Gujarat High Court

Itc Ltd vs Gadat Vibhag Vividh Karyakari Sahakari ... on 18 June, 2024

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           IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

                      R/FIRST APPEAL NO. 3710 of 1999
================================================================
                          ITC LTD.
                            Versus
GADAT VIBHAG VIVIDH KARYAKARI SAHAKARI KHEDUT MANDAL LTD. &
                            ANR.
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Appearance:
MR MANISH BHATT, SENIOR ADVOCATE WITH MR NISARG DESAI AND
MR YASH DADHICH FOR GANDHI LAW ASSOCIATES(12275) for the
Appellant(s) No. 1
MR CHIRAG B PATEL(3679) for the Defendant(s) No. 1
SERVED BY PUBLICATION IN NEWS for the Defendant(s) No. 2
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 CORAM:HONOURABLE MR. JUSTICE DEVAN M. DESAI

                              Date : 18/06/2024
                               ORAL ORDER

1. This appeal is filed under Section 96 of the Code of Civil

Procedure, 1908 challenging the Judgment and Decree dated

06.03.1999 passed in Special Civil Suit No.37 of 1996 by

learned Civil Judge (SD), Navsari.

2. Heard learned Senior Advocate Mr. Manish Bhatt with

learned advocate Mr. Nisarg Desai and learned advocate Mr.

Yash Dadhich for Gandhi Law Associates for the appellant and

learned advocate Mr Chirag B. Patel for the respondent No.1.

3. The brief facts of the case are as under:-

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3.1. The plaintiff-respondent No.1 being registered under the

Cooperative Societies Act, is engaged in the business of Mango,

Chikoo, Banana etc. Defendant No.2-present respondent No.2

represented himself as an agent of appellant-defendant No.1 and

purchased Mangos from plaintiff-respondent No1. Plaintiff

opened a credit account in the name of defendant No.1. Plaintiff

delivered Mangos to defendant No.2 at Gadat Taluka Gandevi

from 04.06.1993 to 15.06.1993 for an amount of Rs.3,31,635/-.

Bills were issued in the name of defendant No.1 by the plaintiff.

Defendant No.2 gave two cheques in the name of plaintiff of

Rs.2,02,460/- dated 30.06.1993 and another cheque of

Rs.89,135=00 dated 04.07.1993. Both the cheques were not

honoured and returned uncleared. As defendants did not make

the payment of Mangos sold, a notice dated 22.04.1995 came to

be issued to the defendants. Respective replies were given by

both defendants. Since the notice was not complied with,

wherein defendant No.2 gave assurance to pay the outstanding

amount to plaintiff. plaintiff filed the suit for the recovery of

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Rs.5,08,230.60 paise with interest @ 18% per annum.

3.2. Defendants were duly served with the summons of the suit.

Defendant No.1-present appellant appeared and filed Written

Statement at Exhibit-15. Defendant No.2 though served neither

filed written statement nor cross-examined the plaintiff.

Defendant No.2 did not lead any oral evidence. Following issues

were framed at Exhibit-21:-

"1. Whether the Plff. is a corporate body - registered under Co.operative Societies Act ?

2. Whether the Plff. proves that the Deft.No.2 has approached the Plff. as an Agent of the Deft.No.1 and purchased mangoes for Deft.No.1 and took delivery of such from 4/6/93 to 15/6/93 with term to pay interest at the rate of 18% p.a. in case of non payment of due amount within 15-days?

3. Whether the Plff. proves that the Deft.No.1- purchased goods for Rs.3.31,635/- on behalf of Deft.No.2 ?

4. Whether the Plff. proves that amount of - Rs.3,31,635/- remains due towards the principal amount and amount of Rs.1,76,595/60 remains due towards the interest in all amount of- Rs.50,8230/60Ps. remains due from the Deft. ?

5. Whether the Deft. No.1 proves that it is absolutely absolved from any kind of liability?

6. Whether the Deft.No.1 proves that it has never appointed Deft.No.2 on its behalf - But Deft.No.2 was supplier to Deft.No.1 and the Deft.No.1 paid due amount immediately to the Deft. No.2 as pleaded in w/s para (2) ?

