Trojan & Co. Ltd. Vs. Rm. N. N.
Nagappa Chettiar  INSC 23 (20 March 1953)
MAHAJAN, MEHR CHAND DAS, SUDHI RANJAN
CITATION: 1953 AIR 235 1953 SCR 780
CITATOR INFO :
R 1964 SC 136 (11) R 1966 SC 735 (8) R 1977
SC 890 (8) D 1980 SC 727 (11)
Contract-Damages-Sale of shares-Sale induced
by fraudMeasure of damages-Difference between price paid and market price on
date of sale-Fluctuations of market and sudden closure of Stock Exchange,
effect of--Interest on damagesPractice-Conflict between pleadings and
proof-Decree on alternative claim not set up in plaint-Legality.
Where a person is induced to purchase shares
at a certain price by fraud the measure of damages which he is entitled to
recover from the seller is the difference between the price which he paid for
the shares and the real price of the shares on the date on which the shares
Ordinarily the market rate of the shares on
the date when the fraud was practised would represent their real price in the
absence of any other circumstance. If, however, the market was vitiated or was
in a state of flux or 790 panic in consequence of the very fact that was
fraudulently concealed, then the real value of the shares has to be determined
on a Consideration of a variety of circumstances, disclosed by the violence led
by the parties.
A firm of share brokers sold 3,000 shares to
the plaintiff who was a constituent of the firm, on the 5th April, 1937, at Rs.
77 and Rs. 77-4as, per share without disclosing to the plaintiff the fact that
the shares were owned by one of the partners of the firm and also the fact that
they had received telephonic information on that day from a member of the Stock
Exchange that there was going to be a sharp decline in the price of the shares.
On the 6th April the Stock Exchange Association passed a resolution for closing
the Exchange on the 8th and 9th April. The plaintiff had to sell 2,000 shares
through the defendants on the 20th April at Rs. 47 to Rs. 42 per share, and
1,000 shares on the 22nd April at Rs. 428as. The High Court awarded the
difference between the price paid by the plaintiff and the prices fetched on
resale as damages. On appeal, Held, that the prices received at the resale on
the 20th and 22nd April could not represent the true value of the shares on the
5th April. The real question for determination was what the market value would
have been on the 5th April of these shares if all the buyers and sellers know
that the Stock Exchange was to be closed on the 8th and 9th April.
Held also that the plaintiff was entitled to
get interest on the amount awarded as damages from the 5th April till the date
of suit on the principle that where money is obtained or retained by fraud a
court of equity will order it to be returned with interest.
Johnson v. Rex ( A.C. 817) referred to.
It is well settled that the decision of a
case cannot be 'based on grounds outside the pleadings of the parties and that
it is the case pleaded that has to be found. Where the plaintiff based his
claim for a certain sum of money on the ground that the defendants had sold
certain shares belonging to him without his instructions, but he was not able
to prove that the sale was not authorised by him: Held, reversing the decision
of the High Court, that the plaintiff could not be given a decree for the sum
claimed on the ground of failure of consideration, as he had not set up any
such alternative claim in the plaint or even at a later stage when he sought to
amend the plaint.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No..139 of 1962.
Appeal from the Judgment and Decree dated the
17th March, 1950, of the High Court of Judicature at Madras (Horwill and
Balakrishna Ayyar JJ.) in O.S.A. No. 34 of 1947, arising out of 791 the
Judgment and Decree dated the 18th April, 1947, of the said High Court (Clark
J.) in the exercise of the Ordinary Original Civil Jurisdiction of the High
Court in C. S. No. 208 of 1940.
V. Rangachari (K. Mangachary, with him) for
K. Krishnaswami Iyengar (K. Parasuram, with
him) for the respondent.
1953. March 20. The Judgment of the Court was
delivered by MAHAJAN J.-The dispute in this appeal is between a constituent and
a firm of stock-brokers. Some time before April, 1936, the plaintiff, then a
young man, came into possession of property worth about 2 lakhs of rupees on a
partition between him and his brothers. In the hope of getting rich by
obtaining quick dividends by speculating on the stock-exchange be, through the
defendant firm and certain other stockholders, entered into a series of
speculative transactions and it seems he did not fare badly in the beginning.
But subsequent events tell a different tale.
