Sir Chunilal v. Mehta and Sons, Ltd. v. The Century Spinning and Manufacturing Co., Ltd.

N. A. Palkhivala, J. B. Dadachanji, 8. N. Andie)/, R1tm.eshwar .l\'ath and P. L. Vohm, for the appellants. . llf. C. 8r1alvad; Attorney General of India, R .• !. Joshi and R. P. Malteshwari, for the respondont. Pon1!3 A. Melita and R. H. Dliehar, for the r ntervencr.

1962. March 5, The Judgment of the Court 1va~ delivered by M:Jdho/l;(l' J. MuDIIOLll:AR, J.-This is an appeal by special

lerive iigainst. tho Judgment of the High Court of Bomh11.y in an appeal from the jud~ment of a single .Judge of that Court. The claim in appeal before tho High Court was for a.bout 26 lakhs of rupees. Being aggrieved by the decision of the High Court, 'h<> n.npelliint a.pp lied for a. certificate under Art. I !l3(l )la) of the Con•titution. The ju :lgment of the High Court in appeal was in affirma.nco of the judg-ment of the learned single ,Judge dismissing the ~ppellant's suit. for qamages and therefore, it wa~ necessary for the appellant to establish that a sub-1962 stantial question of law was involved in the appeal. Sir Chunilal On behalf of the appellant it was contended that V. Mehta cf! Sons, the question raised concerned the interpretation to Ltd. v. be placed on certain clauses of the mrmaging agency The Century Spinning agreement upon which their claim in the suit was & Manufacturing Co, Ltd. founded and that · as the interpretation placed by the appeal court on those clauses was erroneous and Mu<l~olkaf' J, thus deprived them of the claim to a substantial amount the matter deserved to be certified by the High Court under Art. 133(l)(a) of the Constitution.

The learned Judges,dismissed the 11.pplication with-out a judgment apparently following their previous decision in KaikhushrooPirojsha Ghaira v. C.P. Syndi-cate Ltd. (1). The appellants, therefore, moved this Court under Art. 136 of the Constitution for grant of special leave which was granted. In the applica-tion 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 tho· 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 pron0unce upon the question in this appeal and set the matter at rest. We think that it is eminently desirable that the point should be con-sidered in this appeal.

It is not dijputed before us that the question raised by the appellant in the appeal is one of Jaw because wh11t the appellant is challenging is the • interpretation placed upon cert,ain clauses of the

(1) (\948) L. Born. . LR. 744. . (2) (1927) 54 I.A. 126, 12&, '

1962 ma.naging agency a.greement which a.re the founda.-

tion of the claim in suit. Indeed it is well settled Sir Churiilal that the construction of a decument of title or of a J', .l[rli.t.1 ((_·Sons,

Lid. dooument which is the foundation of the rights of v.

Tht Ctnt11 )' ·"Pi1lni'ffg parties necessarily raises a question of law.

.lloriuf1cturing The next question is whether the interpretation

Co., I.id,

of a document of the kind referred to abov11 raises .\fudhr,,l!:ar J. a substantial question of la.w. For, Art. I I) :~3( provides that where the judgment, decree or final order appealed from affirms the decision of the conrt immediately below in any case other than a. case referred to in sub-cl. ( c) an a.ppea.I sh&U lie to this Court if the High Court oertifics that tbe appeal involves some substantial question of law. To tho same effect are the provisions of s. IIO of tho Code of Civil Procedure. In the old Judicial Commis-sioner's Court of Oudh tho view was taken that a substantial question of law meant a question of general importance. Following that view its succes-sor, the Chief Court of Oudh, refused to grant a cortificat~ to one Rcghunath Prasad Singh whose appeal it had dismissed. The appellant, therefore, moved tho Privy Council for special leave on the ground that the appeal raised a substantial question of law. The Privy Council grant<,>d speoial leave to the appellant ai1d while granting it ma.do the follow. ing observation in their judgment:

"Admittedly here the decision of the Court affirmed tho decision of tho Court imme-dia.tely below, and, thert>foro, the whole ques-tion turns upon whether there is a substantial question of law. Thero seems to have been somo doubt, at any rato in the old Court of Oudh, to which the present Court succeeded, as to whether a. substantial questinn of law . meant a. question of genera.I importance. Their ' J,ordshi ps think it is quite clear and indeed it was conceded by !\fr. De Gruyther t.ha.t that fS not the meaning, but that "substantiai