7. Whether the Deft.No.1 proves that the Deft.No.2 acted without seeking any prior permission of the Deft.No.1?

8. Whether the Plff.'s suit is of without cause of action ?






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9. Whether the Piff. is entitled to relief as prayed for?

10. What order and decree ?"

3.3. Oral evidence was led by plaintiff by examining the

witness Amul Dhirubhai Desai at Exhibit-34, Mr. Arunkumar

Dayalji Naik at Exhibit-61, Harshadbhai Lalbhai Naik at

Exhibit-65 and Bhikhubhai Balubhai Patel at Exhibit-70.

Plaintiff produced documentary evidence at Exhibits-35, 36, 37

to 44, 45, 46, 47, 62, 63, 71 to 74. Defendant No.1 also

examined Assistant Manager at Exhibit-78 and also produced

documentary evidence.

4. Learned Senior advocate Mr. Manish Bhatt for the

appellant-original defendant No.1 submitted that the suit was

filed by respondent No.1 against the present appellant and the

respondent No.2 for the recovery of Rs.5,08,230.60 paise. It is

further submitted that during the year 1992-93, the appellant

exported certain fruits, vegetables to various overseas buyers.

The said purchases were from various suppliers and farmers.






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The respondent No.2 purchased Mangos from respondent No.1

from 04.06.1993 to 15.06.1993. Invoices were raised by

respondent No.1 for the transaction as mentioned hereinabove. It

is further submitted that the respondent No.1 never sent a copy

of invoice to the appellant. It is also submitted that the appellant

never appointed defendant No.2 as an agent to purchase Mangos

from respondent No.1. It is further submitted that respondent

No.2 was one of the suppliers to the appellant as the appellant is

in the business of exporting fruits and vegetables to the different

overseas venders and purchases were made from various

suppliers and farmers as a normal routine market transaction. It

is further submitted that appellant purchased fruits from

respondent No.2 as an ordinary commercial transaction by

issuing purchase orders and the appellant has paid entire amount

to the respondent No.2 pursuant to the purchase vouchers raised

by the appellant. It is further submitted that since there was no

relationship of principal and agent between the appellant and

respondent No.2, the learned trial Court has committed an error

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by decreeing the suit against the present appellant. It is further

submitted that even the principle of implied contract cannot be

made applicable to the present set of facts as at no point of time,

the appellant has ratified the action of purchasing Mangos by

respondent No.2. Even the transaction of sale and purchase of

Mangos were not ratified by Defendant No.1. There was no

implied authority given to Defendant No.2 to enter into a

transaction of purchase Mangos from plaintiff. Section 187 of

the Indian Contract Act has been relied upon by the learned

Senior Advocate which is reproduced as under;

187. Definitions of express and implied authority.--An authority is said to be express when it is given by words spoken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case".

It is submitted that authority can be said to be expressed

only when the same is given by word 'spoken or written' and the

authority can be said to be an implied authority when the same

is to be inferred from circumstances.

4.1. It is further submitted that in the present case, in the oral

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evidence led by the plaintiff though the burden of proving the

relationship of a principal or agent is on the plaintiff. Such

burden has not been discharged by plaintiff. Plaintiff has not

been able to establish such expressed or implied authority in

favour of the Defendant No.2. Only on the basis of invoices, a

transaction of sell and purchase of goods cannot be inferred. No

delivery challans were produced by Respondent No.1. Plaintiff

has not been able to prove that the Mangos were sold to

Defendant No.1. As per the averment made in plaint, bills were

given to defendant No.2. Even in absence of clear evidence

regarding either expressed or implied authority, the learned trial

Court has failed in law in arriving at a conclusion of existence of

implied contract between the Defendant No.1 and the Defendant

No.2. It is further submitted that outward Register of plaintiff

Exhibit-71, also does not reflect the name of the Defendant

No.1. The said Register was being maintained by the plaintiff

and produced by the plaintiff. The Entry at Serial No.2083 of

Exhibit-71 reflects the name of defendant No.2 only. Exhibit-72

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which is an outward Register Book maintained by plaintiff, at

Serial No.5567, name of appellant is mentioned. However, at

Serial No.5568, the name of respondent No.2 is mentioned

which is dated 20.06.1994. It is further submitted that the

conclusion arrived at by the learned trial Court about the implied

contract is against the settled principles of law and also against

the oral evidence led by the parties.

