F.E. Dinshaw vs Amrit Lal and Co. and Others

Ross, J.—This is an appeal against the decree of the Subordinate Judge of Dhanbad in a suit brought by the respondent for arrears of commission due to them on the price of coal supplied by the defendant firm to the E.I. Ry. There were three defendants to the suit, (1) the firm of Trecumji Jivandas, the owners of the North Bararee Colliery, (2) F.E. Dinshaw, the present appellant, who was appointed Receiver and Manager of the Colliery by the Bombay High Court and was subsequently discharged; and (3) S.D. Mehata, his successor in the receivership.

On 25th December 1923 the defendant firm wrote to the plaintiffs as follows:

We here by give you permission to tender on our behalf our East Bararee, South Tista and North Bararee coal for sale to the E.I. Ry.... North Bararee 2,000 tons per month at Rs. 4-8-0 per ton. The coal is to be tendered for delivery for 12 months in the year 1924-25. We shall pay you commission.... 8 annas per ton in ... North Bararee coals on quantity delivered. You shall pay us weekly for the value of coal despatched on the above account. Before this, on 18th December 1923 in a suit brought by Dinshaw and another against Trecumji and others, Dinshaw was appointed Receiver and Manager of the mortgaged properties mentioned in the plaint, with power to work and manage the coal mines in the plaint mentioned and to deal with the stock comprised in the mortgage security with liberty to appoint agents or sub-managers to work under him. This order was sealed on 6th February 1924. According to the plaint Dinshaw was in possession as receiver on 2nd March 1924. That allegation is not traversed in the written statement, where it is said that this defendant went into actual possession by his manager in or about February or March 1924.

On 2nd March 1924 the plaintiffs wrote to the receiver as follows:

We beg to bring to your notice the fact that Messrs. Trecumji Jivandas & Co. by their letter, dated 25th December 1913 has requested us to offer their 6,000 tons of coal in E.I. Ry. Loco with the express understanding to give us 8 annas per ton commission on any quantity accepted by the E.I. Ry. Loco. Now that the E.I. Ry. Loco has accepted the tender for 1,000 tons North Bararee Colliery steam coal from 1st April 1924 to 31st March 1925 i.e. 12,000 tons for one year at Rs. 4-8-0 per ton F.O.P. Colliery siding, we hereby request you to commence despatches in favour of E.I. Ry. Loco as may be directed by the Colliery Superintendent from 1st April 1924 and send us our commission monthly accrued on despatches.

From April 1924 coal was supplied to the E.I. Ry. under this agreement. Defendant 2 was discharged from his receivership on 2nd July 1925 and defendant 3 was appointed. During the currency of the contract therefore defendant 2 was receiver and manager of the colliery. The suit was not defended by the defendant firm. A. compromise was entered into between plaintiffs and defendant 3 to the effect that the plaintiffs would get a decree against defendant 1 and defendant 3 as receiver for the amount claimed with costs and future interest on the distinct understanding that this decree was to be realized out of the assets of defendant 1 in the hands of the receiver subject to mortgage encumbrances including mortgages and lien of defendant 3 if any. Defendant 3 (the receiver) was not to be personally liable. No payments of commission were made to the plaintiff firm, but they set off a sum of Rs. 1,163-7-0 being the amount due on the first three months despatches of coal against a sum which was owed to the colliery by another firm Wora & Co. which was identical with themselves. The suit is for the balance of the commission on the coal supplied in the other nine months of the year with damages. The Subordinate Judge has passed a decree against defendant 2 personally, and the sole question for decision is whether defendant 2 is personally liable or not. The contention on behalf of the appellant is that there were two contracts: a contract with E.I. Ry. to supply coal and a contract with the plaintiff firm to pay commission, that the first contract was performed and the defendant''s duty as receiver was to credit the whole of the receipts from the railway company to the colliery, and the colliery was benefited by these payments. It is argued that the plaintiff firm has no claim against the receiver personally on his contract, because the plaintiff did not look to the credit of the receiver when this contract was entered into. On the contrary, the contract was made with the company and not with the receiver and was a contract which the receiver was at liberty to break and the only consequence) of this breach of contract would be to entitle the plaintiffs to damages against the company and the defendant cannot be personally liable on a contract entered into between the plaintiffs and the company.

