Sir Chunilal V. Mehta and Sons, Ltd. Vs.
The Century Spinning and Manufacturing Co. Ltd.  Insc 84 (5 March 1962)
05/03/1962 MUDHOLKAR, J.R.
SINHA, BHUVNESHWAR P.(CJ) KAPUR, J.L.
CITATION: 1962 AIR 1314 1962 SCR Supl. (3)
CITATOR INFO :
F 1963 SC 361 (8) RF 1979 SC 798 (9)
Supreme Court Appellate Jurisdiction
of--Appeal against decree of affirmance--Substantial question of
law--Construction of agreement, if such a question--Breach of contract--Liquidated
damages--Constitution of India, Art.
The appellants were appointed managing agents
of the respondents for 21 years. Under cl. 10 of the agreement the appellants
were entitled to remuneration equal to 10% of the gross profits of the
respondents subject to a minimum of Rs. 6,000 per month. Clause 14 provided
that if the agreement was terminated otherwise in accordance with the provisions
thereof the appellants would be entitled to liquidated damages "of not
less than Rs. 6,000" per month for the unexpired portion of the agreement.
The respondent wrongfully terminated the agreement before the expiry of the
stipulated period. The appellants filed a suit for recovery of damages for
breach of contract on the basis of 10% of the gross profits of the respondents.
The trial judge granted a decree for Rs. 2,34,000 calculating the amount at Rs.
6,000 per month. On appeal by the appellants the High Court affirmed the
decree. The appellants applied 'to the High Court for a certificate of fitness
for appeal to the Supreme Court but it declined to grant the same on the ground
that though the question involved in the case relating to the interpretation of
the agreement was a question of law it was not a substantial question of law as
required by Art. 13(1) of the Constitution.
Held, that the case involved a substantial
question of law and the appellants were entitled to the certificate as of
right. A substantial question of law is one which is of general public
importance or which directly and substantially affects the rights of the
parties and which have not been finally settled by the Supreme Court, the Privy
Council or the Federal Court or which is not free from difficulty or which
calls for discussion of alternative views. The question involved in the present
case as to the construction of the agreement was not only one I of law but' it
was neither simple nor free from doubt and was a substantial question of law
within the meaning of Art.
Kaikhushroo Pirojsha Ghaira v. O.P. Syndicate
Ltd.,(1948) I.Bom. L. R. 744 ; Raghunath Prasad Singh v. Deputy Commissioner of
Partapgarh, (1927) 54 1. A. 126 and Dinkarrao v. Battansey, f. L. R. (1949)
Nag. 224, referred to.
Rimmalapudi Subba Rao v. Noony Veeraju, I. L.
R. 1952 Mad.
Held, further that upon a proper construction
of cl. 14 of the agreement the appellants were entitled to damages at the rate
of Rs. 6,000 per month only. The words "not less than Rs. 6,000" in
cl. 14 could not be construed as meaning 10% of the gross profits as provided
in cl. 10. When in cl. 14 the parties named a sum of money to be paid as
liquidated damages, it excluded the right to claim an unascertained sum as
CIVIL APPELLATE JURISDICTION :Civil Appeal
No. 417 of 1957.
Appeal by special leave from the judgment and
decree dated March 14, 1956, of the Bombay High Court in Appeal No. 94 of 1955.
AT. A. Palkhiwala, J. B. Dadachanji, S. N.
Andley, Rameshwar Nath and P. L. Vohra, for the appellants.
