Karnataka High Court
Happy Home Builders (Karnataka) Pvt. ... vs Delite Enterprises on 13 July, 1993
Equivalent citations: ILR1993KAR2558, 1994(1)KARLJ103, 1995 A I H C 320, 1995 A I H C 1320, (1994) 13 CORLA 405 (1994) 1 KANT LJ 103, (1994) 1 KANT LJ 103
JUDGMENT Vasanthakumar, J.
1. These Regular First Appeals are directed against the common Judgment and decree dated 18.7.1985, passed in O.S.No. 659/81 by the Court of the IX Addl. City Civil Judge, Bangalore.
Parties are described as in the original suit. Regular First Appeal No. 387/86 is filed by the Second Defendant in the original cause and Regular First Appeal 513/86 is filed by the 1st- defendant Company. .
2. Facts to briefly state are:-
M/s. Delite Enterprises a registered partnership firm carrying on business as Builders and Contractors at Bombay who is the plaintiff was approached by one Estate Agent by name M. Hussain stationed at Bangalore and was appraised about the feasibility of development of flats in the suit schedule property belonging to M/s. Happy Home Builders a company incorporated under the Companies Act having its registered office at Bangalore which had the advantages of having obtained a sanctioned plan, sital value ad measuring 23019 sq. ft. and the sanctioned plan related to construction of 13 storeys and each storey comprising 6 flats. Negotiations for sale took place between one T.M. Nair representing as the Managing Director of M/s. Happy Home Builders Company (hereinafter called as 'first defendant') and plaintiff's Firm. It is pleaded that T.M. Nair, Managing Director of First defendant company asked the plaintiff to approach Mr. John D'Souza legal practitioner at Bangalore (who is hereafter mentioned as second defendant) for purposes of finalisations of sale transactions.
3. It is to be noted that the first defendant company had prepared a brochure (Ex.D1) indicating the advantages of the construction of Apartments in the suit schedule property and plaintiff was appraised about the commercial feasibility of the project and in furtherance thereon one of the partners of the plaintiff's firm by name A.I. Khwaja approached first defendant's Advocate namely the 2nd defendant. Plaintiff has pleaded that on 30.1.1978, during the visit of one of its partners Khwaja, the transaction was finalised, and that it was specifically understood that the sanctioned plan would be got revalidated and licence renewed and that necessary requisite permission from various Local Authorities, Urban Land Ceiling & Regulation Authorities and Income Tax Authorities would be obtained from the first-defendant-Company for purpose of going through the sale transaction. It is also specifically pleaded that the sale price was agreed at Rs. 7,50,000/- (Rupees seven lakhs fifty thousand) and that plaintiff should deposit 10% of the sale price (worked out at Rs. 75,000/-) by way of earnest money and the same to be deposited with the second defendant who was first defendant's Advocate as Stake holder till the completion of the sale transaction and in pursuance of finalisation of talks a draft agreement was prepared by second defendant. It is to be seen that plaintiff's in furtherance of the agreement, made available two cheques, one cheque of date 30.1.78 for Rs. 25,000/- and another cheque of date 31.1.78 for Rs. 50,000/- drawn in the name of the 2nd defendant. Plaintiff has further pleaded that it was agreed that draft agreement of sale would be got typed on a stamp paper in duplicate by 1.2.78, but to the surprise the first defendant refused to sign the agreement. The plaintiff states that what was agreed to between the parties are reflected in the draft agreement of sale of date 30.1.78, which has been marked as Exhibit P-3. It is to be seen that the plaintiff's averment regarding finalisations of talks and the same being reflected in Ex.P-3 is admitted and corroborated by 2nd defendant in his written statement. In Para-6 of written statement, the relevant passage reads:-
"..... The draft of the agreement prepared on 30th January 1978 was approved by Kwaja and his Counsel but on some technicality very minor verbal amendments were proposed and finally after discussions the draft agreement was approved by both the parties and later engrossed on the stampe paper for execution peremptorily on the 9th February 1978."
Further, the 2nd defendant has examined himself as D.W.2 and has deposed admitting the drafting of the draft agreement (Ex.P-3) and as well as having finalised the agreement of sale marked as Exhibits P-4 and P-4(a). In his deposition, the second defendant has stated:-
"I am aware of the constitution of the first defendant company which was constituted in the month of 1978. The schedule property was owned by the first defendant company, as then constituted. I took it for granted that Mr. Nair was all in all for the company. In technical term it may that the company was transacting in respect of this transaction. As I was the lawyer for Mr. Nair I was also a lawyer for first defendant company at that time. I see Ex.P-3 and the same was prepared by me. Ex.P-3 is an agreement entered into by the first defendant company. From the date of drafting Ex.P-3 till today the first defendant did not question the propriety of drafting Ex.P-3 on behalf of first defendant-company. Except Exs.P-3 and P-4(b) there is no other document to evidence the contract between the plaintiff and first defendant company. Ex.P-4(a) is a carbon copy and there is one original of Ex.P-4(a). I believe that the original of Ex.P-4(a) was given to the plaintiff. The original of Ex.P-4(a) was given personally to plaintiff either on 31st January or 1st of February 1978. I also see that Ex.P-4(b) is dated 9th February 1978; the original of Ex.P-4 was not signed by the first defendant till 9th February 1978. Ex.P-4(b) is affixed with the signature of the defendant but it does not bear the seal of the company."
It is to be seen that both the parties have used Exhibits P3, P4 and P-4(a) as documents reflecting the nature of transactions negotiated as between the parties and have admitted their evidentiary value. It is also admitted fact that what was agreed to by the parties are found reflected in Exhibits P3, P4 and P- 4(a) and that Exhibits P-3, P-4 and P-4(a) by themselves did not constitute consensus ad idem between the parties inter se and so far as parties are concerned it is not open for them to question the admissibility of the documents at any subsequent stage of the suit, or in any appeal or revision arising therefrom.
