control Order, 1945, having been by the provision of R. 81(2) of the Defence of India Rules penalised, the Court will not easily be prepared to accept that when two business houses were entering into a formal contract for purchase and sale of cotton, which could only be purchased and sold subject to and in accordance with the terms of licence granted by the Textile Commissioner, they intended to infringe the provisions of the law of the land.Rasiklal Krishnalal Mehta (Exhibit 157) the Secretary of the defendant Mills, stated at first that he did not know anything about the application Exhibit 128 submitted to the Textile Commissioner, but he asserted that the statement contained therein that cotton was to be purchased from the plaintiffs mill was untrue. He then asserted that M/s. Eastimex might have purchased cotton bales from the plaintiffs and hence at his instance the defendants had made the statement. The witness then turned round and stated that Souvajoglu had told Mm that he had purchased cotton bales from the plaintiff company, but he did not tell him that the bales had been purchased through the Bombay Cotton. The witness became bolder and stated that Messrs. Eastimex had purchased cotton bales from Shree Ram Mills. He even stated that on the day on which Souvajoglu came to take the signature on the application, he had stated that he had purchased the bales from the Shree Ram Mills. If the cotton bales had been purchased by Messrs. Eastimex from the plaintiff Mills and Messrs. Eastimex were selling that cotton as owners to the defendants, it passes understanding why the management of the defendant Mills should have submitted an application in the form Exhibit 128 and should also have written letter Exhibit 51 onstating that cotton bales were purchased from the plaintiff. All the documentary evidence of October 1948 goes to show that the contract relating to the sale and purchase of cotton was between the plaintiffs on the one hand and the defendants on the other, and we are unable to accept the statement made by the witness Rasiklal Krishnalal Mehta that Souvajoglu had told him that the goods had been purchased by him from the plaintiffs and he was selling the same. We are also unable to accept the statement made by witness Rasiklal that the application Exhibit 128 was made "in order to give convenience to Messrs. Eastimex," stating that the defendants had purchased the bales from Shree Ramthere be any substance in that contention, evidently the arrangement was to defeat the provisions of the Foreign Cotton Control Order, 1945 and involved the parties concerned in serious penalties for breach of the provisions of the order. It may suit the defendants now to set up a plea that they were willing to commit an offence by infringing the provisions of the Foreign Cotton Control Order but we do not think that the respectable parties who were concerned in this transaction in the year 1948 were deliberately willing to commit an offence by procuring a licence in the name of a person who was not the owner of the goods as the vendor thereof.There is on the record no reliable evidence to show that the bales of cotton in dispute were sold by the plaintiffs to Messrs. Eastimex, and even the letters written by Messrs. Eastimex and to Messrs. Eastimex, to which we have already made reference, clearly indicate that Messrs. Eastimex were acting as agents and not asare unable to appreciate how that intimation leads to the inference that Messrs. Eastimex were the owners of the goods especially having regard to the contents of the earlier documents to which the defendants werewe have already pointed out, the two contracting parties have not appeared before the Court and the terms of the contract had to be ascertained by making inferences from documentary evidence. In our judgment, the documentary evidence overwhelmingly leads to an inference in favour of the plaintiffs and against theis true that the plaintiffs books of account do not show on what terms M/s. Eastimex were employed for the sale of goods. But evidently the name of Messrs. Eastimex appears to have been suggested by the Bombay Cotton, who were asked to find an agent for the sale of the cotton bales, and from the books of the Bombay Cotton an account of commission is paid by Bombay Cotton to Messrs. Eastimex through the agency of the latter has been produced. It is equally important to note that there is no entry in the books of account of the plaintiffs which has been disclosed in his case showing that the goods were sold to Messrs. Eastimex. Having carefully considered all the evidence and the arguments advanced before us, we agree with the view of the learned trial Judge that Messrs. Eastimex were acting as Agents of the plaintiffs and not as purchasers of the goods from the plaintiffs nor did they act as Principals to Principals in the matter of the contract between the defendants company andappears, however from the entries posted in the books of account of the defendants that an amount of Rs. 92,000 was credited onin the account of Messrs. Kishanprasad and Co. Ltd. debited in the account of Messrs. Eastimex. Rasiklal Krishnalal Mehta, the Secretary of the defendants, has stated that onSouvajoglu had come personally with a letter and had requested to make payment by adjustment and that Souvajoglu had told the witness that he had to make payment of some amount to Messrs. Kishanprasad and Co. Ltd., and the witness, should make payment of the amount due for cotton supplied by havala in the Khata of Messrs. Kishanprasad and Co. Ltd. The witness then stated that he consulted Balgovindas, the Director, and on the next day, under the direction of the Director, necessary adjustment entries were posted