4.2. Learned Senior Advocate for the appellant has also drawn

the attention of this Court by relying upon the oral evidence of

respective parties and submitted that the witness of Defendant

No.1 at Exhibit-78 has clearly denied the relationship of

principal and agent between the Defendant No.1 and Defendant

No.2. Even the said witness categorically denied the allegation

that Defendant No.2 was acting as an agent of Defendant No.1.

4.3. It is further submitted by the learned Senior Advocate for

the appellant that in the present case, there is nothing on record

to show an "overt act" or "implied action" on the part of the

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appellant. It is further pointed out by learned Senior Advocate

by referring the plaint, wherein it is pointed out that the case of

the plaintiff is that the Defendant No.2 approached plaintiff and

represented himself as an agent / representative of Defendant

No.1. It is also submitted that Defendant No.2 issued two

cheques in favour of the plaintiff being dated 30.06.1993 for an

amount of Rs.2,02,460/- and second cheque dated 04.07.1993

for an amount of Rs.89,135/- and both the cheques were

dishonored. However, no actions or steps were taken by plaintiff

against Defendant No.2 under the provisions of Section 138 of

the Negotiable Instruments Act. It is also pointed out by the

learned Senior Advocate that it is the positive assertion of the

plaintiff in the plaint that there exists a relationship of principal

and agent between the Defendant No.1 and Defendant No.2

respectively. However, plaintiff has failed to establish such

relation.

4.4. In support of his contentions, learned Senior Advocate for

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the appellant has placed reliance upon the decisions in the case

of Vijay Traders vs. Bajaj Auto Ltd. reported in (1995) 6

Supreme Court Cases 566 and Jackie Kukubhai Shroff Vs.

Ratnam Sudesh Iyer reported in [2020(5) Mh.L.J. 524.

4.5. Learned Senior Advocate for the appellant has also placed

reliance upon Section 182 of the Indian Contract Act, 1872

which defines an agent and principal, which is reproduced as

under:-

"182. 'Agent' and 'principal' defined.--An 'agent' is a person employed to do any act for another, or to represent another in dealings with third person. The person for whom such act is done, or who is so represented, is called the 'principal'."

It is submitted that when a person is engaged to do any act

for another or to represent another in dealings with third person,

such person can be said to be an "agent" within the definition of

"agent".

4.6. Learned Senior Advocate for the appellant has further

submitted that in the present case, defendant No.2 was never

appointed to represent himself as an agent of the Defendant

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No.1 and never ratified any action of purchasing Mangos from

plaintiff. Defendant No.2 has not led any evidence. No contract

of agency is produced by Defendant No.2

5. Per contra, learned advocate for respondent No.1-original

plaintiff vehemently submitted that the judgment and decree

passed by the learned Civil Court is in complete consonance

with evidence on record and there is no reason to interfere with

the findings of fact which have been arrived at by the learned

trial Court. Learned advocate for plaintiff has mainly relied

upon the cross-examination of witness of Defendant No.1 which

is recorded at Exhibit-78 and has relied upon the disposition and

submitted that it is deposed that Defendant No.1 has purchased

Mangos from Defendant No.2 and the said witness has also

deposed that in August 1993, payments were made to Defendant

No.2. By relying upon some part of the deposition, learned

advocate for respondent No.1-plaintiff has submitted that an

implied contract could be inferred and there was an implied

authority in favour of the Defendant No.2.





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Learned advocate for the plaintiff has also placed reliance

upon Sections 186 of the Indian Contract Act, 1872 which is

reproduced hereinbelow:-

"186. Agent's authority may be expressed or implied.--The authority of an agent may be expressed or implied".

5.1. It is further submitted that from the cross-examination of

the said witness, the learned trial Court has come to the

conclusion that there was an implied contract between the

Defendant No.1 and Defendant No.2. Reliance is placed by the

learned advocate for the plaintiff-respondent No.1 upon the

decision in the case of Chairman, life Insurance Corpn. and

Others Vs. Rajiv Kumar Bhasker reported in (2005) 6 Supreme

Court Cases 188, in which, the Hon'ble Bench has observed in

paragraph Nos.27,28,36,37 and 40, which are quoted as under:

"27.For creating a contract of agency, in view of Section 185 of the Indian Contract Act, even passing of the consideration is not necessary. The consideration, however, so far as the employers are concerned as evidenced by the Scheme, was to project their better image before the employees.

