INSTITUTE FOR EXCELLENCE IN HIGHER EDUCATION, BHOPAL

2015-16

For partial fulfilment of degree of Bachelor of Commerce Accounts HonoursDischarge of contract

Certificate

This is to certify that Harsh Vijay Wargiya is a regular student of Institute for Excellence in Higher Education. He has conducted an authentic project report on the topic Discharge of contract and has completed his Mercantile Law Project successfully under the able guidance of Mrs. Nidhi Masih. The Project is being prepared for his honors papers of B.Com part III (Accounts Honors) for examination 2015-16 and is being submitted thereof.

Mrs. Nidhi Masih

Commerce department

DECLARATION

I hereby declare that the project entitled Discharge of contract submitted to Institute of Excellence in Higher Education, is record of original work done by me under the guidance of Mrs. Nidhi Masih (Department of commerce).

Any inferences, research or similarity is purely coincidental.

Acknowledgement

I would like to take this opportunity to thank Dr. M.L. Nath (Director, Institute for Excellence in Higher Education, Bhopal), Dr. S.S. Vijayvargiya (Head of commerce department) and Mrs. Nidhi Masih (Teacher guide) to have provided me with such a great opportunity to work on this Mercantile Law project.

Last, but not the least, I would like to thank my family, friends and all those who helped me in some way or the others in the successful completion of this research project.

Harsh Vijay Wargiya

B.com II year

Accounts Honours Section B

Roll No. 113114

S. NoParticularsPage No.

1Introduction1-5

2Discharge of Contract6-17

3Landmark of Judgement18-19

4DETAIL STUDY OF CASES IN (INDIA)20-34

5DETAIL STUDY OF CASES IN (OUTSIDE INDIA):35-40

6Conclusion41

Law is a system of rules that are enforced through social institutions to govern behaviour. Laws can be made by a collective legislature or by a single legislator, resulting in statutes, by the executive through decrees and regulations, or by judges through binding precedent, normally in common law jurisdictions. Private individuals can create legally binding contracts, including arbitration agreements that may elect to accept alternative arbitration to the normal court process. The formation of laws themselves may be influenced by a constitution, written or tacit, and the rights encoded therein. The law shapes politics, economics, history and society in various ways and serves as a mediator of relations between people.

A general distinction can be made between (a) civil law jurisdictions (including canon and socialist law), in which the legislature or other central body codifies and consolidates their laws, and (b) common law systems, where judge-made precedent is accepted as binding law. Historically, religious laws played a significant role even in settling of secular matters, which is still the case in some religious communities, particularly Jewish, and some countries, particularly Islamic. Islamic Sharia law is the world's most widely used religious law.The adjudication of the law is generally divided into two main areas referred to as (i) Criminal law and (ii) Civil law. Criminal law deals with conduct that is considered harmful to social order and in which the guilty party may be imprisoned or fined. Civil law (not to be confused with civil law jurisdictions above) deals with the resolution of lawsuits (disputes) between individuals or organizations. These resolutions seek to provide a legal remedy (often monetary damages) to the winning litigant. Under civil law, the following specialties, among others, exist: Contract law regulates everything from buying a bus ticket to trading on derivatives markets. Property law regulates the transfer and title of personal property and real property. Trust law applies to assets held for investment and financial security. Tort law allows claims for compensation if a person's property is harmed. Constitutional law provides a framework for the creation of law, the protection of human rights and the election of political representatives. Administrative law governs what executive branch agencies may and may not do, procedures that they must follow to do it, and judicial review when a member of the public is harmed by an agency action. International law governs affairs between sovereign states in activities ranging from trade to military action. To implement and enforce the law and provide services to the public by public servants, a government's bureaucracy, military, and police are vital. While all these organs of the state are creatures created and bound by law, an independent legal profession and a vibrant civil society inform and support their progress.LAW OF INDIA:Law of India refers to the system of law in modern India. India maintains a common law legal system inherited from the colonial era and various legislations first introduced by the British are still in effect in modified forms today. During the drafting of the Indian Constitution, Indian laws also adhere to the United Nations guidelines on human rights law and the environmental law. Certain international trade laws, such as those on intellectual property, are also enforced in India.

Indian personal law is fairly complex, with each religion adhering to its own specific laws. In most states, registering of marriages and divorces is not compulsory. Separate laws govern Hindus, Muslims, Christians, and followers of other religions. The exception to this rule is in the state of Goa, where a uniform civil code is in place, in which all religions have a common law regarding marriages, divorces, and adoption.

As of May 2010, there were about 1221 laws. However, since there are Central laws as well as State laws, it is difficult to ascertain their exact numbers as on a given date and the best way to find the Central Laws in India is from the official website.MERCANTILE LAW:

Mercantile Law are the rules relating to industry, trade, and commerce. It is also known as commercial law.Scope:

The scope of commercial law is large. It includes the laws relating to contract, partnership, negotiable instruments, sale of goods, companies etc.

It must be noted that there is no fixed line of division between commercial law and other branches of law, nor is there any conflict or contradiction between them. The law of contract, which is very important part of commercial law, is applicable not only to merchants and bankers but also to other persons. When a merchant files a suit in a court of law the procedure is not materially different from that of other suits. When a trader commits an offence he is punishable under the criminal law exactly in the same way as any other person. The subjects studies under the heading of commercial law do not from a comprehensive code dealing with all aspects of mercantile activity. Commercial law deals with only those parts of law which are of special importance to the mercantile community. The same laws are applicable to other citizens under appropriate circumstances.

Sources of Mercantile Law:The mercantile law of India is based upon statues of the Indian legislature, English mercantile law and Indian mercantile usages, modified and adapted by judicial decision. The sources from which the rules of Commercial Law of India have been derived are given below.

1. Statutes of Indian LegislaturesThe legislature is the main source of law in modern times. In India, the Central and the State legislatures possess law making powers and have exercised their powers extensively. The greater part of Indian commercial law is statutory.

2. English Mercantile LawMany rules of English mercantile Law have been incorporated into Indian Law through statues and judicial decision. English Mercantile Law is a mixture of diverse elements. It contains rules originating form the following sources:

(i) Maritime usages which developed during the 14th and the 15th centuries among merchants trading in the European ports. These usages are known as Lex Mercantoria.(ii) Rules which developed by custom in England and which constitute what is called the English Common Law(iii) Rules of Roman law.(iv) Rules of Equity i.e. rules which were applied by English Courts of Equity in cases where the common law rules were considered harsh and oppressive.(v) Statues of the British Parliament.

3. Judicial Decision or PrecedentsJudges interpret and explain statues. Rules of equity and good conscience are incorporated into law through judicial decisions. Whenever the law is silent on a point, the judge has to decide the case according to his idea of what is equitable. Prior to 1947, the Judicial Committee of the Privy Council of Great Britain was the final court of appeal for Indian cases and its decisions were binding on Indian courts. After, independence, the Supreme Court of India is the final court of appeal. But decision of the superior English courts like the Courts of Appeal, Privy Council, and the House of Lords, are frequently referred to as precedents which might be followed interpreting Indian statues and as rules of equity and good conscience.4. Custom and UsageA customary rule is binding where it is ancient, reasonable, and not opposed to any statutory rule. A custom becomes legally recognized when it is accepted by a court and is incorporated in a judicial decision.Contents of Mercantile law:

Law of Contract- General Principles

Indemnity and Guarantee

Bailment and Pledge

Contract of Agency

Sale of Goods

Partnership

Negotiable Instruments

Arbitration

Insurance Carriage of Goods

Insolvency

The Consumer Protection ActIndian Contract Act, 1872The law relating to contracts in India is contained in INDIAN CONTRACT ACT, 1872. The Act was passed by British India and is based on the principles of English Common Law. It is applicable to all the states of India except the state of Jammu and Kashmir. It determines the circumstances in which promises made by the parties to a contract shall be legally binding on them. All of us enter into a number of contracts everyday knowingly or unknowingly. Each contract creates some rights and duties on the contracting parties. Hence this legislation, Indian Contract Act of 1872, being of skeletal nature, deals with the enforcement of these rights and duties on the parties in India.Key points of Indian Contract Act:

(a) When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal;(b) When a person to whom the proposal is made, signifies his assent thereto, the proposal is said to be accepted. A proposal, when a accepted, becomes a promise;(c) The person making the proposal is called the promisor, and the person accepting the proposal is called promisee

(d) When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise;(e) Every promise and every set of promises, forming the consideration for each other, is an agreement;(f) Promises which form the consideration or part of the consideration for each other, are called reciprocal promises;(g) An agreement not enforceable by law is said to be void;(h) An agreement enforceable by law is a contract;(i) An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract;(j) A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.