M. C. Setalvad, Attorney General of India, R.
J. and B. P. Maheshwari, for the respondent.
Porus A. Mehta and R. H. Dhebar, for the
1962. March 5. The Judgment of the Court was
delivered by MUDHOLKAR, J.-This is an appeal by special leave against the
Judgment of the High Court of 'Bombay in an appeal from the judgment of a
single Judge of that Court. The claim in appeal before the High Court was for
about 26 lakhs of rupees. Being aggrieved by the decision of the High Court,
the appellant applied for a certificate under Art. 133(1)(a) of the
Constitution. The judgment of the High Court in appeal was in affirmance of the
judgment of the learned single Judge dismissing the appellant's suit for
damages and therefore, it was 551 necessary for the appellant to establish that
a substantial question of law was involved in the appeal. On behalf of the
appellant it was contended that the question raised concerned the
interpretation to be placed on certain clauses of the managing agency agreement
upon which their claim in the suit was founded and that as the interpretation
placed by the appeal court on those clauses was erroneous and thus deprived
them of the claim to a substantial amount the matter deserved to be certified
by the High Court under Art.
133(1)(a) of the Constitution. The learned
Judges dismissed the application without a judgment apparently following their
previous decision in Kaikhushroo Pirojsha Ghaira v. C. P. Syndicate Ltd. (1).
The appellants, therefore, moved this Court under Art. 136 of the Constitution
for grant of special leave which was granted. In the application for special
leave the appellant had raised a specific contention to the effect that the
view taken by the High Court with regard to the application for certificate
under Art. 133 (1) (a) of the Constitution was wrong, that the appellant was
entitled to appeal to this Court as a matter of right and that while
considering the appeal this question should also be decided. The appellant
pointed out that the view taken by the Bombay High Court on the point as to
what is a substantial question of law runs contrary to the decision of the
Privy Council in Raghunath Prasad Singh v. Deputy Commissioner of Partabgarh
(2) and the decision of some High Courts in India and that therefore, it is
desirable that this Court should pronounce upon the question in this appeal and
set the matter at rest. We think that it is eminently desirable that the point
should be considered in this appeal.
It is not disputed before us that the
question raised by the appellant in the appeal is one of law because, which
the, appellant is challenging is the interpretation placed upon certain clauses
of the (1) (1948) L. Bom. L.R. 744.
(2) (1927) 54 I.A. 126, 128.
552 managing agency agreement which are the
foundation of the claim in suit. Indeed it is well settled that the
construction of a document of title or of a document which is the foundation of
the rights of parties necessarily raises a question of law.
The next question is whether the
interpretation of a document of the kind referred to above raises a substantial
question of law. For, Art. 133(1) provides that where the judgment, decree or
final order appealed from affirms the decision of the court immediately below
in any case other than a case referred to in sub-cl. (c) an appeal shall lie to
this Court if the High Court certifies that the appeal involves some
substantial question of law. To the same effect are the provisions of s. 110 of
the Code of Civil Procedure. In the old Judicial Commissioner's Court of Oudh
the view was taken that a substantial question of law meant a question of
general importance. Following that view its successor, the Chief Court of Oudh,
refused to grant a certificate to one Reghunath Prasad Singh whose appeal it
had dismissed. The appellant, therefore, moved the Privy Council for special
leave on the ground that the appeal raised a substantial question of law. The
Privy Council granted special leave to the appellant and while granting it made
the following observation in their judgment:
"Admittedly here the decision of the
Court affirmed the decision of the Court immediately below, and, therefore, the
whole question turns upon whether there is a substantial question of law. There
seems to have been some doubt, at any rate in the old Court of Oudh, to which
the present Court succeeded, as to whether a substantial question of law meant
a question of general importance. Their Lordships think it is quite clear and
indeed it was conceded by Mr. De Gruyther that that is not the meaning, but
that "substantial 553 question of law" is a substantial question of
law as between the parties in the ease involved." Then their Lordships
observed that as the case had occupied the High Court for a very long time and
on which a very elaborate judgment was delivered the appeal on its face raised
as between the parties a substantial question of law.
