Contract Cases

 Wulff and Billing v. Jay L.R. (1872) 7 Q.B.756
 Rees v. Barrington -2 White & Tudor's L.C., 4th Edn. at p.
1002
 Craythorne v. Swinburne [1807] 14 Ves.160
 To emphasise the rule equity that s.140 propounded
 State of Madhya Pradesh v. Kaluram [1967]1SCR266
 To explain the expression “security” in s.141 which includes
all the rights as that of the creditor.

 Respondents 3 to 6, as partners of Respondent 2
firm (R2), entered into an agreement with Bank of
Travancore to open a cash credit account to the
extent of Rs. 1,00,000 to be secured by goods to be
pledged with the Bank.
 The agreement provided that the borrowers shall
be responsible for the quantity and quality of goods
pledged.
 Borrowers were allowed to withdraw pledged goods
with the prior consent of the bank.

 10% margin was required to maintain b/w
market value of goods and amount due in bank.
 Under a clause in contract, borrowers need to
make statements and returns of cost of pledged
goods which verifiable by bank.
 Bank can verify the quality and quantity of the
goods pledged by weighing and calculating its
value.
 The appellant (A) became surety for the
borrowers w.r.t the account upto Rs.100,000 and
allowed the Bank to recover, notwithstanding any
other security the Bank may hold.

 Also, appellant gave surety for bills of discount
for amount of Rs. 45000
 The stock pledged was initially valued at about
Rs. 99,991 but after verification shortage of goods
to the value of Rs. 35,690 was found. It was
alleged that R2-R6 must have taken away the
goods.
 Also, bank on default by R.2-6 of Rs. 40,933.58
asked appellant to pay the liability and when
appellant denied, bank filed suit against R.2-6
and A.
 After sub court and high court gave decision in
favour of the bank, A moved to SC.

 There was a variation made in the terms of the
contract between the principal debtor and the
creditor and the appellant was not aware of
this change which discharges appellant from
any liability as given in sec 133.
 The conduct of the bank in giving time to
principal debtor to make up the deficit
absolves appellant from liability according to
sec 135.

 Further it was contended by appellant that in
march 1957, weekly statement showed value at
Rs. 99,991 whereas, April's weekly statement
showed shortage of Rs. 35,690. The bank
agent didn’t know how the shortage occurred
leaving a possibility that the respondents
might have withdrawn it. So the Appellant
contended that his liability should be reduced
under sec.141.

 For the first contention, according to the
court, as appellant pointed out that the
maximum limit of Rs. 1,00,000 was allowed as
a credit and later reduced to 50, 000 and again
raised back to 1,00,00. There is no evidence in
support of this contention except for some
entries in pages of account maintained by
bank. Since appellant was not able to produce
strong evidence and court held that the entries
may be of a nature of private instruction.
Therefore sec. 133 can not apply.

 For contention under sec 135, it was held that the
time given to the principal debtors was under the
reference of time given to correct statements and
returns of the good and the time was not given to
debtor to pay by signing new contract without the
consent of surety. And hence, it does not absolve
appellant from his liability.
 In light of sec 141, court said, as the respondent
bank had no idea about the shortage occurred, and
as mentioned in cl. 5 ‘notwithstanding any other
security’. Any other security in this clause means
‘any security other than the pledged goods’. As in
Indian law surety ship extends to the security during
the contract. Therefore, appellant should pay Rs.
5243.58 instead of Rs. 40,933.58. Because A is not
liable to pay Rs. 35690 which were misplaced due to
the negligence of bank.

CASE PRESENTATION
Centax (India) Ltd. vs. Vinmar Impex Inc. and Ors

FACTS OF THE CASE
• The appellant (Centax (India) Ltd), the buyer, covenanted to
purchase and respondent No. 1 Messrs Vinmar Impex Inc.,
Singapore, the sellers, agreed to sell and supply 100 M.T. of
High Density Polythene Powder called HOPE @ $565 per
M.T.CIF, Calcutta on an irrevocable letter of credit being
opened by the appellant in favour of respondent No. 1, the
sellers.
• One of the terms of the contract as per the letter of intent dated
April 29,1985 signed by both the parties pertained to the
'shipping mark' and was to the effect: "Bills of lading should
mention shipping mark 5202".

• At the request of the appellant, the Allahabad Bank opened a
letter of credit for $ 56,500 valid up to June 30,1985 in favour of
respondent No. 1. In terms of the said agreement, respondent
No. 1 Messrs Vinmar Impex Inc., Singapore, despatched 100
M.T. HOPE Granules from on board the vessel 'Ganges Pioneer'
packed in four containers of 25 M.T. each covered four bills of
lading.
• It appears due to the failure on the part of respondent No. 1 to
forward, through Bank, the original bills of lading, marine
insurance policy, signed invoices etc. to enable the appellant
to take delivery. Since the Shipping Company was refusing to
release the cargo for want of the original bills of lading and
other documents, Shipping Company was refusing to release
the cargo for want of the original bills of lading and other
documents, respondent No. I instructed them to release the

said cargo upon the appellant furnishing bank guarantee for
release of the goods in lieu of the original bills of lading and
other documents.
• Accordingly, the Allahabad Bank, at the instance of the appellant,
executed four letters of indemnity, variously described as letters
of guarantee or letters of indemnity or both,
• On the strength of the said letter of indemnity the Shipping
Company delivered the goods to the appellant without production
of the original bills.
• After taking delivery of the goods, the appellant sold them in the
market and realised the proceeds amounting to Rs. 17,50,000.
• The Shipping Company having made a demand upon the
Allahabad Bank to honour the letters of indemnity and the Bank
having called upon the appellant to pay the amount due, the
appellant brought a suit in the Original Side of the Calcutta High
Court seeking to recover Rs. 9,25,020.80p. as damages from
respondent No. 1.

• The sellers alleging that they were in breach in that the goods
despatched by respondent No. 1 were of inferior quality and
not the goods contracts for i.e. not of grade 5202 but of grade
5502, and also because they had failed to forward the original
shipping documents.
• The appellant applied for grant of a temporary injunction
under Order XXXIX, Rule 1 of the CPC, 1908 restraining the
Allahabad Bank from making any payment to the Shipping
Company in terms of the letters of indemnity and also
restraining respondent No. 1 from recovering the amount due
thereunder.

ISSUES RAISED
• Whether upon the principles laid down in United Commercial
Bank v. Bank of India and Ors. the Court should not interfere in
a transaction between a banker and a beneficiary?
• Whether, injunction could be granted to the appellant?

PROVISIONS INVOLVED IN THE
CASE
• Code of Civil Procedure, 1908 (CPC) - Order 39 Rule 1
• Section 37 of Specific Relief Act provides that "temporary
Injunction are such as are to continue until a specified time, or
until the further order of the court, and they may be granted at
any stage of a suit“ and S 94 (c) of CPC provides injunction.
• Section 126 of Specific Relief Act.

JUDGMENT CALCUTTA HIGH
COURT
• The Calcutta High Court in its judgment dated November 25,1985
held disallowed the application made by the appellant for grant of
a temporary injunction on the ground that the requirements of
Order XXXIX, Rule 1 of the Code are not fulfilled.
• Division Bench of the High Court by its judgement dated February
3, 1986 upheld the order of the learned Single Judge.
• In the instant case, the appellant took the risk of unconditional
wording of the letters of indemnity executed by its bankers, the
Allahabad Bank.There is really no equity in favour of the
appellant.The
• Shipping Company on the faith and assurance of the letters of
indemnity which was duly countersigned by the appellant, gave
delivery of the goods without production of the original shipping
documents.

• The appellant have sold the goods and realised the proceeds
amounting the huge sum of Rs. 17,50,000 and have not paid a
farthing to respondent No. 1, the sellers, and have instead
brought the instant suit claiming that the goods supplied were
of inferior quality and not the goods contracted for.
• The High Court has rightly held that the mark 5202 pertained
not to the quality of the grade but to the shipping mark.
• We are satisfied that the appellant has no prima facie case.The
balance of convenience also lies in not granting the injunction
prayed for i.e. in allowing the banking transaction to go
forward.The appellant would also not be put to any irreparable
loss if no injunction is granted.

SUPREME COURT
• Hon’ble SC held:This case is really an extension of the
principles laid down by this Court in United Commercial
Bank's case.
• The main point in controversy in that case was whether the
Court should in a transaction between a banker and
banker grant an injunction at the instance of the
beneficiary of an irrevocable letter of credit, restraining
the issuing bank from recalling the amount paid under
reserve from the negotiating bank, acting on behalf of the
beneficiary against a documents of guarantee indemnity
at the instance of the beneficiary.

CASES CITED
• Court citing the case of Hamzeh Malas v.British Imex Industries
Ltd. (1958) 2 QB 127, in which it was held
• “In view of the banker's obligation under an irrevocable letter
of credit to pay, his buyer customer cannot instruct him to pay”.
• Further citing another landmark case of In Elian v. Matsas
(1966) 2 LR 495, Lord Denning, M R, while refusing to grant an
injunction stated:
• ...a bank guarantee is very much like a letter of credit.The
courts will do their utmost to enforce it according to its terms.
They will not, in the ordinary course of things, interfere by way
of injunction to prevent its due implementation. .

• We do not see why the same principles should not apply to
a banker's letter of indemnity. Accordingly, the appeal
must fail and is dismissed with costs.
• SC further held that it is only in exceptional cases that the
courts will interfere with the machinery of irrevocable
obligations assumed by banks.They are the lifeblood of
international commerce. And added: Except possibly in clear
cases of fraud of which the banks have notice, the courts will
leave the merchants to settle their disputes under the contracts
by litigation or arbitration as available to them or stipulated in
the contracts.