as requested by Messrs. Eastimex and a receipt was taken from M/s. Eastimex for the amount of Rs. 92,000 of which a havala wasdo not think it necessary for the purpose of this case to enter into a detailed discussion of the question whether the amount of Rupees 92,000/has really "gone back to the defendants" as contended by the plaintiffs. It appears that in the year 1950, the management of defendant Company was changed and Messrs. Mohatta Brothers gave up the management under an agreement whereby they undertook in favour of the new management that they will discharge liability to the extent of Rs. Five laks in respect of the dealings of Messrs. Mohatta Brothers. Rasiklal Mehta has in his evidence admitted that onMessrs. Mohatta Brothers ceased to be the Managing Agents and a havala was given whereby Messrs. Mohatta Brothers took over the debt due to Messrs. Kishanprasad and Co. Ltd. from the defendant Mills. He stated that the whole amount outstanding and due to Messrs. Kishanprasad and Co. from the defendant Mills was taken over by Messrs. Mohatta Brothers some two months prior to the date when the old Managing Agents ceased to act on behalf of the defendant company. The accounts of M/s. Mohatta Brothers and of B.R. Harman Mohatta Co. Ltd. with which they are intimately connected have not been produced in this case. As we have already observed, the question whether in fact the amount of the havala was received by Messrs. Kishanprasad and Co. Ltd. or by the defendants loses significance in view of the fact that the payment even on the instructions given by Messrs. Eastimex and Co. could not discharge the defendants from the liability to pay the value of the goods purchased by them to the plaintiffs.14. On the view we have taken, the plaintiffs were the owners of the cotton bales and they had sold the same to the defendants and Messrs. Eastimex were the agents for the salethis case, there is no plea that the plaintiffs had authorised the defendants to make payment of the price of the goods in any form other than cash. Admittedly, the defendants have not paid the price of the goods to Messrs. Eastimex in cash. Even the books of account of the defendants which have been produced show that there was a havala entry of Rs. 92,000 which amount it is stated included the value of the goods sold by the plaintiffs to Messrs. Kishanprasad and Co. Ltd. Payment not having been made in cash, it could not, in our judgment, bind the plaintiffs. It is true that Messrs. Eastimex were agents for receiving the price of the goods. From the letter Exhibit 51 which is signed by the defendants and addressed to Messrs. Eastimex, on receipt of the goods at the Mill promises, payment was to be made. Evidently, Messrs. Eastimex were authorised to receive payment from the defendant Mills, but as the law requires that the payment must be made in cash unless, otherwise directed by the Principal, the defendants had to show that the payment of the price was made in cash or that the plaintiff company had authorised the defendants to make payment otherwise. As we have already observed, the payment has not been made in cash and no authority to the defendant to make payment otherwise than in cash has been pleaded or proved. Therefore, the amount for which a havala entry was made in favour of M/s. Kishanprasad and Co. made at the instance of M/s. Sastimex, unless it is ratified by the plaintiffs cannot bind them. It is true that there was some delay on the part of the plaintiffs in making a demand of the price payable to them. But there, is no evidence on the record again to show that the plaintiffs had knowledge that at the instance of Messrs. Eastimex, a havala was given in favour of Messrs. Kishanprasad and Co. Ltd. and they acquiesced in that havala. The debt due to Messrs. Kishanprasad and Co. Ltd. by Messrs. Eastimex was not a debt with which the plaintiffs were in any manner concerned. It was a debt due by M/s. Eastimex personally to Messrs. Kishanprasad and Co. and if for that debt a havala was seven for an amount due to the plaintiffs, in our judgment, in liability of the defendants cannot be regarded asMessrs. Eastimex had received payment in cash and the defendants were thereby discharged from liability, and the amount by Messrs. Eastimex was misappropriated the defendants would still stand discharged of their liability. But in this case, a havala entry has been made at the instance of Messrs. Eastimex in favour of Messrs. Kishanprasad and Co. Ltd. When M/s. Eastimex requested the defendants to make a havala entry, it was the duty of the defendants to obtain instructions from the plaintiffs whether the directions of Messrs. Eastimex should be complied with. The defendants having failed to do so and having acted according to the direction of Messrs. Eastimex and without consulting the plaintiffs, we think that the havala entry cannot discharge them from liability to pay the amount due by them to theis unnecessary for us to set out these documents in detail because there is no direction given either expressly or even by implication winch would suggest that the plaintiffs had either initially or at a subsequent stage authorised the defendants not to pay the amount in cash and to apply for discharging the debts of Messrs. Eastimex to other persons. It is true that the terms of employment of Messrs. Eastimex have not been produced. But the burden of proving that Messrs Eastimex had the right to receive payment otherwise than in cash or to direct satisfaction of the amount due to the plaintiffs by obtaining a havala towards discharging their own liability lay heavily upon the attendants and, in our judgment, that burden has not been discharged by any reliable evidence in this case.