Telangana High Court

M/S. Pfieffer Vaccum India Limited, vs Mita Cars P. Limited, on 18 April, 2024

Author: G. Radha Rani

Bench: G. Radha Rani

      THE HONOURABLE DR.JUSTICE G. RADHA RANI

                  SECOND APPEAL No.1104 of 2009


JUDGMENT:

This Second Appeal is filed by the appellant - appellant - plaintiff

aggrieved by the judgment and decree dated 23.07.2009 passed in A.S.No.33 of

2005 by the learned I Additional Senior Civil Judge, City Civil Court,

Secunderabad confirming the judgment and decree dated 30.12.2004 passed in

O.S.No.662 of 2001 by the learned XVIII Junior Civil Judge, City Civil Court,

Secunderabad.

2. The parties are hereinafter referred as arrayed before the trial court.

3. The plaintiff filed a suit for recovery of an amount of Rs.69,567/- with

interest @ 24% per annum. The plaintiff was a company registered under the

Companies Act. The case of the plaintiff in brief was that impressed with the

claim made by defendant No.4 relating to Honda City 1.5 Exi-Car manufactured

by defendant No.4, the plaintiff approached the authorized dealers, the

defendant No.1 represented by defendants 2 and 3 for booking the car in

December, 1999. The reason for the plaintiff to take the said step was the

reputation of defendant No.4 and the positive reports relating to the cars

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manufactured by them. The defendant No.2 was the authorized agent /

distributor / dealer of defendant No.4. As such, the plaintiff approached the

defendants 1 to 3 as a bonafide purchaser. The plaintiff paid a sum of

Rs.1,00,000/- through cheque bearing No.041659 dated 18.12.1999 towards

initial payment. The defendant No.1 acknowledged vide receipt No.00411

dated 18.12.1999 in their letter No.JII/SR/331/99 dated 20.12.1999. The

defendants 1 to 3 promised to deliver the car within two or three weeks from the

date of receipt of 100% payment and called upon the plaintiff to pay the balance

amount of Rs.6,83,770/-.

4. While the matter stood thus, the plaintiff came across a press release on

25.12.1999 published in local daily newspaper informing the members of the

general public by defendant No.4 that with effect from 24.12.1999, the

defendant No.1 was not entitled or authorized to sell or accept any further or

fresh applications or bookings and was debarred from collecting any money or

deposits etc. from the customers for the cars manufactured by defendant No.4.

Immediately on noticing the said press release, the plaintiff was alarmed and

addressed a communication dated 26.12.1999 to defendant No.1 requesting for

refund of the advance amount of Rs.1,00,000/- which was paid. Curiously, the

defendant No.1 wrote back on 28.12.1999 acknowledging the payment made on

18.12.1999 and confirmed that their dealership was terminated on 24.12.1999.

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But, at the same time requested time to sort out the problem with defendant

No.4 and promised that they would refund the amount or deliver the car shortly.

5. Taking into consideration, the peculiar circumstances prevailed, the

plaintiff was constrained to cancel the booking and called upon the defendants 1

to 3 to refund the amount of Rs.1,00,000/- vide letter dated 29.12.1999.

However, there was no positive response from the defendants inspite of

repeated reminders and requests by the plaintiff. The plaintiff sent reminders

dated 30.12.1999 and 12.01.2000 followed by letter dated 17.01.2000 and

20.01.2000 respectively. While the matter stood thus, the plaintiff received a

fax message from defendant No.1 on 02.02.2000 said to be dated 24.01.2000

informing that the amount was being refunded towards cancellation vide cheque

No.891816 dated 28.02.2000 drawn on Indusind Bank Limited, Secunderabad

for Rs.1,00,000/-. However, no such cheque for Rs.1,00,000/- was sent by

defendants 1 to 3. In the said circumstances, the plaintiff was constrained to

send notice dated 08.02.2001 demanding for refund of Rs.1,00,000/- with

interest @ 24% from 18.12.1999. However, the plaintiff received further

communication dated 24.01.2000 from defendant No.1 enclosing therewith the

post dated cheque dated 28.02.2000 for Rs.1,00,000/- bearing No.891816. The

plaintiff received the said cheque under due protest, as the said cheque was sent

without the accrued interest and damages claimed by the plaintiff for a sum of

Rs.5,000/- and subject to realization of the same. The defendants were also put

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to notice. Notices were served upon the defendants 1 and 4. However, the

notices sent to defendants 2 and 3 were returned with an endorsement "not

claimed". The defendant No.4 issued a reply dated 28.02.2000 raising

untenable pleas claiming that they were not liable to pay back the amount

received by defendant No.1 and disassociated themselves from the liability.