A valid contract creates certain obligations on all the contracting parties, and the parties become liable to fulfil their respective obligations. When the parties fulfil their respective obligations, their liability under the contract, comes to an end and the contract is said to be discharged. Thus, the discharge of a contract means that the parties are no more liable under the contract. In other words, when the rights and obligations created by the contract comes to an end, the contract is to be discharged. The discharge of a contract may, therefore, defined as the termination of contractual relationship between the parties. In this assignment, the various modes of discharge of contract and other legal provisions will be discussed in detail. Also, various landmark cases in the matter of discharge of contract will be discussed. Focus of such case studies will be on the matter of argument between parties involved, decision taken by the respective bench and the effect of such decisions on mercantile law.

1. DISCHARGE OF A CONTRACT ON PERFORMANCE

A contract can be discharged by performance in any of the following ways.

A. By an Actual Performance

It means the parties to contract have performed their respective promises under the contract.

B. By an Attempted Performance or a Tender

It means the promisor has made an offer of the performance of promise but it has not been accepted by the promisee.

2. DISCHARGE OF A CONTRACT BY A MUTUAL AGREEMENT OR BY AN IMPLIED CONSENT

A contract can be discharged by mutual agreement in any of the following ways.

A. Novation

The novation means a new contract is entered into in consideration of the old contract. The new contract is entered into between the same parties or the new parties. The novation is valid when all the parties must consent it. The new contract must be valid and enforceable, otherwise the old contract will continue valid.

Example: X owed Image 100 to B, under contract. B owed Image 100 to C. It was agreed among X, B and C that X would pay Image 100 to C.

B. Alteration

An alteration of a contract means a change in one or more terms of the contract with the mutual consent of the parties. The alteration discharges the original contract and creates a new contract. However, the parties to the new contract remain the same. In case of alteration of the contract, the old terms and conditions need not to be performed while the new terms and conditions must be performed.

Example:Y agreed with Z to supply 100 TV sets at a certain price by the end of October. Subsequently, Y and Z mutually agree that the supply be made by the end of November. This is an altercation in the terms of the contract by consent of both the parties.

C. Rescission

The rescission of a contract means the cancellation of the contract by one or all the parties to contract. It may take place:

1. With the mutual consent of the parties.

2. By a party whose consent was not freely obtained (voidable contract).

3. One party may rescind the contract, if a breach of contract by the other party.

4. The party rescinding the contract must restore the benefit received from the other party.

5. No partial rescission. The party may rescind the entire contract. The rescission of the contract in part is not possible. Just as a proposal has to be communicated, the rescission should also be communicated. A rescission may be revoked in the same manner as a proposal is revoked.

D. Remission

The remission means the acceptance of a lesser consideration than what is agreed under the contract. It takes place when the promisee:

1. Dispenses with a part or whole of the performance of a promise.

2. Extends the time for a performance by the promisor.

3. Accepts a lesser sum.

4. Accepts any other consideration, than agreed in the contract.

Example:A owes B Image 5000. A pays Image 2000 to B and B accepts the amount in satisfaction of the whole debt. The whole debt is discharged.

It may be noted that when a party accepts a lesser sum in satisfaction of a larger sum due under the contract it is called accord and satisfaction in the English Law. The promisee accepts a lesser sum than what is due under the contract is known as Accord and the actual payment is the satisfaction. This is a valid contract.

E. Waiver

It means the abandonment (i.e., giving up) of right by the party under the contract. No consideration is necessary for the waiver.

Example:A promises to supply goods to Y. Later on, Y exempts A from carrying out the promise. It amount as waiver of right of performance on part of Y.

F. Merger

The conversion of the inferior right into superior right is called as merger. It is also called as vesting of rights and liabilities in the same person.

Example:A person holds property under lease, purchases the property. On purchase, his lease agreement is discharged.3. DISCHARGE OF A CONTRACT BY IMPOSSIBILITY OF PERFORMANCE

Sometimes, the performance of a contract is impossible. In such a case, the contract is discharged. This is based on the principle that law does not recognize what is impossible. The impossibility of performance may be of two types, namely (a) the initial impossibility and (b) the subsequent impossibility.

A. Initial Impossibility or Pre-contractual Impossibility

It means impossibility exists at the time of making a contract. The initial impossibility may be (i) known or (ii) unknown to the parties at the time of making the agreement.

1. Known Impossibility

It means one or both the parties have a knowledge that a promise is impossible to perform even though they enter into an agreement.

Example:

A agrees with B to bring a dead man to life. It is known to the parties at the time of making the agreement that the performance is impossible. The agreement is void ab initio.

2. Unknown Impossibility

It means both the parties genuinely believe that the performance of a promise is possible but it is impossible to perform. It can also be said here that there is a bilateral mistake of parties.

Example:A agrees to sell certain goods to B, supposed to be on their way from Mumbai to Kolkata in a certain ship. Unknown to both the parties, the ship had already sunk in the deep sea, and the goods ceased to exist at the time of contract. The contract becomes void when the impossibility of performance is discovered.

3. Supervening Impossibility or Post-contractual Impossibility

The contract becomes void on account of the subsequent impossibility only if the following conditions are satisfied:1. The act should have become impossible after the formation of the contract.

2. The impossibility should have been caused by a reason of some event which was beyond the control of the promisor.

3. The impossibility must not be the result of some act or negligence of the promisor himself.

Example:A and B contract to marry each other. Before the time fixed for the marriage, A becomes mad. The contract becomes void.B. SPECIFIC GROUNDS OF SUBSEQUENT IMPOSSIBILITIES

It is also known as the doctrine of frustration under the English law. In the following cases, the contract is discharged on the ground of the supervening impossibility.

1. Destruction of SubjectMatter

The destruction of the subjectmatter after a contract is made without the fault of any party discharge the contract. But if the destruction of the subject matter is due to the fault of any party, he is liable for the damage to the other party.

Example:A music hall and a garden was let out by A to B for a series of concerts on four different days. The hall was burnt-down before the date of the first concert. Held, the contract became void by the supervening impossibility.

2. Incapacity or Death

Incapacity or death of the promisor and the contract is for personal service or skill. The contracts involving the use of personal skill or ability of the promisor are discharged on the illness, death, or incapacity of the promisor.

Example:A piano player agreed to perform a concert on a particular day. She was not able to give her performance due to her illness. Held, the contract was discharged due to her illness.

3, Change in Law or Circumstances

Sometimes, certain circumstances arise subsequent to the formation of a contract, which makes the performance of the contract impossible, as contemplated by the parties. In such circumstances, the contract is discharged.

Example:P agreed to sell his land to Q. Subsequently, the land was acquired by the government. Held, the contract was discharged.

4. Declaration of War

The pending contract at the time of declaration of a war is either suspended or declared void. Generally, the contract at the time of the declaration of a war is void, when the government declares it against the public interest or national interest.

Example:A contracts to take in a cargo for B at a foreign port. A's government, afterwards, declares a war against the country in which the port is situated. The contract becomes void when war is declared. CASES WHERE A CONTRACT IS NOT DISCHARGED ON THE GROUND OF SUPERVENING IMPOSSIBILITY

In the following cases, the contract is not discharged on the ground of supervening impossibility. Such excuses are not recognized by the law.

1. Performance becomes Difficult

When the performance of the contract becomes difficult, the contract is not discharged. Difficulty is not impossibility. A party can perform it with more effort or hardship.

2. Commercial Impossibility

The party is not discharged from the performance on the ground that it will be non-profitable for him to perform the contract.

Example:C agreed to sell to D, dhotis manufactured in a particular mill. The mill got into repairs and so, dhotis did not manufacture. Held, the contract was not frustrated as the stipulation as to delivery did not make the delivery by the mills, a condition precedent. It was a breach of the contract.

3. Impossibility Due to the Conduct of Third Party

If a promisor could not perform the promise because of default of the third party, he cannot make an excuse and claims that it is impossible to perform the promise. The third party's fault or conduct has nothing to do with the contract. The contract is not discharged because of third party's default.

Example:G agreed with F to supply certain cloth manufactured by a specified mill. The terms of the agreement stipulated that G could supply goods as soon as they are supplied to him by the mill. The mill failed to supply the goods to G. Held, G was liable to supply as the terms only indicated the process of delivery.

4. Strikes, Riots or Civil Disturbances

Strikes, riots, or civil disturbances do not discharge the contract. When such an event takes place, the performance of a promise under the contract becomes impossible for the time being. Once a strike is called off or life becomes normal, it is possible to perform the promise.

Example:H agreed to supply certain goods to J which were to be imported from Algeria. The goods could not be imported due to the riots and civil disturbances in that country. Held, A cannot be excused for the non-performance of the contract.

5. Self-induced Impossibility

If the performance of the contract becomes impossible due to the act of the omission of a party, it is called as self-induced impossibility. In such cases, the contract is not discharged.