IN THE HIGH COURT OF ALLAHABAD
(LUCKNOW BENCH) FULL BENCH
First Appeal Nos. 89-92 of 1948 Decided On: 09.02.1955
Appellants: Dominion of India as owner of G.I.P.
Rly. and Anr. vs.
Respondent: Gaya Pershad Gopal Narain
Hon'ble Judges/Coram:
Kidwai, Vashishtha Bhargava and Hari Shanker Chaturvedi, JJ.
Counsels:
For Appellant/Petitioner/Plaintiff: B.N. Mulla, Adv.
For Respondents/Defendant: B.K. Dhaon and G.N. Mukerji, Advs.
Presented By: Nidhi Jitendra Patel
1

• Full Bench has been constituted to consider the
following question which has been formulated by a
Division Bench of this Court, namely :
"Whether a consignee, who is not the owner of
the goods but to whom the goods are consigned
for the purpose of sale on commission basis, is
entitled to maintain the suit for loss in respect
of damage caused to the goods in transit?"
QUESTION
2

• Four different persons each booked a wagon of oranges
from Katol in C. P. (present day Madhya Pradesh) for
Lucknow
• The Plaintiff- Respondent was mentioned in the
Railway Receipt as Consignee
• When the plaintiff received the delivery of first wagon
found that the goods had deteriorated greatly owing to
late arrival
• Refused to take the delivery of other remaining wagons
• Four suits were instituted out of which these appeals
arise for damages
FACTS
3

• The Appellant took the defence that plaintiff being
commission agent had no ‘locus standi’ to maintain the
suit
• The Trial Court held that Plaintiff was merely a
commission agent and he was entitled to sue
• The suits were all decreed
• The Judgment came in favour of Plaintiff
• Defendant appealed to high court
DECISION OF THE TRIAL COURT
4

• Sheo Prasad v. Dominion of India AIR 1954 All 747
- A consignee who is not owner of the goods is not
entitled to maintain the suit for loss in respect of
damage caused to the goods in transit
• Mercantile Bank of India v. Central Bank of India
• Ramdas Vithaldas Darbar v. S. Amerchand & Co AIR
1916 PC 7
• The Firm of Dolatram v. E.B. & C. I. Rly. Co AIR 1914
Bom 178
• Chunna Lal v. Governor General in Council AIR 1950
All 89
• Ram Narain v. Dominion of India AIR 1953 All 460
CASES CITED BY COUNSELS
5

• Section 161 of ICA:
Bailee’s responsibility when goods are not duly
returned- If, by the default of the bailee, the goods are
not returned, delivered or tendered at the proper time, he
is responsible to the bailor for any loss, destruction or
deterioration of the goods from that time.
Return of goods bailed, on expiration of time or
accomplishment of purpose- It is the duty of the bailee
to return, or deliver according to the bailor’s directions,
the goods failed, without demand, as soon as the time for
which they were bailed has expired, or the purpose for
which they were bailed has been accomplished.
RELEVANT SECTION OF ICA 1/2
6

Extent of agent’s authority- An Agent, having an
authority to do an act, has authority to do every lawful
thing which is necessary in order to do such act.
An agent having an authority to carry on a business, has
authority to do every lawful thing necessary for the
purpose, or usually done in the course of conducting such
business.
• Section 72 of Indian Railways Act, 1890
RELEVANT SECTION OF ICA 2/2
7

• One of the reasons given for the view that the
consignee if he is only an agent, cannot sue is that he
has suffered no loss. It is not a matter which concerns
the railway as to who has actually suffered the loss;
the railway is primarily liable to the consignor who is
the bailor although the consignor himself ' may be
merely an agent
• Nothing can prevent the consignor and the railway
entering freely and voluntarily into the contract for the
benefit of a third person.
• One of the contracting parties- the railway- cannot
without the consent of the other party resile from the
contract and refuse to make delivery to the third party
VIEWS OF THE COURT 1/2
8

• If the goods had deteriorated to such an extent that
delivery cannot properly made, their equivalent, which
is their cash value must be delivered to the consignee,
and it is the consignee who can enforce payment of the
cash value which is, after all what the suit for damages
is
• The Division Bench did not agree with the agree with
the view expressed in the Sheo Prasad v. Dominion of
India Case: AIR1954All747 that a consignee who is
not owner of the goods is not entitled to maintain the
suit for loss in respect of damage caused to the goods
in transit
VIEWS OF THE COURT 2/2
9

• The Division Bench answered the question in the
affirmation
Therefore, a consignee, who is not the owner of the
goods but to whom the goods are consigned for the
purpose of sale on commission basis, is entitled to
maintain the suit for loss in respect of damage caused
to the goods in transit
DECISION
10

GAJANAN MORESHWAR
Vs.
MORESHWAR MADAN
IN THE HIGH COURT OF BOMBAY

FACTS
 Plaintiff entered into a lease deed with Municipal Corporation of Bombay
and was put in possession of a piece of land.
 At the request of the defendant , the plaintiff transferred the benefit of the
lease deed to the defendant. Defendant got possession of land and
commenced construction of a building on it.
 At the request of the defendant , plaintiff mortgaged the property in favour
of the supplier to secure a payment of Rs 5000. Some time later again at
the request of the defendant plaintiff mortgaged a part of the land to
further secure a payment of Rs 5000.
 At the defendant’s request, plaintiff asked Municipal Corp of Bombay to
transfer the plot of land in favour of defendant.

 Plaintiff transferred the building to the defendant who Contracted to be
responsible for discharging the previous mortgage on the property by
executing another mortgage deed in favour of the supplier in place of
those already executed by the plaintiff.
 Transfer of property was duly sanctioned by Municipal Corporation of
Bombay (MCB hereinafter)but no formal lease was executed by MCB in
favour of defendant .After repeated requests from the plaintiff, the
defendant failed to release the plaintiff from his liability under the
mortgage deed and further charge even though the defendant has
been in possession of the property and enjoyment of rent and profits
thereof. Defendant also paid some interest to the supplier, but a
large amount of interest remained in arrears and unpaid.

ISSUES
 Whether the plaintiff discloses any cause of action.
 Whether the suit was premature.

CONTENTIONS BY THE DEFENDANT
 Relying on Sec 124 and Sec 125 of Indian Contract Act, unless and until the
indemnified (plaintiff) has suffered a loss, he is not entitled to sue the
indemnifier (defendant)and since it is nowhere mentioned in the plaint
that the plaintiff has suffered any actual loss , there is no cause of action
and suit is premature.
 The cause of action arises when the damage which the indemnity is
intended to cover is suffered, and a suit brought before actual loss accrues
is premature. The liability of the plaintiff is not absolute but contingent.
There is nothing to show that if the mortgagee was to sue to enforce his
mortgage and the property was sold, there would be any deficit for which
the plaintiff would be liable.

JUDGEMENT
 HC held that ICA is not exhaustive. Sec. 124 which defines indemnity only
deals with a particular kind of indemnity which arises from a promise
made by the indemnifier(defendant) to save the indemnified (plaintiff) from
the loss caused to him by the conduct of the indemnifier himself or that of any
other person.
 It does not deal with those classes of cases where:
 A.) The indemnity arises from loss caused by events or accidents which do
not or may not depend of the conduct of the indemnifier or any other person,
Or
 B.) By reason of liability incurred by something done by the indemnified at the
requirement of the indemnifier . This is applicable to the present suit where
plaintiff has become liable for doing something at the requirement of the
defendant.

 Therefore, scope of Section 124 not exhaustive and not applicable to present
case . Section 125 which deals with rights of the indemnified only talks of
rights of indemnified on being sued. Therefore the indemnified has other rights
than those mentioned in Section 125 and it is not applicable to the present
case.
 While deciding on the other contention the Judge held that that an indemnity
might be worth very little if the indemnified could not force his indemnity till
he had actually paid the loss. If a suit was filed against him, he would have
to wait till a judgment was pronounced and it is only after he has
satisfied the judgment that he could sue on his indemnity.
 Basing his decision on the Court of Equity, he says that if the liability
becomes absolute which was in this case, then plaintiff is entitled either-
 To get the indemnifier to pay off the claim; or to get the indemnifier to pay
into court sufficient money that would constitute a fund for paying off the
claim whenever it was made.

Hardayal Ram Dass Ray
v.
Bengal and North Western Railway
Company
Patna High Court

FACTS :
 On 25th June 1924 the plaintiffs sent 11 bags of turmeric
to the railway station to Bettiah through one of their
peons with the direction that some of the bags were to
be dispatched to Moradabad and some to Batala.
 The bags were unloaded and placed in the railway
goods-shed but this was not done in the presence of the
goods clerk or any other railway servant.

 The peon handed to the railway clerk in charge of the
shed two consignment notes but the clerk instructed the
peon to come for a receipt on the following day as he
was too busy to write it.
 Later, it was discovered that 9 out of the 11 bags were
missing.

ISSUE :
 Whether the goods given by the appellants to
respondent amount to the delivery of goods or not?

JUDGMENT :
 The rule which has been framed by the B. and N. W. Ry. Co.
to limit its responsibility under S. 72, Railways Act is R. 27, Cl. (a)
which runs as follows:
 "The railway administration hereby give public notice that
they are not accountable for any articles unless the same are
booked and a receipt for them given by their clerk or agent,
and that when the articles are so accepted for conveyance
the responsibility of the railway for the loss, destruction or
deterioration of the articles is subject to the provisions of S. 72,
Railways Act 9 of 1890."

 Although the Section 72 defines the liability; the company
cannot restrict its liability.
 The court quoted the observations of Heaton, J. in Ram
Chandra Natha v. G. I. P. Ry. Co. 1915 (39) ILR(Bom) 485.
 "A delivery to be carried by railway means something more
than a mere depositing of goods on the railway premises: it
means some sort of acceptance by the railway, a taking as
well as a giving. When that taking occurs is a matter which
depends on the course of business and the fact of each
particular case; but it certainly may be completed before
railway receipt is granted."

 Found that bags were left in the shade in the absence
of any railway staff.
 Sufficient evidence that traders bring goods at their own
risk.
 Citing Lachmi Narain v. B. B. C. I. Ry. Co., the court held
that the goods had not been put in the possession of the
railway company and that mere acceptance of the
consignment notes was not equivalent to the
acceptance of the goods by the railway company.

 The counsel for the appellant contended that Rule 19
framed by the Bengal and North Western Railway
Company be taken into account.
 The court denied the same on the grounds that the
delivery of goods is a question of fact in each and every
case which is not dispensed by the said rule.
 The appeal was dismissed but there was no order as to
costs.

Hon'ble Judges: S.C. Agrawal and G.B. Pattanaik, JJ.

 Four LIC policies each with double accidental benefits were taken by
the Jaswantrai G. Shah, the insured, from an agent (Respondent 3) of
the Life Insurance Corporation of India ( Respondent 1).
 The third half yearly premium which was due on March 6,1987 was
paid by means of a bearer cheque on June 4, 1987 to the agent,
Chaturbhuj H Shah, which was encashed by his son the next day.
 The insured met with a fatal accident and died on August 9, 1987 and
the agent deposited the money with LIC only on August 10,1987.
 The widow of the insured (Appellant 2), as the nominee under the
policies, claimed the insurance money from LIC.

