Allahabad High CourtFirm Meghraj Roormal vs Firm Anup Singh-Battu Mal on 4 September, 1935Equivalent citations: 159IND. CAS.984, AIR 1935 ALLAHABAD 1004JUDGMENT
 

Iqbal Ahmad, J.1. This is a defendant's appeal and arises out of a suit for recovery of a sum of Rs. 2,400 on account of the loss suffered by the plaintiff-respondent in certain forward contracts for the purchase of grain-pits entered into by the plaintiff firm on behalf of the defendant firm. The plaintiff firm carries on the business of commission agents in Ghaziabad and the defendant firm carries on business in Lucknow. The business of commission agency carried on by the plaintiff firm is admittedly on what is known as the pakka arhat system. The position of a pakka arhatia is analogous to that of a del credere agent who incurs only a secondary liability towards the principal, and whose legal position is partly that of an insurer and partly that of a surely for the parties with whom he deals to the extent of any default by reason of any insolvency or something equivalent:Vide Champa Ram v. Tulshi Ram26 A.L.J. 81 : 105 Ind. Cas. 739 : A.I.R. 1927 All. 617.2. The defendant firm entered into certain forward contracts for the purchase of grain-pits through the plaintiff firm and most of those contracts resulted in loss to the defendant. One of the forward contracts, that was entered into by the defendant for purchase of 5 grain-pits, formed the subject of the suit giving rise to the present appeal. This contract was entered into on November 14, 1929. The contract was for the purchase of approximately 3,000 maunds of wheat at the rate of Rs. 4-13-3 per maund, and the delivery was to be effected between January 15, and February 15 1930. After the purchase made by the defendant the price of wheat began to fall, and ultimately the plaintiff firm sold the grain-pits to certain persons on February 7, 1930, at the rate prevailing in the market, viz., at the rate of Rs. 3-13-6, and the present suit was for the recovery of the loss suffered by the plaintiff firm in consequence of the decline in the price of wheat since the date of the contract. A sum of about Rs. 750 belonging to the defendant was in the hands of the plaintiff and, in claiming damages, the plaintiff credited the defendant with the said amount.3. It was stated in the plaint that in the Mandi at Ghaziabad delivery of grain-pits is made according to the wishes of the seller in the month in which the delivery has been stipulated to be made and that as soon as the parcha of the delivery of grain-pit is received, the commission agents have to make payment of the margin money. The plaintiff firm, therefore, alleged that it was bound to take delivery of the goods when the same was offered by the seller and, as the price of the wheat had fallen since the date of the contract, the plaintiff asked the defendant firm to arrange for money and deposit the same with the plaintiff so that delivery might be taken. The plaintiff's case further was that the defendant neither put sufficient funds in the hands of the plaintiff to cover the losses incurred in the transaction, nor did supply sufficient funds to enable the plaintiff to take delivery and, accordingly, the plaintiff had to square up {he transaction by selling the grain-pits to third persons on February 7, 1930.4. The suit was resisted by the defendant firm on a variety of grounds, but as in the present appeal by the defendant only three points have been raised, it is unnecessary to mention the other contentions of the defendant. The defendant urged that the sale of the grain-pits by the plaintiff on February 7, 1930, was without the consent or permission of the defendant and the defendant was, therefore, not liable to answer the plaintiff's claim for damages. It was further contended by the defendant that, in any case, the plaintiff firm was not entitled to dispose of the grain-pits and square up the transaction, without giving the defendant sufficient and reasonable notice of its intention to do so and that in the present case such notice was not given by the plaintiff. Lastly, it was contended that in the absence of the proof of the fact that the plaintiff firm had suffered loss to the extent of the amount claimed by it the suit was not maintainable.5. All these contentions were overruled by the trial Court and that the plaintiff's suit was decreed. The defendant firm filed an appeal in the lower Appellate Court and that Court, being of the opinion that certain questions essential for a satisfactory disposal of the suit had not been decided by the trial Court, framed the following issues and remitted the same for findings to the trial Court:(a) Is there any ordinary practice or mercantile usage in Ghaziabad, which entitled paka arhatias to call for margin if the rise or fall in the market justified a demand for it and to close the contract in default of that margin being provided? (b) Is there any mercantile custom in Ghaziabad which authorizes a pakka arhatia to demand the balance of purchase price from his principal from the first date of the month of forward delivery and to sell those goods in the event of the failure of the principal to pay the same within a reasonable time?"6. The trial Court held that the mercantile usage referred to in the first issue was proved to exist in the Ghaziabad market. As regards the mercantile custom set forth in the second issue, the finding of the trial Court was that the existence of that custom was not proved. On receipt of the findings submitted by the trial Court the lower Appellate Court decided the appeal on the merits. It affirmed the decision of the trial Court with a slight variation--a variation which is immaterial so far as the present appeal is concerned.7. The learned Counsel for the defendant-appellant has argued that the plaintiff, whose position was that of a mere agent, had no right to sell the khattis without the instruction of the defendant firm inasmuch as, by the terms of the contract between the parties, the plaintiff was not given the right to close the transaction before the due date, nor was there any mercantile usage that authorized the plaintiff to do so. In support of this contention, reliance has been placed on a Division Bench decision of this Court reported inKishori Lal v. Jiwan Lal A.I.R.1923 All. 242 : 67 Ind. Cas. 231 : 4 U.P.L.R. (A) 59. That case was from Hapur where, like Ghaziabad, numerous forward transactions for the purchase and sale of grain-pits are entered into in the course of a year. In that case a custom was put forward according to which the commission agents carrying on business in Hapur were entitle without the knowledge or the consent of their principals, to dispose of the grain-pits, and it was held that:The alleged custom is unreasonable, it is immoral in the sense that it is likely to lead to gross frauds and in any event, puts an agent in double capacity in which his duty and interest must necessarily conflict and is contrary