Case: Sir Chunilal V. Mehta And Sons, Ltd Vs. The Century Spinning And Manufacturing Co., Ltd

The relevant facts may be briefly stated. Chunilal Mehta and Co., Bombay were appointed Managing Agents of the respondent company for a term of 21 years by an agreement dated June 15, 1933. By a resolution passed by the respondent company in October 1945, Chunilal Mehta and Co., were permitted to assign the benefits of the aforesaid agreement to the present appellant, Sir Chunilal V. Mehta and sons Ltd. On April 23, 1951 the Board of Directors of the Company terminated the agreement of 1933 and passed a resolution removing the appellants as Managing Agents on April 23, 1951. The appellant thereupon filed a suit on the original side of the Bombay High Court claiming Rs. 50 lakhs by way of damages for wrongful termination of the agreement. Eventually with the permission of the court it amended the Plaint and claimed instead Rs. 28,26,804. The Company admitted before the Court that the termination of the appellants employment was wrongful and so the only question which the earned Judge before whom the matter went had to decide was the quantum of damages to which the appellant was entitled. This question depended upon the construction to be placed upon cl, 14 of the Managing Agency agreement.

Court's reasoning:
For, Art. 133(1) provides that where the judgment, decree or final order appealed, from affirms the decision of the court immediately below in any case other than a case referred to in sub-cl. (c) an appeal shall be to this Court if the High Court certifies that the appeal involves some substantial question of law. To the same effect are the provisions of S. 110 of theCode of Civil. In the old Judicial Commissioners Court of Oudh the view was taken that a substantial question of law meant a question of general importance. Following that view its successor, the Chief Court of oudh, refused to grant a certificate to one Raghunath Prasad Singh whose appeal it had dismissed. The appellant, therefore, moved the Privy Council for special leave on the ground that the appeal raised a substantial question of lawIt must be a substantial question of law as between the parties in the case involved. But here again it must not be forgotten that what is contemplated, is not a question of law alone; it must be a substantial question. One can define it negatively. For instance, if there is a well established principle of law and that principle is applied to a given set of facts, that would certainly not be a substantial question of law. Where the question of law is not well settled or where there is some doubt as to the principle of law involved, it certainly would raise a substantial question of law which would require a final adjudication by the highest Court."One of the points which the learned judges of the Bombay High Court had to consider in this case was whether the question of the construction to be placed upon a decree was a substantial question of law. The learned Judges said in their judgment that the decree was undoubtedly of a complicated character but even so they refused to grant a certificate under S. 110 of theCode of CivilProcedurefor appeal to the Federal Court because the construction which the Court was called upon to place on the decree did not raise a substantial question of law. They have observed that even though a decree may be of a complicated character what the Court has to do is to look at its various provisions and draw its inference therefrom. Thus according to the learned Judges merely because the inference to be drawn is from a complicated decree no substantial question of law would arise. Apparently in coming to this conclusion they omitted to attach sufficient weight to the view of the Privy Council that a question of law is "a substantial question of law" when it affects the rights of the parties to the proceeding. Further the learned Judges seem to have taken the view that there should be a doubt in the mind of the Court as to the principle of law involved and unless there is such doubt in its mind the question of law decided by it cannot be said to be "a substantial question of law" so as to entitle a party to a certificate under S. l10 of theCode of Civil. It is true that they have not said in so many words that such a doubt must be entertained by the Court itself but that is what we understand their judgment to mean and in particular the last sentence in the portion of their judgment which we have quoted aboveThe proper test for determining whether a question of law raised in the case is substantial would, in our opinion, be whether it is of general public importance or whether it directly and, substantially affects the rights of the parties and if so whether it is either an open question in the sense that it is not finally, settled by this Court or by the Privy Council or by the Federal Court or is not free from difficulty or calls for discussion of alternative views. If the question is settled by the highest Court or the general principles to be applied in determining the question are well settled and there is a mere question of applying those principles or that the plea raised is palpably absurd the question would not be a substantial question of law7. Applying these tests it