East Asiatic Co. (India) Ltd. vs Rugnath Tricumdas

Baxi, J.—The Plaintiffs purchased 1000 tons of copra from the East Asiatic Co., (India) Ltd., under a C.I.F. contract. The goods were shipped from the Phillipines to Bedi Port in Saurashtra The Plaintiffs allege that on arrival at the Bedi Port, the goods were found not according to the contract. They informed the Defendant company by a telegram about the inferior quality of the goods and requested the Company to send their representative immediately, but the Company declined to accept the complaint by their letter dated 5-11-1947. At about this time, Messrs Patalia and Co., had also imported similar quantity of copra from the Company which had arrived in the same boat. They had raised objections about the quality of the goods and the Company''s differences with Messrs. Patalia and Co., were practically the same as. those of the Plaintiffs. This appears from the Defendant Company''s letter dated 16-11-1942 (EX. 38) addressed to the Plaintiffs. In order to settle these disputes, the Defendant Company sent their representative Mr. Landauver to Jamnagar in November 1947. He could not come to any Settlement with Messrs, Patalia and Co. but a settlement was arrived at with the Plaintiffs which is recorded in the Company''s letter Ex. 38 mentioned above. The Company stated in this letter that they had not been, able to come to any settlement with Messrs. Patalia and Co., but undertook to give to the Plaintiffs the same terms on which the differences with Messrs. Patalia and Co., would be settled, on the Plaintiffs'' agreeing to make payment. The letter further recorded that the payment by the Plaintiffs was accepted under protest, subject to giving them the same advantage which the Company might have to give to Messrs. Patalia and Co. After receiving this assurance, the Plaintiffs cleared documents from the Bank and took delivery of the goods. It is common ground that the Plaintiffs were able to re-export the goods to Europe at a profit and had obtained the assistance of the Company in doing so.

The negotiations with Messrs. Patalia and Co., dragged on and at one stage the Defendant. Company offered at the instance of His Highness the Maharaja Jam Saheb to grant to Messrs. Patalia and Co., two and a half per cent on the net invoice value of the goods, subject to the latter accepting them. This offer is contained in the letter dated 9-1-1948, Ex. 49, addressed by the Defendant Company to the Agent, Central Bank of India Ltd., Jamnagar. Messrs. Patalia and Co., refused to accept the offer and the negotiations fell through. Ultimately on 11-2-1948 a settlement was arrived at between the Company and Messrs. Patalia and Co., which was recorded in the form of an agreement (Ex. 69). By this agreement the Company agreed to cancel the contract with Messrs." Patalia and Co., at par and both the parties agreed that they had no further claims on each other. Sometime after this, the Plaintiff firm addressed a letter dated 20-3-1948 (Ex. 14) to the Defendant Company stating that the settlement of the dispute with Messrs. Patalia and Co., did not solve their own dispute with them and enquired what allowance the Company was prepared to pay to them in view of the offer of two and a half per cent, which the Company had made to Messrs. Patalia and Co. By their reply, dated 22-3-1048, the Company declined their liability that they had paid any moneys to Messrs. Patalia and Co. They stated that they had cancelled the contract with Messrs. Patalia and Co., at par and offered to cancel the Plaintiffs'' contract also at par, provided the offer was accepted within three days and the full quantity as shipped from the Phillipines was made over to them The Plaintiffs were further informed that if the Plaintiffs did not accept this offer, their undertaking of 16-11-1948 (Ex. 38) would no longer be binding on them. The Plaintiffs thereafter filed the present suit in the Court of Civil Judge, Senior Division, Jamnagar, against the Defendant Company, claiming Rs. 15,818/- representing the two and a half per cent, on the net invoice value of the goods which the Defendant Company had offered to Messrs., Patalia and Co., as compensatory allowance; They also claimed Rs. 26,720/. on account of shortage of weight, and Rs. 20,133/- on account of Insurance landing and clearing charges, payment of interest to the Bank, wharfage and godown rent and the Bank''s commission, which they had to pay. The learned Civil Judge disallowed the Plaintiffs'' claim in respect of toe shortage of goods, insurance and other charges but passed a decree against the Defendant Company for Rs. 15,818/ -. The present appeal has been preferred against the learned Civil Judge''s decree.