 The claim was however repudiated by the LIC on grounds of
lapse of policy due to non payment of premium.
 The widow of the insured (Appellant 2) along with Consumer
Education & Research Society (Appellant 1) submitted a complaint
before the Gujarat State Consumer Disputes Redressal Commission
at Ahmedabad.
 A claim was made for payment of Rs. 4,32,000 to the widow of the
insured .
 The said complaint was transferred by the Gujarat State Consumer
Disputes Redressal Commission to the Maharashtra State Consumer
Disputes Redressal Commission at Bombay.

 Whether payment of premium in respect of life insurance
policy by insured to general agent of Life Insurance
Corporation of India (LIC) can be regarded as payment to
insurer so as to constitute discharge of liability of insured?
 Whether the LIC can be held liable on the basis of the doctrine
of apparent authority under Section 237?

Before the State Commission :
 The appellant contended that the amount of premium
collected by the agent was collected by him on behalf
of LIC.
 The respondent contended that amount of premium
collected by the agent cannot be said to have been
received by LIC.
 State Commission directed the LIC to settle claim in
respect of the four policies after deducting the
amount of interest

It was held that in order to collect more business the agents of the LIC
collect the premiums from the policyholders either in cash or by cheque
and then deposit the money so collected in the office of the LIC.
This practice had been going on directly within the knowledge of the
LIC administration despite the departmental instructions that the agents
are not authorized to collect the premiums.
This practice of accepting money by the LIC agent from policyholders
is in existence and money is collected by agent in his capacity and
authority the reasonable inference was that LIC was negligent in its
service towards the policyholder.
Appeals were filed against the said judgment of the state commission
by the appellants (not satisfied with the damage awarded) as well as by
respondents.

Before the National Commission:
 It dismissed the appeals filed by the appellants and allowed the
appeal filed by respondents.
 It held that the insurance agent in receiving the bearer cheque
was not acting as the agent of the LIC nor could it be deemed
that the LIC had received the premium on the date the bearer
cheque was received by agent even though he deposited the
same with the LIC on August 10,1987 one day after the death of
the insured.
 Appellants filed appeals in the SC aggrieved by the decision of
the National Commission.

Before the Supreme Court:
Contentions of the Appellant:
 The payment had already been made to the agent, the policies did
not lapse on account of non-payment of the premium and that in
any event that said policies could be revived on payment of the
interest payable for the delayed payment of the premium amount.
 The agents receive commission on the amount of premium, the
said act of the agent was within the scope of their authority and
the limitation imposed (by regulation and appointment letter)
cannot be binding as against third parties viz., the policyholders.
 LIC by its conduct induced the policyholders to believe in the
authority of the agent w.r.t the said act; LIC was liable under
S.237 of the ICA.

Contentions of the Respondent :
 In view of Regulation 8(4)[Nothing contained in these
regulations shall be deemed to confer any authority on an agent
to collect any money or accept any risk for or on behalf of the
Corporation or to bind the Corporation in any manner] as well
as clause 10 in the letter of appointment of agent it cannot be
said that authority has been conferred upon agent to collect the
premium on behalf of LIC and therefore receipt of cheque of Rs
2,730 by the agent from the insured cannot be regarded as
payment received by him on behalf of the LIC .
 The grace period had already expired (on April 6) without due
payment and the policies had lapsed. The revival of the policies
was subject to LIC’s discretion and could arise only if the
premium can be said to have been paid to the LIC during the life
time of the insured.

 It was held that: (S.C. Agrawal and G.B. Pattanaik, JJ)
 Agent did not have the express authority to receive the
payment because of the letter of appointment dated
December 5,1962.
 Agent did not have the implied authority to collect premium
on behalf of LIC due to regulation 8(4) which became a rule
in 1981.
 Mere receipt of the amount of Rs. 2730 by LIC in the name
of insured does not indicate that the amount was received
through respondent 3 and it cannot be said that LIC had
induced the insured to believe that agent was authorised by
LIC therefore doctrine of apparent authority underlying
S.237 can’t be invoked in the facts of the present case.
 However due to the facts of the present case LIC was
directed to refund the entire amount of premium paid along
with the interest.

 Section 186:Agent’s authority may be expressed or implied: The authority of
an agent may be expressed or implied.
 Section 187: Definitions of express and implied authority.—An authority is
said to be express when it is given by words spoken or written. An authority is
said to be implied when it is to be inferred from the circumstances of the case;
and things spoken or written, or the ordinary course of dealing, may be accounted
circumstances of the case.
 Section 188:Extent of agent’s authority: An agent having an authority to do an
act has authority to do every lawful thing which is necessary in order to do such
act. An agent having an authority to carry on a business, has authority to do every
lawful thing necessary for the purpose , or usually done in the course of
conducting such business
 Section 237: Liability of principal inducing belief that agent’s unauthorized
acts were authorized : When an agent has, without authority, done acts or
incurred obligations to third persons on behalf of his principal, the .principal is
bound by such acts or obligations, if he has by his words or conduct induced such
third persons to believe that such acts and obligations were within the scope of
the agent’s authority

Appellant: Hindustan Steel Works
Construction Ltd.
Vs.
Respondent: Tarapore and Co. and another
AIR1996SC2268
In the Supreme Court of India
Hon'ble Judges/Coram:
S.C. Agrawal and G.T. Nanavati, JJ.

FACTS OF THE CASE:
• The HSCL awarded a contract to the contractor (Tarapore and co.) for
construction of civil works in its Visakhapatnam Steel Plant and the formal
contract was signed on 25.10.1984.
• It was a lumpsum contract for which a deadline was set but the contractor
could not finish work on time and extended the deadline.
• On 28.8.1986 some disputes arose and the contractor initiated to solve it
through arbitration and now the dispute was pending before the arbitrators
appointed.
• In August, 1988 by mutual agreement the contract work was reduced and the
contract price was fixed at Rs. 4.5 crores.
• Again, the deadline was extended due to unfinished work.
• Finally, when for the 2nd time the reduced work could not be completed on the
set date, HSCL cancelled the contract on 17.10.1988.

facts continued..
• In between 30.1.84 and 8.12.87, fourteen guarantees had been given by Bank of India in
favour of HSCL at the instance of the Contractor for various objects.
• The bank guarantee held that:
i. HSCL would be indemnified against any loss or damage caused to or suffered by it
by reason of any breach by the contractor of any term and condition of the contract.
ii. HSCL shall be the sole Judge on the question as to whether the contractor has
committed any breach of the contract and what is the extent of loss or damage.
iii. the decision of HSCL in this behalf shall be treated as final and binding on the bank.
iv. bank has undertaken to pay HSCL on demand any amount payable by the contractor
without any demur and protest, without any reference to the contractor and such
demand by HSCL has to be regarded as conclusive and binding on the bank
notwithstanding any difference between the HSCL and the contractor.
• On the day of cancellation of contract HSCL demanded its damages to be paid by the
bank.

CREDITOR
(HSCL)
PRINCIPLE
DEBTOR
(CONTRACTOR
TARAPORE AND CO.)
SURETY
(BANK OF INDIA)

BEFORE THE HC:
• The contractor had approached principle subordinate judge at
Vishakhapatnam contending that since disputes were pending before
the arbitrators HSCL should be restrained from encashing the bank
guarantees but the court on finding that the guarantee was
unconditional refused to grant injuction.
• A revision petition was made before HC with the same prayer.
• The principle observed by the HC was that unless there is fraud or
special circumstances or equities exist, the beneficiary cannot be
restrained from encashing the letter of credit, even if there are disputes
between the beneficiary and the person at whose instance the letter of
credit was given by the Bank. The same principle is extended in regard
to the performance guarantees or performance bonds executed by the
banks in favour of the beneficiaries.

DECISION OF HC:
• The HC searched for special equities or special circumstances.
• It considered the position of law with respect to liquidated damages in
our country and relying upon the decision of Union of India v. Raman
Iron Factory "Hence there cannot be any agreement in regard to the
amount that has to be allowed except the upper limit that can be fixed,
in case of breach“ it held that any term in the agreement that one of the
parties shall be the sole judge to quantify the same has to be held as
invalid.“
• Therefore the liabilities were to be decided by the arbitrators and
HSCL’s contention of being the sole judge was rejected thus
restraining it from encashing the bank guarantee.

ISSUE RAISED IN THE SC:
The petitioner had filed SLP against the Andhra Pradesh high court’s
order of injuction where the issue to be decided was:
Whether High Court was right in restraining the appellant from
enforcing the bank guarantees?

Contentions raised:
• The counsel for the appellant submitted that in the matter of
encashment of a bank guarantee the Court should not as a rule
interfere unless it is a clear case of fraud and is likely to result in
irretrievable injustice.
• The Counsel for the respondents, on the other hand, contended that
though fraud is an established exception to the general rule regarding
interference with the autonomy of irrevocable letter of credit or a bank
guarantee that is not the only exception and the Court can and should
interfere where special circumstances or special equities exist and they
are likely to result in irretrievable injustice.

Judgement:
• The court held bank guarantees were irrevocable obligations assumed by
banks and should be treated as confirmed letter of credits.
• The correct position of law is that commitment of banks must be honoured
free from interference by the courts and it is only in exceptional cases, that
is to say, in case of fraud or in a case where irretrievable injustice would be
done if bank guarantee is allowed to be encashed, the court should interfere.
• That a dispute was pending before the arbitrators to find out the defaulter
and fix the award was not sufficient to be a special circumstance or equity
in the case.
• It was thus held that the HC of Andhra Pradesh was not right in restraining
HSCL from enforcing the bank guarantees till the arbitration as it failed to
observe the real object nature of bank guarantees and overlooked its
position as an independent and distinct contact.