4. The relevant clauses in Exs.P-3, P4 and P-4(a) for purpose of adjudication of the subject matter of this Appeal are:-
"Clause 3. The purchasers have paid to the vendors the sum of Rs. 75,000/- (rupees seventy five thousand only) by two cheques one of Rs. 25,000/- dated 30th January 1978 drawn on the Allahabad Bank, Bangalore, and the other for Rs. 50,000/-(rupees fifty thousand only) dated 31st January 1978 drawn on the same Bank also in favour of Mr. John D' Souza, to be retained by him pending completion of the sale receipt of which the vendors do hereby acknowledge as and for earnest money and advance on the sale price.
Clause 4. The delivery of vacant possession of the schedule property is the project including the land and the commenced constructions with such materials as it exists on site is the necessary conditions precedents to the deed of sale.
Clause 5. The sale deed will be executed in favour of the intending purchasers or their nominee or nominees on the same terms and conditions hereinafter contained Mutatis Mutandis not later than 30th April 1978, time being the essence of the contract.
Clause 6. The sale is necessarily subject to all statutory and other sanctions to be obtained, if necessary such as :
i) Revalidation, reapproval or issue of Corporation licence for construction.
ii) Sanction under Section 27 of the Urban Land (Ceiling and Regulations) Act.
iii) Production of Income-tax no objection certificate under Section 230A of the Income Tax Act.
Clause 10. In the event of any default on the part of the purchasers in completing the sale the earnest money of Rs. 75,000/- (rupees seventy five thousand only) will be forfeited" to the Vendors for breach of contract.
Exhibit P4:
Clause 3: The purchasers have paid to the Vendors the sum of Rs. 75,000/- (rupees seventy five thousand only) by two cheques one of Rs. 25,000/- dated 30th January 1978 drawn on the Allahabad Bank, Bangalore, and the other for Rs. 50,000/- (rupees fifty thousand only) dated 31st January 1978 drawn on the same Bank also in favour of Mr. John D'Souza to be retained by him pending completion of the sale, receipt of which the vendors do hereby acknowledge as and for earnest money and advance on the sale price.
Clause 6: The sale is necessarily subject to all statutory and other sanctions to be retained if necessary such as:
i) Revalidation, reapproval or reissue of Corporation licence for construction.
ii) Sanction under Section 27 of the Urban Land (Ceiling and Regulation) Act.
iii) Production of Income-tax no objection certificate under Section 230A of the Income Tax Act.
Clause 10. In the event of any default on the part of the purchasers in completing the sale the earnest money of Rs. 75,000/- (rupees seventy five thousand only) will be forfeited to the vendors for breach of contract.
Clause 11. In the event of any default on the part of the Vendors in completing the sale other than by-operation of law, the earnest money of Rs. 75,000/- (rupees seventy five thousand only) paid by purchasers will be returned to them together with a like sum of Rs. 75,000/- (rupees seventy five thousand only) being liquidated damages for breach of contract."
Ex.P-4(a) : Clause 3 :
"The purchasers have paid to the Vendors the sum of Rs. 75,000/- (rupees seventy five thousand only) by two cheques one of Rs. 25,000/- dated 30th January 1978 drawn on the Allahabad Bank, Bangalore, and the other for Rs. 50,000/-(rupees fifty thousand) dated 31st January 1978 drawn on the same Bank also in favour of Mr. John D' Souza, to be retained by him pending completion of the sale, receipt of which the vendors do hereby acknowledge as and for earnest money and advance on the sale price.
Clause 6. The sale is necessarily subject to all statutory and other sanctions to be obtained if necessary as has:-
i) (Delivery of all plans, licences and sanctions validated upto December 1978) Ex.P-4 (b).
ii) Sanction under Section 27 of the Urban Land (Ceiling and Regulation) Act.
iii) Production of Income-tax no objection certificate under Section 230A of the Income-tax Act.
Clause 10. In the event of any default on the part of the purchasers in completing the sale the earnest money of Rs. 75,000/- (rupees seventy five thousand only) will be forfeited to the vendors for breach of contract.
Clause 11. In the event of any default on the part of the vendors in completing the sale other than by operation of law, the earnest money of Rs. 75,000/- (rupees seventy five thousand, only) paid by the purchasers will be returned to them together with a like sum of Rs. 75,000 (rupees seventy five thousand only) being liquidated damages for breach of contract."
5. While the matter thus stood, parties have exchanged certain correspondence between them. Plaintiff has got them marked as Exhibits P-5 to P-19 and the 2nd defendant has got marked as Exs.D-4, D-5 and D-12.
Deducible evidentiary format from the correspondence would be:-
1) Plaintiff has expressed its willingness to go forward with the transaction subject to the defendants revalidating the sanctioned plan and also period of licence being extended, as these stipulations being fundamental preconditions of the agreement entered into between the parties.
2) That cheques for Rs. 25,000/- and Rs. 50,000/- as not to be encashed till the parties subscribe their signatures to a formal written agreement in respect of the conditions already agreed upon.
3) In the absence of the fundamental preconditions being complied by first defendants, plaintiff having no choice except to claim damages and return of Rs. 25,000/- which had been encashed by 2nd defendant.
The defendants on their part have made it clear that:-
1) Inspite of the stamped agreements being ready for signature of the plaintiff, the inaction and delay on the part of the plaintiff, as being circumstances warranting of reasonable inference that the plaintiff as backing out from the sale transaction.