6. Failure of Object

The failure of one of the object out of many objects, do not discharge the contract. But, if all the objects of the contract fail, the contract becomes discharged.4. DISCHARGE OF A CONTRACT BY LAPSE OF TIME

Every contract and promise under the contract should be performed within a time limit. The contract is discharged, if it is not performed or enforced within a specified period called as the period of limitation.

Example:The period of limitation for recovering the debt is 3 years and 12 years for the recovery of immovable property.5. DISCHARGE OF A CONTRACT BY OPERATION OF LAW

In the following circumstances, the contract is discharged by the operation of law:A. Death

The contract that requires personal skill is discharged on the death of the promisors. However, any benefit received before the performance shall be returned by the legal representative of the deceased party.

B. Merger

The conversion of the inferior right into superior right is called as merger. It is also called as vesting of rights and liabilities in the same person.

C. Insolvency

The insolvent is discharged from all the liabilities on all the contracts, entered into, up to the date of insolvency.

D. Unauthorized Material Alteration

The alteration which changes the nature of the contract is material alteration. If one party makes any material alteration in the terms of the contract without the approval of the other party, the contract comes to an end.

Example:One of the parties without the consent of the other party changes the date of payment or the place of delivery.6. DISCHARGE OF A CONTRACT BY BREACH OF CONTRACT

It means the failure of a party to fulfil his obligation or promise under the contract. When there is a breach of contract, certain remedy or consequences are available to the aggrieved party. The aggrieved party means a party who is not at a fault.

Consequences of Breach of Contract

The aggrieved party is not required to perform his part of the promise. The aggrieved party is having various remedies depending upon the type of breach. The breach of contract is of the following two types:

A. Actual breach

B. Anticipatory breachA. Actual Breach of Contract

An actual breach of contract means any party to contract refuses or fails to perform his promise on the due date of performance, or during the performance. The actual breach of contract may take place expressly or impliedly.

Examples:P agreed with Q to sell 500 TV sets on 21 January. P refuses to deliver the TV sets on the due date. This is a breach of contract on the due date.

V agreed with W to supply 3000 computers at a certain price to be delivered in three instalments of 1000 each. After 2000 computers had been supplied, W informs V to deliver no more. This is the actual breach of contract during the performance by express refusing, and W can claim damages for the breach. Following are the consequences of the actual breach of contract: The contract is voidable at the option of the aggrieved party.

The aggrieved party can claim the compensation for the loss for non-performance.

The aggrieved party cannot claim compensation when he accepts delayed performance.It is important to note that if time is not the essence of the contract, the contract is not voidable but the aggrieved party can claim compensation for any loss caused for non-performance.

B. Anticipatory Breach of Contract

When any party declares his intention of not performing the contract before the performance is due, it is called as anticipatory breach of contract.

Example:A agrees with B to sell his car on 21 January. Before this date he informs B that he will not sell it. This is an anticipatory breach of contract.

There are two modes of anticipatory breach (a) express repudiation and (b) implied repudiation. The express repudiation means when the party refuses expressly to perform his obligation before the performance due. The implied repudiation means the party acts in such manner that it becomes impossible for him to fulfil his obligation under the contract. In the case of implied repudiation, the party does something which indicates his unwillingness to perform the contract.

Following are the consequence of anticipatory breach: The aggrieved party may treat the contract as alive. The aggrieved party can rescind the contract and claim damages. Here, the damage will be equal to the difference between the contract price and the price as on the date of communication.

Note:When a contract becomes void, any benefit received under such contract is bound to restore such benefit or to make compensation for such benefit to the person from whom he received it.

LIST OF LANDMARK JUDGEMENTSThese are the landmark cases in history of cases of discharge of contract: Cort vs. Ambergate Railway. Co. (1851)

The actual breach of contract also occurs when during the performance; the party fails to perform his obligation.

Krell vs. Henri (1903)

The failure of the object due to non-occurrence of the contemplated event discharges the contract.

Shyam Sunder vs. Durga (1976)

The contract is discharged if the performance becomes impossible due to a change of law or a change in the government policy after the formation of the contract.

Jacob vs. Credit Lyonnais (1884)

The strikes lock-out and civil disturbances is not the impossibility for the performance of a contract and therefore, the contract is not discharged.

Shankar Lal Damodar vs. A. Ajaipal (1946)

In the case of novation of a contract if the new contract is not enforceable by law the existing contract is received and the parties are bound by it.

Manohar Koyal vs. Thakur Dass Naker (1888)

The novation must take place before the breach of the original contract.

Loonkaran Sethia vs. Ivan E. John (1976)

Where one party, without the consent of the other party, changes the date of payment or delivery of goods or substitutes, such words which change the meaning and affect the contract, such changes are material alterations to the contract.

Robinson vs. Davidson (1871)

The contract involving the use of personal skill or ability of the promisor is discharged on the illness, death or incapacity of the promisor.

Shanty Vijay and Co. vs. Princess Fatima Fouzia (1980)

The injunction order or stay order is in force, the performance of a contract may be stayed. The contract cannot be enforced.

Blackburn Bobbin Co. vs. T. W. Allen and Sons (1918)

If the performance of a contract becomes difficult, in such a case, the contract is not discharged.

H. B. Steamboat Co. vs. Hutton (1903)

Where there are several objects for which a contract is entered into, the failure of one of the objects will not discharge the contract.DETAIL STUDY OF CASES IN (INDIA):

Shyam Sunder vs. Durga (1976)

Calcutta High Court

Shyam Sundar Jalan vs Durga on 27 January, 1976

Equivalent citations: 1977 47 CompCas 61 Cal, 1977 106 ITR 275 Cal

Author: S Basu

Bench: P Chanda, S Basu

JUDGMENT: Sudhanmay Basu, J.

1. These are six rules arising out of applications made under Sections 397, 401 and 482 of the Code of Criminal Procedure, 1973, for quashing complaints under Sections 276(b), 276B, 276(d) and 276D of the Income-tax Act, 1961, and some orders passed by the learned Chief Presidency Magistrate, Calcutta.

2. It appears that complaints were filed against the directors of the Asiatic Oxygen and Acetylene Company Limited and Asiatic Oxygen Company Limited and one Mr. K.C. Gangwal, designated as the principal officer of the said companies, for failure to deduct income-tax from the salary of the employees, for failure to submit returns in time, for failure to deduct income-tax and super-tax on dividends for certain period under various sections of the Income-tax Act. To be precise, the Revision Case No. 271 of 1975 relates to a complaint for delay in submitting returns under Section 276(b) of the Income-tax Act. The returns were due on April 30, 1971, but the same were filed on December 12, 1972, and the complaint was filed on the 19th of September, 1973. The complaints were made against Shyam Sundar Jalan, H.L. Dey (since deceased) and Bal Krishna Jalan described as directors and one Mr. K.C. Gangwal, principal officer. In Revision Case No. 272 of 1975, complaint is made against Shyam Sudar Jalan, H.L. Dey and Durga Narayan Kapur as directors and one Mr. Kapur Chandra Gangwal as principal officer. The same is for failure to submit return in time under Section 276(b). The return was to be filed on April 13, 1966, but it was actually filed on November 2, 1972, and the complaint was lodged on September 19, 1973. Revision Case No. 273 of 1975 arises out of a complaint against the Asiatic Oxygen and Acetylene Company Limited, Shyam Sundar Jalan, H.L. Dey and Bal Krishna Jalan as directors and K.C. Gangwal as principal officer. It is for failure to deduct income-tax out of salaries for the month of March, 1967, and is under Section 276B. Similarly, Revision Case No. 275 of 1975 also involves Section 276B for failure to deduct salaries for the month of December, 1967, which was actually paid on November 18, 1972. The persons complained against were M/s. Asiatic Oxygen Ltd., Shyam Sundar Jalan, H.L. Dey, Durga Narain Kapoor as directors and K.C. Gangwal as principal officer. Civil Revision No. 276 of 1975 involves a complaint under Section 276(d) for failure to deduct income-tax out of salaries for the month of June, 1967. The same was paid on November 8, 1972, and the complaint was made on September 25, 1973. The persons complained against are the same as in Civil Revision Case No. 275 of 1975. Civil Revision No. 274 of 1975 involves complaint for failure to deduct income-tax and super-tax on dividend for the year ending on the 31st of March, 1967, under Section 276(d).