This case is reported in Raghunath Prashad
Singh v. Deputy Commissioner of Partabgarh(1). What is a substantial question
of law as between the parties would certainly depend upon the facts and
circumstances of every case. Thus for instance, if a question of law bad been
settled by the highest court of the country the question of law however
important or difficult it may have been regarded in the past and however much
it may affect any of the parties would cease to be a substantial question of
law. Nor again, would a question of law which is palpably absurd be a
substantial question of law as between the parties. The Bombay High Court,
however, in their earlier decision already adverted to have not properly
appreciated the test laid down by the Privy Council for ascertaining what is a
substantial question of law. Apparently the judgment of the Privy Council was
brought to their notice though they do not make a direct reference to it, they
have observed as follows:
"The only guidance that we have had from
the Privy Council is that, substantial question is not necessarily a question
which is of public importance. It must be a substantial question of law as
between-the parties in the case involved. But hero again it must not be
forgotten that what is contemplated is not a question of law alone; it must be
a substantial question. One can define it negatively. For instance, if there is
a well established principle of law and that principle is (1)(1927) 54 1. A.
126, 128, 554 applied to a given set of facts, that would certainly not be a
substantial question of law. Where the question of law is not well settled or
where there is some doubt as to the principle of law involved, it certainly
would raise a substantial question of law which would require a final
adjudication by the highest Court." One of the points which the learned
judges of the Bombay High Court had to consider in this case was whether the
question of construction to be Placed upon a decree was a substantial question
of law. The learned Judges said in their judgment that the decree was
undoubtedly of a complicated character but even so they refused to grant a
certificate under s. 110 of the Code of Civil Procedure for appeal to the
Federal Court because the construction which the Court was called upon to place
on the decree did not raise substantial question of law. They have observed
that even though a decree may be of a complicated character what the Court has
to (lo is to look at its various provisions and draw its inference there from.
Thus according to the learned Judges merely because the inference to be drawn
is from a complicated decree no substantial question of law would arise.
Apparently in coming to this conclusion they omitted to attach sufficient
weight to the view of the Privy Council that a question of law is "a
substantial question of law" when it affects the rights of the parties to
the proceeding. Further the learned Judges seem to have taken the view that there
should be a doubt in the mind of the Court as to the principle, of law involved
and unless there is such doubt in its mind the question of law decided by it
cannot be said to be "a substantial question of law" so as to entitle
a party to a certificate under a. 1 10 of the Code of Civil Procedure. It is
true that they have not said 555 in so many words that such a doubt must be
entertained by the Court itself but that is what we understand their judgment
to mean and in particular the last sentence in the portion of their judgment
which we have quoted above.
As against the view taken by the Bombay High
Court there are two decisions of the High Courts in India to which reference
was made before us. One is Dinkkarrao v. Rattansey (1). In that case applying
the Privy Council's decision the High Court held that a question of law is
substantial as between the parties if the decision turns one way or another on
the particular view taken of the law. If the view taken does not affect the
decision then it cannot be substantial as between the parties ; but it would be
otherwise if it did, even though the question may be wholly unimportant to
others. It was argued before the High Court on the basis of certain decisions
that no question of law can be substantial within the meaning of s. 110 of the
Code of Civil Procedure unless the legal principles applied in the case are not
well defined or unless there can be some reasonable divergence of opinion about
the correctness of the view taken and the case involves, a point of law such as
would call for fresh definition and enunciation. Adverting to those cases Bose
C. J., (as he then was) whom Delivered the judgment of the Court observed as
"In the first case cited, it was also
held that a misapplication of principles of law does not raise any substantial
question of law so as to attract the operation of s. 1 10..........
There can be no doubt that that is a view
which has been held by various High Courts in India, but the decision cited'
omit to consider two decisions of' their Lordships of the Privy Council on this
very point which. in our (1) 1. L. R. (1949) Nag. 224 556 opinion, very largely
modify the views taken in the cases cited and which of course it is impossible
for us to ignore." (p. 226) Referring to the Privy Council case the
learned Chief Justice observed as follows :
"In the Lucknow case the only question
was whether the defendant there obtained an absolute interest or a limited
interest under a will. That again was a question which was of no interest to
anyone outside the parties to the suit. Nevertheless, their Lordships
considered in both cases that the questions were substantial questions of law
because they were substantial as between the parties. We can only consider this
to mean that a question of law is substantial as between the parties if the
decision turns one way or another on the particular view taken of the law. If
it does not affect the decision then it cannot be substantial as between the
parties. But if it substantially affects the decision then it is substantial as
between the parties though it may be wholly unimportant to others." (p.