6. The plaintiff further submitted the cheque bearing No.891816 dated

28.02.2000 issued by defendant No.1 on presentation was dishonored by their

bankers with an endorsement "funds insufficient". However, on dishonor of the

said cheque, the plaintiff received further communication from the defendant

No.1 dated 06.03.2000 enclosing therewith a pay order No.15184 dated

06.03.2000 for a sum of Rs.50,000/- drawn on Global Trust Bank Limited

towards part refund of the above mentioned amount of Rs.1,00,000/-. The said

payment was received by the plaintiff without prejudice to his rights to recover

the balance amount as well as accrued interest thereon. The said fact was also

specifically communicated to defendant No.1 by the plaintiff vide letter dated

06.03.2000. Subsequent thereto, after waiting for a reasonable period, the

plaintiff once again sent notice to the defendants on 14.03.2000. The said

notices were returned un-served with an endorsement "not claimed". Though

repeated reminders were sent and inspite of demand made personally calling

upon the defendants, they failed to pay the amount. As such, the plaintiff filed

the suit for the recovery of balance amount of Rs.50,000/- with interest on the

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said amount @ 24% per annum, for a total amount of Rs.69,567/- with future

interest @ 24% per annum.

7. The defendants 1 to 3 remained ex-parte.

8. The defendant No.4 filed written statement admitting that they were

engaged in the business of manufacture and marketing of cars under the brand

name "HONDA" and set up a dealership network, under which dealers were

appointed in various cities. An agreement was entered between defendant No.4

and its dealers. It was on principal to principal basis, under which the defendant

No.4 would supply cars to the dealers on receipt of booking orders from the

dealers with the full booking amounts. Due to various acts of omission and

commission on the part of the defendants 1 to 3, the defendant No.4 was

constrained to terminate the dealership of defendant No.1 vide its letter dated

20.12.1999 with effect from 24.12.1999.

9. The defendant No.4 further admitted that defendant No.1 was the

authorized dealer of defendant No.4 and was carrying on the business in the

name and style of "Jubilee Honda" and the defendant No.2 was the Managing

Director of defendant No.1. He further stated that he neither received any

booking order nor the required booking amount against the car booked by the

plaintiff. There was no privity of contract between defendant No.4 and the

plaintiff. The plaintiff had made an initial payment for booking the car with

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defendant No.1, who was a separate entity. The relationship between defendant

No.4 and defendant No.1 was on principal to principal basis. As and when the

defendant No.1 placed orders with defendant No.4 along with remittance of the

full booking amount, the car was to be supplied and delivered to defendant

No.1. The defendant No.4 had not received any such order from defendant

No.1. The defendant No.4 was not duty bound to supply the car booked with

defendant No.1. He admitted that a press release was made on 25.12.1999 in

the local daily newspaper informing the members of the general public, that the

dealership agreement was terminated with effect from 24.12.1999 and that the

defendant No.1 was not entitled to sell or accept any further fresh bookings

from the customers for the cars manufactured by defendant No.4. Inspite of the

said publication, if the defendant No.1 continued to accept any deposits, it was

exclusively at its own risk and the defendant No.4 had no liability for the same.

The transactions stated by the plaintiffs were totally between the plaintiff and

defendants 1 to 3. He was not aware of any contract between the plaintiff and

defendant No.1 and prayed to dismiss the suit with exemplary costs.

10. Basing on the said pleadings, the trial court framed the issues as follows:

i) Whether the plaintiff is entitled to seek the relief of suit claim as prayed for?

ii) What is the liability of defendant No.4?

iii) To what relief?