The amount was due on April 8, 1967, but was paid on October 18, 1973. The complaint was filed on 21st of May, 1974.3. The next point urged by Mr. Banerjee was that a company can have only one principal officer. According to him, more than one principal officer is not contemplated under the existing laws. Directors are not principal officers but under the Income-tax Act any director may be designated as a principal officer. In these cases the sanctioning authority accorded sanction against Mr. K.C. Gangwal as principal officer and against others as directors. He referred in this connection to Section 2, Sub-section (35), of the Income-tax Act which defines a principal officer. In this connection he also referred to Section 282, Sub-section 2(b), of the Income-tax Act according to which a notice or requisition under the Act may be addressed in the case of a local authority or company to the principal officer thereof. Section 2(35), which states what a principal officer means runs as follows:

Principal Officer, used with reference to a local authority or a company or any other public body or any association of persons or anybody of individuals, means:(a) The secretary, treasurer, manager or agent of the authority, company, association or body, or(b) Any person connected with the management or administration of the local authority, company, association or body upon whom the Income-tax Officer has served a notice of his intention of treating him as the principal officer thereof. "

4. The said definition does not mention a director but any person connected with the management or administration upon whom the Income-tax Officer has served a notice of his intention of treating him as the principal officer can be a principal officer. No such notice was given by the Income-tax Officer to any of the directors. Moreover, Mr. Banerjee contended that a director cannot act as an agent of the company. It is only the board of directors ' who collectively constitute agency. In this connection he referred to Pennington's Company Law, 3rd edition, where it has been stated that the directors have no power to act individually as agents for the company. According to Mr. Banerjee, the director means board of directors. In any event, since the proceedings were initiated on the basis of sanction but the sanction describes all the persons as directors except one it is clear that the case cannot proceed against them.

5. Mr. Ghose, on the other hand, contended with some force that as regards principal officer the definition under Section 2(35), Sub-clause (a), only was involved. Clause (b) was not attracted. Directors should be treated as agents of the company. There is no reason why the company may not have plurality of officers. Citing Palmer's Company Law, 17th edition, page 167, he stated that directors are, in the eye of law, agents of the company. What special assignment each director had in making payments of income-tax will be a matter of evidence. We find substance in Mr. Ghosh's submissions. Without evidence the question cannot be decided here and now. It is noted that paragraph 1 of the petition of complaints itself makes a distinction between directors and the principal officers. In the case of R.K. Dalmia v. Delhi Administration , it was held (para. 98) that Dalmia as a director and chairman of the company was an agent of the company. It was, inter alia, found that Dalmia got control and dominion over the funds under the powers conferred on him by the board of directors by its resolution authorising him and another person to operate on the accounts of the insurance company with the bank. It was a matter of evidence whether the directors named in this case could be treated as agents of the company. The petition before us itself shows how finance was arranged for, how the Industrial Finance Corporation was approached, how amounts were deducted from the employees' salary but the same was kept in the general fund. The petition shows that it was under the direction of the directors that the amounts were deducted. Therefore, it is not a case where the petition does not disclose a prima facie case. Whether directors could be treated as principal officers in the circumstances of the case is a matter of evidence and at this stage it would be premature to quash the proceedings on that ground alone. Again, Section 2(20) of the Income-tax Act states that the expression " director has the same meaning as is ascribed to it in the Companies Act ". Now, in the Companies Act, according to Section 2, Sub-section (13), a director would include any person occupying the position of director by whatever name called and under Section 2, Sub-section (24), an individual, (sic) the principal officer, also includes a manager or an agent. Whether the directors in these cases were in charge of the management is a matter of evidence. The complaint, as is well known, does not usually and need not contain all material pleadings. Facts and circumstances may be proved by evidence to show that directors acted as managers. Their own appeal before this court, as Mr. Ghose pointed out, fills up some of the gaps in the petition of complaint and, inter alia, shows prima facie that deduction of income-tax was utilised for some ulterior purposes.

6. What is after all a sanction ? Under Section 279, Sub-section (1), of the Income-tax Act, a person shall not be proceeded against for an offence under Section 275A or Section 276 or Section 276A or Section 276B or Section 276C or Section 276D or Section 277 or Section 278 except at the instance of the Commissioner. It merely requires that the complaint should be at the instance of the Commissioner. There is no doubt that in the instant cases the defect to the complainant is the Commissioner (sic). Dealing with the argument of Mr. Banerjee that there was no application of mind Mr. Ghose submitted that there was initially a presumption that the official acts were done properly. Moreover, the expression " director " is only a designation or prescription to identify the particular persons. Other particulars may come in due course. The complaint, as has already been noted, is not required to disclose all of them. Moreover, even if the board of directors collectively could act on behalf of the company circumstances may make the directors as agents. Reference may be made to Halsbury, 4th edition, volume 7, for creating the position of directors. In paragraph 496, the directors are regarded as agents of the company. It is observed that the true position of directors is that of agents for the company. As such, they are endowed with powers and duties of carrying on the whole of its business subject, however, to restrictions imposed by the articles and statutory provisions. Definition of manager in Companies Act in Section 2(24) would include a director. Therefore, it is a question of evidence. The complaint makes out an offence. Evidence would only disclose who the offenders are. The word directors " may be looked upon as designations to identify particular persons. The role they played will only appear in course of evidence. Board of directors, as such, cannot be prosecuted. Whether one or two directors or the entire board of directors acted as agents in the company would appear only through evidence. On a careful consideration of the facts and circumstances of the case we are unable to hold that the learned Magistrate had no jurisdiction or competence to issue process. We also hold that it will be premature at this stage to quash the proceedings. The point as to whether the accused persons who are designated as directors are principal officers or agents could only be determined after the witnesses were examined.

7. The result is that five of the petitions fail. The rules except in C.R. No. 274 of 1975, are discharged. The rule in C.R. No. 274 of 1975 is made absolute as the same is barred by limitation. Let the records go back at an early date so that the hearing may be expedited. It may be noted that the rules have abated with regard to H. L. Dey who has since died. Manohar Koyal vs. Thakur Dass Naker (1888)

Calcutta High Court

Manohar Koyal vs Thakur Das Naker on 11 January, 1888

Equivalent citations: (1888) ILR 15 Cal 319

Bench: Norris, Beverley

JUDGMENT:

1. The facts of this case appear to be these: The suit was brought by the plaintiff to recover a sum of Rs. 1,473. How that sum is arrived at is stated at the top of page 3 of the paper-book.

2. It appears that in Falgoon 1288 the defendant executed a bond for Rs. 801 in favour of the plaintiff. The money was to be repaid in Magh 1289. From the date of the bond up to the date fixed for repayment of the money interest was to be paid at eighteen per cent, per annum. If the money was not paid on the date it was covenanted to repay it, namely, Magh 1289, then interest upon the original sum and upon the interest up to Magh 1289 was to run at the rate of twenty-four per cent, per annum. The money was not repaid on the date fixed for its repayment, namely, Magh 1289. The defendant not being able to pay went to the plaintiff, and said in effect this to him: "I am not able to pay you what is due to you under the bond; but I will pay you in cash Rs. 400, and I will execute a fresh kistibundi bond in your favour for Rs. 701." The plaintiff accepted these terms, but the defendant failed to carry them out. He did not pay the plaintiff the Rs. 400, nor did he, as he ought to have done, tender the kistibundi bond for Rs. 701 to the plaintiff. The plaintiff therefore has brought this action upon the basis of the old bond, and seeks to recover the amount which I have already mentioned, namely, Rs. 1,473.

3. The Subordinate Judge gave the plaintiff a decree for the whole amount claimed by him.

4. The Additional District Judge on appeal has modified that decree, and has allowed the plaintiff's claim only to the extent of Rs. 400. The ground upon which the Additional District Judge has proceeded is this; He says in effect, "I find that the provisions of Section 62 of the Contract Act apply. I find that the parties to the first contract agreed to substitute a new contract for it, and therefore the original contract need not be performed; and, though the defendant has not carried out his part of the new contract, the plaintiff is not relegated to his rights under the old contract."

5. We are of opinion that the Judge has erred in applying the provisions of Section 62 of the Contract Act to this case at all. Section 62 is but a legislative expression of the common law; and its provisions do not apply after there has been a breach of the original contract. The parties may make a new contract in substitution of the old one, or may rescind or alter the old contract, and if they do so while the original contract is subsisting and unbroken, the original contract need not be performed. As I pointed out in the course of the argument, the law on this matter is laid down in the well-known and universally accepted text-book, Bullen and Leake's Pleadings, 3rd edition, page 673. It is said there: "It is competent to the parties to a contract at any time before breach of it by a new contract to add to, subtract from, or vary the terms of it, or altogether to waive and rescind it. The substituted contract forms a good defence to an action on those terms of the previous contract which have been altered by it, and may be so pleaded without any performance or satisfaction which is required to constitute a good plea after breach." Then the form of the plea is given at page 675--"that after the alleged contract and before any breach thereof it was agreed by and between the plaintiff and the defendant that the said contract should be rescinded, and they then rescinded the same accordingly;" and there is a similar form in the case of a substituted agreement setting out the substituted agreement. Now is the case within Section 63? It is quite clear that Section 63 not only modifies, but is in direct antagonism to the law in England. It was laid down, as pointed out, in the case of Foakes v. Beer L.R. 9 App. Cas. 605 that for the last pretty nearly three hundred years it has been the law in England that if A owes B five thousand rupees, and B consents to take two thousand rupees in payment of the debt, that is what is called in law nudum factum, and that B after taking the two thousand rupees can subsequently bring his action for the unpaid three thousand rupees. The law in this country by virtue of Section 63 of the Contract Act is different; and it says: "Every promise may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit." We think that the finding of the lower appellate Court in this case is that the plaintiff accepted in satisfaction of what was due to him at the time the agreement was made Rs. 400 in cash and a fresh bond for Rs. 701. We think that is the finding. We do not think that the plaintiff ever intended to accept the naked promise to pay Rs. 400 and. to give a bond for Rs. 701. The defendant has not given the satisfaction. He has not paid the money. He has not tendered the bond. The question is, what were the rights of the parties under these circumstances? It seems to us perfectly clear that the parties were relegated to their rights and liabilities under the original contract, and that the plaintiff, upon breach by the defendant of the terms which he had made, and upon the non-performance by him of the satisfaction which he had promised to give, was. relegated to his rights under the old contract, and was entitled to bring the suit on the basis of the old bond, and to recover the money which he claimed.

