Madras High Court
The Oriental Insurance Co. Ltd vs M/S.P.S.T.S & Sons Pvt Ltd on 5 November, 2014
Author: P.Devadass
Bench: P.Devadass
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT DATED: 05.11.2014 CORAM THE HONOURABLE MR.JUSTICE P.DEVADASS SECOND APPEAL (MD) No.438 of 2009 1.The Oriental Insurance Co. Ltd., Head Office, Asafali Road, New Delhi Rep by its Divisional Manager, 6-A, North Cotton Road, Tuticorin. 2.M/s.Interfit India Ltd., Coimbatore, through its power of Attorney Agent, (Rep by 1st Appellant) ... Appellants/Plaintiffs -vs- M/s.P.S.T.S & Sons Pvt Ltd., Agents of the Vessel, M.V.C.Express E.P.R.024, 22,South Raja Street, Tuticorin-1. ... Respondent/Defendant PRAYER Second Appeal is filed under Section 100 of the Code of Civil Procedure, against the Judgment and Decree, dated 21.11.2007, made in A.S.No.119 of 2004, on the file of the Additional District Court, Fast Track Court-I, Thoothukudi, confirming the Judgment and Decree, dated 29.03.2004, made in O.S.No.138 of 1998, on the file of the Sub Court, Thoothukudi. !For Appellants : Mr.K.Baskaran ^For Respondent : Mr.R.Vijayakumar :J U D G M E N T
The Plaintiff in O.S.No.138 of 998, who has succeeded before the trial Court/Sub Court, Thoothukudi since became unsuccessful in the defendant's First Appeal in A.S.No.119 of 2004 before the Additional District Court, (Fast Track Court-I), Thoothukudi is before us.
2.Second plaintiff/second appellant placed orders with the foreign stream liner viz., M/s.Pacific International Lines(PTE) Ltd., Tokyo, Japan for the supply of certain stainless steel scraps from Tokyo, Japan. The consignment was loaded in the vessel of the said foreign company at a Japanese Port on 17.10.1996. The company issued bill of leading. On 15.11.1996 at the port of Tuticoirn the vessel discharged the consignment. There was short landing of cargo to the extent of 2,950Kg. In pursuance of a contract of insurance, the second plaintiff made a claim with the first plaintiff Insurance Company. On 19.03.1997, the insurer paid the assured Rs.1,41,590/- The Insurer subrogated to the assured/second plaintiff. The Insurer laid the suit in O.S.No.138 of 1998 on the allegation that the defendant an Agent of the said Sea Carrier viz., M/s.Pacific International Lines(PTE) Ltd., Tokyo, Japan and claimed the said Rs.1,41,590/- with 12% interest from the defendant.
3.Defendant resisted the suit by filing a written statement. The principal allegations are that the second plaintiff had direct dealings/contract with the foreign stream liner. In such circumstances, invoking the principal of agency will not arise, inasmuch as the foreign principle is disclosed plaintiffs could have sued the foreign principal and there is no sufficient pleadings in the plaint as to how and under what circumstances plaintiff is suing the defendant.
4.The trial Court framed the necessary issues and tried the suit. Evidence oral and documentary was adduced before it. The trial Court appreciating the contentions of both sides and the evidence on record held that as per Section 230(3) of the Indian Contract Act, 1872, the defendant/agent is liable to the second plaintiff and as well as to the first plaintiff and thus decreed the suit.
5.The defendant took the matter in appeal in A.S.No.190 of 2004 before the Additional District Court, (Fast Track Court-I), Thoothukudi. The learned first appellate Judge took the view that in the facts and circumstances Section 230(3) of the Indian Contract Act will not apply to this case and allowed the appeal and set aside the decree and judgment of the trial Court.
6.In the circumstances, plaintiff has directed this second appeal.
7.At the time of admission of the second appeal, the then Learned Brother framed the following substantial question of law:
"Whether the learned Additional District Judge is right in dismissing the Appeal without appreciating the liability of the Agent in par with Principal as per Section 233 of the Indian Contract Act, 1872?"
8.The learned counsel for the first appellant/Insurance Company/first plaintiff contended that an agent is liable for the liability arose under the contract on behalf of the principal. And this case is covered under Sections 230(3) and 233 of the Indian Contract Act.