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11. The plaintiff filed the evidence affidavit of its Managing Director. Who

was examined as PW.1 and got marked Exs.A1 to A24. However, as the said

witness failed to appear before the Court for cross-examination, his evidence

was eschewed from consideration and the General Manager of the plaintiff

company was examined as PW.2. On behalf of the defendant No.4, the

Company Secretary of defendant No.4 was examined as DW.1. No exhibits

were marked on behalf of defendant No.4.

12. On considering the oral and documentary evidence on record, the trial

court dismissed the suit against defendant No.4, but allowed the same against

defendants 1 to 3 for a sum of Rs.69,567/- with interest on the principal amount

of Rs.50,000/- @ 12% per annum from the date of suit till the date of decree

and @ 6% per annum from the date of decree till the date of realization along

with costs.

13. The trial court observed that the plaintiff made the payment of

Rs.1,00,000/- to defendant No.1 and the documents filed by the plaintiff would

not reveal that the defendant No.1 was the agent of defendant No.4. The

defendant No.4 never promised to refund the amount of Rs.1,00,000/- and it

was only the defendants 1 to 3, who promised to return the said amount and

gave the cheque and pay order. As such, the defendants 1 to 3 alone were liable

to pay the suit amount, but not defendant No.4.

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14. Aggrieved by the said judgment and decree, the plaintiff preferred an

appeal. The appeal was heard by the I Additional Senior Civil Judge, City Civil

Court at Secunderabad vide A.S.No.33 of 2005 and vide judgment and decree

dated 23.07.2009 dismissed the appeal confirming the judgment and decree

passed by the learned XVIII Junior Civil Judge, Secunderabad in O.S.No.662 of

2001 dated 30.12.2004.

15. The first Appellate Court also expressed the same opinion as expressed

by the trial court observing that there was no relationship of principal and agent

between the respondent No.4 and the respondents 1 to 3 and as per Ex.A17, the

agreement between the respondents 1 and 4 was only principal to principal

basis, but not principal to agent. As such, the respondent - defendant No.4 was

not liable to pay the suit claim and the respondents - defendants 1 to 3 were

alone liable to pay the suit claim as observed by the trial court.

16. Aggrieved by the said judgments and decrees of the courts below, the

plaintiff preferred this Second Appeal raising the following substantial

questions of law:

i) Whether both the courts below erred in dismissing the suit merely on the oral evidence of defendant No.4 (DW.1) as to the relationship between defendant No.4 and defendant No.1 was that of principal to principal basis without taking into consideration the documents i.e.Exs.A6 and A17 filed by the plaintiff and also the cross-examination of DW.1, which would conclusively prove the

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relationship between defendant No.4 and defendant No.1 as that of principal and agent?

ii) Whether both the courts below erred in not taking into consideration the purport of Sections 182 and 237 of the Contract Act?

iii) Whether both the courts below failed to take into consideration the non-

filing of dealership agreement of defendant No.4 in favor of plaintiff by drawing adverse inference?

17. This Court vide order dated 03.11.2010 admitted the Second Appeal on

the above substantial questions of law raised in the grounds of appeal.

18. Heard Sri Sunil S.Ganu, the learned Senior Counsel for the appellant. Sri

T.Surya Satish, learned counsel for the respondents on record reported no

instructions.

Substantial Question of Law No.1:

Whether the courts below erred in dismissing the suit merely on the oral evidence of defendant No.4 (DW.1) as to the relationship between defendant No.4 and defendant No.1 was that of principal to principal basis without taking into consideration the documents i.e.Exs.A6 and A17 filed by the plaintiff and also the cross-examination of DW.1, which would conclusively prove the relationship between defendant No.4 and defendant No.1 is that of principal and agent?