Cases referred:
• Edward Owen v. Barclays Bank International (1978) 1 A.E.R. 976
• Union of India v. Raman Iron Factory MANU/SC/0005/1974 : [1974]3SCR556
• United Commercial Bank v. Bank of India MANU/SC/0003/1981 : [1981]3SCR300
• Centax (India) Ltd. v. Vinmar Impex Inc. MANU/SC/0003/1986 : AIR1986SC1924
• U.P. Cooperative federation Ltd. v. Singh Consultants and Engineers (P) Ltd. [1988] SCC 174.
• Tarapore & Co. v. Tractors Export, Moscow MANU/SC/0215/1968 : [1969]2SCR920
• Jenkins L.J. in Hamzeh Malas and Sons v. British Imex Industries Ltd. [1958] 2 Q.B. 127
• Kerr. J. in R.D. Horbottle (Mercantile) Ltd. v. National Westminster Bank Ltd (1977) 3 W.L.R. 752
• Electric Technical Services Co. Inc. v. Punj Sons (P) Ltd. MANU/SC/0442/1991 : [1991]3SCR412
• Larsen and Toubro Limited v. Maharashtra State Electricity Board MANU/SC/0086/1996 : AIR1996SC334
• Hindustan Steel Workers Construction Ltd. v. G.S. Atwal & Co. (Engineers) Pvt. Ltd. MANU/SC/0030/1996 :
AIR1996SC131
• R.D. Harbottle (Mercantile) Ltd. v. National Westminster Bank Ltd. [1977] 2 All ER 862
• Elian and Rabbath v. Matsas and Matsas [1966] 2 LR 495
• Svenska Handelsbanken v. Indian Charge Chrome MANU/SC/0138/1994 : AIR1994SC626
• Handerson v. Candian Imperial Bank of Commercie and Peat Marwick Ltd., 40 BCLR 318
• Itek Corporation. v. The First National Bank of Boston, 566 Fed Supp 1210

Kush Kanta Barkakati
v.
Chandra Kanta Kakati & Ors.
AIR 1924 CAL 1056

Brief Facts
8th July, 1919: D1 executed an agreement in favour of the plaintiff
30th July 1919: P delivered elephant
15th July, 1919: MoA prepared to be executed between the Company and the plaintiff.
The animal was not re-delivered to the plaintiff on the expiration of the term of hire
It was taken ill on the 18th May, 1920 and died on the 22nd May, 1920.

Overview
Appeal in the Calcutta High Court by Plaintiff (P)
for recovery of price of the elephant and the iron chain provided to the first Defendant (D1)
D o behalf of the third Defe da t D3 hired P’s elepha t for o ths 5th July 1919 – 14th May 1920)
D3 was the officer of the second Defendant D2 (Surma Valley Saw Mills Co. Ltd.)
D1 did not re-deliver the elephant
Elephant died on 22nd May 1920
P seeks to recover from D1, D2, and D3, jointly and severally,
o₹ 5,000 as price of the elephant,
o₹ 45 as price of the iron chain supplied to D1, and
o₹1,654 as hire for seven days from the 15th to the 22nd May, 1920.
The Subordinate Judge dismissed the suit.

Points to discuss
o Whether the plaintiff is entitled to the sum claimed from the defendants or from any of them?
P imputed negligence to the defendants in the use of the animal.
Not borne out by the evidence, and court not prepared to decree the suit on the ground that
the animal had been under-fed and over-worked during the term of hire.
o What are the rights of the plaintiff on proof of the fact that the animal taken on hire was not
re-delivered to him on the expiration of the term on the 14th May, 1920?
Section 160 of the Indian Contract Act "provides that it is the duty of the bailee; to return or
deliver according to the bailor's directions, the goods bailed, without demand, as soon as the
time for which they were bailed has expired, or the purpose for which they were bailed has
been accomplished.
Section 161 provides that if, to the default of the bailee, the goods are not returned, delivered
or tendered at the proper time, he is responsible to the bailor for any loss, destruction or
deterioration of the goods from that time.

Held,
The bailee D1 and D3 were considered liable
Contract between D1 and P
D3 agreed upon hiring D1 to enter the transaction on his behalf
Need not consequently examine how far impossibility which arises subsequently to the formation of a contract excuses
performance
In any event, this is not a case where the Court will imply a term whereby the contract was intended to be discharged through
impossibility of performance.
The defendant should have, in advance, completed arrangements to fulfil the agreement to re-deliver the elephant to the
plaintiff on the expiry of the term of hire on the 14th May, 1920, but there is no evidence to show that he even made an attempt
in that behalf.
The case is covered by Section 161 of the Indian Contract Act and the plaintiff is entitled to recover the price of the elephant as
also the hire from the 16th May to the 22nd May, 1920, as he appears to have been paid the hire up to the 15th May, 1920.
Where the bailee has been guilty of a conversion of the bailed property either by a user of it in a different manner or for a
different purpose from that agreed upon or by failure to re-deliver it or to deliver it over in accordance with the terms of the
contract, the bailor may sue him in trover. {Loeschman v. Machin}

 D2 was not held liable
 Company refused to execute the document to the knowledge of the plaintiff.
 P was entitled to no relief as against the second defendant
 The appeal was allowed and the decree of the Subordinate Judge was set aside, except as
against the second defendant.

Cases Referred:
Loeschman v. Machin (1818) 2 Srtark 311
Bryant v. Wardell (1848) 2 Exch. 479
Fenn v. Bittleston (1851) 7 Ex. 152
Cooper v. Willomat (1845) 1 C.B. 672. C.J.
Mills v. Graham (1804) 1 Bos. & P. 140.
Grant Smith v. Seattle (1920) A.C. 162.
Taimplin Steamship Co. v. Anglo Mexican Petroleum Co. (1916) A.C. 397
Redmond v. Dainton (1920) 2 K.B. 256
Matthey v. Curling (1922) 2 A.C. 180
Bank Line, Ld. v. Capel & Co. (1919) A.C. 435
Metropolitan Water Board v. Dick (1918) A.C. 119
Horlock v. Beal (1916) 1 A.C. 486.

Kush Kanta Barkakati
vs. Chandra Kanta
Kakati and Ors.
AIR 1924 Cal 1056

Facts of the case:
 The first defendant hired the Plaintiff’s elephant for
10 months, promising to pay hire.
 There was a written agreement between them.
 The Defendant made the Plaintiff competent to
recover the hire and the price of the elephant in
case of a breach of contract.
 Subsequently, a contract was made but was
never executed.

 However, the Plaintiff delivered the
elephant to the Defendant and was
employed to carry timber for the
company.
 The animal was not re-delivered on the
expiration of the term and later died after
a few days of the expiration of term.

Issues raised:
Whether the Plaintiff is
entitled to the sum claimed
from the Defendants or any
of them?

Sections Used:
Section 160 of the Indian
Contract Act.
Section 161 of the Indian
Contract Act.

Contention of the
Plaintiff:
Recovery of the price and
hire of the elephant and
also the cost of an iron
chain, either jointly or
severally.

Contentions of the
Defendant:
 The reason for non-delivery is that the
driver was ill and that it was a festive
season, hence, it was difficult to arrange
for a driver.
 That neither the first nor the third
defendant is liable. The liability, if any,
rests upon the second defendant.

Judgement:
It was held that:
 We need not examine the impossibility of
the performance of contract.
 The rule adopted here will be that proof of
loss or injury establishes a prima facie
case against the bailee.

 It is beyond controversy that the first and
third defendants are both liable. Bacon’s
Abridgement is applicable here.
 The second defendant cannot be held
liable as there was no contract between
the plaintiff and the Company.

 The allegation of the iron chain has not
been satisfactorily established. Hence,
that portion of the claim must be
disallowed.

Cases Referred:
 Mackenzie v. Cox
 Reeve v. Palmer
 Philips v. New Claridge Hotel
 Bullen v. Swan
 Coldman v. Hill

LONDON GENERAL OMNIBUS
COMPANY ,LIMITED
V.
HOLLOWAY
11 MARCH 1912
[1912] 2 K.B. 72

FACTS OF THE CASE
 In 1903, Lee was employed by the plaintiff as
a clerk .
 Plaintiff always took a bond from the
employee and a surety to secure the fidelity of
the employee.
 Due to some circumstances, no such bond was
taken at the time of Lee’s appointment.
 In 1905, it was discovered that Lee had
misappropriated some money received by him
on the behalf of the plaintiff.

 The amount misappropriated was made good
by some relatives of Lee other than the
defendant.
 Plaintiff demanded a bond and a surety to
secure the honest discharge of duties by lee as
a condition for renewal of employment.
 Defendant who was a relative of Lee agreed to
become surety and be liable for the honest
discharge of duties by Lee.
 The bond was given in in 1905 and the
defendant was not informed about the
previous misconduct of Lee.

 In 1909, it was discovered that Lee again
misappropriated the money receieved by him
on the behalf of the company.
 The Plaintiffs brought their action against the
defendant to execute the bond in respect of
the amount so misappropriated.
 The trial was conducted in the court of the
Lord Alverstone C.J. , who gave the judgment
in the favour of the defendant.
 The present case was filed in the court of
appeal against the judgment of Lord Chief
Justice.

ISSUE
Whether the non disclosure of a material fact
to the surety by the creditor without any
fraudulent intention will be a sufficient
ground for the surety to avoid the contract?

CONTENTIONS BY PLAINTIFF
 Both the parties being on equal footing, mere
non disclosure of material fact without fraud
is no ground for avoiding the contract.
 Lord Chief Justice has distinctly found that
there was no mala fide intention on the part
of the plaintiff and even the defendants
agreed to it.
 If non disclosure was equivalent to an implied
representation that Lee was honest, it should
be proved that this implied representation
induced the other party to enter into the
contract of suretyship.

JUDGMENT
 The court of appeal affirmed the judgment
given by Lord Chief Justice.
 The issue at hand was treated as a question of
law and not a question of fact as contended by
the plaintiff.
 The 3 judge bench gave different opinions.

1. VAUGHAN WILLIAMS L.J.
 The non disclosed information was
inconsistent with the presumed basis of
suretyship as surety was not informed about
the previous defalcation of the clerk for whose
conduct the security was given.
 It was an undue concealment as a wrong
implication was given to the surety.
 The bond cannot be enforced as the non
disclosure by him of the fact that the clerk
had been guilty of defalcations in their service
before the bond was executed constituted an
implied representation of him being not guilty
of such dishonesty.

2. FARWELL L.J.
 In the court of equity, it is not necessary to
prove the malafide intention and innocent
misrepresentation is sufficient to grant relief
to surety.
 The injury caused to the surety is same
irrespective of the fact that it was caused due
to fraud or forgetfulness.
 The bond can’t be enforced as surety was not
informed about the thing which he was asked
to guarantee.