28. It is well settled that for the purpose of determining the legal

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nature of the relationship between the alleged principal and agent, the use of or omission of the word "agent" is not conclusive. If the employee had reason to believe that his employer was acting on behalf of the Corporation, a contract of agency may be inferred.

36. A somewhat similar view was taken by the House of Lords in Branwhite v. Worcester Works Finance Ltd. in the following terms:

(All ER p. 122 D-G)

"In the Garnac case Lord Pearson, with the concurrence of the House, used these words:

"The relationship of principal and agent can only be established by the consent of the principal and the agent. They will be held to have consented if they have agreed to what amounts in law to such a relationship, even if they do not recognise it themselves and even if they have professed to disclaim it.... The consent must, however, d have been given by each of them, either expressly or by implication from their words and conduct.

The significant words, for the present purpose, are 'if they have agreed to what amounts in law to such a relationship. These I understand as pointing to the fact that, while agency must ultimately derive from consent, the consent need not necessarily be to the relationship of principal and agent itself (indeed the existence of it may be denied) but may be to a state of facts on which the law imposes the consequences which result from agency. It is consensual, not contractual. So interpreted, this formulation allows the establishment of an agency relationship in such cases as the present.

37. Yet again in Armagas Ltd. v. Mundogas S.A. the House of Lords

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pointed out that even in the absence of any express contract of agency in relation to the transaction made with the third party, ostensible authority may be presumed, stating: (All ER pp. 389j-

390a)

"Ostensible authority comes about where the principal, by words or conduct, has represented that the agent has the requisite actual authority, and the party dealing with the agent has entered into a contract with him g in reliance on that representation. The principal in these circumstances is estopped from denying that actual authority existed. In the commonly encountered case, the ostensible authority is general in character, arising when the principal has placed the agent in a position which in the world is generally regarded as carrying authority transaction where the agent has had in this course contractor and the principal has acquiesced in this course of honoured transactions arising out of it."

40. Agency as is well settled, is a legal concept which is employed by the Court when it becomes necessary to explain and resolve the problems created by certain fact situations. In other words, when the existence of an agency relationship would help to decide an individual problem, and the facts permits a court to conclude that such a relationship existed at a material time, then whether or not any express or implied consent to the creation of an agency may have been given by one party to another, the Court is entitled to conclude that such relationship was in existence at the time, and for the purpose in question. [See Establishing Agency by GHL Fridman - 1968 (84) Law Quarterly Review 224 at p. 231]"

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5.2. Further reliance is placed by the learned advocate for the

plaintiff upon the decision in the case of Dilawari Exporters vs.

Alitalia Cargo and Others reported in (2010) 5 Supreme Court

Cases 754, in which, it has observed in paragraph Nos.17, 18,

19, 20 and 22, which are quoted as under:

"17. Section 186 of the Contract Act, 1872 (for short "the Contract Act") lays down that the authority of an agent may be expressed or implied. As per Section 187 of the Contract Act, an authority is said to be express when it is d given by words spoken or written, and an authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing, which may be accounted circumstances of the case.

18. Section 188 of the Contract Act prescribes that: "188. Extent of agent's authority. An agent, having an authority to do an act, has authority to do every lawful thing which is necessary in order to do such act."

19. Section 237 of the Contract Act provides that:

"237. Liability of principal inducing belief that agent's unauthorised acts were authorised. When an agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations if he has by his words

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or conduct induced such third persons to believe that such acts and obligations were within the scope of the agent's authority."

20. There is no gainsaying that onus to show that the act done by an agent was within the scope of his authority or ostensible authority held or exercised by him is on the person claiming against the principal. This, of course, can be shown by practice as well as by a written instrument. Thus, the question for consideration is whether on the evidence obtaining in the instant case, can it be said that Respondent 3 had an express or implied authority to act on behalf of Respondent 1 as their agent? If Respondent 3 had such an authority, then obviously Respondent 1 was bound by the commitment Respondent 3 had made to the appellant.