to the general principle of agency and, therefore highly unreasonable.8. It does not appear from the report of the case whether the commission agentin that casecarried on his business on pakka arhat system. If the learned Judge intended to lay down that a custom, that entitles a pakka arhatia commission agent--who qua the persons entering into contracts through him for the purchase and sale of grain or other commodity is himself in the position of a principal--to protect himself from loss by closing the transaction after giving to the seller or buyer reasonable notice of his intention to do so, is immoral and unreasonable, we, with great respect, are unable to agree with that decision. We are unable to discover any justification for the view that in the case of transactions entered into on the pakka arhat system a custom or usage that entitles the commission agent to protect himself from loss in the event of the failure of the contracting party to insure him against the loss is either unreasonable or immoral. There is direct contractual relationship between the pakka arhatia and the purchaser and the seller and he, as principal, is liable to both for the performance of the contract. The failure of a purchaser, who has entered into a forward contract for the purchase of some commodity through a pakka arhatia, to take delivery on due date does not exonerate the arhatia from the liability to take delivery from the seller in pursuance of the forward contract. It follows that a pakka arhatia is himself vitally interested in the performance of the contract that has been entered into through him and a custom that provides means to insure the arhatia against prospective loss cannot be characterized as unreasonable or immoral. On the contrary such a custom is calculated to check reckless speculation and to promote fair dealing and the transaction of business on honest lines, and, as such, is reasonable and salutary.9. In the case before us we have the definite finding recorded by the Courts below that according to the mercantile usage prevalent in Ghaziabad a pakka arhatia is entitled to call for margin money, if the rise or fall in the market justifies such a demand, and, in the event of the demand not being met, is entitled to close the contract. No exception has been taken to this finding on behalf of the defendant-appellant. We have, therefore, to approach the consideration of the case on the assumption, that the plaintiff firm was entitled to sell the grain-pits in question, if the defendant made default in placing in the hands of the plaintiff sufficient funds to indemnify him against the loss that was occasioned by the fall in the price of wheat. When the case is 80 approached, there is no escape from the conclusion that the plaintiff firm was within its rights in selling the grain-pits on February 7, 1930. The letters and telegrams that passed between the plaintiff and the defendant leave no room for doubt that the defendant was trying to evade the fulfilment of the obligation which the contract between the parties imposed on him. The price of wheat began to fall soon after the contract was entered into, and on January 16, the rate was Rs. 4-9-3 per maund. According to the practice prevailing in Ghaziabad the seller has the right to offer delivery within the first 25 days of the month in which the delivery is to be effected. In the present case the delivery was to be effected between January 15, and February 15. Therefore the seller had the right to offer delivery to the plaintiff firm from January 16, to February 10. On such delivery being offered 1-4th of the price is to be paid immediately by the pakka arhatia. Accordingly on January 16, the plaintiff by a telegram demanded from the defendant a sum of Rs. 2,500 which together with the sum of Rs. 750, that the plaintiff had in hand, would have enabled the plaintiff to pay 1-4th of the price of the wheat contracted to have been purchased by the defendant firm. The reply sent to this telegram by the defendant was as follows:Take delivery. Don't sell without our authority otherwise you will be liable for all losses and expenses. Ready to send money on your giving security.10. Subsequent history shows that the offer by the defendant to send money to the plaintiff on the latter furnishing security was a mere eye-wash, It is abundantly clear from the letters of the defendant firm itself that by January 16, 1930, the business of the defendant firm had become hopelessly involved. Huge losses had been suffered by it in forward contracts of purchase entered into by it in Bombay and elsewhere and the defendant was hard pressed for funds. After January 16, the market went on declining and on February 4, 1930, the plaintiff firm was faced with the alarming situation that a loss of no less than Rs. 3,000 was imminent on the transaction in question in the present limitation. The plaintiff, therefore, on the last mentioned date sent a registered notice to the defendant asking the latter either to send Rs. 3,000 "to cover the margin money" or to deposit a sum of Rs. 15,000 with the Allahabad Bank if the defendant wanted to take delivery: of the. goods. This notice did reach the defendant on February 6, 1920. The defendant took no steps to comply with the request contained in the notice and the plaintiff firm then sold the wheat on February 7, 1930. If the defendant was in right earnest to take delivery, the natural course of conduct on the part of the defendant would, have been either to deposit the margin money in some bank at once or to send the same by money order to the plaintiff firm, and to inform the plaintiff of the fact of payment of the margin money by means of a telegram. The fact appears to be that the defendant firm was not in possession of funds, and, therefore, took no steps to acknowledge the registered notice sent by the plaintiff. The plaintiff, therefore, sold the goods. It follows that the defendant firm had sufficient and reasonable notice of the demand made by the plaintiff and; the plaintiff firm was within its right to sell the goods. Accordingly the defendant was liable to make good the loss suffered by the plaintiff firm.11. The last point argued by the learned Counsel for the defendant-appellant was that, as the plaintiff firm did not prove that it had to pay the amount claimed by it to the seller of the grain-pits, the plaintiff was not entitled to a decree. This point was argued in the trial Court and. was decided against the defendant. In the memorandum of appeal filed in the lower Appellate Court the point was raised by the defendant, but does not appear to have been argued before the learned Judge of the lower Appellate Court. The point must, therefore, be taken to have been abandoned in the lower Appellate Court and, having been abandoned in that Court, it cannot be allowed to be raised in second appeal.12. For the reasons given above, we affirm the decrees of the Courts below and dismiss this appeal with costs.