question of law" is a substantial question of 1961 law as between the parties in the case invol-Sir' Chunilal ved." V. MtAta & Sons, Ltd •• Then their Lordships observed that as the case had occupied the High Court for a very long time and TAe C1ritur1 Spinning ch Manufacturing on whieh a very elaborate judgment was delivered Co., Ltd. the appeal on its face raised as between the parties J. Mudholkar a substantial question of law. This case is reported in Raghunath Prashad Singh v. Deputy Commissioner of Partabgarh(l). 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 had been settled by the highest court of the country the question of law however important or diffi<'ult 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 subsLantial ques-tion of law as between the p1rties. The Bombay High Court, however, in their earlier decision al-ready adverted to have not properly appreciated the test laid down by the Privy Council for ascertai-ning what is a substantial question of law. Apparen-tly 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 substan-tial question of law as between the parties in the case involved. But here again it must not be forgotten that what is contemplated is not a question of law alone ; it must be a sub-stantial question. One can define it nega- . tively. For instance, if there is a well esta-

blished principle of law aIJq that principle i~ applied to a. given set of fa.ots, tha.t would Sir Chunil~ certainly not be a substantial question of la.w. V. MtlUtJ &, Soru, Where tho que8tion of law is not well settled

Ltd. •• or where there is some doubt as to the princi-r,,_ C.nM.1 Spio•;,,g ple of law involved, it certainly would ra.ise <6 Monufocturing a substantial question of la.w which would

Cn., Ltd.

require a final adjudication by the highest .\fudholk1r J, 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 cha.racte r but even so they refused to grant a certi-ficate under s. I IO of the Code of Civil Procedure for appeal to the Federal Court because the cons-truction which the Court was called upon to place on the decree did not raiAe substantial question of law. Thny have obRerved tllat even though a decree may be of a complicated character what the Court ha.a to <lo is to look at its variolli! provisions and draw its inference therefrom. Thus according to the learned Judges merely because the inference to be drawn is from a complicated decree no subtan. tia.l question of law· would arise. Apparently in coming to this conclusion thoy omitted to a.ttach sufficient weight to the view of the Privy Council that a question of la.w is "a substantial question of law" when it affects tho rights of the parties to tho pro-ceeding. Further the learned Judges seem to have taken the viow that there should be a doubt in the mind of the Court as to the principle of law invol-ved and unless there is such doubt in it8 mind the question of law decided by it ca.nnot be said to be "a substantial qu,,stion of law" 80 as to entitle n party to a. certificat.o under s. 110 oft.he Code of Civil Pro~ure. It is trqo that the~ have µot sa\d in so many words that such a doubt must be enter-196B tained by the Court itself but that is what we under-Sir Chunilol stand their judgment to mean and in particular the V. M•hta & last sentence in the portion of their judgment which Sons, Ltd. v. we have quoted above. Thi Cmtur1' Spinnin_f &: M onufacturing As against the view taken by the Bombay High Co., Ltd Court there are two decisions of the High Courts in tUudholkar J. India to which reference was made before us. One is Dinkarrao v. Rattansey ('). !n 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 deci-sions that no question of 111,w can be substantial within the meaning of s. llO 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 unless 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) who delivered the judgment of the Court observed as follows :

"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. llO ........ ..

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 consi-der two· decisions of their Lordships of the Privy Council on this very point which, in o~r

556 SUPRE~fE COURT REPORTS [1962] SUPP.

1961 opinion, very largely modify the views taken in the cases cited and which of course it is impos· Si< Chuni/.J V. sible for us to ignore." (p. 226) ,\f,hla ti' •• Stma, Lld Tiu Centur.1 Spitm;ng Referring to th11 Privy C'-<mncil case the learned

<i· :\-f an1ifacturinr Chief Justic:e observed as follows :

Co., Lid.

"In the Lucknow case the only question ,.\1 udltolkar J . was whether the defendant there obtained an absolute interest or a limited interest under I\ will. That again was a question which was of no interest to anyone outside the parties to the suit. Nevertheless, their Lordships con· sidered in both cases that the questions were substant.ial questions of law bec:iuse they were rnbstantial 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 docs not affect the decision t.hen it cannot be su bstan-tial as between the parties. But if it substa.11· tially affects the decision then it is substan· tial as between the parties though it may be wholly unimportant to others." (p. 228) It may be that in the case before it, the Nai?pur 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 obser-vations of Boso C. J., are a lit.tlo 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 s:ime time his observation that the view taken in the cases cited before him requires to be modified in the light of the Privy 9oµncjl decj.sjOIJ woulq imply t~at a ~uestiop of l!i-1f is deemed to be a substantial question of law even 1962 though the legal principles applicable to the case Sir Chunilal V. are well defined and there can be no reasonable M1hl a&: 'Sone, Ltd. divergence of opinion about the correctness of v. l'lu Century Spinning the view taken by the High Court. If we have dJ M oii.ufacturinz, understood the learned Chief Justice right, we Co., ltd. think that he has gone further than was warranted Mudho/l:arJ. by the decision of the Privy Council in Raghunath Prasad Singh's case (1).