In 1937, two iron and steel companies in
North India, vie., Indian Iron & Steel Co. Ltd., and the Bengal Iron &
Steel Co. Ltd., merged into one concern and a new issue of shares was made. The
scheme was that for every five shares which a person held in the Indian Iron
Co. Ltd. on 22nd April, 1937, one fully paid up share would be given to him at
a price of Rs. 25. The market price at the time this scheme was announced was
about Rs. 55 per share. A wave of speculation followed this announcement and
there was a boom in the market. Prices of Indian Iron shares were going up to
unreal heights. To stabilize the situation thus created by heavy speculation,
three members of the Committee of the Calcutta Stock Exchange presented a
petition to the Committee on 5th April, 1937, to close the Calcutta Stock
Exchange 792 for a while. On the same evening plaintiff's stockbroker Annamalai
Chettiar, who was carrying on business in firm name Trojan & Co., had
telephonic conversation with one Ramdev Chokani, a member of the Calcutta Stock
Exchange, on this subject and from this conversation he gathered that a sharp
fall in the prices of Indian Irons was likely. At that time Annamalai Chettiar
had on his bands some 5,000 of these shares. Shortly after this conversation
and after business hours the same night, between the hours of 7-30 and 8-30,
Annamalai Chettiar rang up the plaintiff and suggested to him that it would be
a good thing for him to buy these shares. The youthful plaintiff in his anxiety
to got rich quickly accepted the suggestion and purchased these shares, some at
Rs. 77 and others at Rs. 77-4-0. Another firm of brokers, Ramlal & Co., had
also in their hands another 4,000 of these shares. They too found in the
plaintiff a ready buyer. They also contacted him on the phone after Annamalai
had done so, and sold him 4,000 shares that they held. Out of the lot which the
plaintiff purchased from the defendants he sold 1,300 shares to Ramanathan
Chetti at cost price.
On the 6th April the Committee of the
Calcutta Stock Exchange Association passed a resolution closing the Stock
Exchange on the 8th and 9th April.
From the 6th April onwards the market sagged
and the prices came down, at first gradually and then literally at a, run.
The result of it was that the plaintiff had
to sell at a very heavy loss.
The defendants made demands on the plaintiff
for the price of those shares. Between 5th April and 20th April, 1937, he made
payments to defendants of various amounts totalling Rs.
60,000. A lot of 700 shares was sold by the
plaintiff to Pilani & Co. and on 19th April, 1937, he instructed the
defendants.for sale of the remaining 3,000 shares at the best price obtainable.
The defendants sold 2,000 shares on 20th April, 1937, for prices ranging
between Rs. 47-4-0 to 793 Rs.44-12-0 per share. The remaining 1,000 shares were
sold by him through Messrs. Ramlal & Co. at Rs. 42-8-0 per share on 22nd
April, 1937. The result of it was that on 22nd May, 1937, when the accounts
between the plaintiff and the defendants were settled it was found that
plaintiff was heavily indebted to them in the sum of Rs. 51,712-7-0 and the
credit balance of Rs. 64,000 that he had with the defendants at the end of
March, 1937, had been wiped off.
For the amount found due he passed a
promissory note in favour of defendants, Exhibit P-33. After giving credit for
payments received on the promissory note the defendants filed a suit against
him (O.S. 150 of 1937) on the Original Side of the Madras High Court and
obtained an ex-parte interim order for attachment before judgment and attached
plaintiff's movable and immovable properties at Madras, and also at Kottaiyur
in Ramnad district. Owing to the attachment proceedings the firm of Ramlal
& Co. filed a petition for adjudication of the plaintiff as an insolvent.
On 22nd September, 1937, Trojan & Co.
also filed a petition for the same relief. An order adjudicating the plaintiff
an insolvent was made by the High Court on 5th October, 1937, on the petition
of Ramlal & Co. In the course of the insolvency proceedings defendants
tendered proof of their claim on the promissory note, Exhibit P-33. The
Official Assignee having acquired knowledge about the telephonic conversation
that had passed between Annamalai Chettiar and Ramdev Chokani on the evening of
the 5th April, 1937, came to the conclusion that the insolvent had been a
victim of a fraud perpetrated by the defendants and dismissed their claim.
Defendants-firm was guilty of fraud both in respect of the failure to disclose
the fact that the Indian Iron shares or most of them belonged to one of its
partners, Annamalai Chettiar, and also on account of the failure on its part to
disclose its knowledge of the likelihood of a slump in the market because of
the notice given by its members to close the Stock Exchange.