2) In view of the plaintiff's conduct in not honouring its commitment regarding payment of earnest money in its entirety and the subsequent dishonour of cheque issued by the plaintiff in favour of the second defendant and in stipulating the revalidation and extension of licence as being fundamental conditions of the bargain before sale being completed as being the factors to treat the transaction as being annulled and in consequence of breach on the part of the plaintiff defendants being entitled to forfeit Rs. 25,000/- and also being entitled to claim damages or in the alternative to seek specific performance. Another interesting aspect of this case is in respect of events that have taken place in between two dates namely from 4.2.1978 onwards to 24.11.1978 when the second defendant in an unequivocal terms made known to the plaintiff about the sum of Rs. 25,000/- as being forfeited due to breach of plaintiff's contractual obligations under the contract and further the Court is appraised by the second defendant that subsequent events having been ensued viz.,
1) Transfer of share holding of T.M. Nair and his family members to the other shareholders in the month of April 1978.
2) Death of Sri T.M. Nair in the month of June 78 3) Construction of apartments by different agency dehors the plaintiff. 4) Option of exercise of forfeiting the sum of Rs. 25,000/-paid by way of part of earnest money.
6. The plaintiff got issued a lawyer's notice dated 3.3.80 to first and second defendants, highlighting the background of the nature of the transaction entered into and its legitimate demand for return of the sum of Rs. 25,000/- encashed by second defendant and claim for damages being the resultant breach of agreement by defendants. By way of reply (Ex.P-13) the 2nd defendant flatly denied the plaintiff's legal rights to claim sum of Rs. 25,000/- together with damages in view of the 1st-defendant having exercised his contractual right of forfeiture due to breach on the part of the plaintiff in not fulfilling contractual obligations as envisaged, and that sum of Rs. 25,000/- having been adjusted by the second defendant towards certain outstandings due by the first defendant on instructions from T.M. Nair, the then Managing Director of the first defendant Company.
7. The 1st-defendant Company replied to the aforesaid plaintiff's notice of date 3.3.80, not only denying its liability but also being not aware of the suit transaction (Ex.P-14) and again reiterated their stand in their another letter dated 30.4.80 Ex.P-16. The 1st defendant in its replies Ex.P-14 and P-16 not only categorically denied the Company's liability but in emphatic terms stated that they having not received sum of Rs. 25,000 from the second-defendant, the question of their liability would not arise. The relevant paras in their reply notices are:-
In Ex.P-14 dated 17.4.80:
"Please note that we are not aware of any such dealings of your client with our firm and in case your client has dealt with Mr.John D'Souza he can contact and decide the matter with him"
In Exhibit P-6 dated 30.4.80.
"Our company has not received any such amount of Rs. 25,000/-from your clients or Mr. John D'Souza at any stage and therefore you have to deal with Mr. John D'Souza alone in the matter."
Plaintiff having no other alternative in the context of the stand taken by defendants filed suit numbered as O.S.659/81, on the file of the City Civil Judge, Bangalore City seeking the following reliefs;-
a) Directing the defendants jointly and severally to pay to the plaintiff and said sum of Rs. 93,000/- (Rupees ninety three thousand) together with interest thereon at 18% per annum from the date of suit till payment.
b) Further direction that the schedule property shall stand charged for the suit claim.
c) defendants may be ordered and decreed to pay the plaintiff's costs of this suit.
d) for such further and other reliefs as the nature and circumstances of the case may require in the interest of justice as equity.
8. The first defendant has contested the case denying its liability and further has pleaded about being unaware of the suit transaction and further having not received sum of Rs. 25,000/- from the second-defendant.
Whereas the 2nd defendant who was an Advocate for the first defendant Company has filed written statement running to 36 paras. The sum and substance of the 2nd defendant's pleading being:-
1) Admission of suit transaction being evidenced as per Exhibits P-3, P-4, and P-4(a).
2) Encashment of Rs. 25,000/- and dis-honouring of cheque of Rs. 50,000/- paid by the plaintiff towards earnest money.
3) Breach of the agreement by the plaintiff and in consequence of the breach, the first defendant's entitlement to forfeit sum of Rs. 25,000/- and his legitimate adjustment of Rs. 25,000/-encashed by him as an agent of 1st defendant company towards outstandings due by the company.
4) First defendant having right to claim damages or sue for specific performance.
5) The trial Court framed the following issues:-
1) Does the plaintiff prove the the suit alleged agreement? 2) Does the plaintiff further prove that the payment of Rs. 25,000/-? 3) Does the plaintiff further prove that the said sum was left with the 2nd defendant to be retained in the capacity of a stake-holder? 4) Do the defendants prove that the plaintiffs were resiling from the suit agreement? 5) Do the defendants prove that the said sum of Rs. 25,000/-was liable to be lawfully forfeited? 6) What is the extent of damage and loss sustained by the plaintiffs? 7) What is the extent of liability of each of the defendants if any?
9. What is significant to note is that the second defendant was acting as Attorney for and on behalf of the first-defendant-Company and not for Mr. T.M. Nair - Managing Director of first-defendant Company in his, individual capacity. In paragraph 3 of the written statement, the 2nd defendant who has 42 years experience in the Bar has categorically stated as follows:-
"The particulars in regard to the 1st and 2nd defendants are substantially true except that the 2nd defendant is now at 16/3, Rest House Crescent, Bangalore, Also, the 1st-defendant was only a Private Ltd Col. comprising the late Mr. T.M. Nayar, his wife and his son all of whom had only one share allotted to them in the Company and the late Mr. T.M. Nayar was in overall authority in regard to all matters whatsoever to the extent that one might arrogate in substance and effect that the 1st defendant was for all practical purposes a one man company functioning in the individual discretion of the late T.M. Nayar. In effect and in substance, the late T.M. Nayar was the real owner of the company, with little or no distinction and or difference between him and his company."