22. The other relevant particulars like, the name of the consignee, the number of the house air waybill (0841), etc. tally with the house air waybill issued by Respondent 3 to the appellant clearly showing the name of the consignor as that of the appellant. From the said documents it would appear that Respondent 3 was in fact, acting in dual capacity, one as a shipper on behalf of the appellant and the other as an agent of Respondent 1. That being so, Respondent I was bound by the acts of their agent viz. Respondent 3 with all its results. We are of the opinion that while holding that there was no privity of contract between the appellant and Respondent 1 this vital aspect of the matter escaped the attention of the Commission thus, vitiating its order."






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6. In spite of service of notice to the respondent No.2, none

appears for respondent No.2-original defendant No.2.

7. I have considered the submissions made by respective

advocates and also considered the record and proceedings which

is placed on record. It is the case of plaintiff in the plaint that the

respondent No.2 represented himself as an agent / representative

and purchased Mangos from plaintiff and took the delivery of

Mangos from 04.06.1993 to 15.06.1993. The bills of sale and

purchase of Mangos were given to defendant No.2, however, the

bill was issued in the name of defendant No.1. The said bills are

produced at Exhibit 37 to 44. On perusal of such bills, though

the bills are prepared in the name of defendant No.1, no counter-

signature of defendant No.1 is found regarding receipt of bills.

Moreover it is the case of plaintiff that bills were given to

Defendant No.2. In absence of a delivery challan with regard to

the sale and purchase of Mangos, invoices raised in the name of

defendant No.1, can never be said that goods were sold to

Defendant No.1 The entire chain of selling and purchasing of

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goods can be proved by producing and proving purchase orders,

if any, invoices and the delivery challan. The delivery challan is

a conclusive proof of the transaction which is missing in the

present case. It is noticed by this Court that except bare

statement in plaint, no material is found that there existed a

relationship of principal and agent between Defendant No.1 and

Defendant No.2. It is only upon the oral statement of Defendant

No.2 to be represented as an agent of Defendant No.1, plaintiff

sold Mangos to Defendant No.2. From the cross-examination of

Defendant No.1, nothing could be extracted by plaintiff which

can satisfy this Court to arrive at a conclusion of implied

authority or implied contract between Defendant No.1 and

Defendant No.2. the transaction which is referred by Defendant

No.1 in his cross-examination is not the conclusive proof that

such was a suit transaction. No further questions were put to be

written to extract any omissions which could be linked up with

suit transaction. Further, it is also deposed by the witness of

Defendant No.1 and also in the written statement that for the

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transaction of purchase of Mangos from Defendant No.2,

payment has already been made to Defendant No.2. When

Defendant No.2 issued cheques in favour of plaintiff clearly

establishes the fact that the transaction was between plaintiff and

defendant No.2 independently. Even after dishonouring of two

cheques, plaintiff did not initiate any action against Defendant

No.2 under Section 138 of the Negotiable Instruments Act.

8. It would be apt to refer Section 34 of the Indian Evidence

Act to discuss about the Exhibit-45, which is the statement of

account. Section 34 of the Indian Evidence Act is reproduced as

under:

"34. [Entries in books of accounts including those maintained in an electronic form] when relevant-[Entries in books of accounts, including those maintained in an electronic form], regularly kept in the course of business, are relevant whenever they refer to a matter into which the Court has to inquire, but such statements shall not alone be sufficient evidence to charge any person with liability."

9. In the present case, plaintiff has produced a copy of

statement of account. In absence of any books of accounts

regularly kept in the course of business, no liability can be

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fastened on other side. Merely by producing a statement of

account, it cannot be said that the plaintiff has proved the entries

in the books of accounts.

In the case of Ishwar Dass Jain (Dead) Through Lrs. Vs.