228) It maybe that in the case before it, the Nagpur High Court was justified
in granting certificate because of the points involved was the construction of
a deed of compromise and the High Court had interpreted that deed differently
from the court below. But it seems to us that some of the observations of Bose
C. J., are a little too wide. We are prepared to assume that the learned Chief
Justice did not intend to say that where a question of law raised is palpably
absurd it would still be regarded as a substantial question of law merely
because it affects the decision of the case one way or the other. 'But at the
same time his observation that the view taken in the cases cited before him
requires to be modified in the light of the Privy Council decision would imply
that a question of law 557 is deemed to be a substantial question of law even
though the legal principles applicable to the case are well defined and there
can be no reasonable divergence of opinion about the correctness of the view
taken by the High Court. If we, have understood the learned Chief Justice
right, we think that he has gone further than was warranted by the decision of
the Privy Council in Raghunath Prasad Singh's case (1).
The other case relied upon was Rimmalapudi
Subba Rao v. Noony Veeraju (2). In that case the test of the kind suggested by
Bose 'C.J., was rejected on the ground that logically it would lead to the
position that even a palpably absurd plea raised by a party would involve a
substantial question of law because the decision on the merits of the case
would be directly affected by it. What was, however, said was that when a
question of law is fairly arguable, where there is room for difference of
opinion on it or where the Court thought it necessary to deal with that
question at some length and discuss alternative view, then the question would
be a substantial question of law. On the other hand if the question was
practically covered by the decision of the highest court or if the general
principles to be applied in determining the question are well settled and the
only question was of applying those principles to the particular fact of the
case it would not be a substantial question of law.
We are in general agreement with the view
taken by the Madras High Court and we think that while the view taken by.
the Bombay High Court is rather narrow the.
one taken by the former High Court of Nagpur is too wide. The proper test for
determining whether a question of law raised in the case is substantial would,
in our opinion, be whether it is of general public importance or whether it (1)
(1927) 54 I.A. 126. 128.
(2) I.L.R. 1952 Mad. 264.
558 directly and substantially affects the
rights of the parties and if so whether it is either an open question in the
sense that it is not finally settled by this Court or by the Privy Council or
by the Federal Court or is not free from difficulty or calls for discussion of
alternative views. If the question is settled by the highest Court or the
principles to be applied in determining the
question are well settled and there is a mere question of applying those
principles or that the plea raised is palpably absurd the question would not be
a substantial question of law.
Applying the tests it would be clear that the
question involved in this appeal, that is, the construction of the Managing
Agency agreement is not only one of law but also it is neither simple nor free
from doubt. In the circumstances we have no hesitation in saying that the High
Court was in error in refusing to grant the appellant a certificate that the
appeal involves a substantial question of law. It has to be borne in mind that
upon the success or the failure of the contention of the parties, they stand to
succeed or fail with respect to their claim for nearly 26 lakhs of rupees.
Now as to the merits. The relevant facts may
be briefly stated. Chunilal Mehta & Co., Bombay were appointed Managing
Agents of the respondent company for a term of 21 years by an agreement dated
June 15, 1933. By a resolution passed by the respondent company in October
1945, Chunilal Mehta & Co., were permitted to assign the benefits of the
aforesaid. agreement to the present appellant, Sir Chunilal V. Mehta & Sons
Ltd. On April 23, 1951, the Board of Directors of the Company terminated the
agreement of 1933 and passed a resolution removing the appellant as Managing
Agents on April 23, 1951. The appellant thereupon filed a suit on the original
side of the Bombay High Court 559 claiming Rs. 50 lakhs by way of damages for
wrongful termination of the agreement. Eventually with the permission of the
Court it amended the plaint and claimed instead Rs. 28,26,804/-. The company
admitted before the Court that the termination of the appellants' employment
was wrongful and so the only question which the learned Judge before whom the
matter went had to decide was the quantum of damages to which the appellant was
entitled. This question depended upon the construction to be placed upon cl, 14
of the Managing Agency agreement.