The contents of Exs. P-3, P-4 and P-4(a) clearly establish the legal entity of the first defendant as being Company incorporated in Karnataka having its registered office at No. 29, Indiranagar, Bangalore, represented by its Director Mr. T.M. Nair as being the vendor and plaintiff being a partnership firm registered at Bombay and represented by its Managing Partner Mr. Ayub l-Khwaja as being purchaser.
10. The only question that confronts us and requires consideration is as to in what capacity the second defendant acted on behalf of the 1st-defendant Company, and whether breach has been committed and by whom? If it is purely in the capacity of, either as an attorney or as a Counsel it could be said that apparent authority of a Counsel is to be restricted to acts and admissions coram judice or in Court, but if it is otherwise such acts and admissions do not bind the client or his agent duly authorised by the client in that behalf.
IN BYRAM PESTONJI GARIWALA v. UNION BANK OF INDIA AND ORS., , the Supreme Court has dealt on the aspect of role of Counsel and his authprity to bind his client. Paras 9 to 27 and 37 read:-
"Para 9 : The role of counsel in Court in England is described in Halsbury's Laws of England, 4th Ed. Vol. 3, paras 1181 and 1183, as follows:-
"1181. Counsel's authority. At the trial of an action, counsel's authority extends, when it is not expressly limited, to the action and all matters incidental to it and to the conduct of the trial, such as withdrawing the record. Challenging a juror, calling or not calling witnesses, cross-examining or not cross-examining witnesses, consenting to a reference to arbitration, a compromise, or a verdict, undertaking to appear, or, on the hearing of a motion for a new trial, consenting to a reduction of damages.
The client's consent is not needed for a matter which is within the ordinary authority of counsel: thus if, in Court, in the absence of the client, a compromise or settlement is entered into by counsel whose authority has not been expressly limited, the client is bound. If an action is settled in Court in the presence of the client, his consent will be inferred, and he will not be heard to say that he did not understand what was going on..."
Para 10. The implied authority of counsel in England, is, however, confined to matters falling within the subject matter of the suit. In the absence of express authority, counsel cannot enter into compromise on collateral matters.
"The authority of counsel to compromise is limited to the issues in the action: a compromise by counsel affecting collateral matters will not bind the client, unless he expressly assents; and it may be that a barrister has no authority to reach a binding settlement or compromise out of Court." (Halsbury, ibid).
Para 11: A compromise is, however, not binding and is liable to be set-aside in circumstances which would invalidate agreements between the parties.
"A compromise by counsel will not bind the client, if counsel is not appraised of facts the knowledge of which is essential in reference to the question on which he has to exercise his discretion, for example that the terms accepted had already been rejected by the client. Where counsel enters into a compromise in intended pursuance of terms agreed upon between the clients, and, owing to a misunderstanding, the compromise fails to carry out the intentions of one side, the compromise does not bind the client, and the Court will allow the consent to be withdrawn. Where, acting upon instructions to compromise, counsel consents under a misunderstanding to certain terms which do not carry into effect the intentions of counsel and the terms are thought by one party to be more extensive than the other party intends them to be, there is no agreement on the subject-matter of the compromise, and the Court will set it aside. But a person who has consented to a compromise will not be allowed to withdraw his consent because he subsequently discovers that he has a good ground of defence." (Halsbury, ibid, para 1183).
Para-12. Counsel's consent in certain circumstances, such as duress or mistake may not bind the client.
"If Counsel's consent is given under duress, the client will not be bound, as when counsel, acting for a client alleged to be of unsound mind but believing him to be of sound mind, consented to certain terms for the withdrawal of Court of Protection proceedings against the client because of his fear of the inconvenience and ill-health likely to arise to the client from confinement.
A compromise or order made by consent by counsel for a minor or other person under disability is not binding on the client, unless it is sanctioned by the Court as being for the benefit of the client. The Court cannot, however, enforce a compromise on a minor against the opinion of his Counsel." (Halsbury, ibid).
13. One of the early English authorities on this point is Patience Swinfen v. Lord Chelmsfor, (1860) 5 H&N 890 at 922 : SC 29 LJ (Ex) 382, Delivering the Judgment of the Court, Pollock, C.B. stated:
"......We are of opinion, that although a counsel has complete authority over the suit, the mode of conducting it, and all that is incident to it - such as withdrawing the record. Withdrawing a juror, calling no witnesses, or selecting such as, in his discretion, he thinks ought to be called, and other matters which properly belong to the suit and the management and conduct of the trial we think he has not, by virtue of his retainer in the suit, any power over matters that are collateral to it...."
Para-14-. In Matthews v. Munster, (1887) 20 QB 141 at p.144, Lord Esher M.R. Stated :
".....The instances that are given show that one of the things that counsel may do, so long as the request of the client to him to act as advocate is in force, is to assent to a verdict for a particular amount and upon certain conditions and terms; and the consent of the advocate to a verdict against his client and the withdrawing of imputations is a matter within the expression 'conduct of the cause and all that is incidental to it'. If the client is in Court and desires that the case should go on and counsel refuses, if after that he does not withdraw his authority to counsel to act for him and acquaint the other side with this, he must be taken to have agreed to the course proposed. This case is a still stronger one, for the client was not present, and it is not pretended that he ever withdrew his authority to counsel, but he now comes forward and asks that because he does not like what has been done it should be set aside as between himself and his opponent. This the Court will not do, and this appeal must be dismissed."
See also Rondel v. Worsley, (1967) 1 Q.B. 443, 502, per Lord Denning M.R. Para-15. If this is the position of counsel in England, Scotland and Ireland, is his position the same in India in the conduct of cases in Court? That the answer is affirmative, there is high judicial authority.