794 On an application made to the High Court
against the order of the Official Assignee it was set aside by Mockett J. and
he directed that the claim of the defendants be disposed of on a court motion,
the claim being heard as if it were a suit. In pursuance of this direction
Trojan and Co. on 29th September, 1938, filed an application in the High Court,
No. 313 of 1938. The Official Assignee representing the estate of the plaintiff
denied its liability on the promissory note on the ground of fraud. On 15th
March, 1940, Somayya J. dismissed the claim of the defendants. He held the
defendants-firm guilty of fraud in both respects. From this there was an appeal
which was dismissed on 12th August, 1942. The defendants applied for leave to
appeal to His Majesty in Council but leave wag refused. Defendants then applied
to the Privy Council for special leave and that application was also dismissed
some time in October, 1943..
On the 28th September, 1940, when the appeal
from the decision of Somayya J. was still pending, the Official Assignee as
representing the estate of the plaintiff filed the suit out of which this
appeal arises against Trojan & Co. for an account of the transactions
between himself as principal and the defendants as agents and claiming damages
for loss sustained by him and for various other reliefs.
The suit embraced in particular claims in
respect of four transactions. The first related to the 5,000 Indian Iron
shares. The second referred to a transaction of Associated Cements. On 22nd
March,1937, the plaintiff had sold through the defendants 5O shares in
Associated Cements at Rs.180-8-0 per share. On 30th March, 1937, he had
similarly sold a further 200 shares in Associated Cements at Rs. 183 per share.
The plaintiff did not have on hand even a single share in Associated Cements.
It became necessary for him therefore to "cover the sales". On 21st
July, 1937, defendants purchased on plaintiff's account 100 shares at Rs.
161-12-0 per share. On 1st September, 1937, they purchased a further 150 shares
at 795 Rs. 151 a share. The difference between the prices at which these shares
had been sold and bought amounted to Rs. 6,7628-0 and for this amount the
defendants gave the plaintiff credit by adjusting it towards the promissory
In respect of this transaction the case of
the Official Assignee was that the purchase which had been made by the
defendants was not only unauthorized, but contrary to instructions and was not
valid and binding on the plaintiff as it had been made after the commencement
of the insolvency. No claim was made in the alternative that if this contention
failed, the plaintiff was entitled to recover the amount credited towards the
promissory note on the ground of failure of consideration. The third
transaction related to 300 shares in Tatas, and the fourth one was in respect
of shares in Ayer Mani Rubber Co. The last claim was abandoned at the trial and
the claim on the third transaction was decreed in favour of the plaintiff and
the correctness of the order of the trial judge was not canvassed in the appeal
before the High Court. The amount decreed as regards these 300 shares was in
the sum of Rs. 1,050.
The defendants denied liability for the
entire claim and pleaded that they were not guilty of any fraud and that in any
case the plaintiff was not entitled to claim any damage, as he could have
easily sold away all his shares soon after his purchase without incurring any
loss, and that he retained them in order to make profit.
The suit was first heard by Bell J. who
decreed the claim of the plaintiff on 9th March, 1943. The defendants appealed.
The appellate court set aside the decision of Bell J. and 'remanded the suit
for fresh disposal on 26th August, 1944. Meantime, that is to say, on 21st
February, 1944, the adjudication of the plaintiff was annulled and on his
application he was brought on the record in the place of the Official Assignee
and he continued the suit. Clark J.
who tried the suit after remand gave a decree
in favour of 103 796 the plaintiff for the sum of Rs. 61,787-9-0 with interest
at the court rate of six per cent. per annum from 1st September, 1937, until
payment or realization with costs.
Against this decree the defendants preferred
an appeal. The appellate Bench modified the decree of Clark J., and reduced the
amount of the decree by a sum of Rs. 9,100. Each party was made to pay proportionate
costs throughout. Leave to appeal to this court against the decree was granted
and the appeal is now before us under the certificate so granted.
As above stated, the claim in respect of
Ayer-Mani Rubber shares was abandoned at the trial and the claim on the third
transaction relating to 300 shares in Tatas was decreed for the sum of Rs.