19. As seen from the admitted facts, the defendant No.1 was the authorized

dealer of defendant No.4 and was carrying on the business in the name and style

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of "Jubilee Honda". As per the case of the plaintiff, he booked the Honda City

Car manufactured by defendant No.4 with defendant No.1 by paying an advance

amount of Rs.1,00,000/- on 18.12.1999 through cheque and the said amount

was acknowledged by defendant Nos.1 to 3. The defendants 2 and 3 were the

Directors of defendant No.1. Thereafter, the plaintiff came across the press

release on 25.12.1999 published in a local daily newspaper stating that the

dealership of defendant No.1 was terminated with effect from 24.12.1999 and

that the defendant No.1 was not entitled, authorized to sell or accept any further

or fresh applications or bookings and was debarred from collecting any money /

deposits etc. from the customers for the cars manufactured by Honda City Cars

India Private Limited and any person dealing with defendant No.1 or anyone

associated with them would do so at their own risk, costs and consequences.

Thus, the defendant No.4 was admitting that they were liable for the acts done

by defendant No.1 on behalf of defendant No.4 prior to 24.12.1999. The

plaintiff booked the car with defendant No.1 on 18.12.1999 and paid an amount

of Rs.1,00,000/- as initial payment by way of cheque bearing No.041659 on

18.12.1999 itself. As such, the booking of the car by the plaintiff with

defendant No.1 was made when the dealership agreement between the

defendants 1 and 4 was in existence. The said dealership agreement was

terminated on 24.12.1999 even as per the press release given by defendant No.4.

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20. The contention of defendant No.4 in their written statement was that their

relationship with defendant No.1 was on principal to principal basis and that

they would supply cars to the dealers only on receipt of booking orders from the

dealers with full booking amounts and that they had not received any such order

from defendant No.1. But, the said dealership agreement between them was not

placed by defendant No.4 before the Court to prove their plea that their

relationship with defendant No.1 was on principal to principal basis. The

defendant No.4 ought to have filed the dealership agreement with defendant

No.1, which would be in their possession.

21. Learned Senior Counsel for the appellant relied upon the judgments of

the Hon'ble Apex Court in M/s.Sri Tirumala Venkateswara Timber and

Bamboo Firm v. Commercial Tax Officer, Rajahmundry 1on the aspect that

the true relationship of the parties in each case has to be gathered from the

nature of the contract, its terms and conditions, but the terminology used by the

parties is not decisive of the legal relationship. The essence of 'agency to sell'

is the delivery of the goods to a person who has to sell them, not as his own

property but as the property of the principal who continues to be the owner of

the goods and would therefore be liable to account for the sale proceeds.

AIR 1968 SC 784

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22. He also relied upon the judgment of the Calcutta High Court in Ganesh

Export and Import Company v. Mahadeolal Nathmal 2, wherein it was held

that:

".....In order to constitute the relation of agency, it is essential that goods should be sold to customers introduced by the agent not on behalf of the agent but on behalf of the Principal. If the goods are sold on behalf of the alleged agent and if the alleged agent is to be treated as the purchaser, he ceases to be an agent and becomes a Principal."

23. In the present case, the defendant No.1 was selling the cars on behalf of

defendant No.4. If he was purchasing the said cars from defendant No.4 on

payment of the full amount, he might be treated as a purchaser and would cease

to be an agent and would become a principal. But the dealership agreement

between them was not filed by defendant No.4 to know the exact terms and

conditions agreed between them and to consider the nature of the agreement

and the relationship between them whether it is on principal to principal basis or

principal to agent basis.

24. Learned Senior Counsel for the appellant also relied upon the judgment

of the Calcutta High Court in Union of India v. Kamal Kumar Goswami and

Others 3, wherein it was held that:

AIR 1956 Calcutta 188

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"The liability of A to account to B for moneys received by A from B indicates relation of principal and agent between them and negatives the relationship of principal and principal, in as much as no principal is liable to render an account to another principal."

25. Learned Senior Counsel for the appellant also relied upon the judgment

of the Hon'ble Apex Court in M/s.Snow White Industrial Corporation,

Madras v. The Collector of Central Excise, Madras 4, wherein it was held

that:

"The agent would become a purchaser when the agent paid the price to the principal on his own responsibility.