3. KENNEDY L.J.
 The honesty of the clerk in the given case was an
intrinsic circumstance i.e. forming the very
ingredients of the contract.
 The peculiar relation of the contract of guarantee
makes the disclosure of information justified so
as to protect the rights of the surety.
 Thus in this action against surety for the
misconduct of the plaintiff’s employee can’t be
upheld as the non disclosure of previous
misconduct without any fraudulent intention can
be a sufficient ground for surety to avoid the
contract.
Appeal Dismissed

SIMILAR PROVISIONS IN
INDIAN LAW
 The principle given in the judgment is also
present in the Indian Contract Act, 1872
1. Section- 142 which states that guarantee
obtained by misrepresentation is invalid .
2. Section- 143 which gives that guarantee
obtained by concealment of material
circumstances is invalid.

London General Omnibus Company,
Limited
v
Holloway
In The Court of Appeal
11 March 1912
Vaughan Williams L.J. , Farwell L.J. and Kennedy L.J.

Facts of
the Case
• Mr Lee
Employee
• London
Omnibus
Company
Employer
• Mr
Holloway
Surety

In 1903 Lee entered into the service of the
plaintiff as a clerk.
Lee was to require a bond by the surety to secure
the fidelity of his employment
In the case of Lee by some accident no such bond
was required upon his entering the plaintiffs'
service.
In 1905 it was discovered by the plaintiffs that
Lee had misappropriated money received by him
on the plaintiffs' behalf to the extent of 29l.

The sum so misappropriated was made good by some relatives
of Lee other than the Defendant
As a condition of retaining Lee in their service, the plaintiffs
subsequently required a bond by himself and a surety to secure
the honest and faithful discharge by him.
Lee accordingly procured the signature by the defendant, who
was a relative of his and signed a bond by way of security for the
honest and faithful discharge by Lee of his duties.
Lee and the defendant became bound jointly and severally to
the plaintiffs to the amount of 200l

The plaintiffs did not, before the bond was given, inform
the defendant of Lee's previous defalcations,
And the defendant was unaware about it, when he signed
the bond.
In 1909 it was discovered that Lee had subsequently
misappropriated money received by him on behalf of the
company to the extent of at least 100l.
The Plaintiffs brought their action upon the bond against
the defendant in respect of the amount so
misappropriated.

Issues
Avoidance of Contract of Suretyship
Nondisclosure to Surety of previous Dishonesty of
Servant
Implied Representation as to Honesty of Servant
Undue Concealment of Fact

Trial Before Chief Justice and Jury
Judgement
The Lord Chief Justice on further consideration found
that the nondisclosure by the plaintiffs to the
defendant of the defalcations of Lee before the
defendant entered into the bond was not fraudulent,
but held that, upon the authorities, without fraud on the
plaintiffs' part, the nondisclosure of Lee's previous dishonesty by
the plaintiffs constituted a good defence to the action on the
bond. He therefore gave judgment for the defendant as the
material fact was concealed from surety

Arguments of Plaintiff
The general rule of English law is that mere nondisclosure of a
material fact without fraud is no ground for avoiding the contract
From this rule contracts of insurance form an exception
It has been said that this is because such contracts are uberrimæ
fidei,
It has never been laid down that such an implication arises in the
case of a contract of suretyship
Here the Lord Chief Justice has distinctly found that there was no
fraud or mala fides on the part of the plaintiffs.

Further It has been laid down in many cases that the doctrine with regard to
concealment of a material fact which is applicable to marine insurance
casesdoes not apply to the contract of suretyship as held in case of North
British I sura e Co. . Lloyd 1 ; Lee . Jo es .
Where as the judgments in Smith v. Bank of Scotland and Railton v. Mathews
seem to support, the view that for the purpose of avoiding a contract of
suretyship the concealment of a material fact must be fraudulent.
In Phillips v. Foxall Blackburn J. still adhered to the opinion expressed by him in
Lee v. Jones that the concealment of the fact that the servant whose fidelity
was guaranteed had been guilty of dishonesty would be evidence of fraud, but
he declined to go further and say that, in the absence of fraud, such a
concealment would avoid the contract of suretyship.

Judgement of Appeal
Justice VAUGHAN WILLIAMS
Would the surety have entered into this contract of
suretyship if the nondisclosed fact had been disclosed to
him?
And whether the non disclosure of material fact be
inconsistent with the presumption
In Hamilton v. Watson Lord Campbell said in the case of bank
security for overdrafting account unless questions be
particularly put by the surety to gain this information, it is
quite unnecessary for the creditor, to whom the suretyship is
to be given, to make any such disclosure

In the case of Railton v. Mathews
In that case the scotish court held that the concealment to be undue
must be wilful and intentional, with a view to the advantage the
employers were thereby to gain.
The House of Lords held that the direction was wrong in point of law,
and that mere Noncommunication of circumstances affecting the
situation of the parties, material for the surety to be acquainted
with, and within the knowledge of the person taking the surety
bond, is undue concealment, though not wilful or intentional, or
with a view to any advantage to himself.

Lord Ca p ell said, If the defe ders had fa ts ithi
their knowledge which it was material the surety should
be acquainted with, and which the defenders did not
disclose, in my opinion the concealment of those facts,
the undue concealment of those facts, discharges the
surety
it was material to the surety that they should be
communicated, the motive for withholding them, I
apprehend, is wholly immaterial and hence mere non
disclosure is enough for surety to get away from liablity.
The appeal therefore fails and must be dismissed.

Justice Farewell
in a case like the present fraud was not necessary
to entitle the surety to relief in equity. Innocent
misrepresentation is sufficient, and, although the
doctrine by which uberrima fides is required in
insurance cases is not applicable to the same
extent in suretyship cases, still the surety is
entitled to relief on the ground of nondisclosure Of
matters which ought to have been communicated
to him, whether the noncommunication was or
was not innocent. Example of overdrafting surety
Appeal must be Dismissed.

Justice Kennedy
He also agreed with the Chief Justice and other Judges,
But he further went on discussing Intrinsic and Extrinsic
circumstance of case
In Railton v. Mathews and in the present case, the honesty of the
servant, which is the subjectmatter of the suretyship bond, is
plai ly a i tri si ir u sta e;
On the other hand, in the case of the suretyship or guarantee of a
financial account, the previous pecuniary dealings between the
creditor and the person whose future liability the surety is invited
to secure constitute only extrinsic circumstances

The decisions in Hamilton v. Watson and in
the other cases where the guarantee was
of a different character are not in point.
The law as laid down by the House of Lords
in Railton v. Mathews applies in this case
The judgment, therefore, of the Lord Chief
Justice was perfectly right, and this appeal
should be dismissed.

Mahanth Singh(Appellants)
Vs
U Ba Yi (Respondent)

FACTS OF THE CASE
The plaintiff who is a building contractor was employed by four
trustees of a pagoda. The terms of employment were stated in a
written agreement and was made between the board of pagoda and
the appellant.
It was signed by the appellant and each of the trustees.
The respondent was the trustee of the estate of a lady.
He was not a party to the contract but had orally guaranteed its due
performance by the trustees(in Burma oral guarantees are binding)
The appellant fulfilled his contract and some amount was due to him.

TRIAL COURT JUDGEMENT
1) By his prayer the plaintiff asked for relief against each of
the defendants personally and against the respondent in
particular as the trustee of Daw Dwe's trust. The sum
awarded by the learned trial Judge was obviously due
from the respondent and from the trustees personally.
2) The appellant was not satisfied by the amount declared
by the trial court and wanted the original sum.
3) He appealed before the High Court.

HIGH COURT JUDGEMENT
1) The appellant seems to have thought that his remedy was not against the named trustees but
against any one who might from time to time be trustee of the pagoda.
2) The four trustees were removed from their position as trustees of the pagoda, and eight
others were appointed in their place. The appellant thereupon made an interlocutory
application asking originally to add the eight new trustees as defendants, and ultimately to
substitute the new trustees in place of the old. The application was granted on June 20,
1935, and thereupon the names of the four original trustees were struck out and those of the
new trustees inserted in their place.
3) The learned trial Judge suggested that the liability of the original trustees was a personal
one and that no liability attached to the new trustees. Thereupon the appellant on March 24,
1936, applied to replace the names of three out of the four original trustees (the other
having died) as defendants. To this application the trial Judge refused to accede. He held
that he had jurisdiction to grant it under Order I, Rule 10, and Order VI, Rule 16 ( Rule 17),
of the Code of Civil Procedure.
4) The eight trustee defendants were, he thought, entitled to have their case disposed of, more
particularly as in his view the appellant would probably be able to pursue his remedies
against the original trustees in another suit, though to do so might expose him to a liability
for some extra costs. The claim against the new trustees was dismissed and the respondent
found liable as guarantor.

1)The respondent appealed to an appellate bench and in that appeal for the
first time put forward the contention that the learned Judge erred in law in
holding him liable. His liability, it was suggested, should have been held to
be discharged by the act of the present appellant in foregoing his claim
against the original trustees. The learned Judges of the appellate bench
whilst rejecting all the other grounds of appeal held that this contention was
well founded, allowed the appeal and condemned the appellant in costs.

LAWS USED BY THE RESPONDANT TO SUPPORT HIS CASE:
At any time after the institution of a suit the plaintiff may, as against all or any of the
defendants, withdraw his suit ox abandon part of his claim.
(2) Where the Court is satisfied-
(a) that a suit must fail by reason of some formal defect, or
(b) that there are other sufficient grounds for allowing the plaintiff to institute a fresh suit
for the subject-matter of a suit or part of a claim, it may, on such terms as it thinks fit,
grant the plaintiff permission to withdraw from such suit or abandon such part of a claim
with liberty to institute a fresh suit in respect of the subject-matter of such suit or such part
of a claim.
(3) Where the plaintiff withdraws from a suit, or abandons part of a claim, without the
permission referred to in Sub-rule (2), he shall be liable for such costs as the Court may
award and shall be precluded from instituting any fresh suit in respect of such subject-
matter or such part of the claim.

2. (g) An agreement not enforceable by law is said to be void.
2. (j) A contract which ceases to be enforceable by law becomes void when it
ceases to be enforceable.
134. The surety is discharged by any contract between the creditor and the
principal debtor, by which the principal debtor is released, or by any act or
omission of the creditor, the legal consequence of which is the discharge of the
principal debtor.
139. If the creditor does any act which is inconsistent with the rights of the
surety, or omits to do any act which his duty to the surety requires him to do,
and the eventual remedy of the surety himself against the principal debtor is
thereby impaired, the surety is discharged.

ISSUES RAISED:
Only one issue was raised in this case will the
surety or the guarantor be discharged if
principal debtor is replaced?