1,050 and the correctness of this order was not canvassed in the appeal before
the High Court. The two claims discussed in that court were in respect of the
transaction of 5,000 Indian Iron shares and in respect of the transaction made
in Associated Cements. The dispute before us so far as the Indian Iron shares
are concerned has narrowed down to the question of quantum of damages in
respect of 3,000 out of the 5,000 shares that were transferred by the
defendants to the plaintiff on the night of the 6th April, 1937, 1,300 out of
these shares having been sold at cost price by the plaintiff the day after the
purchase, and 700 having been sold to Pilani & Co., and regarding which the
plaintiff's claim was rejected in the High Court and plaintiff preferred no
The finding of Somayya J., that the
defendants firm was guilty of fraud both in respect of the failure to disclose
the fact that the Indian Iron shares or most of them belonged to one of its
partners, Annamalai Chettiar, and also on account of its failure to disclose
its knowledge of the probable slump in the market by reason of the notice given
by three members of the Stock Exchange to temporarily close it, was not
contested before Clark J., and it was conceded that that finding had become
final. The main question canvassed at this trial was whether the plaintiff 797
had suffered any damage as a consequence of this fraud and if so, how were the
damages to be measured. In the plaint plaintiff claimed that he was entitled to
be recompensed for all loss and damage which he had suffered. A sum of Rs. 45,042-9-0
was credited in his account in respect of the sale of 3,000 shares made on 20th
and 22nd April, 1937. He claimed the whole of this amount as damages on this
in other words, according to the plaintiff,
the damage suffered by him was to be measured according to the difference
between the purchase price of the shares and the price for which they were
ultimately sold. The shares were bought on 5th April at Rs. 77 and Rs. 77-4-0
and sold at prices ranging between Rs. 42-8-0 and Rs. 47-4-0 on the 20th and
22nd April, 1937. This method of measuring damages was successfully challenged
by the defendants before the trial judge. Clark J., in spite of holding that
the measure of damages in a case like this could not be as suggested by the
plaintiff, estimated the damage suffered by him at the difference between the
rate at which the plaintiff purchased the shares and the rate at which he
actually sold them, on the ground that the price at which he sold them was more
than the fair value of these shares realizable on the 6th April, 1937, between
bona fide purchasers and sellers having knowledge of the real state of affairs.
Before the appeal Bench of the High Court it
was contended that the trial judge was in error in his assessment of the real
value of these shares on 5th April, 1937, and that in any case they could not
be valued at four different rates.
It was urged that. damages had been over
estimated. This contention was negatived and it was held that in the circumstances
of this case it could not be said that the plaintiff acted unreasonably in
holding on to the shares for the time that be did and that the defendants had
by their own double dealings placed the plaintiff in a difficult position.
The learned-counsel for the appellant
reiterated before us the contentious raised by him in the High 798 Court and
urged that the true measure of damages in actions like this is the difference
between the price paid and the real value of the shares at the time of the
transaction, and that any loss caused to the plaintiff by his retaining the
shares after that date could not be decreed. It was strenuously contended that
had the plaintiff sold the remaining shares like the 1,300 he sold, he would
not have suffered any damage whatsoever, as the market price of these shares on
the 6th and 7th was not below the cost price. It was said that the loss that
the plaintiff suffered was merely due to the circumstance that he retained the
shares for a fortnight, and was not as a consequence of the fraud.
Lastly, it was contended that even if it
could be held that the market on the 6th and 7th was affected by the very fact
concealed from the plaintiff, its effect disappeared by the 10th April, when
the fact became fully known and damage should have been assessed on the
difference between the market price of these shares which ruled at Rs. 62 per
share on 10th April, 1937, and their cost price.
Now the rule is well settled that damages due
either for breach of contract or for tort are damages which, so far as money
can compensate, will give the injured party reparation for the wrongful act and
for all the natural and direct consequences of the wrongful act. Difficulty
however arises in measuring the amount of this money compensation. A general
principle cannot be laid down for measuring it, and every case must to some
extent depend upon its own circumstance. It is, however, clear that in the
absence of ,any special circumstances the measure of damages cannot be the
amount of the loss ultimately sustained by the represented.
It can only be the difference between the
price which he paid and the price which he would have received if he had resold
them in the market forthwith after the purchase provided of course that there
was a fair market then. The question to be decided in such a case is what could
the plaintiff have obtained if he had resold forthwith that which he bad been
induced to purchase by the fraud 799 of the defendants. In other words, the
mode of dealing with damages in such a case is to see what it would have cost
him to get out of the situation, i.e., how much worse off was his estate owing
to the bargain in which he entered into.