9.The learned counsel for the appellant cited M/s.Link International and another v. M/s.Mandya National Paper Mills Ltd., (AIR 2005 SC 1417) and submitted that the Apex Court has held that whether the contract was entered into by appellant on behalf of the foreign company or by direct contract, the agent is liable. Thus, the defendant/agent is liable to pay the amount which was paid to the second plaintiff by the first plaintiff under the contract of Insurance.
10.On the other hand, the learned counsel for the respondent/defendant contended that there is no sufficient pleadings in the plaint as to how the defendant is liable to pay the amount on behalf of the principal. Actually,, the plaint pleadings would show that the second plaintiff had dealt with the foreign shipping company/ principal directly. In such circumstances, the defendant/agent cannot be made liable. Even if the principal/foreign shipping company is disclosed in the plaint, to invoke Section 230(3) and 233 of the Indian Contract Act, the agent has to plead and prove that the situation is such that, the principal/ foreign company cannot be sued and only upon such proving, the question of applying the said Sections of the Act will arise. But, in this case neither plea nor evidence to that effect.
11.In support of his submissions, the learned counsel for the respondent cited the following decisions:-
(i).The Travancore National Bank Subsidiary Co., Ltd.(now in liquidation) v. Tranabank Union and another, [1943(1) MLJ 425],
(ii).Marine Container Services South Pvt. Ltd., v. Go Go Garments [1998 (3) SCC 247],
(iii).Arbee and Company, Madras v. Shri Govind Dall Mills and others [2001 (2) M.L.J.687],
(iv).Appasamy v. Samy Lourde Joseph and Another [2008 (3) MLJ 367],
(v).Prem Nath Motors Ltd., v. Anurag Mittal (AIR 2009 SC 567).
12.I have given my deep consideration to the rival submissions and perused the evidence on record, the impugned judgments and the decisions cited by both sides.
13.This appeal involves some finer and fundamental aspects of Law of Agency. The Indian law of agency is found in chapter X of the Indian Contract Act, 1872 from Section 182 to 238. When one person does an act for other, represents the other, the person who did the act or represented the other is called 'agent' and the person for whom the act has been done or who has been represented is called 'principal'. Precisely this is what the substance of Section 182 of the Act.
14.One of the general principle is that an agent is not personally liable to third parties. But under certain circumstances, an agent can also be made liable. When he becomes liable he can sue and be sued. This general principle is expressed in Section 230 of the Indian Contract Act.
15.Section 230 of the Act, runs under:
"230.Agent cannot personally enforce, nor be bound by, contracts on behalf of principal-In the absence of any contract to that effect, an agent cannot personally enforce contracts entered into by him on behalf of his principal, nor is he personally bound by them.
Presumption of contract to contrary.-Such a contract shall be presumpted to exist in the following cases:-
(1)where the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad;
(2)where the agent does not disclose the name of his principal; (3)where the principal, though disclosed, cannot be sued."
16.Section 230 of the Act has two parts. Firstly, an agent is not personally liable for the acts done by him on behalf of the principal. It incorporates a general principle of law of agency. But, there is an exemption to it. If there is a contract to the contrary, an agent is liable. If there is express provision in the contract that under certain circumstances, the agent is also liable then the agent is liable under Section 230 and Section 233 enables the third party to sue either of them or both. Section 230 of the Act also contains three legal presumptions. Under those circumstances, the agent is personally liable.
17.We have noticed the said three circumstances under which the contract to the contrary viz., it is exemption to the general principle that the agent is not personally liable will be presumed. These are all rebuttable presumption. So, they can be disproved.
18.The third exemption in Section 230(3) of the Act is that when the principal has been disclosed, but the situation is such that, he cannot be sued, then the agent is personally liable.
19.It is relevant here to note the following observations of a Division Bench of Calcutta High Court made in Union of India and another vs. Chinory Chablani and Co., (AIR 1982 Calcutta 365).
"10. The first and the foremost question to be determined in this matter is whether in a case, where the principal has entered into the contract but the agent has not, a contract would be presumed to exist as between the agent and the third party, viz., the appellants herein, so as to make the agent liable by attracting Clause (3) of Section 230. The learned Judge of the Court below has held that in order to make an agent personally liable, the first pre-requisite is that there must be a contract entered into by an agent on behalf of the principal. Indeed, Section 230 of the Contract Act is in respect of cases where the agent has entered into the contract as the contracting party visa-vis a third party. The section deals with the agent's rights and liabilities in respect of his acting as such agent. This section does not in any way deal with a contract where the principal has entered into the contract directly with a third party. In such a case the question of agency does not in any way come up for consideration.