... The essence of agency to sell is the delivery of the goods to a person who is to sell these, not as his own property but as the property of the principal who continues to be the owner of the goods and will therefore be liable to account for the sale proceeds. The true relationship of the parties in each case has to be gathered from the nature of the contract, its terms and conditions. The terminology used by the parties is not decisive of the legal relationship."

26. Thus, the oral contention of defendant No.4 that the relationship between

him and defendant No.1 is on principal to principal basis is not sufficient to

AIR 1974 Calcutta 231

AIR 1989 SC 1555

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consider the true relationship between the parties without filing the dealership

agreement entered by defendant No.4 with defendant No.1. He could not

contend that their relationship was only on a principal to principal basis and

only upon receipt of the full amount, they would be delivering the goods. If the

same is considered as true, then they need not issue the paper publication filed

under Ex.A6 mentioning that any person dealing with defendant No.1 with

effect from 24.12.1999 would do so at their own risk, costs and consequences.

Thus, they were admitting their liability and risk for the dealings made by

defendant No.1 with customers prior to 24.12.1999. As such, the defendant

No.4 was also liable to pay the amount to the plaintiff, which was received by

defendant No.1 during the existence of the dealership agreement between them,

as their agent.

27. Both the courts below erred in appreciating the documents marked under

Exs.A6 and A17 and came to the conclusion that the relationship between the

defendant No.4 and defendant No.1 was that of principal to principal basis. The

cross-examination of DW.1 also proves the said aspect. DW.1 admitted in his

cross that he had not filed any document to show the relationship between

defendants 1 and 4 was only principal to principal and not principal to agent

and not filed any document to show that he had not received any amount from

defendants 1 to 3 under the suit transaction, not filed the dealership agreement

between defendants 1 and 4 and also admitted that they cancelled the dealership

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of defendant No.1, as he was collecting amount from the customers and not

placing orders before defendant No.4 and bringing bad name to their company.

Thus, both the Courts below failed to take into consideration the evidence of

DW.1 on these aspects and erred in discharging defendant No.4 from its

liability.

Substantial Question of Law No.2:

Whether the courts below erred in not taking into consideration the purport of Sections 182 and 237 of the Contract Act?

28. Section 182 of the Indian Contract Act, 1872 defines an agent as a person

employed to do any act for another, or to represent another in dealings with

third person.

29, Section 237 of the Indian Contract Act, 1872 states that the principal

would be liable for the act done by his agent without any authority which

incurred an obligation to third party on behalf of his principal. However, there

should be inducement to the third party by principal to make him liable.

Section 237 states that when the agent without authority has done acts or

incurred obligations to third persons on behalf of his principal, the principal is

bound by such acts or obligations, if he has by his words or conduct induced

such third persons to believe that such acts and obligations were within the

scope of the agent's authority.

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30. By mentioning the defendant No.1 as his authorized agent, the defendant

No.4 made the public to book cars with the defendant No.1. Thus, the

defendant No.4, the principal is liable for the acts of his agent, defendant No.1

as he has publicly given the authority to the agent and authorized him to receive

the money on his behalf for booking the car. The principal is bound by every

action of his agent unless he could show that the agent has acted without his

authority. Both the courts below failed to take into consideration the principles

laid down under Sections 182 and 237 of the Indian Contract Act, 1872 in

deciding the case against defendant No.4.

Substantial question of Law No.3:

Whether the courts below failed to take into consideration the non-filing of dealership agreement of defendant No.4 in favor of plaintiff by drawing adverse inference?

31. When the defendant No.4 had taken a specific plea that the relationship

between him and the defendant No.1 was on principal to principal basis, the

burden lies upon him to file the dealership agreement between them. Non-filing

of the said document would entitle the Court to draw an adverse inference

against him. The Court can draw an inference that only to avoid its liability, the

defendant No.4 had taken such plea.

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32. As such, all these substantial questions of law are answered against

defendant No.4 and in favor of the appellant holding that the appellant is also

entitled to receive the amount from defendant No.4 along with defendants 1 to 3

and the suit is liable to be decreed with costs against defendants 1 to 4 for a sum

of Rs.69,567/- with interest on the principal amount of Rs.50,000/- @ 12% per