Sohan Lalo (Dead) by L.rs. reported in AIR 2000 SC 426, in

which, it has been observed in para Nos.23 and 24 which are

reproduced hereinunder:

"23. Now under Section 34 of the Evidence Act, entries in "account books" regularly kept in the course of business are admissible though they by themselves cannot create any liability. Section 34 reads as follows:

"Section 34 : Entries in books of account when relevant - Entries in books of account, regularly kept in the course of business, are relevant whenever they refer to a matter into which the Court has to inquire, but such statements shall not alone be sufficient evidence to charge any person with liability".

It will be noticed that sanctity is attached in the law of evidence to books of account if the books are indeed "account books i.e. in original and if they show, on their face, that they are kept in the "regular course of business". Such sanctity, in our opinion, cannot attach to private extracts of alleged account books where the original accounts are not filed into Court. This is because, from the extracts, it cannot be discovered whether accounts are kept in the regular course of business or if there are any interpolations or whether the interpolations are in a different ink or whether the accounts are in the form of a book with continuous page numbering. Hence, if the original books have not been produced, it is not

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possible to know whether the entries relating to payment of rent are entries made in the regular course of business.

24. It only in the case of Bankers' Books Evidence Act, 1891 that certified copies are allowed or the case must come under Section 65(f) or (g) of the Evidence Act. Private extracts of accounts in other cases can only be secondary evidence and unless a proper foundation is laid for adducing such secondary evidence under Section 66 or other provisions of the Evidence Act, the privately handwritten copies of alleged account books cannot by themselves be treated as secondary evidence."

10. However, after a long period of more than one and a half

year, notice of demand dated 22.04.1995 came to be issued. The

said notice was replied to by defendant No.1.

11. As per the provisions of the Indian Contract Act, more

particularly Sections 182, 186 and 187, an agent is a person

employed to do any act for another or to represent another in

dealing with third parties. Thus, at the first instance, the plaintiff

has to establish that there exists relationship of principal and

agent between the defendants inter se. As observed in the case

of Dilawari Exporters (supra), the onus to show that the act

done by an agent was within the authority or ostensible authority

held or exercised is on the party who claims against principal. In

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the present case, in absence of any written contract or even in

absence of any express or implied authority to act on behalf of

defendant No.1 as an agent, Defendant No.1 cannot be held

liable for the suit transaction. When an authority is given in

words or in writing, it amounts to an expressed authority. When

there is no written authority or expressed words giving authority

to the agent, it amounts to an implied authority. In the plaint, it

has been specifically averred by the plaintiff that defendant No.2

approached the plaintiff and represented himself as an agent of

defendant No.1 and by relying upon such representation,

plaintiff sold and delivered Mangos to defendant No.2. The suit

transaction as per the oral version of the witness of the plaintiff

took place in the year of June 1993. The said witness has

deposed that defendant No.2 represented himself as an agent of

defendant No.1. Whereas another witness of plaintiff at Exhibit-

65 deposed that defendant no.2 introduced himself as an

representative of defendant No.1. The said witness has also

deposed that letters were written to the defendant No.2

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demanding their outstanding dues. It reveals from the record that

except notice dated 22.04.1995, no correspondence was initiated

by the plaintiff against the defendant No.1. The outward

to presume an implied contract existed between the defendants

inter se.

12. The learned trial Court has given a complete go-by to the

oral deposition of the defendant No.1. There is no cross-

examination by plaintiff on the deposition of witness that

defendant No.2 on the fact that Defendant No.2 acted as an

agent of defendant No.1. The witness is not contradicted on the

statement that Defendant No.1 has never appointed Defendant

No.2 as an agent. In absence of specific questions being put to

the defendants' witness, implied contract cannot be presumed.

Even there is no circumstance found on record to show any

conduct of defendant No.1 which proves implied authority in

favour of the defendant No.2.







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13. It is worthwhile to observe that the defendant No.2 who

claims to be an agent of defendant No.1 has neither cross-

examined the plaintiff and nor Defendant No.1 has filed any

written statement. Defendant No.2 has not offered himself for

cross-examination. There is nothing contrary on record to

dislodge the stand taken by the defendant No.1 that the

defendant No.1 purchased Mangos from defendant No.2 as an

ordinary commercial transaction by issuing purchasing orders

independent of suit transaction. The plaintiff has not been either

able to point out from the evidence or from the deposition that

there existed nexus between the suit transaction and the

transaction which has been averred in the written statement of