The other case relied upon was Rimma"lapudi Subba Roo 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 neces-sary to deal with that question at some length and discuss alternative view, then the question would be a sabstantial 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 Jaw.

We a.re 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 Nagpm~ 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

~GS st;PhEME COURT REPORTS [1962J.St1Pt. 11 directly and substantially affects the rightR of th~ S;, Chunil o1 Y. parti<'S and if so whether it is either an open ques· JI eh ta &: Sons. W. tion in the sense that it is not finally settled hy

i this Court or hy the Privy Council or by the Fede. Tiu Cmlu'' ,.,,,.ing d· Manujacluf'int ral Court or is not free from difficulty or calls for

Co., Ltd. discussion of alternative views. If the question is MudhtlkM J. settled by the· highest Court or the general princi-

ples to be applied in determining the question aro well settled and there is a mero queation of apply-ing those principles or that the plea raised is palpa-bly absurd the question would not be a substantial question of law.

Applying these tests it would be clear that tho ·question involved in this appeal, that is, the cons-truction of tho 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 tht~ appeal involves a substantial question of law. It has to ho borne in mind that upon the success or the failure of tho contention of the parties, thoy 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 briofly stated. Chunilal Mehta & Co., Bombay were appointed Managing Agents of the respondent company for a term of :!l years by an agreement dated June 15, 1933. By a resolution passed by the respondent company in October l!l45, Chunilal .Mehta. & Co., were permitted to assign the benefits of the afor<'said agreement to the present appellant, Sir Chunilal V. Mehta & Sons Ltd. On April 23, 1951, the Board of Directors of the Company termi-nat<'d the agreement of 1933 and passed a resolu-tion 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 claiming Rs. 50 lakhs by way of damages for wrong-1962 ful termination of the agreement. Eventually· with Sir Ch••ilal the permission of thll Court it amended the plaint V. Mehia &J Soos, and claimed instead Rs. 28,26,804/-. The company U.,~· admitted before the Court that the termination of The C•ntur7 SpiMi"t t h e appel 1 ants , employment was wrong f u l an d so t h e &! Manufacturing Co., IM. only question which the learned Judge before whom the matter went had to decide was the quantum of MudholkarJ. damages to which the appellant was entitled. This question depended upon the construction to be placed upon cl. 14 of the Managing Agency agree-ment.

That clause runs thus :

"fn 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 deter-mined."

In order to appreciate the arguments advanced before us it would, however, be desirable to repro-duce the two earlier clauses-els. 10 and 12. They run thus :

¶10The Company shall pay to the Firm by way 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 SUPRE~IE COURT REPORTS [1962) SUPP.

1962 clos<· of any y<'ar it shall be found that tho Sfr Clwnilol V. total remunerat.ion of· the firm receivf'd in M11tla &.· S01ts Lt4 such year shall have been less than IO per

v. cent of the gross profits of thtJ Company for T ht Ctn/tu_> SpiNrin g such year the Company shall pay to the Firm

th, Jlarrufaeluring 1-

Co., /Jd. in respect of ~uch year such additional sum M,dholkar J. by way of remuneration as will make the total sum received by the Firm in and in respect of such year equal to I 0 per cent of tho groSB profits of the Company in that year. The first payment of such remuneration shall bf, made on the first day of August 19:l3.

"12. The said monthly remuneration or Hillary shall accrue due from day to day but shall be payable by the company to tho l•'irm. monthly, on the first day of the month imme-diatdy ~ucceeding tho month in which it shall have been earned."

Tho learned trial judge upon the interpreta-tion placed by him on cl. 14 awarded to the appel-lant a sum of Rs. 2,:W,OCO/., calculating the amount at Ha. (),000/- p.m. for the unexpired period of the term of the Managing Agency agreement and also awarded interest thereon. Kow according t-0 l\Ir. Palkhivala for the appellants, the interpretation placed upon cl. 14 by the trial judge and the appeal Court is erroneous in that it makes the words "not less than" in cl. 14 redundant. Learned counsel contends that on a proper construction of cl. 14 the appellants are entitled to compensation computed on the basis of the total estimated remuneration under cl. l 0 for the unexpired period. Under that clause, he contends, the appellants are entitled to 10% of the profits of the <:ompany subject to a minimum of Rs. 6,0UO/- p.m. Alternatively learned counsel contends that cl. 14 is not exhaustive of the appellant's right to compensation and the right to be compensated in respect of contingent remunera-tion based oa 10% of profits is left untouched by 196> that clause.