Para 16: In (Babu) Sheonandan Prasad Singh v. Hakim Abdul Fateh Mohammed Reza, AIR 1935 PC 119, 121, Lord Atkin, speaking for the Board, states:-
"...As was laid down by this Board in 571A 133 : AIR 1930 PC 158, counsel in India have the same implied authority to compromise an action as have counsel in the English Courts. But if such authority is invoked to support an agreement of compromise the circumstances must be carefully examined. In the first instance the authority is an actual authority implied from the employment as Counsel. It may however be withdrawn or limited by the client : in such a case the actual authority is destroyed or restricted; and the other party if in ignorance of the limitation could only rely upon ostensible authority. In this particular class of contract however the possibility of successfully alleging ostensible authority such as (1902) AC 465 and (1919) 1 K.B. 474 which make it plain that if in fact counsel has had his authority withdrawn or restricted the Courts will not feel bound to enforce a compromise made by him contrary to the restriction even though the lack of actual authority is not known to the other party."
Para -17. Lord Atkin emphasises the need to rely on express authority, rather than implied authority, particularly because of easier and quicker communication with the client. He says:
"......In their Lordships experience both in this country and in India it constantly happens, indeed it may be said that it more often happens, that counsel do not take upon themselves to compromise a case without receiving express authority from their clients for the particular terms; and that this position in each particular case is mutually known between the parties.
In such cases the parties are relying not on implied but on an express authority given ad hoc by the client...." (Ibid page 121).
Para 18. However, collateral matters were understood to be beyond the scope of compromise. Lord Atkin says:
"If the facts are as their Lordships assume, the matter compromised was in their opinion collateral to the suit and not only would it not be binding on the parties, but it would in any case be a matter in respect of which the Court in pursuance of Order 23 Rule 3, should not make a decree." (Page 122).
Para 19 : Referring to the role of Counsel in India and comparing him with his counter-part in Britain, Lord Atkin in Sourendra Nath Mitra v. Tarubals Dasi, AIR 1930 PC 153, says :
" Their Lordships regard the power to compromise a suit is inherent in the position of an advocate in India. The considerations which have led to this implied power being established in the advocates of England, Scotland and Ireland, applying in equal measure to India. It is a power deemed to exist because its existence is necessary to erfectuate the relations between advocate and client, to make possible the duties imposed upon the advocate by his acceptance or the cause of his client."
Para-20, Counsel's power to compromise is vital to the defence of his party while engaged on his behalf in the thick of a legal battle in Court. Lord Atkin observes:
"The advocate is to conduct the cause of his client to the utmost of his skill and understanding. He must in the interest of his client be in the position, hour by hour, almost minute by minute, to advance this argument, to withdraw that; he must make the final decision whether evidence is to be given or not on any question of fact; skill in advocacy is largely the result of discrimination. These powers in themselves almost amount to powers of compromise : one point is given upon that another may prevail. But in addition to these duties, there is from time to time thrown upon the advocate, the responsible task of deciding whether in the course of a case he shall accept an offer made to him, or on his part shall make an offer on his client's behalf to receive or pay something less than the full claim or the full possible liability. Often the decision must be made at once..." (ibid, page 161).
Para 21. Emphasising the apparent authority of Counsel, and the raison d'etre of such authority being the paramount interest of his client, and not an appendage of office, Lord Atkin states :
"The apparent authority is derived from the known existence of the implied authority....
.... First, the implied authority of counsel is not an appendage of office a dignity added by the Court to the status of barrister or advocate at law. It is implied in the interest of the client, to give the fullest beneficial effect to his employment of the Advocate. Secondly, the implied authority can always be countermanded by the express directions of the client. No advocate has actual authority to settle a case against the express instructions of his client. If he considers such express instructions, contrary to the interests of his client, his remedy is to return his brief.
Their Lordships are unable to see why the above considerations, should not apply to an advocate in India, whose duties to his client in the conduct of a suit in no wise differ from those of advocates in England, Scotland and Ireland...." (Para 161) Para 22 : Counsel's role in entering into a compromise has been traditionally understood to be confined to matters within the scope of the suit. However, a compromise decree may incorporate not only matters falling within the subject matter of the suit, but also other matters which are collateral to it. The position before the amendment in 1976 was that, in respect of the former, the decree was executable, but in respect of the latter, it was not executable, though admissible as judicial evidence of its contents.
Para 23 : Referring to Section 375 of the Code of Civil Procedure (Act XIV of 1882), (similar to Order XXIII, Rule 3, C.P.C., as it stood prior to the amendment of 1976), Lord Buckmaster, in Hemantha Kumari Debi v. Midnapur Zamindari Co., AIR 1919 PC 79 States;
"...In the first place, it is plain that the agreement or compromise, in whole and not in part, is to be recorded, and the decree is then to confine its operation to so much of the subject-matter of the suit as is dealt with by the agreement....although the operative part of the decree would be properly confined to the actual subject-matter of the then existing litigation the decree taken as a whole would include the agreement. This in fact is what the decree did In the present case. It may be that as a decree it was incapable of being executed outside the lands of the suit, but that does not prevent its being received in evidence of its contents," (Page 81) Para 24. In Ram Juwan v. Devendra Nath Gupta, , the High Court states:
"Where a consent decree contains terms that do not relate to the suit,.....such terms cannot be enforced in execution of the decree but they may be enforced as a contract by a separate suit". (page 282) See also Vishnu Sitaram Auchat v. Ramchandra Govind Joshi, AIR 1932 Bom 466 and Jasimuddin Biswas v. Bhuban Jelini, (1907) ILR 34 Cal 456.