JUDGEMENT GIVEN BY THE PRIVY COUNCIL
1)In the present case, the only result of striking out the original
trustees from the action is to preclude the bringing by the appellant
of a fresh suit in respect of the subject-matter against them, and is
not to release or discharge the principal debt, then the debt remains
a debt though the creditor by reason of a rule of procedure cannot
himself bring an action upon it. In such circumstances there is
nothing in the section to discharge the liability of the surety.
2)For these reasons their Lordships held that the respondent has
not been relieved of his liability under the guarantee.
3) The respondent must pay the appellant's costs of the appeal
before the appellate Court and before their Lordships' Board.

IN THE HIGH COURT OF ANDHRA PRADESH

 Counsels:
 For Appellant: Jaleel Ahmed, Adv.
 For Respondents: Y. Sivarmasastry, Adv.

 The case was an appeal from an judgement
given by the City Civil Court, Hyderabad.
 Commercial and Industrial bank instituted a
suit for the recovery of Rs. 61,853-3-10 against
the 1st defendant and the legal representatives
of Mir Iftikhar Ali Baquri alleging that the two
brothers had opened a current account with the
bank and withdrew money whenever
necessary.
 They obtained Rs. 1615-6-2 on 9.9.1947 and
agreed to pay Re. 1 per month per Rs. 100, on
the amount overdrawn by them.

 Both the brothers had confirmed the balance
which was due on 9.9.1947
 On taking account from the date of opening to
31.12.1948 it was found that a sum of Rs. 61883-
10 was due.
 The 1st defendant’s brother died in June, 1948
and one of his sons admitted the debt and
promised to repay the same on 4.1.1949.
 It was therefore prayed that a decree for the
same sum be passed in the favour of the bank
against the 1st defendant and against the assets
of his brother in the hands of his wife and two
sons.

 The 1st defendant denied to have opened any
joint account with the plaintiff and contented
that he has no connection with the transactions
of his brother whatsoever but admitted that his
brother had withdrawn the amount.
 He had also signed the receipt dated 9.9.1947 .
 He contended that the suit was time barred and
denied any liability to pay the amount.
 The sons of the deceased pleaded ignorance
about the transactions and stated the letter
dated 4.1.1947 was false.

 Whether or not the 1st defendant and his
brother had opened a joint account and
withdrawn the said amount? Also, whether
they admitted in writing the dues against them
as alleged?
 Whether or not any contract of interest at the
rate of Re.1 per month per Rs.100 existed or
not?
 Whether or not one of the sons of the deceased,
defendant no. 3 admitted the debt in his
writing dated January 4, 1949?

 Whether or not the writing regarding the
confirmation of the balance added without
knowledge of the defendants after his
signature, if so what its effect?
 Whether or not the suit was time barred by
limitation?
 Whether or not the suit was maintainable
against the defendant No. 1 as he was a
Military servant?
 To what relief was the plaintiff entitled?

 On examining the bank’s accounts, the learned Second
Judge held that Mir Iftikhar Ali Khan and Mir Niyamath Ali
Khan must be held to have entered into a contract with the
plaintiff-Bank for the overdraft current account and they
were jointly and severally liable for payment of the balance
of the same. Issue No. 1 was therefore, decided in favour of
the plaintiff.
 This was enough to dispose of the question regarding the
liability of the 1st defendant. But the Court had also held the
1st defendant liable on the ground that he has executed the
two collateral securities in the form of promissory notes in
favour of the Bank.
 It is also pertinent to note that the 1st defendant or any other
party did not suggest at any stage of the suit that an issue
should be framed in that behalf nor at any time did any one
of them object regarding the introduction of the question of
collateral security and contended that it was outside the
scope of the inquiry in the suit.

 That the plaintiff could have asked such an alternative
relief is not doubted. The question , however, is
whether in the absence of any such alternative case in
the plaint was it open to the Court to give the plaintiff
on a chase for which there was no foundation laid in
the pleadings and which the defendant was not called
upon to meet.
 It was held that there would be nothing improper in
giving the plaintiff decree upon such alternative claim.
It could not be regarded that the defendant was taken
by surprise in circumstances where no injustice can
possibly result to the 1st defendant.

 Raja Mohan Manucha vs. Manzoor Ahmed
Khan
 Firm Srinivas Ram Kumar vs. Mahabit Prasad
 Vishram Arjun vs. Shankariah

 It was further contended by the 1st defendant that
the two promissory notes executed as collateral
securities were void because they had no
consideration.
 The contention was that the debt was already due
to the Bank and that if the 1st defendant joined in
the execution of collateral securities on a date
subsequent thereto, such a security bound would
not be deemed to have any consideration within
the meaning of Section 127 of the Indian Contract
Act.
 Section 127 of the Indian Contract Act says that
“Any thing done, or any promise made, for the
benefit of the principal debtor may be a sufficient
consideration to the surety for giving the
guarantee."

 Like any other contract, a contract of guarantee must
be supported by consideration. It is however, not
necessary that the consideration should flow from the
creditor and be received by the surety. Consideration
between the creditor and the principal debtor is a valid
and good consideration for the guarantee given by the
surety.
 There was considerable conflict of opinion as to
whether or not past consideration can be a good
consideration for a contract of guarantee.
 On examining a statement of Current Overdraft
Account of the 1st defendant and his brother, it was
rejected by the Court that the two promissory notes
executed as collateral securities were void because they
were executed for past consideration.

 As far as the 2nd issue is concerned, it was found
by the learned judges that they had agreed to pay
interest at the rate of Re.1 per month per Rs.100.
 It was further found that the 3rd defendant was
not personally liable to pay the amount. Issue 3
therefore, was found against the plaintiff.
 In regard to issue 4, it was found that the writing
regarding the confirmation of balance was not
forged. The 1st defendant failed to prove that the
words alleged by him were added subsequent to
the signature of the 1st defendant and his brother.
The fourth issue, therefore, was found against the
defendants.

 Another issue that was discussed elaborately was in
regard to the limitation. It was held that the suit was
within time limit due to two reasons.
 Firstly because of the acknowledgment executed by the
1st defendant and his brother on 9-9-1947 and his
contention that the last words were added subsequent
to his signature or that they were forgery was not
proved. When once it was found, that the
acknowledgement was true valid and genuine, no
question of limitation could arise further.
 Secondly, it was held that the nature of the attracted
Art. 85 of the Indian Limitation Act. The two
promissory notes which were executed by the 1st
defendant and his brother by way of security for
overdraft unmistakably point out that the overdrawing
of the amount was not merely accidental but it was an
understanding between the parties that the defendants
would be at liberty to borrow money from the plaintiff-
Bank for the purpose of their own business by
overdrawing on their account.

 Article 85 of the Limitation Act having been
held applicable, the limitation would be three
years to be reckoned from the close of the year
in which the last item admitted or proved is
entered in the account.
 Reckoned from that point of view, the suit
would obviously be within time.
 For all these reasons stated, the Court did not
find any merit in the appeal and the appeal
was dismissed with costs.

 DEFENDANT- APPLICANT: Mir Niyamath Ali Khan
 PLAINTIFF- RESPONDENT: Commercial and
Industrial Bank Ltd. And Ors.

 An appeal case from the judgement of City Civil Court,
Hyderabad.
 The respondent plaintiff which is the Commercial and
Industrial Bank Ltd. Filed a case against the defendants
for the recovery of a certain amount.
 The defendants include A who is the brother of Mir
Iftikhar Ali and B,C,D who are legal representatives of
the same.

 Mr. A along with his brother Mir Iftikhar opened a
current account in the plaintiff bank in 1945. Both of
them used to draw and deposit amount in this account.
In the process, they obtained a certain amount under
this account.
 Mr. A and his brother had agreed to pay an interest of
Re. 1 per month per Rs. 100 as interest.
 The plaintiff claimed that taking the relevant dates into
account and the sum obtained, an amount 61,885 was
due on Mr. A and his brother.

 Mr. A and his brother had earlier confirmed that this
amount was due to the bank by giving promissory notes
to the bank as a security.
 Mr. A claims that this promissory note is forged and the
confirmation of balance was added after his signature.
 Mr. A’s brother died in June 1948.
 Mr. C who was Mir Iftikhar’s son accepted this debt
and agreed to pay it.

 If Mr. A along with his brother opened a joint current
account and agreed to the amount due against them.
 If there was a contract of interest at Re.1 per month per
Rs. 100.
 If Mr. C agreed to pay the debt due against his father.
 If the receipt of the balance has been added without the
knowledge of the defendant after their signature.

 If the suit is time barred.
 If the suit is valid against Mr. A as he is a military
servant.
 What must be the relief given to the plaintiff.

 In relation to issue 1, it was found that Mr A and his
brother did open a joint current account by looking at
the relevant documents. The Higher Court agreed to
this after looking at the account details produced by the
manager.
 It was held that the interest at the rate of 1% was also
due by looking at the same account details and
documents.

 Also in relation to issue 1,the lower court held that Mr.
A agreed to pay off the debt as the promissory notes
signed by him along with his brother and this made him
a surety.
 In reply to this, the applicant- defendant contended that
this argument was not mentioned in the suit filed by the
plaintiff- respondent.

 The lower court however, held that since the
promissory notes being produced as evidence is no
surprise to the defendant- applicant, a judgement can be
given based on the same.
 The Higher Court agreed to the same and made Mr. A
liable as both- a joint account holder and a surety.
 Issue 3 was decided by the lower court against the
plaintiff and the court said that Mr. C, the son of the
deceased was not liable to pay the debts of his father.

 A major contention in the appeal was that the
promissory notes cannot be treated as securities as they
lacked consideration. The reason was that Mr. A joined
as a security after the debt was due thus making it
without any consideration.
 The two relevant sections in this regard are section 126
and 127 of the Indian Contract Act, 1872.

 Section 126: “Contract of guarantee”, “surety”, “principal
debtor” and “creditor”-
 A contract of guarantee is a contract to perform of the
promise, or discharge the liability, of a third person in
case of this default. The person who gives the
guarantee is called the "Surety” the person in respect
of whose default the guarantee is given is called the
`principal debtor' and the person to whom the
guarantee is given is called the `creditor'. A guarantee
may be either oral or written.

 Section 127: Consideration for guarantee-
Anything done, or any promise made, for the benefit of
the principal debtor, may be a sufficient consideration
to the surety for giving the guarantee.

 A contract of guarantee requires a consideration.
However, it is not necessary that the consideration
should flow from the creditor to the surety. The
consideration can also flow from the creditor to the
debtor. (Past Consideration)
 In the present case, the court said that the concept of
past consideration was not relevant since this was a
case of simultaneous or executory consideration. Thus
the contention was rejected.