The law on this subject has been very
appositely stated in McConnel v. Wright(1) by Lord Collins in these terms:"As
to the principle upon which damages are assessed in this case, there is no
doubt about it now. It has been laid down by several judges, and particularly
by Cotton L. J. in Peek v. Derry(2), but the common sense and principle of the
thing is this. It is not an action for breach of contract, and, therefore, no
damages in respect of prospective gains which the person contracting was
entitled by his contract to expect to come in, but it is an action of tort-it
is an action for a wrong done whereby the plaintiff was tricked out of certain
money in his pocket ; and therefore, prima facie the highest limit of his
damages is the whole extent of his loss, and that loss is measured by the money
which was in his pocket and is now in the pocket of the company.
That is the ultimate, final, highest standard
of his loss.
But, in so far as he has got an equivalent
for that money, that loss is diminished; and I think, in assessing the damages,
prima facie the assets as represented are taken to be an equivalent and no more
for the money which was paid.
So far as the assets are an equivalent, he is
so far as they fall short of being an
equivalent, in that proportion he is damaged." The sole point for
determination therefore in the case is whether the shares handed over to the
plaintiff were an equivalent for the money paid or whether they fell short of
being the equivalent and if so, to what extent. Ordinarily the market rate of
the shares on the date when the fraud wag practised would represent their real
price in the absence of any other circumstance. If, however, the market was
vitiated or was in a state of flux or panic in consequence of the very fact
that was fraudulently concealed, (1)  1 Ch. 546. (2) 37 Ch. D. 541.
800 then the real value of the shares has to
be determined on a consideration of a variety of circumstances disclosed by the
evidence led by the parties. Thus though ordinarily the market rate on the
earliest date when the real facts became known may be taken as the real value
of the shares, nevertheless, if there is no market or there is no satisfactory
evidence of a market rate for some time which may safely be taken as the real
value, then if the representee sold the shares, although not bound to do so,
and if the resale has taken place within a reasonable time and on reasonable
terms and has not been unnecessarily delayed, then the price fetched at the
resale may well be taken into consideration in determining retrospectively the
true market value of the shares on the crucial date. If there is no market at
all or if the market rate cannot, for reasons referred to above, be taken as
the real or fair value of the thing and the representee has not sold the
things, then in ascertaining the real or fair value of the thing on the date
when deceit was practised subsequent events may be taken into account, provided
such subsequent events are not attributable to extraneous circumstances which
supervened on account of the retaining of the thing. These, we apprehend, are
the well settled rules for ascertaining the loss and damage suffered by a
party, in such circumstances.
If damages had been measured on the rules
above stated by the courts below, this court would have then respected the
concurrent finding on this point as the question of assessment of damages
primarily is a question of fact and the concurrent findings of the courts below
on such points except in very exceptional circumstances are not reviewed by
this court. We however find that in spite of the circumstance that the courts
below correctly enunciated the rule of measuring damages in such cases, they
estimated them on the difference between the cost price and the price realized
at the sale on the 20th and 22nd at four different rates. These four rates
could obviously not represent the true value of the shares on the 5th.
801 Moreover the finding that the true value
of these shares was lower than what was actually realized on their resale on
the 20th and 22nd is not based on any evidence whatsoever.
Such a finding could only be arrived at on
the basis of evidence on the record and by reference to that evidence, and this
has not been done. The High Court did not make an attempt to find out to what
extent the value of the 'Shares fell short of being an equivalent for the money
taken from the plaintiff. Without determining this crucial issue we think it
was not right to estimate the damage on the vague finding that the true value
of the shares was lower than the value which they fetched at the resale on the
20th and 22nd.
In this situation, we have no alternative but
to-arrive at our own finding on this question in spite of the concurrent
finding and we have to find as to what could be said to have been the true
value of these shares on the relevant date.
In other words, the question for our
determination is what the market value would have been on 5th April of these
shares if all buyers and sellers had information that the market was to be
closed on 8th and 9th April to enable settlement of outstanding transactions to
be effected, and had appreciated the effect of that decision. In the words of
Buckley J. in Broome v. Speak(1), it is indeed a difficult question to answer
beat that difficulty is no ground for refusing to answer it as has been done by
the court below.
in order to determine the real price of these
3,000 shares sold to plaintiff by concealment of certain facts, the first
question that needs decision is whether the market for these shares, the rate
prevailing wherein would prima facie be a true index of their value, had been
affected by the very fact concealed of which the plaintiff complains. In this
case from the proved facts it is clear that the market rate of these shares was
seriously affected by reason of the impending decision of the Stock Exchange
for closing it to stop the wave of speculation that had taken the frenzy of the
market by reason of the merger of the two steel (1)  I. Ch. 586.