Para-25. In Ganganand Singh v. Rameshwar Sing Bahadur, AIR 1927 Patna 271, the High Court points out that a consent decree does not stand on a higher footing than a contract between the parties, The Court always has the jurisdiction to set aside a consent decree upon any ground which will invalidate an agreement between the parties. In the absence of any such ground, the consent decree is binding on the parties.
Para 26. Courts in India have consistently recognised the traditional role of lawyers and the extent and nature of their implied authority to act on behalf of their clients. Speaking for a Full Bench of the Kerala High Court in Chengan Souri Nayakam v. A.N. Menon, , K.K. Mathew, J. (as he then was) observed:
"The construction of a document appointing an agent is different from the construction of a vakalat appointing counsel. In the case of an agent the document would be construed strictly and the agent would have only such powers as are conferred expressly or by necessary implication. In the case of counsel the rule is otherwise because there we are dealing with a profession where well-known rules have crystallised through usage. It is on par with a trade where the usage becomes an additional term of the contract, if not contrary to the general law or excluded by express agreement." (p.215) (underline is ours) About the special position of the advocate, the learned Judges state:
"....Counsel has a tripartite relationship, one with the public, another with the Court, and the third with his client. That is a unique feature. Other professions or calling may include one or two of these relationships but no other has the triple duty. Counsel's duty to the public is unique in that he has to accept all work from all clients in Courts in which he holds himself out as practising, however, unattractive the case of the client." (p.216) See also Jiwibai v. Ramkuwar Shriniwas Murarka Agarwala, AIR 1947 Nag 17 (F.B.); Govindammal v. Marimuthu Maistry, and Laxmidas Ranchhoddas v. Savitabai Hargovindas Shah, .
Para-27. These principles were affirmed by this Court in Jamilabai Abdul Kadar v. Shankerlal Gulabchand, , referring to a number of decisions on the point, V.R. Krishna Iyer, J., observes:
"....Those who know how courts and counsel function will need no education on the jurisprudence of lawyer's position and powers. Of course, we hasten to enter a caveat. It is perfectly open to a party, like any other principal, to mark out in the vakalat or by particular instructions forbidden areas or expressly withhold the right to act in sensitive matters, the choice being his, as the master. If the lawyer regards these fetters as inconsistent with his position, he may refuse or return the brief. But absent speaking instructions to the contrary, the power to act takes in its wings the rights and duty to save a client by settling the suit if and only if he does so bona fide in the interests and for the advantage of his client..." (Page 346 of SCR): at p.2208 of AIR).
Para-37: We may, however, hasten to add that it will be prudent for counsel not to act on implied authority except when warranted by the exigency of circumstances demanding immediate adjustment of suit by agreement or compromise and the signature of the party cannot be obtained without undue delay. In these days of easier and quicker communication, such contingency may seldom arise. A wise and careful counsel will no doubt arm himself in advance with the necessary authority expressed in writing to meet all such contingencies in order that neither has authority nor integrity is ever doubted. This essential precaution will safeguard the personal reputation of counsel as well as uphold the prestige and dignity of the legal profession."
11. In KRISHNA v. GANAPATHI, , RAMASWAMI J., has succinctly explained concept of agency which is as follows:-
"In legal phraseology every person who acts for another is not an agent. A domestic servant renders to his master a personal service, a person may till another's land or tend his flocks or work in his shop or factory or mine or may be employed upon his roads or ways. One may act for another in aiding in the performance of his legal or contractual obligations to third persons. In none of these capacities he is an agent and he is not acting for another in dealings with third persons. It is only when he acts as a representative of the other in business negotiations that is to say in the creations, modification or termination of contractual obligations between that other and third persons that he is an agent representative character and derivative authority may briefly be said to be the distinguishing feature of an agent."
Agent is bound to act in the matter of agency subject to the directions and control of principal.
In Halsbury's Laws of England 4th Edn. it is stated:-
"The term agency and agent have in popular use a number of different meanings but in law the word agency is used to connote the relation which exists where one person has an authority or capacity to create legal relations between a person occupying the position of Principal and third parties. The relation of agency arises whenever one person called the 'agent' has authority to act on behalf of another called the Principal and consents to Act. Whether that relation exists in any situation depends not in the precise terminology employed by the parties to describe their relationship. If an agreement in substance contemplates the alleged agent acting in his own behalf and not on behalf of the principal then although he may be described in the agreement as agent the relation of agency will not have arisen conversely the relation of agency may arise despite a provision in the agreement that it shall not. A servant or an independent contractor though not necessarily the employer's agent may often have authority to act as such when relations with authority are involved, nevertheless an agent as such is not a servant."
There are various classifications of agents, such as public agents, private agents, Home Agents, Foreign Agents, General Agents, Special Agents, Mercantile Agents, non-commercial agents, co-agent, sub-agents and agency may be created by a written document, operation of law, subsequent ratification and inference from circumstances and conduct of the parties. A Director or Managing Director of a company is its agent for carrying on its business and not a mere servant of the company. Relation of agency exists and can only exist by virtue of express or implied consent of principal and agent and distinction between express and implied authority is not fundamental but depends merely on whether the authority is delimited by words or by conduct. Except for the execution of instruments under seal or for the performance of transactions required by statute to be authorised in a particular way, authority to do an act can be created by written or spoken words or other conduct of the principal which reasonably interpreted causes the agent to believe that the principal desires him so to act on the principal's account. Except for the execution of instruments under seal or for the conduct of transactions required by the statute to be authorised in a particular way apparent authority to do an act is created as to a third person by written or spoken words or any other conduct of the principal which reasonably interpreted causes a third person to believe that principal consents to have the act done on his behalf by the person purporting to act for him.