6. The appeal must therefore be allowed, the decision of the Additional Judge set aside, and that of the Second Subordinate Judge restored, with costs in all the Courts. Loonkaran Sethia vs. Ivan E. John (1976)

Supreme Court of India

Loon Karan Sethia vs Ivan E. John on 20 October, 1976

Equivalent citations: 1977 AIR 336, 1977 SCR (1) 853

Author: J Singh

Bench: Singh, JaswantJudgement:Messrs. John & Co. were in financial difficulties and, therefore, entered into a financial agreement with Sethia &Co. apartnership firm of the plaintiff andSeth SuganChand. On 6th July, 1948 Messrs. John & Co. obtained another financial accommodation from Sethia & Co. Messrs. Tejkaran Sidhkaran had also given some advances to Messrs. John & Co. The liability to the firm of Messrs. Tejkaran Sidhkara was transferred to Sethia & Co.

Seth Loonkaran Serbia filed a suit against John & Co. And his partners (defendants first set) as well as Messrs.

John, Jain, Mehra & Co. and its partners. (defendants second set) for recovery of Rs. 21,11,500/- with costs and future interest and for a declaration that the plaintiff had a prior and floating charge on all thebusiness assets of Messrs. John & Co. It was alleged by the plaintiff that the defendants (second set) entered into partnership with the defendant (first set) under the name and style of Messr. John Jain, Mehra & Co and maliciously induced them to commit breach of the agreement dated 6-7-1948 by forcibly turning out his representatives who used to remain in charge of the stocks, stores. coal, waste, etc., of the mill and making them enter into a financial agreement contrary to the terms of the agreement with his firm.The plaintiff also alleged that accounts were again settled on 4-4-1949 and a sum of Rs. 47, 23,738/- was found due to him from the defendants. The defendant (first set) contended that there was no settlement of accounts; that the accounts were taintedwith fraud and obvious mistakes and that on a true and correct accounting a large sum of money would be found due to them; that the plaintiff and said Sugan Chand obtained various documents, agreements, vouchers, receipts etc., and that the same were of no legal value as they were secured by the former by practising undue influence, fraud, coercion and misrepresentation; that the plaintiff had illegally and contrary to the agreement dated 6-7-1948 debited them with huge amounts which were not really due to them; that the cotton supplied by the plaintiff was of inferior quality and that the rates charged were exorbitant. It was also denied that the plaintiff had floating or prior charge on any of their stocks, stores, etc.; that the suit was barred by the provisions of section 69 of the Partnership Act and that the agreement dated 6-71948 which was insufficiently stamped could not form the basis of the suit. The defendants. (Second set) also denied the claim of the plaintiff. TheTrial Court held that the suit was maintainable; that the firm of Messrs. Sethia & Co. was dissolved before the institution of the suit; that the suit being one for the recovery of the assets due to a. dissolved partnership firm from a third party, was not barred by section 69 of the Partnership Act: that Seth Sugan Chand was not a necessary party to the suit; that the agreement dated 6-7-1948 was duly stamped and that no undue influence etc., was exercised by the plaintiff on the defendants; that there was no accounting on 4-4-1949 as alleged by the plaintiff and that both the plaintiff and the defendants (first set) committed a breach of the agreement dated 6-7-1948. The Trial Court also held that a charge was created in favour of the plaintiff in respect of the entire business assets and thatthe defendants (second set) were liable to satisfy the plaintiffs claim. The Trial Court decreed the plaintiff's suit to the extent of Rs. 18, 00,152 but rejected his claim for specific performance and injunction. The Trial Court accordingly passed a preliminary decree against both the sets of defendants directing them to deposit 854 the said amount in the court within the prescribed time and in default gave the plaintiff a right to apply for a final decreefor the sale of all the business assets, goods, stocks, stores, etc. The decree also gave a right to the plaintiff to apply for a personal decree against the defendants for thebalance of his claim in case the net sale proceeds of the property of the firm were found insufficient to discharge his claim.

The plaintiff filed an appeal in the High Court of Allahabad and the defendants also filed an appeal against the judgment of the Trial Court. The High Court allowed both the appeals partially holding that no fraud, undue influence, coercion or misrepresentation was practised by the plaintiff; that the agreement dated 6-7-1948 was neither insufficiently stamped nor did it require registration; that the deed of dissolution dated 22-7-1948 was prepared for the purpose of the case but there was sufficient evidence on the record to indicate that said Sugan Chand had withdrawn from the partnership carried on in the name of Serbia & Co. with effect from 30-6-1948; that Seth Sugan Chand was not a necessary party to the suit; that the suit was not barred by section 69 of the Partnership Act; that the alterations in the deed dated 6-7-1948 were not material alterations and did not render the agreement void; that the plaintiff had a floating charge over the business assets of John & Co.; that it was defendants (first set) and not the plaintiff who committed breach of the' agreement. The High Court, therefore, passed a preliminary decree for Rs. 11, 33,668/- in favourof the plaintiff and against the defendants (first set) but dismissed the suit with costs as against the defendants (second set). The High Court granted certificate under Article 133 in both the appeals.

Dismissing the plaintiffs appeal and allowing the appeal of the defendants (first set) held: (1) Section 69 of the Partnership Act is mandatory in character and its effect is to render a suit by a plaintiff in respect of a right invested in him or acquired by him under a contract which he entered into as a partner of an unregistered firm, whether existing or dissolved, void. [869A]

(2) A partner of an erstwhile unregistered partnership firm cannot bring a suit to enforce a right arising out of a contract failing within the ambit of section 69 of the Partnership Act. The suit out of which the appeals arise was for enforcement of the agreement entered into by the plaintiff as partner of Serbia & Co. It was never pleaded by the plaintiff not even in his replication that he was suing to recover the outstanding of a dissolved firm.Thus the suit was clearly hit by section 69' and was not maintainable. [869 B-C]

(3) A close scrutiny of the document and other evidence clearly negatives the plaintiff's claim that the firm was dissolved with effect from 30th June 1948. [865 C]

(a) The agreement dated 6th July 1948 itself is signed by the plaintiff as a partner and the, expression partner also appears in the body of the agreement. [865 D]

(b) The alleged deed of dissolution dated 22nd July 1948 between the plaintiff and Seth Sugan Chand was prepared on a stamp paper printed in the Government Press in November, 1948. The said Dissolution Deed was, therefore, clearly fabricated by the plaintiff. The plaintiff signed various cheques in July, 1948 as the partner of Sethia & Co. [865F-H; 866 A-C; 867 F]

(c) No service by post or advertisement in the newspaper about the dissolution was given either by the plaintiff or by Seth Sugan Chand. [867 F]

(4) Seth Sugan Chand was a necessary party to the suit and in spite of the objections raised on behalf of the defendants the plaintiff did not care to implead' Seth Sugan Chand. The suit was bound to fail on that ground also. [869D-E]

(5) A material alteration in a documentwithout the consent of a party to, it has the effect of cancelling the deed. [870 A]Volume 12 of Hapsburgs Laws of England (Fourth Edition) referred to. 855 Nathu Lal & Ors. Vs Musammat Gomti & Ors. (A.I.R.1940P.C. 160) relied on.

In the present case there were many material alterations of the document. The material alterations, thereforehave the effect of cancelling the deed in question. [870 B-D]

(6) The plaintiff's suit was for a specific and ascertained sum of money on the basis of settled account. The Courts below found concurrently that there was no settlement of account as alleged by the plaintiff on 4th April 1949.