Sir Chunilal' V. A perusal of cl. 14. clearly shows that the M1hta &! •• Sons, Ltd. parties have themselves provided for the precise The Century Spinfting amount of damages that would be payable by the & Manufaclur inV 1 Co. Ltd. Company t::> the Managing Agents if the Managing Agency agreement was terminated before the expiry fl1udholkar J. 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 !ts. 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 unascertaiued sum of · money as damages. The contention of learned

counsel is that the words "not less than" appearing before "Rs. 6,000/-" in cl. 14 clearly bring in cl. 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 s. 73 of the Contract Act and the entire cfause .

would be rendered otiose. Again the right to claim liquidated damages is enforceable under s. 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

1962 the~e wordR, as rightly-pointed out hy the High Sir Chunilal V. Court, were intended only to emphasise the fact Mehta~ Sons, Ltd. that compensation will be computable at an amount

v.

Tht Century Spinnint not less than Rs. fi,000 p.m. Apparently, they

klanufacturinl Co. thought it desirable to emphasise the point that the

Lid amount of lts. 6,000 p.m. was regarded by them as MudhollwJ. reasonable and intended that it should not be re-

duced by the court in its discretion.

Mr. Palkhivah argued that what the appellants were entitled to was remuneration aud remuneration meant nothing but salal'y. The two words, according to him, have been used intorchangeahly in the various clauses of the agreement. If, therr.forc, salary in cl. 14 is the same as remunerat.ion, which according to him it is, then as indieated in el. JO it would mean 10% of the gross profits of the Company sub-ject to a minimum of Rs. 6,00P/-p.m. Jn support of the argument that the two words wherever used in the agreement mean one and the same thing lea-rned 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 a.ppear that remuneration there could mean nothing other than Rs.6,000/·p.m. For, that clause provides that the amount shall accure 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 remu-neration 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 cl. 12 nothing else was meant but Rs.u,OOOf-and when tho word salary was used in cl. 14 we have no doubt that only that as.a.&. sU:PR:EM:E cou&r REPORTS 563 amount was meant and no other. It may be that under cl. 10 the appellant was entitled to additional Sir Chunilol V. remuneration in case the profits were high upto a M1hla &t Sons, Ltd. limit of 10% of the gross. profits. That was a right Vo The Centu,y Spinning to claim something over and above Rs.6,000/-and &: M anuJacturing could be characterised properly as additional remu-Co., Ltd. neration and not fixed or normal remuneration Mudholkar J. which alone was apparently in the minds of the par-ties when they drew up cl. 14. In our opinion, therefore, the High Court was right in the cons-truction 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 damages amounting 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 inten-ded by the parties to he 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 appel-lant would indeed have been entitled to claim dama-ges at the rate of 10% for the entire period aubject 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 ~arrying 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 . , . ~ . . . . '

SUPREME OOURT REPOR1'S [1962] SUPP.

i962

and that is compenation. It does not expreBBly or Sir Cl11111il4l V. by necessary implication keep alive the right tu M1hla 41 Sons1 Ud. claim damages under the general law. By provi-

v.

Tiu Ct11t111y Spinning ding for compensation in express terms the right tu

4' M"""fact,,.ing claim damages under the general law is neceBSarily

C.. Lid.

e~cluded and, therefore, in the face of that clause it M ui!rol /w J. is not open to tho appellant to oontend that that

right is left unaffected. Thero is thus nu substance in the alternative contention put forward by the learned counsel.

Accordingly we affirm the decree of the High Com t and dismiss the appeal with cost.a.

Appe,al di,siniS&li. IHI KRISli.J.'i"A PRASAD AND .OTHER~ Morch 6t> v.

GAURI KUMAR! D.EVl

(P. B. GA.JK'.SDRAGADKAR, w A. K. SARKAR and

K. N. AN CHOO, JJ.)

Bxecution-l'eroonal decree against mortgagor-Mortgaged e•late i·eBting in t!.t State-Bjject on claim pendiny-Bihar Land Reform• Act, 19W(Acl 30 oj 1950), s. 4(d).

The appcllan t obtaine<l a preliminary decree, on an anomalous mortgage of a ~hare in the Zamindari village of Sonchari Mouza in the Patna lJistrict and khudkasht land appertaining to the Mouza, against the mortgaged properties with a direction for a personal decree for the balance and there followed a final mortgage decr<e on 30.9.1947. An application for execution against the mortgaged properties was dismissed on 9.1.1954 as in the meantime the mortgaged pro· pcrtics \\·hich constituted an estate within the meaning of s. 2(1) of the Bihar Land Reforms Act, 1950, had vested in the State.

Execution was sought personally against the mortgagor I . by attachment and sale of other properties of the mortgagor and it was ultimately ordered by the executing <OUJ t. The