12. Here in the instant case, the first defendant has not placed any evidence regarding Sri T.M. Nair, Managing Director having no authority to enter into contractors. One has to look into the transaction of agency falling within the ambit of apparent authority on the doctrine of estoppel. Where one without objection suffers another to do acts which proceed upon the ground of authority from him or by his conduct adopts and sanctions such acts after they are done he will be bound although no previous authority exists in all respects as if the requisite power has been given in the most formal manner. If he has justified the belief of a third party that the person assuming to be his agent was authorised to do what was done it is no answer for him to say that no authority had been given or that it did not reach so far and that the third party had acted upon a mistaken conclusion. He is estopped to take refuge in such a defence. As such it is not open for the first defendant - Company to take a stand that they had not authorised T.M. Nair to act on behalf of the Company. Sri T.M. Nair was the Managing Director of the first-defendant Company and acted on behalf of the Company engaged the services of the 2nd defendant to act as Counsel for the 1st defendant Company. Naturally plaintiff was made to believe that T.M. Nair had the authority to negotiate sale on behalf of the company. This is based on the principle that apparent authority of an agent estopping the principal from denying such authority as against innocent third person is that the authority which a reasonably prudent man using diligence and discretion in view of the principal's conduct naturally would suppose the agent to possess. The apparent authority of the agent is the same and is based on the same elements as the authority created by estoppel of the principal to deny the agents authority that is to say two are correlative in as much as the principal is estopped to deny the authority of the agent because he has permitted the appearance of authority in the agent thereby justifying the third party in relying upon the same as though it were the authority actually conferred upon the agent.
13. So, there is no doubt in our mind that Sri T.M. Nair as, Managing Director of the first defendant Company had authority to enter into negotiations on behalf of 1st defendant Company and the agreement entered into by Sri T.M. Nair is binding on the Company, the first defendant. Having in mind the principles relating to agency, it is not possible to accept the plea of the second defendant that he acted as agent of the 1st-defendant Company and that he had express requisite authority to rescind the contract and to apply forfeiture clause and to appropriate the same towards certain outstanding due to him by the first-defendant Company. It is very significant to note that the plaintiff in notice dated 4.2.78 issued through its Advocate made it very clear that what was understood between the parties was encashment of the cheque being co-terminus with the signing of the agreement. Further it is contended and pleaded by the plaintiff that the role played by the 2nd defendant is that of stake-holder and not that of an agent of the company. . Ex.P-3, P-4 and P-4(a), there is a specific clause to the effect that two cheques, one for Rs. 25,000/- and another for Rs. 50,000/- being handed over to the second defendant and the same to be retained by him pending completion of sale receipt, Recital reads:-
"The purchasers have paid to the vendors the sum of Rs. 75,000/-(rupees seventy five thousand) by two cheques one of Rs. 25,000/- dated 30.1.78 drawn on Allahabad Bank, Bangalore and the other for Rs. 50.000/- (rupees fifty thousand only) dated 31.1.78 drawn on the same Bank in favour of Mr. John D'Souza to be retained by him pending completion of sale, the receipt of which the vendor hereby acknowledges as and for earnest money and advance on the sale price."
It is also significant to note about the conduct of the parties at the time when the cheque issued for Rs. 50.000/- was dishonoured on presentation. In Ex.P-7 of date 20.2.1978, later addressed to plaintiff's Counsel, the second defendant has stated:-
"You will appreciate that if for any reason your clients fail to do so our clients will have no alternative but to institute proceedings for substantial damages or specific performance. We trust you will advise your client the necessity for competition of the contract."
(underline is ours).
In Ex.P-9 of date 28.2.78 later addressed to plaintiff's Counsel by second-defendant, it is stated as :-
"Our clients therefore call upon your clients to formalise the agreement already entered upon and thereafter to conclude the transaction on the terms specified."
These two letters indicate that first defendant had no iota of mind to rescind the contract and to forfeit the part of earnest money of Rs. 25,000/- in the month of April (Vide Exhibits P-10 and P-10(a) of date 15.4.78) the plaintiff made it very clear to the second defendant that he had no authority to appropriate sum of Rs. 25,000/- encashed by him and further that plaintiff being justified in withholding paying of Rs. 50,000/-. In Ex.P-10 the relevant passage is at para-5, which reads: -
"Please note that the amount of Rs. 25,000/- given to you is being held in trust and the appropriation of the same or any part thereof to your clients as threatened by you is wrong and improper and my clients will hold you responsible for the same."
14. It is also relevant to note in the arguments of Sri D'Souza it is highlighted that he is an agent of the 1st-defendant Company having a right to forfeit the sum of Rs. 25,000/- paid by way of earnest money. In MAULA BUX v. UNION OF INDIA, , the Supreme Court has dealt on the scope of Section 74 relating to forfeiture of earnest money. Para 7 & 8 read as follows:-
"Forfeiture of earnest money under a contract for sale of property - movable or immovable - If the amount is reasonable, does not fall within Section 74, That has been decided in several cases : AIR 1926 P. C.1 : Roshan Lal v. Delhi Cloth and General Mills Co. Ltd., Delhi, (1911) ILR 33 All. 166; Muhammad Habibulla v. Muhammad Shafi, ILR 41 All 324 - (AIR 1919 All 265)1 Bishan Chand v. Radha Kishan Das, (1897) ILR 19 All. 489. These cases are easily explained, for forfeiture of a reasonable amount paid as earnest money does not amount to imposing a penalty. But if forfeiture is of the nature of penalty, Section 74 applies. Where under the terms of the contract the party in breach has , undertaken to pay a sum of money or to forfeit a sum of money which he has already paid to the party complaining of a breach of contract, the undertaking is of the nature of penalty.