It is further contended that the suit came to an end when a compromise was entered into between the plaintiffs and defendant 3 by which the plaintiffs took a decree against the estate and that this disentitles them to a personal decree against defendant 2. It is also contended that the suit should fail, because the leave of the Bombay High Court was not obtained to sue defendant 2.

The last two points may be briefly disposed of. While it is necessary to obtain leave of the Court to sue a receiver who is in possession under the order of the Court, no authority has been shown that the leave of the Court is necessary to sue a receiver who has been discharged by the Court and is no longer an officer of the Court at the time when the suit is brought. As to the effect of the compromise, it is clear from the plaint that the plaintiff firm claimed to recover from all the defendants and the fact that the plaintiffs have taken a decree against the estate in the hands of the receiver cannot dispose of the question of the personal liability of defendant 2. There is no question that defendant 2 is entitled to an indemnity from the estate and therefore the estate is ultimately liable. But the decree against the estate may be valueless and the question still remains whether there is any personal liability of defendant 2.

On the main argument the contention for the respondents is that defendant 2 besides being a receiver and manager was a mortgagee in possession; that there were not two contracts as contended by the appellant, but one agreement to which there were three parties, the defendant firm, the E.I. Ry. and the plaintiffs. Although the contract may have been entered into before the defendant became manager, he adopted that contract and is therefore personally liable under it. It is also argued that out of Rs. 4-8-0 per ton paid by the railway company eight annas was not assets of the defendant firm to be credited to them but belonged to the plaintiffs; that this money was actually realized by defendant 2 although it belonged to the plaintiffs and the plaintiffs are entitled to recover this money from defendant 2.

The evidence in the case is somewhat meagre and it has not been stated when the E.I. Ry. accepted the tender on behalf of the colliery. But the case was argued on the footing that the contract was entered into by the defendant firm and not by the receiver, that is to say, it was a contract existing when the receivership came into being. There is one clause in the letter (Ex. 1) from the company to the plaintiff of 25th December 1923 which was not referred to in the judgment or in the argument, namely, the last clause "you shall pay us weekly for the value of coal despatched on the above account." This looks as if the contract contemplated by the defendant firm was a contract with the plaintiffs that the plaintiffs should pay for the coal and if that part of the contract had been carried out the present difficulty would not have arisen because the plaintiffs would simply have deducted the amount of their commission. It is not however suggested that the plaintiffs paid for the coal supplied to the E.I. Ry., and the course of business seams to have been that the colliery supplied the coal and the E.I. Ry. paid for it at the contract rate of Rs. 4-8-0 a ton dealing direct with the colliery as principal (cf. Ex. 2).

It seems to ma that the actual contract to be gathered from the correspondence and the course of dealing was a contract between the colliery and the E.I. Ry. for the supply of 1,000 tons of coal monthly for 12 months at Rs. 4-8 0 a ton, and a contract between the colliery and the plaintiffs to pay the plaintiffs a commission of eight annas a ton on the amount of coal delivered. In my opinion it cannot be said that defendant 2 by adopting the first contract adopted the second. He was at liberty either to perform the pre-existing contract or not to perform it and, if he did not perform it the consequence would be an action for damages against the colliery which had made the contract. In this view defendant 2 would not be personally liable to the plaintiffs for breach of contract to pay commission. Nor would defendant 2 be liable on the general principle upon which a receiver and manager may be made liable under a contract, namely, that it was to his credit that the contracting party looked. The contract was made before the receivership cams into existence and there can be no doubt whatever that the credit which the plaintiffs looked to was the credit of the colliery.

The learned Subordinate Judge has relied upon two circumstances in fixing defendant 2, with personal liability. The first is the letter (Ex. 2) of 2nd March 1924 and the second is the fact that the plaintiff firm paid itself for the first time three months'' commission out of debt owed by Wora & Go. to the colliery to the knowledge of defendant 2. Nothing turns upon the first fact because the letter refers to on existing contract; and as to the second, it cannot be inferred from the fact that defendant 2 allowed the plaintiff to set off this sum of 1163-7-0 against their commission that defendant 2 admitted any liability for the commission for the remaining nine months. The learned Subordinate Judge has taken the view that defendant 2 received payment from the E.I. Ry. of money which was in part legally payable to the plaintiffs and that instead of paying the plaintiffs he paid himself as mortgagee in possession. This in my opinion is not the correct view of the matter. The money paid by the E.I. Ry. was the contract price of coal that belonged to the estate. The plaintiffs had only an actionable claim for their commission and that claim had no priority over the claims of the mortgagees.