11. In general it is an undisputed proposition that only the parties to the contract can be made liable in case of any breach thereof and a contract can be enforced only by and against the parties thereto; but when it comes to the law of agency the position becomes different. Ordinarily the agent can neither personally enforce the contract entered into with third parties nor can he be made liable in respect thereto when he has entered into the contract on behalf of his principal as such agent. It is the principal and the principal alone who, under such circumstances, becomes the main contracting party and as such becomes liable in case of breach and also becomes entitled to sue in his personal name unless the agreement provides to the contrary,
12. Under Section 230, however, the agent under certain circumstances would become personally liable to the third party. Such liabilities have been enumerated in the second para, of the said section oh the basis of presumption that such a contract with the agent existed. The second para, deals with the liabilities of an agent where an agent has entered into the contract and not where the principal has entered into the contract directly with the third party. The second para, does not deal with any case of enforcement of the contract by the third party where the contract has been entered into by him with the principal.
13. Clause (1) of the second para, of the said section creates no difficulty. The language creates no ambiguity. It specifically provides therein that the liability of the agent would only arise under that clause where the contract has been made by the agent. With regard to Clauses (2) and (3), however, it is not mentioned so specifically and, the same would require to be construed in relation to the whole of the section to find out their true meaning and import. In respect of Clause (2) the language thereof primarily suggests that the agent is a party to the contract with the third party inasmuch as the principal is not disclosed. Accordingly, the question of the principal entering into a contract does not arise at all. The third party in the contract knows the agent to be the principal although the agent is not so acting vis-a-vis his principal. Under such circumstances, the law presumes such an agent to be the principal contracting party and not to be an agent vis-a-vis the third party. Under such circumstances, a contract will be presumed to exist by and between the agent and the third party in which a third party would be entitled to look forward to the agent as a principal contracting party,
14. In my opinion, Clause (3) is directly linked up with Clause (2) of the second para of Section 230. It is a corollary to Clause (2) and the two clauses must be read together in the context of the whole section. Clause (3) relates to a case where the principal is disclosed in entering into the contract with the third party. The statutory presumption of a contract by legal fiction cannot be extended to cover a case where the principal has entered into the contract directly. In Clause (3) the word "principal" has been used in relation to the agent and not otherwise. The expression "though disclosed" must obviously have reference to the agent's act. The question of disclosure here cannot be an act of the principal if the principal has to be disclosed, He has to be disclosed by an act of the agent.
16. Section 230 has two parts. The first part provides that an agent can neither personally enforce nor he is personally bound by contracts entered into by him on behalf of his principal unless there is a contract to the effect that the agent may personally enforce or be bound by such contracts. The second part of the section engrafts an exception to the above rule. It says that although there is no specific contract to the effect that the agent may personally enforce the contracts or be personally bound by them, yet the law will presume the existence of such a contract that the agent may personally enforce the contracts and be bound by them in the three cases mentioned therein. As observed herein-above, in order to appreciate the scope and effect of the section, the two parts of the section cannot be read disjunctively but have to be read as a whole.
17. In the first case the words "where the contract is made by an agent for the sale or purchase of goods" are merely descriptive of the nature of the contract. The above read in the context of the entire section would read;
"a contract to the effect whereby the agent may personally enforce contracts and be personally bound by them shall be presumed in contracts entered into by tha agent on behalf of his principal where the contract is made by the agent for the sale or purchase of goods for a merchant resident abroad."
Similarly the second case read in the same manner would read; "a contract to the effect whereby the agent may personally enforce contracts and be personally bound by them shall be presumed in contracts entered into by the agent on behalf of his principal where the agent does not disclose the name of his principal". The third case would accordingly read : "a contract to the effect whereby the agent may personally enforce contracts entered into by him on behalf of his principal and be bound by them shall be presumed where the principal, though disclosed, cannot be sued,"
19. There is no question of any redundancy in the first case in the second part of Section 230 nor the maxim expressio unius exclusio alterius has any application in interpreting the three cases in the second part of Sec. 230 or any of them. Neither is there any possibility of two interpretations in the section, It may be pertinent in this context to refer to two other sections of the Contract Act, namely, Section 233 and Section
234. Section 233 provides that in cases where the agent is personally liable the party dealing with the agent may hold either the agent or the principal or both of them, liable. An option is given to the other party to the contract, Under Section 234 where the other party to the contract while entering into the contract with the agent induces the agent to act upon the belief that the principal will be only liable. He cannot afterwards hold the agent liable and again if he induces the principal to act upon the belief that only the agent will be liable he cannot afterwards hold the principal liable.