would be clear that the question involved in this appeal, that is, the construction of the Managing Agency agreement is not only one of law but also it is neither simple nor free from doubt. In the circumstances we have no hesitation in saying that the High Court was in error in refusing grant the appellant a certificate that appeal involves a substantial question of law. It has to be borne in mind that upon the success or the failure of the contention of the parties they stand to succeed or fall with respect to their claim for nearly 28 lakhs of rupseesA perusal of cl. 14 clearly shows that the parties have themselves provided for the precise amount of damages that would be payable by the Company to the Managing Agents if the Managing Agency agreement was terminated before the expiry of the period for which it was made. The clause clearly states that the Managing Agents shall receive from the Company as compensation or liquidated damages for the loss of appointment a sum equal to the aggregate amount of the monthly salary of not less than Rs. 6,000 for and during the whole of the unexpired portion of the term of agency. Now, when parties name a sum of money to be laid as liquidated damages they must be deemed to exclude the right to claim an unascertained sum of money as damagesBut if we accept the interpretation, it would mean that the parties intended to confer on the Managing Agents what is in fact a right conferred by S. 73 of the Contract Act and the entire clause would be rendered otiose. Again the right to claim liquidated damages is enforceable under S. 74 of the Contract Act and where such a right is found to exist no question of ascertaining damages really arises. Where the parties have deliberately specified the amount of liquidated damages there can be no presumption that they, at the same time, intended to allow the party who has suffered by the breach to give a go-by to the sum specified and claim instead a sum of money which was not ascertained or ascertainable at the date of the breachThen undoubtedly the two words clearly mean the same thing. But from a perusal of the clause it would appear that remuneration there could mean nothing other than Rs. 6,000 p.m. For, that clause provides that the amount shall accrue from day to day and be payable at the end of the month immediately succeeding the month in which it had been earned. Now, whether a company had made profits or not and if so what is the extent of the profits is determinable only at the end of its accounting year. To say, therefore, that the remuneration of 10% of the gross profits accrues from day to day and is payable every month would be to ignore the nature of this kind of remuneration. Therefore, in our opinion, when the remuneration and salary were equated in cl. 12 nothing else was meant but Rs. 6,000 and when the word salary was used in cl. 14 we have no doubt that only that amount was meant and no other. It may be that under cl, 10 the appellant was entitled to additional remuneration in case the profits were high upto a limit of 10% of the gross profits. That was a right to claim something over and above Rs. 6,000 and could be characterised properly as additional remuneration and not fixed or normal remuneration which alone was apparently in the minds of the parties when they drew up cl. 14. In our opinion, therefore the High Court was right in the construction placed by it upon the clauseComing to the alternative argument of Mr. Palkhivala, we appreciate that the right which the appellant had of claiming 10% of profits was a valuable right and that but for cl. 14 he would have been entitled in a suit to claim damages estimated at 10% of the gross profits. We also appreciate his argument that a party in breach should not be allowed to gain by that breach and escape liability to pay damages amounting to a very much larger sum than the compensation payable under cl. 14 and that we should so interpret cl. 14 as to keep alive that right of the appellants. Even so, it is difficult, upon any reasonable construction of cl. 14 to hold that this right of the appellants were intended by the parties to be kept alive. If such were the intention of the parties clearly there was no need whatsoever of providing for compensation in cl. 14. If at clause had not been there the appellant would indeed have been entitled to claim damages at the rate of 10% for the entire period subject to minimum of Rs. 6,000 p.m. On the other hand it seem to us that the intention of the parties was that if the appellants were relieved of the duty to work as Managing Agents and to put in their own money for carrying on the duties of managing agents they should not be entitled to get anything more than Rs. 6,000 p.m. by way of compensation. Clause 14 as it stands deals with one subject only and that is compensation. It does not expressly or by necessary implication keep alive the right to claim damages under the general law. By providing for compensation in express terms the right to claim damages under the general law is necessarily excluded and, therefore, in the face of that clause it is not open to the appellant to contend that that right is left unaffected. Where is thus no substance in the alternative contention put forward by the learned counsel.