The Appellant Company''s contention in appeal was that their undertaking (Ex. 38) was void for uncertainty. It was further urged on their behalf that the contract with Messrs, Patalia and Co., having been cancelled as par and nothing was paid to them the Plaintiffs could claim no more than cancellation of their contract on their making over the full quantity of goods. An objection against the maintainability of the suit was taken on behalf of the Appellant. Company in this way According to them, the contract for the purchase of copra was made by the firm of Messrs. Rugnath Tricumdas and the suit should have been brought, either in the name of that firm or by all its partners, but as the suit was actually instituted by one of the partners thereof, it was not a properly constituted suit. The Appellant Company also denied that the goods were not according to the contract, but in our view this objection does not fall to be considered at all.

We shall first take up the question of the competency of the suit. This objection has been stated in the memo of appeal as follows:

That there is evidence on record to show that besides the members of the joint family mere were other partners in the said firm of Rugnath Tricumdas, who were interested in the suit transaction.

That the learned Judge ought to have held that the suit was bad for non-joinder of parties, viz., the other partners.

Mr. B.M. Buch, the learned advocate for the Appellant Company further argued that there could be no partnership between two firms as such, and no suit can lie on the contract.

The Plaintiffs'' case as stated in the plaint is that the firm of Messrs. Rugnath Tricumdas was doing export and import business on a large scale and also the business of commission agents and had imported copra in India from abroad in partnership with Ors. . This statement amounts to an admission by them that the copra in question was imported by the firm of Messrs. Rugnath Tricumdas in partnership with Ors. . They have examined Harjivan Makanji, (Ex. 6) and Vrajlal Rugnath (Ex. 56). Harjivan Makanji is one of the partners of the firm of Messrs. Tribhovan Tejpal and Vrajlal is a member of the firm of Messrs. Rugnath Tricumdas. According to them., the firms of Messrs. Rugnath Tricumdas and Messrs. Tribhovan Tejpal had imported copra in partnership with each other, their respective shares being four annas and twelve annas in a rupee. For brevity''s sake these firms will be referred as the constituent firms and the partnership which imported copra will be referred as the main partnership. On the question of the members of the constituent firms Harjivan says that the firm of Messrs. Rugnath Tricumdas was a joint Hindu family firm of which Rugnath was the sole proprietor. This Rugnath had two sons, Vrajlal and Harilal, and both of them worked in the firm of Messrs. Rugnath Tricumdas. The firm of Tribhovan Tejpal had four partners, viz., himself, Tribhovan Tejpal, Fuchand Purshotam (Tamboli) and Kasam Haji Abdul Karim, Vrajlal Rugnath states that the firm of Messrs. Rugnath Tricumdas is owned by himself and his brother Harilal. He further says that the'' business of Rugnath Tricumdas is carried on at Jamnagar and Salaya. The Jamnagar business was started by him and the business at Salaya was started by his father, that has and his brOrs. had an interest in the Salaya business while his other brOrs. had interest in the Jamnagar business. Although he stated. that the head office of the business of Messrs. Rugnath Tricumdas was not in Salaya, Jam-Salaya has been printed, as the head office of. Messrs. Rugnath Tricumdas on their letter'' Ex. 14. It appears therefore that Messrs. Rugnath Tricumdas was a joint Hindu family firm and the Jamnagar business was a branch of their business.

It is however common ground that there was a partnership between the two firms of Messrs. Rugnath Tricumdas and Messrs. Tribhovan Tejpal. The learned Civil Judge held that the suit was by the joint Hindu family firm. This view is not correct, and the Appellant Company''s objections in the memo of appeal that the evidence on record shows that besides the members of the joint family firm, there were other partners in the firm of Messrs. Rugnath Tricumdas who were interested in the suit transaction, must be accepted. The main partnership constituted by the two constituent firms was a partnership under the Partnership Act and a suit by them must either be instituted in the name of all the partners or in the firm-name under Order 30, Rule 1, Code of Civil Procedure.

It was argued on behalf of the Appellants that the partnership between two firms as such was not contemplated by Section 239 of the Act or by the Partnership Act, and reference was made to -- Hakmaji Meghaji Vs. Punnaji Devichand, . The case, as we shall show, was decided on different facts and has no application to the present suit. In -- Firm Brij Kishore Ram Sarup Vs. Sheo Charan Lal , the incidents of a partnership between two firms have been explained by Niamatulla J., as follows:

I accept the view expressed in -- ''In the matter of In Re: Jai Dayal Madan Gopal of Benares , that a firm as such cannot enter into partnership with other individuals. At the same time it must be held that a firm is only an association of persons who have no corporate capacity and that if a partnership is in fact entered into and if all the partners of the firm are consenting parties to the agreement of partnership or are represented by a duly authorised person, when the contract of partnership is concluded between the firm and Ors. , or subsequently ratify it, a partnership will come into existence, though it will not be regarded as a partnership of which a firm as such is a partner. Such a partnership will have for its members all the partners of the partner firm and the Ors. .... As on the authorities the firm as such could not become a partner its members were partners not as a corporate body but as individuals.