27. Mr. Sen next contends that under Clause (3) of Section 230 the expression "cannot be sued" should be restricted to mean "cannot be sued in India". It is contended that the principal being in a foreign State could not be sued except with the consent of the Central Government, as provided by Section 86 of the Civil P. C. According to Mr. Sen, whether in a case like this, the consent of the Central Government could be obtained or not could be a relevant matter for consideration at the stage of the trial of the suit herein but such a question cannot be decided at this stage and on the basis thereof the plaint cannot be ordered to be taken off the file as ordered by the court below. The pleading as set out hereinabove is good enough to cover all possible points that might be raised at the trial of the suit. Mr. Sen has further argued that inasmuch as Clause (3) is restricted to cases in India alone, it is irrelevant for the purpose of the suit to consider whether or not the principal in this case could be sued by the appellants in U.S.S.R.
28. In my opinion, in view of our finding in respect of the first point, it is not necessary to decide this point. In any event, I am of the view that the expression 'principal......cannot be sued' does not bear a restricted meaning so as to confine the question to the territories in India only. The said expression has a wider amplitude and would cover cases where the principal can be sued in a foreign country as well, as is the case here. There in no pleading to that effect to suggest that the principal here could not be sued even in U.S.S.R. Furthermore, the plaintiffs-appellants herein got the opportunity to state in this application whether or not the Central Government was approached to give its consent or whether such consent could not have been obtained in any event for suing the foreign principal."
20.Inspite of having had an agent, if the principal himself had direct dealing with the third party in connection with the contract then the agent is side lined. In such circumstances, the agent cannot be made liable. Arbee and Co., Madras v. Shri Govind Dall Mills and others 2001(2) M.L.J.687.
21.It is relevant here to note the following observations made in Chinory Chablani (AIR 1982 Calcutta 365).
"21. In any event, by any stretch of imagination it could not be contended that the said Clause (3) would cover a case where the principal has entered into the contract himself and not through the agent. If the principal would enter into the contract directly with the third party there could not be any question of the principal being required to be disclosed as a principal. In such event, the agent could not possibly come into the picture at all and, as such, the agent could not be made liable by creating a legal fiction whereby a contract would be presumed to exist by and between the agent and the third party. If the agent has not done anything in the formation of the contract it is difficult to see how the agent could be made liable without his knowledge and consent by statutory fiction of such a nature. It is difficult to imagine why the legislature should think of exonerating a principal who has himself entered into the contract by foisting his contractual liability on to the agent without his knowledge and consent by means of statutory presumption that a contract existed by and between the agent and the third party simply because the principal contracting party could not be sued."
21.Now, in the instant case Ex.A.1 bill of lading and other documents were produced and the plaint pleadings would show that the second plaintiff had direct dealing with the foreign shipping company. Further, there is no pleadings in the plaint to show that the appellant/defendant act for and on behalf of the principal, a foreign company in Tokyo in Japan.
23.In M/s.Link International and another v. M/s.Mandya National Paper Mills Ltd., (AIR 2005 SC 1417), cited by the learned counsel for the appellant, there was fraud in sending the goods and goods delivered were not in accordance with the order placed and fraud was attributed to the agent. In that context, the Apex Court had held that the agent is personally liable, irrespective of the fact whether the contract was entered into by the party, on behalf of the foreign company or it was a direct contract. However, in the case before us, there was shortage of goods delivered. It is a clear case of damage to goods before delivery of the consignment on account of negligence, so alleged in such circumstances, Link International (AIR 2005 SC 1417) will not apply to the facts of the instant case.
24.In the circumstances, we find a great force in the submission of the learned counsel for the respondent that since the second plaintiff had entered into contract directly with the principal the question of asking the defendant to shoulder the liability of the first plaintiff in it having paid the amount to the second plaintiff will not arise. In the plaint it is stated that the defendant is the agent of a sea carrier viz., M/s.Pacific International Lines(PTE) Ltd., a Tokyo based foreign company plaint principal has been disclosed.