 The question of limitation was also decided in favour
of the plaintiff-respondent.
 The court said that since the second promissory note
submitted in 1947 was not forged (they were written
with the same ink), the suit cannot be time barred.

 The reason for this is that the case falls within the
ambit of Article 85 of the limitation Act which states
that limitation would be three years to be reckoned
from the close of the year in which the last item
admitted or proved is entered in the account. Such year
has to be computed as in the account.
 The court held that since the account in the present case
was current and overdraft, it had an element of
reciprocity of dealings and therefore, Article 85 will be
applicable.

 The last entry in the account was the second
promissory note in September, 1947 and the case was
instituted in September, 1950.
 Therefore, it was held to be within the limitation
period.

M.S ANIRUNDHAN
VS
The Thomco’s Bank limited
AIR1962SC0042

Parties to the suit
• V.Sankaran-Principal debtor
• M.S Anirudhan-Appellant
• The Tho o’s Bank limited-Respondent

Supreme court bench
• J.L Kapur,J
• A.k Sarkar,J
• M.Hidyatullah,J

Ratio decendi
• The bench by the majority of 2:1 gave the
decision that the surety is liable to the cost
amounting to rupees 20,000

Section involved
• Section 133 of the Indian Contract act,1872
• It says,any variance made without the surety
consent,in terms of the contract between the
principle debtor and the creditor,discharges
the surety as to the transaction subsequent to
the the variance

Facts of the case
• The principal debtor executed a promissory note
in favour of the bank on 24th February 1947
• Also a letter of guarantee was signed by the
appellant that in case the debtor fails to repay
the amount the surety will be liable to the cost
amounting to rupees 20,000.
• The words written as to the amount bore two
correction as it appeared that rupees 25,000 has
ee altered to 20,000 a d i ords also t e ty
fi e thousa d as ha ged to t e ty
thousa d o ly

Facts
• It was contended by the appellant that he only
executed a guarantee of rupees 5,000 which
was altered by the principle debtor as rupees
20,000.This was however dismissed by the
trial court and the trial court gave a verdict
that the contact of guarantee was for rupees
25,000 which was changed to 20,000 but since
the consent of the surety was not taken and
also there was no material alteration hence
the surety was not liable

Facts
• The High court however overturned this
decision by applying the principle that there
was implied consent of the appellant and the
surety was liable to pay the cost
• Aggrieved by this the appellant moved to the
Supreme court

Judgement
• The judgement is divided and all the judges
expressed their opinion and tried to interpret the
meaning of Section-133 of Indian Contract
Act,1872
• According to J.L Kapur,J said that since the surety
himself gave the letter to the principal debtor it
means that he gives the consent to the alteration
which may be made by the principal debtor and
so principal debtor is acting as a agent of the
surety,hence the surety is liable

Judgement
• However A.K Sarkar,J has a different
opinion,he said that since there was no
authorisation on the part of appellant so it can
be said that there was no consent to the
altered terms hence there does not arise any
possibility of contract between the surety and
a k he e the surety a ’t e held lia le

Judgement
• But M.Hidyatullah agreed to the opinion of
Justice kapur by saying that the alteration
made in the contract was immaterial and
unsubstantial as if it is seen that it is for the
benefit of the surety,then the surety wont be
discharged and will be liable and also agreed
to the agency principle given by Justice Kapur

Conclusion
• The Judgement was a bit criticised for not
applying the principle of Section 133 and using
common law since the said section talks about
continuing guarantee and not specific guarantee
but still this judgement is used a precedent as this
case actually made the interpretation of the
section and also gave the Indian authority that if
any alteration in terms of guarantee which is not
material and for the benefit of surety will not
make the surety discharged from his liabilty

RAM NARAIN
V
Lt. Col. HARI SINGH
And Anr.

FACTS OF THE CASE
 The plaintiff started money dealings with Hari Singh who
was a tenant of the Lt. Col. The latter undertook the
responsibility of paying if any of the dues of Hari Singh
remained unpaid.
 The transactions between the plaintiff and Hari Singh
were settled and cleared off and Hari Singh executed an
entry in the account book of the plaintiff for having
received a sum of Rs. 7500/- on 18-12-1953. The Lt. Col.
also signed this entry thereafter.

 A credit was given in this Khata for about Rs. 1298 from some
separate account of the It. Col. and also including some other
dues the total claim made by the plaintiff came to Rs. 9058/-
inclusive of interest at the rate of Rs. 1/4/- per cent per mensem.
 Hari Singh denied having executed entry and Lt. Col.
repudiated claim of Plaintiff and denied of undertaken
responsibility for re-payment of alleged loan.
The Civil Judge, Suratgarh passed a decree for the principal
amount of Rs. 6204.62nP. against Hari Singh and the Lt. Col. but
dismissed the suit in respect of other claims.

 Lt. Col. preferred appeal in the Lower Appellate Court where it
was held that no cash consideration was passed between parties
at time of execution of entry in account book and Lt. Col. as
surety was not liable.
 Aggrieved against this judgment and decree the plaintiff has
moved for the second appeal.

ISSUES OF THE CASE
 Whether the contract of guarantee entered into by the
Lt. Col. as evidenced by the Entry(executed on 18-12-
1953) is supported by consideration?
 Whether the appellant's claim for interest ought to have
been decreed?

CONTENTIONS OF THE PLAINTIFF
 Entry dated 18-12-1953 admittedly bears the signature of
the Lt. Col. whereby he had undertaken the responsibility
of repaying the loan. This loan had for its consideration
the earlier dealings between the parties.
 In view of the previous dealings between the parties the
appellant is entitled to interest at the rate of Rs. 1/4/- per
cent per mensem and the courts below were in error in
not awarding the same to the plaintiff.

CONTENTIONS OF THE
DEFENDANT
 Lack of consideration for Lt. Col.’s suretyship as No
consideration qua Hari Singh passed from the plaintiff at
the time of execution of the entry nor was anything done
for his benefit on that day
 Hari Singh admitted the existence of the previous
accounts between him and the plaintiff and pleaded
that it was settled and cleared. He denied having
executed the entry in the sum of Rs. 7500/- and
contended that he had never borrowed this amount.

JUDGEMENT
CASES REFFERED
 Nanak Ram v. Mehin Lal ILR 1 All 487
 Kali Charan v. Abdul Rahman AIR 1918 PC 226
 Chakhan Lal v. Kanhaiya Lal MANU/UP/0225/1928
 Ghulam Husain Khan v. Faiyaz Ali Khan,
MANU/OU/0050/1940

Held:
 No consideration qua Hari Singh passed from the plaintiff at the
time of execution of Ex. 2 nor was anything done for his benefit
on that day. The contract of guarantee, therefore held to be
the one without consideration.
 Claim for interest against Hari Singh is not maintainable because
existence of contract for payment of interest based on oral
evidence is question of fact disbelieved by Trial Court and
rejected by Lower Appellate Court.
 Surety does not exist due to lack of consideration. Thus, no
question of interest arises in case of Lt. Col. This is also not
available because the liability of the surety is co-extensive with
that of the principal debtor.

CASES CITING THIS CASE
 Poysha Oxygen Private Limited; Goyal Mg Gases Private
Limited v Ashwini Suri and Others
2009 Indlaw DEL 3039, 2009 (Supp3) ILR(Del) 223
 Union of India v Avinash P. Bhonsle
1991 Indlaw MUM 5863, 1991 (3) Bom.C.R. 735, [1993] 76
Comp Cas 326, 1991 MahLJ 1004

Under Hon’ble judges-
S. Ranganathan, V. Ramaswami and
Yogeshwar Dayal, JJ

PARTIES IN THIS CASE
 The State Bank of India is appellant in this case (creditor).
 There are four respondents- Respondent 1 is the firm itself
(principle debtor), Respondent 2 is the partner of the firm,
Sri Janeswar Kumar Jain, Respondent 3 is Sri Ajay Kishan
Mehta (deceased) and Respondent 4 is Sri Ram Kishan
(father of Respondent 3) who is also the guarantor in the
present case.

FACTS OF THE CASE
 SBI, the appellant in this case issued a packing credit facility to Indexport
to an extent of Rs. 1,00,000.
 The deed of guarantee was executed by the guarantor, Ram Kishan.
 On the failure of payment, appellant files a suit against the respondents
for a money decree of Rs. 33705.22 which is passed in the appellant’s
favour. The appellant also receives preliminary decree that of executing
personal decree, if required.
 The decree gets transferred to Delhi and on receiving a notification,
respondent 4 objects on which ADJ, Delhi favours the respondent and
decides in his favour.
 SBI, the decree holder, filed a revision petition in the High court against
this decision where the HC decides aligning with the ADJ, Delhi’s
opinion.
 The appellant moved to the Supreme Court against the decision of the
High Court.

PREVIOUS DECISIONS
 The ADJ, Delhi decided that the it is a composite decree, personally against
the principal debtor and the guarantor and also against the mortgaged
property therefore the appellant should have moved first against the
mortgaged property and since it failed to do this, its right of executing the
decree against the guarantor does not lie.
 The appellant moved to the High Court and filed the revision petition where
similar decision was taken and the petition was dismissed.
 While deciding, both the times, Union Bank of India v. Manku Narayan was
taken into consideration.

ISSUES OF THE CASE
 Whether the mortgage decree is executable after the
money decree?
 Whether the decree is jointly and severally against all
the defendants including the guarantor?

APPELLANT’S CONTENTIONS
 The very object of the guarantee is dejected if the creditor is asked to
postpone his remedies against the surety therefore guarantor can not ask the
SBI to execute the mortgage decree earlier.
 It is valid to execute a decree against the guarantor before any of the
respondents since it is a right of SBI to proceed against any of the parties in
the present case.

DEFENDANT’S CONTENTIONS
 Depending upon the case, UBI v. Manku Narayan, it was said that being a
composite decree, the mortgage decree had to be executed first and if the
balance remains, the personal decrees will be executed, thereafter.
 Without the execution of the mortgage decree, if any personal decree is in
existence and getting executed then it would not lie in any case because
execution of the mortgage decree is important.