That clause runs thus "In case the Firm
shall be deprived of the office of Agents of the Company for any reason or
cause other than or except those reasons or causes specified in Clause 15 of
these presents the Firm shall be entitled to receive from the Company as
compensation or liquidated damages for the loss of such appointment a sum equal
to the aggregate amount of the monthly salary of not less than Rs. 6,000/which
the Firm would have been entitled to receive from the Company, for and during
the whole of the then unexpired portion of the said period of 21 years if the
said Agency of the Firm had not been determined." In order to appreciate
the arguments advanced before us it would, however, be desirable to reproduce
the two earlier clauses cls. 10 and 12. They run thus 10.The Company shall pay
to the Firm by wry of remuneration for the services to be performed by the Firm
as such Agents of the Company under this Agreement a monthly sum of Rs.
6,000/provided that if at the 560 close of
any year it shall be found that the total 0remuneration of the firm received in
such year shall have been less than 10 per cent of the gross profits of the
Company for such year the Company shall pay to the Firm in respect of such year
such additional sum by way of remuneration as will make the total sum received
by the Firm in and in respect of such year equal to 10 per cent of the gross
profits of the Company in that year. The first payment of such remuneration ,
shall be made on the first day of August 1933.
"12. The said monthly remuneration or
salary shall accrue due from day to day but ,shall be payable by the company to
the Firm monthly, on the first day of the month immediately succeeding the
month in which it shall have been earned." The learned trial judge upon
the interpretation placed by him on el. 14 awarded to the, appellant a sum of
2,34,000/-, calculating the amount it Rs.
6,000/p.m. for the unexpired period of the term of the Managing Agency
agreement and also awarded interest thereon. Now according to Mr. Palkhivala
for the appellants, the interpretation placed upon el. 14 by the trial judge
and the appeal Court is erroneous in that it makes the words "not less than"
in el. 14 redundant. Learned counsel contends that on a proper construction of
el. 14 the appellants are entitled to compensation computed on-the basis of the
total estimated remuneration under cl. 10 for the unexpired period. Under that
clause, he contends, the appellants are entitled to 10% of the profits of the
company subject to a minimum of Rs. 6,000/p.m. Alternatively learned counsel
contends that el. 14 is not exhaustive of the appellant's right to compensation
and the right to be compensated in respect of contingent remunera561 tion based
on 10% of profits is left untouched by that clause.
A perusal of el. 14 clearly shows that the
parties have themselves provided for the precise amount of damages that would
be payable by the Company to the Managing Agents if the Managing Agency
agreement was terminated before the expiry of the period for which it was made.
The clause clearly states that the Managing Agent shall receive from the
Company as compensation or liquidated damages for the loss of appointment a sum
equal to the aggregate amount of the monthly salary of not less than Hs. 6,000/for
and during the whole of the unexpired portion. of the term of Agency. Now, when
parties name a sum of money to be paid as liquidated damages they must be deemed
to exclude the right to claim an unascertained sum of money as damages. The
contention of learned counsel is that the words "not less than"
appearing before "Bs. 6,000/-" in cl. 14 clearly bring in el. 10 and,
therefore, entitle the appellant to claim 10% of the estimated profits for the
unexpired period by way of damages. But if we accept the interpretation, it
would mean that the parties intended to confer on .the Managing Agents what is
in fact a right conferred by a. 73 of the Contract Act and the entire clause
would be rendered those. Again the right to claim liquidated damages is
enforceable under is. 74 of the Contract Act and where such a right is found to
exist no question of ascertaining damages really arises.