802 companies doing business in northern
India. The market reports for the week ending March 19, show that the Indian
Irons were standing at or around Rs. 55. By Satur day the 3rd April after the
announcement of the terms of the merger by reason of the keen speculation the
shares were being dealt at around Rs. 73. On Monday the 6th April the price was
Rs. 77. On Tuesday the 6th, the day when the decision was taken to close the
market for two days, these shares touched Rs. 79 but by the close of business
fell back to Rs. 72 a sudden drop of Rs. 7. On Wednesday the 7th April in the
Calcutta market they closed at Rs. 58, a drop of Rs. 14 in a day. These sudden
rises and falls in the market during the course of these two days are
sufficient indication of the fact that the drop was due to the decision of the
Stock Exchange to close the Exchange for two days. There is no evidence that
any other factor was then disturbing the market rate of these shares. The share
market report of the defendants themselves issued on 10th April, 1937, amply
bears out this fact. In this report it was stated as follows :" The
outstanding feature of the Indian markets during the week under review was the
sudden landslide in Indian Iron and Steel shares, which proved infectious to
the other sections of the market. The week opened with a cheerful bullish
sentiment and Indian Iron and Steels touched Rs. 80.
At this dizzy height, the markets lost their
equilibrium and frenzied selling resulted in a sensational decline of about 25
points. The heavy liquidation was due to a predominance of weak holders-that
had come into the market at a late stage. Further, selling was accentuated by
the decision of Calcutta Stock Exchange to close the Calcutta market on the 8th
and 9th April to enable brokers to make deliveries and effect settlements for
transactions in Indian Iron and Steel shares. Heavy volume of business has been
outstanding between brokers on account of the delay in getting certificates.
Prospect of immediate delivery of share certificates scared off weak holders
and prices declined on heavy liquidation." 803 It is clear therefore that
the decision of the calcutta Stock Exchange to close the Calcutta market on 8th
and 9th affected the market prices considerably. The Calcutta market on the 7th
dropped from 72 to 58 as already stated.
The decision of the Calcutta Stock Exchange
was published in the Hindu of Madras on the evening of the 7th. From the
statement of account, Exhibit P-41, filed by Trojan & Co. on 7th, about
half a dozen transactions in these shares took place through them. Most of the
transactions, it appears, were by small holders of 100 scrips or so, who
unloaded their shares between 71 to 60 per share. On the 8th three transactions
took place at Rs. 62. No transaction took place between 8th and 14th. There
were two transactions on the 14th at Rs. 56, and there was a transaction on the
16th at Rs. 57-8-0. On the 20th Trojan and Co. sold 2,000 of the plaintiff's
shares at rates varying between Rs. 44-12-0 and Rs. 47-4-0.
According to the statement of account of
another broker, Ramlal & Co., there were about 16 transactions in these
shares on the 7th. Most of them were sold in lots of 100 or 200 and the sale
price of these shares ranged from Rs. 74 to
64. On the 8th there were a few transactions,
the rates varying between Rs. 57 to Rs 66. There was a transaction on the 9th
at Rs. 60. There were two or three transactions on the 10th also near about
this rate. No transaction after the 10th made by this company has been exhibited
on the record. Exhibit P-23 is another weekly share market report of Trojan
& Co. issued on 17th April, 1937. It states as follows :"In the first
place, Indian Irons are very cheap around Rs. 46. The company is doing
extremely well and the stage is set for a steady rise to Rs. 70...............
Indian Iron and Steels fluctuated between Rs.
55 to Rs. 60 and closed at Rs. 47. The recent hectic speculation has brought
its own nemesis." This report proves that there was really no market as it
appears from the evidence on the record in 104 804 Madras between the 8th and
17th which was a Saturday, and on the 17th the prices seemed to be settling
down at Rs. 46.