Allsop, J.

describes such a partnership in the following terms (p. 73):

Although it may be said that a firm, as such, cannot enter into a contract of partnership, because it in not a legal entity, still there is nothing to prevent the individual members of a firm from being included in a larger partnership in Anr. firm.

See also: Kader Bux Omer Hyat Vs. Bukt Behari and Another, .

In the case before us, the main partnership was formed for a single venture between the two constituent firms. It is true that the firm of Messrs. Tribhovan Tejpal as such cannot be a partner with the firm of Messrs. Rugnath Tricumdas, but there is nothing in law to prevent a partnership coming into existence between all individual members of the constituent firms, if all such partners are contracting parties to it. Harjivan and Vrajlal prove that their respective firms purchased copra in partnership, and an irrevocable letter of credit was opened with the Punjab National Bank Ltd., and the application for opening the letter of credit was made by Vrajlal Rugnath on behalf of Messrs. Rugnath Tricumdas, Ex. 55, and the licence for the import was also in the name of Messrs. Rugnath Tricumdas. The main partnership was therefore a partnership between the individual members of the constituent firms whose business was carried on in the firm-name of Messrs. Rugnath Tricumdas.

The case of -- Hakamji Meghaji v. Punnaji Devichand (A)'', upon which the learned advocate for the Appellant Company relied, was on different facts. That was a suit for dissolution of a partnership and accounts. It appeared that 7 different Marwadi firms formed themselves into a single partnership in October 1918 to do the business in yarn. The composite firms so constituted traded in the name of Punnaji Devichand, which was the firm-name of Defendant No. 1 firm. The Plaintiff claimed to represent the firm of Hakmaji Meghaji which was one of the constituent firms in the partnership. Defendant No. 1 was the firm of Punnaji Devichand and Defendant No. 3 was the firm of Aslaji Sonmal. Meghaji Trikamji, the partner of the Plaintiff firm of Hakmaji Meghji, and Bhikaji, the owner of the Defendant firm of Aslaji Sonmal, had died more than three years before the suit, and the question was whether the suit was barred by limitation. It was argued that the partnership in the suit consisted of seven constituent firms, which were partners as such and that being so, the death of individual members of the constituent firms would not dissolve the main partnership, and consequently as the main firm had not been dissolved, the suit was in time. The Court refused to accept this argument and held that all the members of the 7 constituent firms must be taken to have been individual partners in the main firm and therefore it would be dissolved on the death of Meghaji and Bhikaji unless there were reasons to believe that there was a contract providing that the main partnership was not to be dissolved by the death of individual partners. In this view of the facts of the case, the learned Judges held that the partnership was dissolved more than three years before the date of the suit and the suit was consequently time-barred. This case supports the view that a partnership formed between a number of firms should be deemed to be a partnership between all the members of the constituent firms. We therefore hold that individual members of the constituent firms of Messrs. Rugnath Tricumdas and Messrs. Tribhovan Tejpal were partners of the main firm; and carried on business in partnership in the firm-name of Messrs. Rugnath Tricumdas.

Under Order 30, Rule 1, CPC persons claiming as partners and carrying on business in the States may sue or be sued in the name of the firm (if any) of which such persons were partners at the time of accrual of the cause of action. Under this rule, therefore, any partner of the main firm is entitled to sue in the name of Messrs. Rugnath Tricumdas. It is however contended that the. suit as framed was not in the name of Messrs. Rugnath Tricumdas, the main firm, but a suit by one partner only, and must therefore be dismissed, and as other partners who are necessary parties to the suit had not been joined. as parties to the suit, it must be held that the suit was not properly constituted. The question that has therefore to be determined is whether the suit as framed is in the firm-name, or by Vrajlal Rugnath only, a partner of that firm. Now if we turn to the plaint, we find that the Plaintiffs have been described as "Tha. Vrajlal Rugnath, partner of the firm carrying on business in the name of Messrs. Rugnath Tricumdas". In the body of the plaint the Plaintiffs have been described as the Plaintiff firm and the plaint has been signed and verified in the firm-name as follows:

Signature of Rugnath Tricumdas by the hand of Vrajlal Rugnath.