Para-8: ......It is true that in every case of breach of contract the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree and the Court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequence of the breach of contract. But the expression "whether or not actual damage or loss is proved to have been caused thereby" is intended to cover different classes of contracts which come before the Courts. In case of breach of some contracts it may be impossible for the Court to assess compensation arising from breach, while in other cases compensation can be calculated in accordance with established rules. Where the Court is unable to assess the compensation, the sum named by the parties if it be regarded as a genuine pre-estimate may be taken into consideration as the measure of reasonable compensation, but not if the sum named is in the nature of a penalty. Where loss in terms of money can be determined, the party claiming compensation must prove the loss suffered by him."
Both the parties have not focussed their stand as to the nature of the amount paid to the second defendant either by way of earnest money or security deposit in the context of the forfeiture clause.
15. It is to be seen that for the first time in Ex.P-11 of date 25.11.78 letter written to plaintiff's Counsel, the second defendant made it known that his clients having exercised their right of forfeiture due to breach committed by the plaintiff. As already stated in Ex.P-7 of date 20.2.1978 and Ex.P-9 of date 28.2.1975, the second defendant except mentioning of taking action did not intimate about 1st-defendant having exercised his right of forfeiture due to breach committed by the plaintiff. The option of the first-defendant having exercised right of forfeiture plays an important role because by the time Ex.P-11 of date 25.11.78 was issued, it is brought to the Court's notice by second defendant that the share-holding of T.M. Nair's and his family members having been transferred and that T.M. Nair having expired in the month of June 1978.
16. As such one thing is evident that there is no categorical statement either by T.M. Nair - Managing Director of 1st- defendant Company or by 1st-defendant Company after the transfer of shares of T.M. Nair and family members to the effect that contract entered into with the plaintiff's firm having come to an end and a sum of Rs. 25,000/- having been forfeited due to breach. It is only the 2nd defendant's assertion that he acted as agent of 1st-defendant Company and that exercise of forfeiture clause as being valid and further its appropriation by him as being justified due to some outstandings due to him by the Company. Second-defendant when called upon by the Court to show any documentary evidence worthy of evidence to evidence about either first defendant or T.M. Nair -Managing Director having exercised the right of forfeiture on the ground of breach, the second defendant contended that the very conduct of the plaintiff in calling upon the defendants to return Rs. 25,000/- and also to pay damages by itself would prove annulment of contract evidencing breach warranting defendants to forfeit the earnest money which it is to be stated cannot be legally countenanced. Further, second defendant points out that Ex,D-4 and D-5 of date 21.2.1978 written by Mr. T.M. Nair on behalf of 1st-defendant company clearly spells out the authorisation of 1st-defendant company to retain and appropriate sum of Rs. 75,000/-by the 2nd defendant himself which is to be stated is very imaginative and attributable to the ingenuity of the 2nd defendant. Even though different approach has been adapted by the trial Court in fastening the liability on the defendants, it is to be stated that defendants cannot escape from their liability.
17. Forfeiture is not automatic; forfeiture is a positive act to be done by the contracting party. In case an agent is appointed to act for one of the parties, there should be a specific authority enabling the agent to forfeit the earnest money on behalf of his principal. In many cases, forfeiture may result in penal damages which may not be condoned by the Courts. Cheque was given to 2nd defendant to retain it and nothing more was to be done by him. Appropriation of this sum of Rs. 25,000/- by the 2nd defendant towards other alleged claims of his against the 1st defendant is not even forthcoming, as a plea, in his written statement- This is a strong indication that the alleged forfeiture was an unauthorised act of the 2nd defendant. The 1st defendant has denied the agreement and its breach and it follows that according to the principal, there cannot be any forfeiture.
18. But the question that arises for consideration is to what extent the defendants are liable in respect of suit claim? Having in view the pleadings, preponderance of probabilities and evidence on record, it could be safely said that action of the plaintiff is for restoring the status quo ante, since supervening events made the bargain unenforceable, unworkable and inequitable. In the absence of any evidence regarding loss and in the absence of entitlement of interest in case of breach in the agreement entered into and in the absence of evidence regarding breach, it is to be stated that plaintiff would not be entitled to the suit claim as prayed for. By applying the principle that position should be restored by applying the doctrine of status quo ante, it is just and proper to hold that the plaintiff is entitled to the sum of Rs. 25,000/- paid to the defendants under the agreement. Even otherwise, when the agreement has fallen and forfeiture is not proved, defendants are liable to refund the amount paid by the plaintiff under the agreement.
19. It is only in Exs.P-12 of date 3.3.1980, the plaintiff demanded payment of interest at 18% per annum in respect of their claim and as such by applying the provisions of Interest Act plaintiff would be entitled to interest from the date of demand that is from 3.3,1980 onwards. There is no reason to deny the benefit of interest to the plaintiff in the circumstances of the case. We are of the view that it would be just and proper to award interest at the rate of 18% per annum on the sum of Rs. 25,000/- from 3.3.1980 onwards till date of filing of the suit and thereafter at 6% per annum on Rs. 25,000/- till the date of realisation.
20. Regular First Appeals numbered R.F.A.387/86 and R.F.A.513/86 filed by the defendants are partly allowed. The judgment and decree of the trial Court in O.S.No. 659/81 is modified accordingly. It is hereby ordered and decreed that the plaintiff is entitled to recover a sum of Rs. 25,000/- together with interest at 18% per annum from 3.3.1980 to 22.1.81 the date of the suit and at 6% per annum from the date of suit on Rs. 25,000/- till the date of realisation from the defendants jointly and severally. The plaintiff is also entitled to propotionate costs.
Decree to be drawn up accordingly.