After that it was not open to the courts below to make out a new case for the plaintiff which he never pleaded. The courts below could have either dismissed the suit or passed a preliminary decree for accounts directing that the books of account be examined item by item and an opportunity allowed to defendants to impeach and falsify the accounts. [871 A-C] Shanty Vijay and Co. vs. Princess Fatima Fouzia (1980)

Supreme Court of India

Shanti Vijay & Co. vs Princess Fatima Fouzia on 31 August, 1979

Equivalent citations: 1980 AIR 17, 1980 SCR (1) 459

Author: A Sen

Bench: Sen, A.P. (J)Judgement:

The Judgment of the Court was delivered by SEN J.-Inthese appeals,one ofwhich is by special leave and the other two on certificate, brought from a judgment of the Andhra Pradesh High Court dated June 12, 1978, the short question is whether that Court was justified in setting aside the alleged sale of 37 items of jewellery belonging to H.E.H. the Nizam's Jewellery Trust, effected by the Board of Trustees,in exercise of their discretionary power of sale under cl. 13 of the trust deed in favour of the appellantsand other successful tenderers for Rs. 14.43 crores, and accepting insteadthe offer ofthe eighth respondent, Peter Jansin Fernandez for Rs. 20.25 crores made during the pendency of the appeal before The facts of the case, so far as they are material, are not now in dispute, and are as follows:

The late H.E.H. Nawab Mir Sir Osman Ali Khan Bahadur, the Nizam of Hyderabad, by ah indenture dated March29, 1951, created a trust called H.E.H. The Nizam's Jewellery Trust, in respect of 107 items of extremely valuable, rare and priceless jewellery of exquisitedesignand beauty studded with emeralds, diamonds, sapphires, rubies etc. Of the highest quality and purity belonging to him, specified in thefirst Schedule,and Government securities ofthe aggregate face value of Rs.10 lakhs, specified in the Second Schedule, for the benefit of his two sons, Prince Azam Jha and Prince Muazzam Jah; two grandsons, Prince Mukarram Jah and Prince Muffakham Jah; two granddaughters, Princes Fatima Fouzia and Princess Amina Mirzia; daughter Shahzadi Begum, and his step-brother Sahebzada Nawab Basalat Jah Bahadur.

Clause 13 of the trust deed, Ex. 'A', confers upon the trustees the power ofsale ofthe Jewellery, the material portion of which is in these terms:

Subject to the Trusts aforesaid in respect of the articles referred toin clause 3(c), (d) 7 (e) and (f) hereof, during the lifetimeof hiseldestson Prince Azam Jah (if and so long as the Dynasty of the Settlor continuesand Prince Azam Jah succeeds him as the Nizamof Hyderabad) it shallbe at the option of the trustees either to keep the said jewels and other articles mentionedin the firstSchedule hereunder written unsold or to sell the same or any part thereof at such time or times and in such manner as they may in their discretion think fit, but subject as aforesaid, after death of the Settlor as well as of the said Prince Azam Jah the Trustees shall sell the said jewels and other articles specified in the First Schedule hereunder written within a period of three years after the date of the death of the survivor of the Settlor and the said Prince Azam Jah and any such sale as aforesaid shall be effected by the Trustees atsuch price or prices or for such consideration and on such terms as the trustees may in their absolute discretion think fit and either in India or in any foreign country without the trustees being liable or accountable to any person whomsoever for the propriety of or justification for any such sale or for the reasonableness or otherwise of the price or consideration or other terms in respect of the sale of any of the said articles.The said jewellery is kept in the safe deposit vault of the Mercantile Bank Ltd. at Bombay.

R. N. Malhotra, Addl. Secretary to the Government of India, Ministryof Finance, Department of Economic Affairs, is theChairman of the present Board of Trustees of H.E.H. The Nizam's Jewellery Trust, as a nominee of the Government of India. The other four trustees are: Prince Muffakham Jah, Zaheer Ahmed, Ataur Rehmarr and M. A. Abbasi. M. A. Ashruff is the Secretary of the Trust.

It appearsthat Prince Azam Jahdied in October 1970 and there after, on July 1, 1972 the trustees submitted a memorial to the then Prime Minister of India to acquire the jewellery as they wereof great historical and cultural value and keep it intact as a national heritage, and not allow it to pass into the hands of people whowere interested onlyin their money value.It appears that the trustees acted upon legal opinionthat there was no objection to the sales being arranged through negotiation on the basis of valuation by two independent valuers.

The Government of India constituted an Experts Committee whosefunction was purely of an advisory nature, with a view to guide the Government whether any part of the jewellery should be acquired as antiques under the Antiquity and ArtTreasures Act,1972. It was required to select and evaluate such items ofantique jewellery ashad to be acquired in the national interest. The Experts Committee inspected the jewellery at the vault of the Mercantile Bank. Duringthese proceedings the Government appointed a Committee of Valuers which by its report dated January 3, 1976, valuedall the 107 items of jewellery atRs. 6,62,58,500 while Vithaldas, RW 6, the valuer appointed by the trustees, by his valuation report dated March 18, 1976 valued these 37 items of jewellery at Rs. 10,26,30,000. Eventually, the Government ofIndia acquired18 selected piecesof antique jewelleryfor their culturaland historical importance at a mutually negotiated price of Rs. 1.17 crores.

It has been represented that the beneficiaries are in very straitenedcircumstances due to the abolition of privy purse, heavy incidence of income-tax and wealth-tax, and are heavily indebted due to the trustees applying the income of the trust largely towards payment of taxes, making it increasingly difficult tomaintain themselves.The beneficiaries were, therefore, pressing the Board of Trustees to effect animmediate saleof the37 items of jewellery.

On January9, 1978 it isalleged that there was a meeting of the Board of Trustees. Malhotra,who isthe Chairman, conveyed to the trustees that the Government of India were not likelyto acquire any of the 37 pieces of jewellery with regard to which negotiations were being made. The Board of Trusteesaccordingly passed a resolution to sell the jewellery immediately. The next meeting of the Board was held on January 25,1978 but Malhotra could not attend it.

Pursuant to the resolution of the Board of January 9, 1978, the Secretary of the trust applied to the Director of Archaeological Survey of India, for the grant of clearance for sale of the said jewellery; and in consultationwith Dinshaw Jehangir Gazdar, RW 3, a noted jeweller of Bombay, with the concurrence of M. A. Abbasi decided upon the procedure to be adopted for the eventual sale of these 37 items of jewellery.

It appearsthat the conditions of sale, Ex. B-49, were got drafted by M. A. Abbasi, one of the trustees, and M. A. Ashruff, Secretary, through a firm of solicitors. Conditions 11 and12, which formed an integral part of the contract of sale, are as follows:

"11. Tenders will be opened by the Trustees on the date announced at the time of inspection and the party whose tender isaccepted will be notifiedsoon thereafter. The jewellery shall on acceptance of the tender become immediately the property of the buyer and shall beavailable fordelivery tothe buyer immediately thereafter on payment of the balance of 90% of the tendered amount as specified in para 12 below. If delivery is not taken at that time the jewellery will be held forand on behalf of the tenderer at his risk.

12. Tendererswhose offers are accepted will be required to deposit in full the tendered amount (after deducting the amount of 10% deposited as per clause 4 above) onthe date or dates to be announced on the day of inspection before taking delivery. It is hereby agreed that if the tenderer fails to pay the balance amount within the stipulated period, thesale shall stand cancelled and the earnest money paid by him to the Trust shall be forfeited bythe Trustees and the Trustees shall be at libertyto offer thesame jewellery at the next sale and any deficiency arising at such sale together with all expenses arising from the subsequent sale shall be borne by the tenderer who shall also pay interest at the rate of 10% per annum to the Trust until the completion of the resale." On January31, 1978, Gazdar sent intimations (Exs.

B.130-133) to some foreign and Indian nationals abroad regarding the intended sale of the jewels. It appears that M. A. Ashruff,Secretary, also addressed letters dated February 8/10,1978 (Exs. B.72-87) and also sent telegrams dated February25, 1978 (Exs. B.88-100) to29 reputed dealers, sevenof whomwere jewellersfrom abroad and the remaining 22 in the country, as per list Ex. B-46.The letters of the Secretary as far as material, read:

"The unique collection of the fabulous oriental jewellery of the once richest man of the world, HEH the Nizam of Hyderabad and Berar, the erstwhile premier prince of India, iscoming up for sale in Bombay sometime during the first or second week of March 1978. The exact dates will be notified later."

The telegrams sent by him mentioned that: 'inspection of the jewellery couldbe hadrom March 6 to 9'. It would thus appear that the intending buyers were not notified the date of sale.

The 37 items of jewellery put up for sale were divided into 16groups. Inspection of these 37 items of jewellery was tobe offered to the intending bidders from March 6 to March 9. During the course of inspection, however,the trustees decided to restrict the period of inspection till March 8 and they informed the intending bidders accordingly, and asked them to give their bids before a particular hour on March 9. On the 8th of March, Malhotrawas present throughout, at the Mercantile Bank Ltd., and there was also a meeting of the Board of Trustees.