On a true construction of the plaint, the suit appears to us to be by a partner, Vrajlal Rugnath, in the name of the firm. It is true that in the title, the Plaintiff is described as Vrajlal Rugnath, a partner of the firm, but this is a mis-description of the Plaintiffs and the suit cannot be permitted to fail on that account. The suit must therefore be held to have been properly instituted under Order 30, Rule 1, Code of Civil Procedure

It was next argued on behalf of the Appellants that the Appellant Company''s agreement with the Plaintiffs was void for uncertainty u/s 29, Contract Act. Reference was made to -- Kovuru Kalappa Devara Vs. Kumar Krishna Mitter and Another, ), in support of this argument. In that case the Respondents had undertaker to pay the sum of Rs. 12000/- with interest "after deductions as would be agreed upon". The Court held that this agreement was uncertain and vague within the meaning of Section 29, Indian Contract Act. This decision appears to rest on the principle that although an agreement may otherwise be definite if an essential element is reserved for future agreement of both parties, the promise can raise no legal obligation until such future agreement. The principle has been stated as follows in Sanjiwa Row''s Indian Contract Act, 3rd edition (p. 302):

One of the commonest kind of promises too indefinite for legal enforcement is where the promisor retains an unlimited right to decide later the nature or extent of his performances. This unlimited choice in fact destroys the promise and makes, it merely illusory.

On this principle if a party agrees to pay a sum of money "after deductions as may be agreed upon" the essential element of the agreement, viz., the determination of the amount to be deducted is left to future agreement. The parties retain their right to decide the extent of the deduction and the agreement cannot therefore be enforced. An agreement of this nature has been described as aw. agreement to enter into an agreement and declared to be too vague to create a legal obligation. We have therefore to see in the light of the above principle whether under their undertaking the Appellant Company retained the right to decide the extent of their obligation or whether the terms of the settlement were left to be decided exclusively by future agreement between the Appellant Company and Messrs. Patalia and Co. The Appellant Company''s letter (Ex. 38) containing the undertaking is in the following terms:

Bombay No. 1,

16th November 1947.

Messrs. Rugnath Tricumdas,

Grain Market,

Jamnagar,

* * * *

We have not been able to come to any settlement with Messrs. Patalia and Co., and whatever settlement we reach with Messrs. Patalia and Co., by way of personal negotiations, arbitration or through the Court or by any other method, the same terms will be given to you on your agreeing to make the payment. In fact your payment is accepted under protest subject to giving you the same advantage which we may have to give to Messrs. Patalia and Co.

XXXX

By this letter the Appellant Company unconditionally undertook to give the same terms to the Plaintiffs upon which their differences with Messrs. Patalia and Co., might be settled. This settlement was not dependent upon any future agreement by either Messrs. Patalia and Co., or the Appellant Company. If a settlement by mutual agreement or by arbitration could not be effected between them, the Appellant Company undertook to give whatever terms were given to Messrs. Patalia and Co., through the Court. It is true that the Appellant Company was to try and resolve the dispute with Messrs. Patalia and Co., by agreement in the first instance and had their undertaking not proceeded beyond giving the Plaintiffs such terms "as might be agreed upon with Messrs. Patalia and Co." the agreement might possibly have been vitiated by an element of uncertainty. But the undertaking goes further and states that in the event of the settlement of the dispute through Court, the Court''s decision would be the basis of the terms which the Plaintiffs would be entitled to claim. Thus the settlement with Messrs. Patalia and Co., did not leave option to the Company to agree to settle with them, for if they did not agree, the Court''s decision was to govern the extent of their obligation. Their undertaking does not thus contain any element of uncertainty and is a valid contract. All that can be said about it is that it cannot be enforced until the dispute with Messrs. Patalia and Co., had been settled.

The learned advocate for the Appellant Company next urged that even if their undertaking was held to be a contract all that they were liable to offer to the Plaintiffs were the terms which they gave to Messrs. Patalia and Co.; and the Plaintiffs were entitled to ask for no more than cancellation of their contract at par on their making over the goods as shipped from the Philippines. These terms had been actually offered to the Plaintiffs (vide Ex. 13) but the offer was declined by them and consequently the Appellant Company could not be held bound to their undertaking. We have already set out the terms of Appellant Company''s undertaking. The portion material to the present argument is however set out below for ready reference:

Whatever settlement we reach with Messrs. Patalia and Co., the same terras will be given to you on your agreeing to make the payment. In fact your payment is accepted under protest, subject to giving you the same advantage which we may have to give to Messrs. Patalia and Co.