On the 19th the plaint gave to the,
defendants an order to sell his 3,000 shares and it was said "Please
retain this order till-executed". The defendants were only able to dispose
of 2,000 of these shares on the 20th at prices varying between Rs. 44-12-0 to
Rs. 47-4-0. The remaining 1,000 shares the plaintiff was able to sell through
Ramlal and Co. at Rs. 42-8-0 on 22nd April, 1937. It is quite possible and
probable that had the plaintiff placed an order before the 19th, say on the
16th or 17th, with the defendants or with Ramlal & Co., he might have been
able to sell these 1,000 shares also at about the same price as he was able to
dispose of his 2,000 shares. No member of the defendants-firm gave evidence in
the case. Plaintiff went into the witness box and stated that had he known what
the defendants knew, he would not have purchased the shares.
The information was withheld from him that
these shares were likely to godown. He said that he was told by the defendants
to sell the shares but no purchasers were available and in spite of his
keenness to liquidate them he was not able to do so before the 20th and 22nd,
that he approached Trojan & Co., the defendants-firm for selling them, but
they were not able to sell more than 2,000 shares.' Considering the whole of
this material, we are satisfied that the market rate prevailing on the 5th, 6th
and 7th had been affected by reason of the decision of the Calcutta Stock
Exchange to keep the market closed on the 8th and 9th and the market did not
settle down till about the 17th or 18th and the prices then ruling can in the
circumstances of this case be said to be their true market price. In our
judgment, Rs. 46 per share was the real price of these shares when they were
put in the plaintiff's pocket and he got Rs. 46 for each share in lieu of what
he paid for either at Rs. 77 or at Rs. 77-4-0. He is entitled to commission
also which he would have to pay on the sale of these shares. The difference
between these 805 two rates is the damage that he has suffered and he is
entitled to it. For the reasons given above we modify the order passed by Clark
J., and by the appellate Bench of the High Court to the extent indicated above
and we estimate the plaintiff's damage at Rs. 93,000 on account of the 3,000
shares at the rate of Rs. 31 per share.
The second question canvassed before the High
Court and also before us was in respect of the Associated Cement shares. As
above stated, the plaintiff's account was credited in the sum of Rs. 6,762-8-0
on account of the purchase of these shares. Plaintiff had pleaded that the
transaction was not authorised by him and that it had been made in
contravention of his instructions. He had claimed compensation on the ground of
breach of instructions he did not in the alternative claim on the ground of
failure of consideration the amount credited by the defendants in the
promissory note account and which credit disappeared by reason of the failure
of the suit on the promissory note.
At the hearing of the case before Bell J. the
contention that the purchase was unauthorized was abandoned by counsel and the
same position was adopted before Clark J. During cross-examination of the
plaintiff it was elicited that he either instructed the defendants to purchase
the shares or at any rate ratified the purchase which the defendants had made
on his behalf. It was argued before the appellate Bench of the High Court that
having pleaded one thing and having led evidence in support of that thing but
later on having been forced to admit in the witness box that the true state of
things was different the plaintiff had disentitled himself to relief as regards
these shares and he could not be granted the relief that he had not asked for.
The High Court negatived this contention on the ground that though a claim for
damages in respect of a particular transaction may fail, that circumstance was
no bar to the making of a direction that the defendants should pay the
plaintiff the money actually due in respect of that particular transaction. It
also held 806 that the plaintiff's claim in respect of this item of
Rs.6,762-8-O was with in limitation. We are unable to uphold. the view taken by
the High Court on this point. It is well settled that the decision of a case
cannot be based on grounds outside the pleadings of the parties and it is the
case pleaded that has to be found. Without an amendment of the plaint the court
was not entitled to grant the relief not asked for and no prayer was ever made
to amend the plaint so as to incorporate in it an alternative case. The
allegations on which the plaintiff claimed relief in respect of these shares
are clear and emphatic. There was no suggestion made in the plaint or even when
its amendment was sought at one stage that the plaintiff in the alternative was
entitled to this amount on the ground of failure of consideration. That being
so, we see no valid grounds for entertaining the plaintiff's claim as based on
failure of consideration on the case pleaded by him. In disagreement with the
courts below we hold that the plaintiff was wrongly granted a decree for the
sum of Rs. 6,762-8-0 in respect of the Associated Cement shares in this suit.
Accounts settled could only be reopened on proper allegations.