HELD
 It is entirely into the discretion of SBI as to which decree it would execute
first as there is absence of any legal principles allowing the execution of the
mortgage decree earlier.
 ‘Even if the two portions of the decree are severable and merely because a
portion of the decretal amount is covered by the mortgage decree, the decree
holder, as per force has to proceed against the mortgaged property first’ are
not based on any principle of law as opined in Manku Narayan’s case. SBI
is therefore free to execute the personal decree without any doubt.
 The decree is simultaneous and it is jointly and severally against all the
defendants including the guarantor. It is the right of the decree holder to
proceed with it in a way he likes. Section 128 of The Indian Contract Act,
1872 provides that ‘the liability of the surety is co-extensive with that of the
principal debtor, unless it is otherwise provided by the Contract’.

CASES REFERRED
 Union Bank of India v. Manku Narayan
 Bank of Bihar v. Damodar Prasad andAnr.
 Hukumchand Insurance Co. Ltd. v. The Bank of
Baroda and Ors.
 Jagannath Ganeshram Agarwala v. Shivnarayan
Bhagirath and Ors.

FACTS:
 The respondent opened a Savings Bank Account
being No. 90001 with the appellant's predecessor,
the Imperial Bank of India at its Allahabad
Branch, having been introduced to the Bank by
one Kapil Deo Shukhla, an employee of the bank
and a close neighbour of the respondent and a
friend of her husband, Bhagwati Prasad.
 On a suspicion about the entries in the
respondent's Pass Book made by the employees of
the Bank, which had been confirming and
ratifying them from time to time, the respondent
sent a notice dated August 13, 1948 to the
defendant bank.

 The appellant bank replied by its letter dated 14-8-
1948 explaining the deposit of several items making
up to Rs. 1932-2-0 and denied the alleged deposits of
Rs. 105, Rs. 4000, Rs. 8000/- and Rs. 100/said. to have
been deposited through Kapil Dev Shukla.
 The defendant-Bank in its written statement
admitted that Kapil Deo Shukla was one of its
employees and he used to work at the counter, but not
at the Savings Bank counter, where the Savings
account of the plaintiff was dealt with. Shukla was no
longer in the service of the Bank. The Bank further
pleaded that the amount of Rs. 12,205/-, as detailed
above, was never deposited with it, nor were the
alleged deposits constituting this amount ever
confirmed or ratified by it. The Bank further stated
that only an aggregate amount c.f. Rs. 1,932/- had
been deposited by the respondent

 On November, 30, 1948, the respondent filed a
suit in forma pauperis for the recovery of Rs.
1.5,547-10 As. together with pendente lite and
future interest from the appellant's predecessors.
 The Trial Court found, except for the items of Rs.
105 and. Rs. 4000/- entered in the pass-book the
respondent had deposited other amounts
mentioned in it and that the bank was bound by
those entries.
 Holding that the rules were strictly enforced by
the bank and if the bank had accepted an amount
larger than the sum of Rs. 5,000/- in
contravention of its Rules, the respondent was
not debarred from claiming such deposit.

 the Trial Court decreed the respondent's suit (in
respect of two items) for Rs. 10,040- 10 As.
together with simple interest on this amount
from January 1st 1946 to August 14, 1947 @ Rs.
1-8-0 per cent per annum and from August 15,
1947 to December, 1948 at Rs. 7% per annum.
 It was further ordered that the respondent would'
get simple interest on the decretal amount after
deducting Rs. 1986-2-As. which have been paid
during the pendency of the suit, at 6% per
annum. Proportionate costs was also awarded to
the respondent.

 Aggrieved by the said orders, the bank appealed
to the Allahabad High Court and the respondent
filed cross-objections in respect of the amount of
Rs. 4,000/- and Rs. 105/disallowed by the Trial
Court.
 The High Court observed that the disputed
amount of Rs. 8,000/-shown in the Pass Book
consisted of two items, the bigger of which was
an amount of Rs. 7,000/- in the form of a cheque
drawn by Bhagwati Prasad on the account of
Bhagwati Prasad & Sons in Bharat Bank Ltd.,
Allahabad, and that Bharat Bank paid the
amount of the cheque to Dass Bank Ltd.,
Allahabad, who credited it to the account of Lala
Babu alias Kapil Deo Shukla, the aforesaid
employee of the Imperial Bank

 The High Court dismissed the Bank's appeal and
allowed the plaintiff-respondent's cross
objections, decreeing the suit for Rs. 14,145/10/-,
together with simple interest thereon from
January 1, 1946 to August 14, 1947 at the rate of
Rs. 1/8/- per cent per annum and from August 15,
1947 to December 1, 1948 at 6 per cent per
annum. It was further directed that the
respondent could get pendente litse simple
interest from the appellant on the decretal
amount at 6% per annum. As the amount of Rs.
1,986/2/- had been paid to the respondent on
September 16, 1950, it would be deducted from
the total amount found due to the respondent
and the decretal amount scaled down pro tanto.
Costs of both the courts were also awarded to the
respondent

ISSUES:
 The plaintiff appealed to the high court and the
high court ordered the bank to compensate for
the whole amount with 6% simple interest. The
plaintiffs aggrieved by this decision went to the
Supreme Court.
 1) Whether KD Shukla misappropriated the
money in course of employment of the bank?
 2) If yes, then to what extent is the bank
responsible for the acts of the employee?

ARGUMENTS ADVANCED:
 Arguments on behalf of the plaintiff: The plaintiff
primarily contended that the misappropriation done
by the employee (KD Shukla) was not in his course of
employment in the bank, as he was not assigned
duties on the savings counter of the bank. They relied
on the case of Leesh River Tea Co. Ltd & Ors. v.
British India Steam Navigation Co. Ltd.
 Arguments on behalf of the respondent: The
respondents argued that the employee used to get
passbook signed fraudulently, and the bank reacted to
his actions with negligence. They relied on the
principle of vicarious liability and said that as KD
Shukla was the employee of the bank, the bank was
also responsible for his misdemeanour.

JUDGEMENT:
 It was held that The legal principle which governs the
vicarious liability of an employer for the loss caused to a
customer through the misdemeanour or negligence of an
employee are :
 The rule in Leesh River Tea Co.'s case , squarely applies to
this situation. The appellant-Bank was therefore, not
liable to make good the loss of Rs. 7,000/- caused to the
Respondent, by the act of K. D. Shukla, while the latter
was acting as an agent of the plaintiff and not within the
scope of his employment with the Bank. Nor could the fact
that false and fictitious entries to cover up his fraud, were
made by K. D. Shukla in the Pass Book of the respondent
and in the Ledger Account of Bhagwati Prasad & Sons,
make the embezzlement committed by Shukla an act
committed in the course of his employment with the Bank

 Counsels:
 For Appellant: R.H. Dhebar, Adv.
 For Respondents: H.K. Puri & Bishamber Lal,
Adv.

 The respondents vehicle seized by customs
authority under the provisions of Junagarh State
Sea Customs Act on the grounds that the import
duties on the trucks were not paid and they were
used for smuggling of goods.
 The property was left totally uncared which led to
pilfering of greater part of the machinery.
 The Revenue Court passed an order to return the
goods.
 The respondent was informed that the goods were
auctioned as unclaimed under S.523 of the Code of
Criminal Procedure.

 The respondents contented that from the time
the said goods were seized till the time the
decision of appeal was made the state
government had the position of the bailee
and was therefore bound to take reasonable
care of the said vehicles.
 The appellants contended that no bailment
could be inferred as covered by S. 148 of the
Contract Act as bailment can only arise when
there is a contract between the parties

 Whether bailment could be inferred ?
 Whether the State was liable to compensate the
respondent ?

 The respondent filed suit for either recovery of his
vehicles or compensation of Rs. 31786.
 The Superiors were informed about the vehicles who
gave directions to apply to the Magistrate for disposal
of the Vehicles as unclaimed property under S. 523.
 Pursuant to the said direction the officials made an
application stating that the property belonged to the
respondent confirming that the officials were aware of
the owner.
HELD:
The custom officer was competent to seize the
vehicles. However after the Tribunal set aside the order
the State Government was obliged to return back
the goods, court passed a decree for Rs. 26797.

HELD:
 High Court confirmed the decree passed by the
Trial Court and except for a slight reduction. The
Act provided for appeal against orders of seizure
and confiscation.
 The state was under a statutory duty to see if
the property was intact till not disposed and
breach of the same would lead to cause of
action.

 A statutory duty to take reasonable care of the
property seized.
 The order wasn’t final and could be revised, state was
aware of the same.
 Their being thus a legal obligation to preserve the
property intact and to take reasonable care the position
of the S.G was that of a bailee.
 State was obliged by the law in pari materia as bailee to
take reasonable care of the trucks.
 Therefore State would be liable to the value of the
trucks.

As contended by the state that they no bailment
could be inferred as covered by S. 148 of the
Contract Act as bailment can only arise when
there is a contract was dismissed by the court
because there being a statutory obligation to take
care of the property as on the reversal of the
orders the State would be bound to return the
goods as stated under the Junagarh Customs Act. Hence
bailment wouldn’t arise only in the cases whereby a contract of
two parties arises any situation whereby one party is bound to
take care of the goods seized would lead to bailment.

Presented by
Durgesh Kr. Shukla
16BA039

 At an auction held on July 20, 1954 by the Divisional Forest Officer,
Hoshangabad Division, for sale of "felled trees", one Jagatram was
declared the highest bidder and the trees were sold to him for Rs.
12,100. The amount of the bid was payable in four instalments of Rs.
3,025 each : the first instalment to be paid immediately on acceptance
of the bid, the second on December 1, 1954, the third on February 1,
1955 and the fourth on May 1, 1955. Jagatram executed a contract in
favour of the Governor of Madhya Pradesh in which were incorporated
the terms and conditions of the sale.
 One of the terms was that, Jagatram would be subject to the Forest
Contract Rules in so far as they as are applicable thereto.
 Nathuram and Kaluram stood sureties for Jagatram.
 Jagatram paid only the first installment and removed almost the entire
quantity of trees sold to him without paying the rest three installments.

 The forest officers have not stopped him from removing his property
even though they knew that he had not paid the rest of the installments,
also accessory license and coupe boundary certificate were issued to
him and his workers without any question.
 The State of Madhya Pradesh initiated proceedings against Kaluram to
recover the amount due by Jagatram.
 The Trial Court held that the forest officers were negligent in allowing
the contractor Jagatram to remove the trees sold, and on that account
the security of the surety was impaired, and the surety stood discharged
for the whole amount recoverable from the contractor.
 The High Court of Madhya Pradesh also confirmed the decree of the
Trial Court.
 The State approached the Supreme Court.

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