If both the clauses of the undertaking are read together, it will appear that what the parties intended was that the same terms were to be given to the Plaintiffs on which the dispute with Messrs. Patalia and Co., was settled. But if for any reason, it was not possible to do so, the Appellant Company undertook to give the Plaintiffs the same advantage which they might have to give to Messrs. Patalia and Co. The letter uses the words "terms" in the first clause and "advantage" in the second clause. These words are not synonymous and the "terms" of an agreement are not equivalent to the "advantage" which a party might receive under it. In fact the advantage follows from the terms of the agreement. It is therefore reasonable to suppose that the parties intended that if the same terms could not be given to the Plaintiffs, the latter were not to be deprived of the advantage which Messrs. Patalia and Co., received under their settlement. The Plaintiffs were induced to take over the goods on the faith of this agreement and exercise acts of ownership over them; they disposed of part of the goods in Jamnagar and were arranging to re-export the rest to Europe. It would therefore have been impossible for the Plaintiffs to make over the full quantity of the goods to the Appellant Company as shipped from the Phillipines and in offering to cancel the contract at par on condition that the Plaintiffs made over the goods to them, the Appellant Company placed a condition which it was not possible for the Plaintiff''s to accept. The Appellant Company must be deemed to have impliedly agreed that the acceptance of the goods by the Plaintiffs by paying for them was an essential term of the agreement and they must be deemed to have agreed that the term of settlement with Messrs. Patalia and Co., would not involve the return of the goods. If however the settlement with Messrs. Patalia and Co. involved the return of the goods, the Appellant Company must be deemed to have undertaken to give the same advantage to the Plaintiffs which Messrs. Patalia and Co. obtained under their settlement. The construction which we have placed upon the Company''s undertaking (Ex. 38) gives effect to every term of that undertaking, while if the construction sought to be placed by the Appellant Company is accepted it nullifies the entire basis of the settlement with the Plaintiffs and this should, as far as possible foe avoided. Therefore the argument that the Plaintiffs were bound to accept cancellation of the contract at par and return the goods cannot be accepted as a valid defence to the suit.

It was next urged on behalf of the Appellant Company that it was not shown that Messrs, Patalia and Co., received an advantage under the settlement with the Appellant Company. This is not correct Messrs. Patalia and Co., had not released the documents from the Bank and the goods were lying in the godown. Lending and insurance charges had already been incurred. and the liability for the godown rent was being (sic) decree where the (sic) passed it had no inherent juris diction incurred every day. Interest and the commission of the Bank had also become payable. Messrs. Patalia and Co., would have had to pay all these charges if they had been compelled to accept the goods, and by the cancellation of their contract at par they were,saved all these charges. This is a substantial advantage to them although it may not be possible to calculate its pecuniary equivalent. Mr. B.M. Buch, the learned advocate for the Appellant Company, argued that this advantage was offset by the return of the goods by Messrs. Patalia and Co., to the Company. This argument however has no force. At one time, the Appellant Company was prepared to pay to Messrs. Patalia and Co., two and a half per cent on the net invoice value of the goods, if the latter took the delivery. Messrs. Patalia and Co., refused to accept the offer and preferred to cancel the contract at par and the Company had to agree to these terms. It is therefore obvious that Messrs. Patalia and Co., stood to gain more by cancelling the contract than by receiving two and a half per cent subject to acceptance of the goods. The Plaintiffs have been induced to accept the goods and therefore in the absence of evidence about the pecuniary value of the advantage actually received by Messrs. Patalia and Co., it is only fair that the Company should pay them two and a half per cent on the net invoice value of the goods, which is the lesser of the advantages which were offered to Messrs. Patalia and Co. The learned advocate for the Appellant Company pointed out that the Plaintiffs had made a huge profit in re-exporting the goods to Europe and the other side admits this fact but that element can scarcely enter into consideration of the Appellant Company''s liability under their agreement. After the Plaintiffs'' had paid for the goods and taken the delivery they were free to deal with them and if they made a profit out of the goods subsequently, the Company cannot claim to be relieved from their liability under the undertaking on the faith of which the Plaintiffs were induced to take the delivery of the goods.

Arguments were addressed to us on the question about the quality of the goods. The Appellant Company denied that the goods were not according to the contract, while the Plaintiff-Respondents'' learned advocate wanted to say that the goods were inferior in quality to the goods contracted for. As the suit is based on the Appellant Company''s undertaking, Ex. 38, the question about the quality of the goods does not survive for determination.

In the result, we confirm the decree of the learned Civil Judge and dismiss the appeal.

Shah, C.J.

I agree.