It is somewhat disconcerting that throughout this litigation, the trustees should have, as they appear to have done, aligned themselves with the appellants and other successful tenderers. They not only asserted that there was a 'concluded contract' for the sale of 37 items of jewellery by the alleged acceptance of bids by them on March 9, 1978, but also that the Court had no power to interdict the sale under. If we may say so, the attitude adopted by the Board of Trustees was clearly against the interests of the beneficiaries.

In the present case, evidence is tendered by the trustees, not for the purpose of showing that they tried to protect the interest of the beneficiaries, but for proving facts from which it could be inferred that, accepting that the price of Rs. 14.43 crores offered by the appellants and other tendererswas wholly inadequate, the discretionary power of sale was not liable to be interfered with.

It remainsthen to determine whether on the whole of the evidence as tendered, the appellants have established facts from which a sale in their favour could be inferred or, that the act of the trustees was not a bonafide exercise of their power so as to attract the Court's over- riding power to annulthe sale under s. 49 of the Trusts Act. The testimony, of Dinshaw Jahangir Gazdar RW 3, Kashmir Chand RW 4 andVithaldas RW 6 goes to show that they have been in jewellery business since long, and selling jewellery belonging to several Indian princes. Dinshaw Jahangir RW 3, was aconsultant tothe late Nizam for sale ofhis jewellery, andhad also arranged thesale of jewellery belonging to late Salarjung of Hyderabad. Kashmir Chand, RW 4, partner of the appellant firm M/s. Shanti Vijay & Co., had participated in the sale of jewellery belonging to the Maharajahs ofGwalior, Darbhanga, Jodhpur and Bikaner. Vithaldas, RW 6, is one of approved valuers appointed by the Government of India, and had valued the jewellery belonging to the Paiga of Khrusheed Jah and also some jewels belonging to the late Salarjung. At the instance of the Government of India,he hadvaluedthe jewellery belonging to the Nizam as also the Nawab of Rampur. According to these jewellers,the only method ofsale adopted in all these sales was to inform reputed jewellers both inthe country and abroad. None of the sales were by advertisement in the press.

As regardsvalue of the jewellery, Dinshaw Jahangir Gazdar, RW 3, and M. A. Abbasi, RW 1, want us to believe that Rs. 14.43 crores was the 'best possible price' that the 37 items of jewellerycould ever fetch, despite the fact that the eighth respondent, Peter Jansin Fernandez, made an offer of Rs. 20.25 crores for the same, during the course of the proceedings. For this they largely relied uponthe valuation report of Vithaldas,RW 6, showing that these 37 items of jewellery were worth Rs. 10,36,30,00. We shall deal with these witnesses later It is somewhat strange that the Boardof Trustees should have, acted in a cavalier fashion in disposing of the jewellery, without trying to ascertain their actual value. The alleged sale effected by them was clearly detrimental to the interests of the beneficiaries. M. A. Abbasi admits during his cross-examination, that 'the trustees had no definite idea of the value of the 37 items of jewellery' when they were offered for sale. He further admits that he did not consult anyone except Dinshaw Jahangir Gazdar, RW 3, about the actual value. He also admits that he did not get in touch with any curators of Museums of foreign countries to findout whether they were interested in purchasing any of the items, nor were any letters sent to any jewellers of Holland, Belgium, United Kingdom, Switzerland and Geneva. Even inthis country,the trustees did not appear to have written to any jeweller from Calcutta, Madras, Hyderabad or Bangalore. M. A. Abbasi states thatthe trustees were advised particularly by Dinshaw Jahangir Gazdar that it was not desirable to givepublicity in the daily newspapers as undesirable elements might step in for inspecting the jewels and he could not assure themthe bona fides of every such person, who wanted to inspect the jewellery. He, therefore, approached some of the jewellers through letters.

Then we come to Dinshaw Jahangir Gazdar, RW 3. It is true that this witnesshas wide experience in jewellery business and tries to assert that the amount of Rs. 14.43 crores offeredby the successful tenderers was a 'very good price', but then had to admit that he does not possess any qualification in gemmology. According to this witness.

'There is no principle as such in valuingan item of jewellery. One looks at it and values thesame.' He, however, had to admit that he never participated in sales of rare jewels held abroad, nor is he aware of the practice where jewels are sold abroad in auction rooms after proper advertisement. This witness goes on to say: 'It is only a jeweller who can value jewels by having a look at them. He will keep in consideration the size,cutting, clarity and lustre, and colour.' Vithaldas, RW 6, also asserts that the price of Rs. 14.43 crores fetched was a 'very good price' in March 1978 for these jewels. When be was confronted with the offer made by theeighth respondent during his cross-examination, he stated that according to him an offer of Rs. 20.25 crores for these 37 items of jewellery was a fancy price'. He explains by saying that a fancy price would be higher than the market price. All this evidence was led by the appellants and the other tenderers as well as by the Board of Trustees, in trying to establish that the trustees acted honestly and there was no lack of good faith on their part.

It appears that, as so often happens when one deals with another's property, it matters little to him what price the property fetches. But in the case of a trust, there arises the duty of the trustees to act with prudence and as a bodyof reasonable men. TheHigh Court has come to a definite conclusion that the improvident sale ofthe jewellery at such a low price without due public notice was not a bona fide exercise oftheirpower conducive of beneficial management. There is no reason for us to come to a different conclusion.

On the totality of the evidence,in our opinion, the High Court rightly came to the conclusion that though there were no malafides,corrupt motives, fraud ormis- representation on the part of the trustees and they acted honestly, the trustees in the facts and circumstances of the present case, did not act reasonably and in good faith i.e. with due care and attention. Upon its finding that there was no concluded contract between the parties within the meaning of s 2 (h) of the Contract Act, it accepted the offer of the eighth respondent, Peter Jansin Fernandez, for Rs. 20.25 crores for the purchase of 37 items of jewellery.

It is necessary to mention thatupon receipt of the findings recorded by the High Court,these appealswere placed before the Court for orders on April 18, 1979, when it issued a direction to the effect:

"The parties will submit the methodology by which a maximumprice may be fetched for the benefit of the beneficiaries. Any offer which is below Rs. 20 crores will automatically be ignored."

Since the Court was rising for the summer vacation from May 5, 1979, learned counsel for the eighth respondent, Peter Jansin Fernandez, made a request forwithdrawal ofthe deposit of Rs. 20.25 crores made by him before theHigh Court for, the purchase of the 37 items of jewellery, and instead gave an undertaking to furnish an irrevocable bank guarantee by the State Bank of India overseas' Branch Bombay to thatextent. This was duly complied with by the eighth respondent, Peter Jansin Fernandez; and the irrevocable bank guarantee for Rs. 20.25 crores furnished by him is due to expire on September 20, 1979.

The appeals came up for hearingbefore the Court on August 18, 19?9 We request to say that though the appellants and other successful tenderers had nearly four months' time, no better offer than the one made by the eighth respondent, Peter JansinFernandez, forRs. 20.25 crores was forthcoming. We, therefore, proceeded to hear the appeals on merits. The parties were heard on all aspects.

The question still remains as to the course open. Accepting the offer ofthe eighth respondent, Peter Jansin Fernandez, without inviting fresh tenders would be subject to the same infirmity. From the evidence onrecord, it appears nobody really knows the actual value of the 37 items of the jewellery. It may be well worth more than Rs. 20.25 crores.

We must, therefore, uphold the judgmentof theHigh Court settingaside the alleged sale of 37 items of jewellery belonging to. H.E.H. the Nizam's Jewellery Trust, effected by the Board of Trusteesin favour ofthe appellants andother successful tenderers for Rs. 14.43 crores, but set asideits order accepting the bid of the eighth respondent, Peter Jansin Fernandez, for purchase of the jewellery for Rs. 20.25 crores, and direct a re-auction on the terms specified separately.

The appeals are disposed of accordingly. The appellants in allthese appeals,excepting Civil Appeal No. 1269 of 1978, shall bear their own costs and pay one set of cost to the respondents as they have substantially failed. The two special leave applications are also dismissed. N.V.K.DETAILED STUDY OF CASES (OUTSIDE INDIA): Jacobs, Marcus & Co v. Crdit Lyonnais

Jacobs, Marcus & Co v. Crdit Lyonnais

(1884) 12 QBD 589 (English Court of Appeal)

Whether an event constitutes an excuse for non-performance of a contract is an issue to be determined by the proper law of the contract.

The judgment of the Court (Brett MR and Bowen LJ) was delivered by BOWEN LJ. [598]. The plaintiffs in this case are esparto merchants, carrying on business in the city of London, and the defendants are a banking firm, also carrying on business in the city.