The next point canvassed in the courts below
was in respect of the claim of the plaintiff regarding interest on the amount
found due to the plaintiff from 5th April, 1937, to the date of the suit. It
was contended that no interest could be allowed on damages because to do so
would amount to awarding damages on damages which is opposed to precedent and
principle. Clark J., however, awarded interest by placing reliance on certain
English decisions which enunciate the rule that an agent who receives or deals
with the money of his principal improperly and in breach of his duty or who
refused to pay it over on demand is liable to pay interest from the time when
he so receives or deals with the same or from the time of the demand. We think
it is well settled that interest is allowed by a court of equity in the case of
money obtained or retained by fraud. As 807 stated in article 423 of Volume 1
of Halsbury, the agent must also pay interest in all cases of fraud and on all
bribes and secret profits received by him during his agency.
Their Lordships of the Privy Council in
johnson v. Rex(1) observed as follows: -"In order to guard against any
possible misapprehension of their Lordships' views they desire to say that in
their opinion there can be no doubt whatever' that money obtained by fraud and
retained by fraud can be recovered with interest, whether the proceedings be
taken in a court of equity, or a court of law, or in a court, which has
jurisdiction both equitable and legal." The appeal court affirmed the view
of Clark J. on this point. The learned counsel for the appellant contended that
the decisions relied upon concerned cases where the agent had retained some
money of his principal in his hands but that in the present case the claim was
merely for damages.
This contention is fallacious. By reason of
the transaction brought about by fraudulent concealment plaintiff paid to the
defendants a sum of Rs. 60,000 in cash which he would not have parted with
otherwise and he also lost the money which stood at his credit with the
defendants. It is thus clear that the agents had a large sum of the plaintiff
with them which they would not have acquired but by reason of the fraud that
they practised on him. In this view of the case we see no force in the
contention of the learned counsel and we repel it.
The only other point that was argued before
us was in respect of future interest. It was not denied that plaintiff was
entitled to future interest as allowed to him at the rate of 6% on the amount
found due. it was however argued that the plaintiff should not have been
allowed interest for the period of one year and six months during which the
decree stood satisfied. The facts are that on 9th March, 1943, a decree for Rs.
51,805-1-0 carrying interest at six per cent. was (1)  A.C. 817.
808 passed in favour of the plaintiff. On the
11th May, 1943, an amount of Rs. 71,000 due under this decree was paid by the
defendants to the Official Assignee. This amount was returned by the Official
Assignee to the defendants on 12th September, 1944, after that decree had been
Meanwhile the plaintiff's adjudication had
been annulled and he had been brought on the record on 16th March, 1944. It was
contended that during the period when the money remained with the Official
Assignee who was the plaintiff no future interest was payable as the decree
stood satisfied during that period. The High Court rejected this contention on
the ground that when this money was paid into court, it was coupled with a
prayer that it should not be paid out to the creditors of the insolvent's
estate pending disposal of the appeal, and therefore as the money was not
distributable amongst the insolvent's creditors, interest for this period had
been rightly allowed. In our opinion, this view -cannot be sustained. So far as
the defendants judgment-debtors are concerned they had done their part and paid
the money to the decree-holder and had thus satisfied the decree. It was open
to the Official Assignee, the decree-holder, not to take the money on the
condition on which it was given to him and if he had not taken the money from
the defendants he could then justly have claimed future interest on this
amount, but having taken the money and kept it, it could not be said that
during this period anything was due to the plaintiff from the defendants. The
defendants certainly had paid the decretal amount and whether the plaintiff or
his predecessor in interest was able to use it or not was a circumstance wholly
immaterial in considering whether future interest should or should not be
allowed. In our judgment, the plaintiff was not entitled to future interest at
the rate allowed for one year and six months period, beginning from 9th March,
1943, and ending with 12th September, 1944.
The appeal is therefore allowed to the extent
indicated above. The decree of the High Court will be 809 modified and
plaintiff will be entitled to damages in the sum of Rs. 93,000 on the 3,000
Indian Iron shares. The decree given to the plaintiff in respect of' Rs.
6,762-8-0 is set aside over and above the' decree for Rs. 9,100 in his favour
set aside by the High Court. In the calculation of future interest the
plaintiff will not be allowed interest from 9th March, 1943, to 12th September, 1944. In the result the decree given to the plaintiff in the sum of Rs. 61,787
is reduced to Rs. 42,175. He will get interest at six per cent. per annum from 5th April, 1937, until payment or realization except for a period of one year and six
months. Plaintiff will get proportionate costs throughout.
Appeal allowed in part.
Agent for the appellant: Ganpat Rai.
Agent for the respondent: M. S. K. Sastri.