25.The learned counsel for the first appellant submitted that the defendant is a local agent of the said foreign company, which cannot be sued so this case falls under the caste third exemption in section 230(3) of the Indian Contract Act, the defendant/agent is personally liable to the 2nd plaintiff and thus liable to the first plaintiff.
26.Section 230(3) of the Act suggest that when the principal is disclosed and the principal cannot be sued then there is a presumption that the agent is personally liable. If it is satisfied then Section 233 of the Contract Act which gives option to the party to sue as the agent/principal and both. But, the condition precedent is that the case should fall under Section 230(3) of the Contract Act. Therefore, what is important is that it must be established that the principal cannot be sued.
27.In Travancore National Bank Subsidiary Co., Ltd.(in liquidation) and another, [1943(1) MLJ 425], the principal being an unregistered union cannot be sued, the Court held that by virtue of Section 230(3) of the Contract Act agent can be made personally liable.
28.In M/s.Nandan Iron & Metal Industries v. M/s.Fenesty Inc., (AIR 1992 DELHI 362), a suit was filed in India as against the principal, a foreign company was held to be maintainable.
29.In Marine Container Services South Pvt, Ltd., v. Go Go Garments(1998 (3) SCC 247, it was held that merely because the principal is in abroad, it cannot be said that the agent cannot be sued in India.
30.Thus a suit could be laid as against the principal a foreign company/liner in India it cannot be said that it cannot be sued so. Section 230(3) of the Contract Act can be invoked.
31.Making necessary plea, pleadings in the plaint as to the nature of the relief sought for, the basis of it are very crucial and essential in a civil case. It is a crux of the matter. In the absence of it, stating it for the first time during the trial or through arguments has to be ignored because it would talk the other party by surprise, cripple him to make his defence timely and wisely. In this respect, it is relevant to note the following observations made in B.Sursh Chand V. State of Tamil Nadu, and Another, (2006)4 MLJ 850 at P.864 :2006(4)CTC 805 (Full Bench) "29.A reading of the above provisions show that the party must plead all material facts on which he means to rely at the trial. If any one of the material fact is omitted, the statement of claim is bad and it would mean no pleading and no cause of action for the suit. If material facts are not pleaded, a Court cannot permit evidence to be led.
32.In Udhav Singh v. Madhav Rao Scindia, [1977 (1) SCC 511], the Hon'ble Supreme Court has defined the expression "material facts" as under
words:
"All the primary facts which must be proved at the trial by a party to establish the existence of a cause of action or his defence as material facts."
33.In Suresh Chand (Supra) the Hon'ble Full Bench also observed as under:
30.The distinction between "material facts" and "particulars" cannot be over looked. Material facts are primary and basic facts which must be pleaded by the party in support of the case set up by him, either to establish his cause of action or defence. Since the object and purpose is to enable the opposite party to know the case he has to meet, in absence of pleading a party cannot be allowed to lead evidence. Failure to state even a single material fact, hence, will entail dismissal of the suit. Particulars, on the other hand, are the details of the case. They amplify, refine and embelish material facts.
They give the finishing touch to the basic contours of a picture already drawn so as to make it full, more clear and more informative."
34.In the plaint, the plaintiff must plead as to how the principal cannot be sued in India. Under what circumstances, the agent is liable when the foreign principal has been disclosed. Arbee and Company, Madras vs. Shri Govind Dall Mills and others (2001 (2) MLJ 687) and Prem Nath Motors Ltd., v. Anurag Mittal(AIR 2009 SC 567).
35.However, in the instant case, plaint does not contain such pleadings. In the circumstances, under Section 230(3) of the Contract Act, the defendant cannot be called upon to pay the amount paid by the first plaintiff to the 2nd plaintiff. Consequently, Section 233 of the Contract Act cannot be invoked against the defendant. Thus, the substantial question of law is answered against the appellants.
36.In the end, this second appeal fails and it is dismissed. The decree and judgment of the first Appellate Court are upheld. In the circumstances, parties are left to bear their respective costs in the Second Appeal.
05.11.2014 Internet : Yes/No Index : Yes/No Ns To 1.The Principal District Judge, Thoothukudi. 2.The Sub Court, Thoothukudi. 3.The Additional District Court, (Fast Track Court-I), Thoothukudi. P.DEVADASS, J. Ns SECOND APPEAL (MD) No.438 of 2009 05.11.2014