Bhuwalka Brothers Ltd. vs Duni Chand Rateria

Das Gupta, J.—The question that arises for decision in these two Rules is whether the plaintiff who, while acting as broker for the sale of certain goods for their principal, the defendant firm, is entitled to brokerage commission, where it is found that they made the sale to themselves. The plaintiff having claimed brokerage commission at the rate mentioned in the bought and sold notes, the defendant raised the defence that as the broker was himself the buyer, no brokerage commission was paid. Another defence raised was that the contracts were not performed. We are no longer concerned with that defence as the finding that the contracts were performed has not been disputed before us, apparently as it cannot be disputed. In the courts below, reliance was placed on behalf of the defendant on section 236 of the Indian Contract Act for the contention that where the broker was the buyer, no brokerage was payable. Both the courts below held that section 236 had no application to the question of payment of brokerage commission. That view, in our judgment, is entirely correct. It is contended before us, however, that in any case u/s 220 of the Indian Contract Act, the plaintiff having been guilty of misconduct in making the sale to himself instead of finding a third party purchaser, is not entitled to any remuneration for this sale. Section 220 of the Indian Contract Act provides:

An agent who is guilty of misconduct in the business of agency is not entitled to any remuneration in respect of that part of the business which he has misconducted,

On behalf of the petitioner, Mr. Mitra, relied strongly on the decision of this Court in Ram Swaroop Mam Chand v. Chaju Ram and Sons (1) [I.L.R. (1937) 1 Cal. 757]. It was held in that case that an agent, employed to sell goods upon a remuneration, forfeits his remuneration if he buys the goods for himself and this notwithstanding that his principal knew at the time of performance that the agent was buying for himself. Panckridge J. observed:

I think it cannot be gainsaid that it is misconduct on an agent''s part to deal on his own account in the business of the agency without first obtaining the consent of his principal and acquainting him with all material circumstances which have come to his knowledge on the subject.

and after pointing out that "the defendants were never in a position to repudiate the contracts although they knew before performance that the plaintiffs were in fact the buyers" concluded that "prima facie u/s 220 of the Indian Contract Act, the plaintiffs are not entitled to any remuneration in respect of the contracts in which they were the undisclosed principals although purporting to act as agents". It has to be mentioned that in an additional statement filed by the plaintiff, it was stated that the defendant firm at the time of performance knew that the plaintiff firm were in fact the principals and it was submitted that as the defendant elected to perform the said contracts with such knowledge they could not refuse to pay the plaintiff firm the brokerage stipulated.

If there was nothing else, I would have felt bound, on the authority of the decision in Ram Swaroop''s case (1) (supra) to hold that in the present case also the plaintiff was not entitled to any remuneration because by the very fact of concluding the contract of sale to himself without the previous consent of his principals, the defendants, he should be considered to have been guilty of misconduct. Whether, however, the plaintiff has been guilty of misconduct has to be decided in each case on its own facts and circumstances. In the present case, our attention has been drawn to a circumstance which does not appear to have been taken into consideration in the Courts below that the defendant''s witness who has been defendant''s officer for about eleven years, has admitted in cross-examination : "We follow the rules of Gunny Trades Association" and the Gunny Trades Association rules contain Rule No. 67, which is in these words :

Brokerage--Except when a Contract has been cancelled, brokers will be entitled to collect their brokerage after the full value of the contracted goods has been realised by the Sellers irrespective of the fact that a particular broker has acted also as the buyer in the same contract.

In the face of this rule which, according to the defendant''s own witness, is followed by them, I find it impossible to see that the probability of the broker himself being also the buyer was not in the contemplation of the parties, the principal and the agent, when the contract of agency was entered into. In the present case, no separate contract of agency is forthcoming. Admittedly, however, there was such a contract and the rate of brokerage commission is mentioned, as already stated, in the bought and sold notes. There is, therefore, no scope for the argument that this rule 67 appearing in the Rules of the Gunny Traders'' Association has been excluded by the express terms of the contract. We are bound to hold that this being a rule which was being followed by both the parties, this rule formed an implied term of the contract. Thus, by the contract of agency, the agent was not undertaking to sell only to a third person but to a third person or to himself. It is interesting to mention in this connection that in Salomons v. Pender, (2) (1865) 3 H. & C. 639], a decision on which much stress was laid by Panckridge, J., in Ram Swaroop''s case (1) (supra) several of the Judges laid stress on this fact that the agent having undertaken that a third party should be the buyer could not be allowed to charge brokerage when he himself was the buyer. That argument is not available here in the face of rule 67 mentioned above on which it is reasonable to hold that the agent was not undertaking to sell to a third party only. The undertaking was that he would sell either to a third party or to himself and that in either case he would get the commission.

Whichever way we look at it, it seems to me clear that rule 67 being an implied term of the contract, the agent cannot be held to have been guilty of misconduct, by selling to himself. He has not thus brought himself within the mischief of section 220 of the Indian Contract Act.

I have, therefore, come to the conclusion that the Court of Appeal below has rightly held that the plaintiff is entitled to commission. The Rules are accordingly discharged with costs.

Guha, J.

I agree.