Where the parties have deliberately specified
the amount of liquidated damages there can be no presumption that they, at the
same time, intended to allow the party who has suffered by the breach to give a
go-by to the sum specified and claim instead a sum of' money which was not
ascertained or ascertainable at the date of the breach. Learned counsel
contends that upon this view the words "not less than" would be
rendered otiose. In our opinion 562 these words, as rightly-pointed out by the
High Court, were intended only to emphasise the fact that compensation will be
computable at an amount not less than Rs. 6,000 p.m.
Apparently, they thought it desirable to
emphasise the point that the amount of Rs. 6,000 p.m. was regarded by' them as
reasonable and intended that it should not be reduced by the court in its
Mr. Palkhivala argued that what the
appellants were entitled to was remuneration and remuneration meant nothing but
salary. The two words, according to him, have been used interchangeably in the
various clauses of the agreement.
If, therefore, salary in el. 14 is the same
as remuneration, which according to him it is, then as indicated in el. 10 it
would mean 10% of the gross profits of the Company subject to a minimum of Rs.
6,000/-p.m. In support of the argument that the two words wherever used in the
agreement mean one and the same thing learned counsel relies on cl.12 which
says that the monthly remuneration or salary shall accrue due from day to day.
Then undoubtedly the two words clearly mean the same thing. But from a perusal
of the clause it would appear that remuneration there could mean nothing other
than Rs.6,000/-p.m. For, that clause provides that the amount shall accrue from
day to day and be payable at the end of the month immediately succeeding the
month in which it had been earned. Now, whether a company had made profits or
not and if so what is the extent of the profits is determinable only at the end
of its accounting year. To say, therefore, that the remuneration of 10% of the
gross profits accrues from day to day and is payable every month would be to
ignore the nature of this kind of remuneration.
Therefore, in our opinion, when the
remuneration and salary were equated in el. 12 nothing else was meant but Rs. 6,000/-and
when the word salary was used in el. 14 we have no doubt that only that 563
amount was meant and no other. It may be that under el. 10 the appellant was
entitled to additional remuneration in case the profits were high upto a limit
of 10% of the gross profits. That was a right to claim something over and above
Rs.6,000/-and could be characterized properly as additional remuneration and
not fixed or normal remuneration which alone was apparently in the minds of the
parties when they drew up el. 14. In our opinion, therefore, the High Court was
right in the construction placed by it upon the clause.
Coming to the alternative argument of Mr.
Palkhivala, we appreciate that the right which the appellant had of claiming
10% of profits was a valuable right and that but for cl. 14 he would have been
(entitled in a suit to claim damages estimated at 10% of the gross profits. We
also appreciate his argument that a party in breach should not be allowed to
gain by that breach and escape liability to pay damage to a very much larger
sum than the compensation payable under cl. 14 and that we should so interpret
cl. 14 as to keep alive that right of the appellants. Even so, it is difficult,
upon any reasonable construction of cl. 14, to hold that this right of the
appellants were intended by the parties to be kept alive. If such were the
intentions of the parties clearly there was no need whatsoever of providing for
compensation in cl. 14. If that clause had not been there the appellant would
indeed have been entitled to claim damages at the rate of 10% for the entire
period subject to minimum of Rs. 6,000/p.m. On the other hand it seems to us
that the intention of the parties was that if the appellants were relieved of
the duty to work as Managing Agent and to put in their own money for carrying
on the duties of managing agents they should not be entitled to get anything
more than Rs. 6,000/p.m. by way of compensation.
Clause 14 as it stands deals with one subject
only 564 and that is compensation. It does not expressly or by necessary
implication keep alive the right to claim damages under the general law. By
providing for compensation in express terms the right to claim damages under
the general law is necessarily excluded and, therefore, in the face of that
clause it is not open to the appellant to contend that that right is left
unaffected. There is thus no substance in the alternative contention put
forward by the learned counsel.
Accordingly we affirm the decree of the High
Court and dismiss the appeal with costs.