By a contract made in London on October 6, 1880, the defendants agreed to sell to the plaintiffs 20,000 tons of Algerian esparto, to be shipped from Algeria during the year 1881 by monthly deliveries on board ships or steamers to be provided by the plaintiffs: payment to be made by cash on arrival of the ship or steamer at her port of destination. The [599] defendants delivered a portion of the esparto under the contract, but failed to deliver the remainder; and this action was brought by the plaintiffs for its non-delivery. The defendants in their statement of defence admitted the non-delivery complained of, but alleged that the insurrection in Algeria and the military operations connected with it had rendered the performance of the contract impossible; and that by the French Civil Code, which prevails throughout Algeria, force majeure is an excuse for non-performance. The plaintiffs demurred to this defence upon the ground that the contracts were governed by English law and not by the law of Algeria, and further alleged that the defendants or their agents could have procured and shipped esparto from other ports of Algeria where force majeure did not exist. The defendants to the latter allegation rejoined that the insurrection and military operations rendered it impossible to transport such esparto as last mentioned to the place fixed in the contract for approval by the plaintiffs of its quality before shipment, or to transport the same to the place fixed in the contract for shipment. To this rejoinder there was a further demurrer upon similar grounds. The Court of Queens Bench having given judgment on both demurrers for the plaintiffs, the case now comes before us upon appeal.

The question which we have in substance to consider is, whether non-performance of their agreement by the defendants can be excused on the ground that military operations in Algeria and the Algerian insurrection had rendered its performance impossible, and that such an excuse would have been recognised by the French Civil Code which prevails in Algeria.The first matter we have to determine is, whether this contract is to be construed according to English law or according to French. To decide this point we must turn to the contract itself, for it is open in all cases for parties to make such agreement as they please as to incorporating the provisions of any foreign law with their contracts. What is [600] to be the law by which a contract or any part of it is to be governed or applied must be always a matter of construction of the contract itself, as read by the light of the subject-matter and of the surrounding circumstances. The broad rule is that the law of a country where a contract is made presumably governs the nature, the obligation and the interpretation of it, unless the contrary appears to be the express intention of the parties. The general rule, says Lord Mansfield, established ex comitate et jure gentium, is that the place where the contract is made, and not where the action is brought, is to be considered in expounding and enforcing the contract. But this rule admits of an exception where the parties at the time of making the contract had a view to a different kingdom: Robinson v. Bland (1760) 2 Burr 1077.It is obvious, however, that the subject-matter of each contract must be looked at as well as the residence of the contracting parties or the place where the contract is made. The place of performance is necessarily in many cases the place where the obligations of the contract will have to be enforced, and hence, as well as for other reasons, has been introduced another canon of construction to the effect that the law of the place of fulfilment of a contract determines its obligations. But this maxim as well as the former must, of course, give way to any inference that can legitimately be drawn from the character of the contract and the nature of the transaction.

In the present case the contract was made in London between merchants carrying on their business in the city of London, and payment was to be made in London. Presumably, therefore, we should infer that this was an English contract, and intended to be [602] governed by English law; but it still remains to be considered whether anything in the contract itself or the nature of its stipulations displaces this prima facie view either wholly or in part.

Now it cannot be contended that the parties have in express terms provided that any portion of this contract is to be construed or applied otherwise than according to English law; but it was suggested by the appellants [the defendants] that such an intention ought to be inferred from certain provisions as to the collection of the esparto in Algeria and as to its shipment thence.[603] The mere fact that a contract of this descriptionmade in England between English resident houses, and under which payment is to be made in England upon delivery of goods from p-country in an Algerian portis partly to be performed in Algeria, does not put an end to the inference that the contract remains an English contract between English merchants, to be construed according to English law, and with all the incidents which English law attaches to the non-performance of such contracts.

Now one of the incidents which the English law attaches to a contract is that (except in certain excepted cases, as that of common carriers and bailees, of which this is not one), a person who expressly contracts absolutely to do a thing not naturally impossible is not excused for non-performance because of being prevented by vis major [i.e. a force practically impossible to resist]. The rule laid down in the case of Paradine v. Jane (1647) Aleyn 26 has often, says Lord Ellenborough, in the case of Atkinson v. Ritchie (1809) 10 East 530, 533 been recognised in courts of law as a sound onethat is, that when the party by his own contract creates a duty or charge upon himself, he is bound to make it good if he maynotwithstanding any accident by inevitable necessity : because he might have provided against it by his contract. ... If inevitable necessity occurring in this country would not excuse non-performance, why should non-performance be excused on account of inevitable necessity arising abroad? So to hold would be to alter the liability which English law attaches to contracts, and would, in the absence of an express or implied intention to that effect, be contrary to authority as well as principle ... .

[604] the contract has absolutely provided that delivery of the esparto shall be duly made; not that the bargain as to such delivery need only be observed when the foreign law would insist upon such observance. The contract being an English contract, only such portions of the French Civil Code can be applied to its provisions as to performance in Algeria as are not inconsistent with the express language of the contract as interpreted according to English law. If the parties had wished in addition to this to incorporate a provision of French law which in the event of vis major would operate to excuse the contracting parties for non-performance, and thus to vary the natural construction of the instrument according to English law, they should have done so in express terms. Read by English law the contract is not susceptible of such an interpretation, and there is nothing to show that in this respect the parties desired the contract to be governed by the French. For these reasons we are of opinion that the judgment of the Court below was right and must be affirmed with costs.

H. B. Steamboat Co. vs. Hutton (1903)

On June 28, 1902, the owners let their steamship Cynthia to the defending hirers, providing that the said steamship should be at the disposal of the defendant on June 28 to take passengers from Herne Bay. The contract stipulates inter alia that:

for the purpose of viewing the naval review and for a days cruise round the fleet; also on June 2 similar purposes: price 250 payable, 50 down, balance before ship leaves Herne Bay.

On the signing of the agreement the defendant paid the 50 deposit. On June 25 the review was officially cancelled, whereupon the plaintiffs wired to the defendant for instructions, stating that the ship was ready to start, and also requesting payment of the balance. Receiving no reply, the plaintiffs, on June 28 and 29, used the ship for their own purposes, thereby making a profit. On June 29 the defendant repudiated contract in toto. During the two days in question the fleet remained anchored at Spithead.

In an action by the plaintiffs, the owners of the Cynthia, they attempted to recover the balance 200, less the profits made by their use of the ship during these two days. The judge at first instance gave his judgment for the defendants.

In the Supreme Court of Judicature Court of Appeal, Before Vaughan Williams, Stirling and Romer LJJ. 1903 August 6.

Vaughan Williams LJ at pp.688-689:

AccordinG to my understanding of this contract, this ship was placed at the disposal of Mr. Hutton really for those two days. This con does, in my opinion, place the ship at the disposal of Mr. Hutton, just as a charter party places the vessel, the subject of it, at the disposal of the charterers. That being so, what is there besides in the present case? Only this, that Mr Hutton, in hiring this vessel, had two objects in view: first, of taking people to see the naval review, and, secondly, of taking them round the fleet. Those, no doubt, were the purposes of Mr Hutton, but it does not seem to me that because, as it is said, those purposes became impossible, it would be a very legitimate inference that the happening of the naval review was contemplated by both parties as the basis and foundation of this contract, so as to bring the case within the doctrine of Taylor v Caldwell 3 & S 826. On the contrary, when the contract is properly regarded, I think the purpose of Mr Hutton, whether of seeing the naval review or of going round the fleet with a party of paying guests, does not lay the foundation of the contract within the authorities.I see nothing that makes this contract differ from a case where, for instance, a person has engaged a brake to take himself and a party to Epsom to see the races there, but for some reason or other, such as the spread of an infectious disease, the races are postponed. In such a case it could not be said that he could be relieved of his bargain. So in the present case it is sufficient to say that the happening of the naval review was not the foundation of the contract.

Romer LJ at pp.690-692:

I may point out that this case is not one in which the subject-matter of the contract is a mere licence to the defendant to use a ship for the purpose of seeing the naval review and going round the fleet. In my opinion, as my Lord has said, it is a contract for the hiring of a ship by the defendant for a certain voyage, though having, no doubt, a special object, namely, to see the naval review and the fleet; but it appears to me that the object was a matter with which the defendant, as hirer of the ship, was alone concerned, and not the plaintiffs, the owners of the ship.

The case cannot, in my opinion, be distinguished in principle from many common cases in which, on the hiring of a ship, you find the objects of the hiring stated. Very often you find the details of the voyage stated with particularity, and also the nature and details of the cargo to be carried. If the voyage is intended to be one of pleasure, the object in view may also be stated, which is a matter that concerns the passengers. But this statement of the objects of the hirer of the ship would not, in my opinion, justify him in saying that the owner of the ship had those objects just as much in view as the hirer himself. The owner would say, 'I have an interest in the ship as a passenger or cargo carrying machine, and I enter into the contract simply in that capacity; it is for the hirer to concern himself about the objects.

The ship (as a ship) had nothing particular to do with the review or the fleet except as a convenient carrier of passengers to see it: any other ship suitable for carrying passengers would have done equally as well. Just as in the case of the hire of a cab or other vehicle, although the object of the hirer might be stated, that statement would not make the object any the less a matter for th