The appellant relied upon the decision in Re Newdegate Colliery Co. Ltd. [1912] 1 Ch. 468 where the Master of the Rolls said with reference to the position of a receiver and manager of a colliery with regard to existing contracts:

They (the contracts) are still subsisting, but it is impossible to suggest that the receiver and manager is under any liability to the persons who have entered into them.

In my opinion they are not contracts with him; they are contracts made with the company, which is still a company and has not been wound up. If he discharges the obligations of the company under the contracts he will be entitled to receive the money due from the other contracting parties to the company; but to say that he is under personal liability with regard to the contracts and that he ought to be indemnified or relieved in respect of them is entirely to misunderstand the position of a receiver and manager. It is doubtful how far this case is applicable. That was a debenture-holder''s summons, asking that the receiver and manager might be at liberty to disregard the company''s forward contracts for sale of coal; and what was held was that the duty of the receiver and the manager was to preserve the goodwill of the business and that he could not be authorized by the Court to destroy the goodwill by breaking contracts although it might be to the interest of the debenture-holders to disregard the company''s forward contracts for sale of coal. Buckley, L.J., expressed the opinion that it is necessarily wrong to make an order directing the receiver and manager to disregard the interest of one of his constituents, the mortgagor, in order to benefit another of his constituents the mortgagee. But the question that was debated in that case is not the question in the present suit at all. In Parsons v. Sovereign Bank of Canada [1913] A.C. 160 the Judicial Committee wore dealing with the breach of pre-existing contracts by a receiver and manager and it was held in an action brought by the assignees from the receiver and manager of the debts due to the company on account of goods supplied to the defendants that the defendants were entitled to set off against their debt their claim for damages for the breach of that contract. No question was raised in that case about the personal liability of the receiver and manager. Lord Haldane, L.C. said:

In the present case the receivers and managers were by the terms of the order of the Court obviously intended to carry on the actual business of the company with as little breach of continuity as possible and there is no reason why they should not use the name and powers of the company for the purpose of fulfilling the existing, order. It is no doubt true that prima facie any new contracts they made would ordinarily be made by them personally in reliance on their right of indemnity out of the assets, as happened in the recent case before the House of Lords of Moss Steamzhip Co. Ltd. v. Whinney [1912] A.C. 254, where a new contract made by the receiver was held as matter of contraction to have been entered into by him personally. But in the present case the contracts were contracts entered into before the receivers and managers were appointed and had been entered into in the ordinary course of business of the company in manufacturing and delivering paper; and there is in their Lordships'' opinion no ground for presuming that the receivers and managers intended to act otherwise than in the name of the company to carry to a conclusion the business which was current, or that they meant to repudiate the obligations of the company.... Their Lordships think that the first repudiation that was made by the receivers and managers took place when the letter was written to the appellant on 17th June 1907, declaring the contracts cancelled, As the result, a right arose to counterclaim against the company damages for breach.

The case referred to in this judgment, in which the receiver was made personally liable, Moss Steam Ship Co. Lid. v. Whinney [1912] A.C. 254, was a case of a contract entered into by the receiver and manager in ordering shipment of goods and the Lord Chancellor said:

Unless qualified by other circumstances absent here, this meant that Mr. Whinney ordered the shipment and contracted for it on his personal credit, looking, of course, for indemnity from the assets of the company of which he is receiver and manager.

That would seem to be the criterion. In Re London United Breweries Ltd. [1907] 2 Ch. 511 Neville, J. said:

The Court will see that those who properly gave credit to the receiver who was managing under the authority of the Court have their debts discharged so far as the Court has funds in its hands.

In Re British Power Traction and Lighting Co. Ltd. [1910] 2 Ch. 470, Swinfen Eady, J. said:

The right of the trade creditors was to sue Watkins (manager and receiver) to whom they gave credit. He would have had no answer to their claim.

On this short ground therefore that the contract was a pre-existing contract that had not been entered into on the faith of the credit of defendant 2, plaintiffs remedy in my opinion is against the colliery alone.

The appeal must therefore be decreed with costs and the suit dismissed with costs as against defendant 2.

Dhavle, J.

I agree.