Dalmia Cement (Bharath) Ltd. vs T. V. Ommen and Others

P.C. Balakrishna Menon, J.—Second Appeals 153 of 1981 and 168 of 1981 arise out of two suits O. S 12 of 1973 and O S 30 of 1975 on the file of the Subordinate Judge''s Court, Kotlarakara filed by the respective plaintiffs as sub-agents or substituted agents for accounts against the principal. Second Appeal No. 189 of 1981 arises out of O S. 42 of 1973 on the file of the same court by the plaintiff claiming to be the agent of the defendant for accounts of dealings between them. The first defendant is the appellant in S. A. Nos. 168 and 153 of 198) and the only defendant is the appellant in S. A No. 189 of 1981. The appellant in these appeals is a company by name Datmia Cement (Bharath) Ltd. The company had filed O S No. 42 of 1973 for recovery of amounts due under a promissory note Ext.B-9 executed by the plaintiff in O. S. 12 of 1973. S A. No. 166 of 1981 is by the company against the dismissal of the suit O.S No 42 of 1973 by the Courts below. The principal question for consideration in S A Nos 153. 168 and 189 of 1981 is relating to the interpretation of Ext B2 agreement between the appellant company and one B P Jacob who is the second defendant in O. S Nos. 12 of 1973 and 30 of 1975 and the plaintiff in O S NJ. 48 of W73. All the cases were jointly tried and evidence was recorded in O. S No 12 of 1973. The parties in these second appeals are referred to as arrayed in 0. S. No. 12 of 1973.

The facts of the case are not in dispute. The appellant company purchased raw cashew nuts locally for the purpose of export of processed kernels. The company entered into Ext. B2 contract with the second defendant for processing the raw cashew nuts. Exts. B2 is dated 15-12-1969. As per the terms of the contract the second defendant is to be paid processing charges at the rate of Rs. 23/-per bag containing 168 pounds raw cashew nuts. Clause 1 of Ext B2 permits the second defendant to get the processing done by sub contractors. Clause 1 of Ext. B2 is extracted below;

The Second party hereby undertake to process either himself or through his agencies who shall be got approved by the first party, the raw cashewnuts supplied by the first party with due diligence and caution exercising proper care and attention for the safety of the goods and quality of the kernels

The plaintiffs in O. S. Nos. 12/73 and 30 of 1975 are persons engaged by the second defendant for processing raw chasewnuts supplied by the first defendant company in pursuance to the contract Ext B2. Ext.Al is the agreement between the 2nd defendant and the plaintiff in O S. 12 of 1973 and Ext. B-ll is a similar agreement between the second defendant and the plaintiff in O. S. 30 of 1975. According to the plaintiffs in those suits, the agreement Ext.B2 is a contract of agency and the 2nd defendant is the agent of the first defendant not processing raw cashew. Exts.AI and BII agreements between the 2nd defendant and the respective plaintiffs are also contracts of agency and they are either sub agents within the meaning of Section 191 or substituted agents within the meaning of Section 194 of the Indian Contract Act. The plaintiffs had processed raw cashewnuts supplied by the first defendant company in pursuance to Ext B2 agreement between defendants 1 and 2 and the two suits OS Nos. 13/1973 and 30/1975 are by the respective plaintiffs for settlement of accounts and for recovery of the amounts found due thereon from defendants 1 and 2. O.S. No. 48 of 973 is by the second defendant against the first defendant company for settlement of account relating to the raw cashewnuts processed in pursuance to the contract Ext B2 and for recovery of the amounts found due from the first defendant to him. The plaintiffs in these three suits proceed on the basis that Ext. B2 is a contract of agency with authority delegated to the agent to get the work executed through sub agents appointed by him with the approval of the first defendant company. The first defendant company contested these suits and raised the contention that Ext. B2 is not a contract of agency; it is only a works contact for processing the raw cashewnuts supplied by the first defendant with permission given to the 2nd defendant to have the processing done either by himself or through sub contractors approved by the first defendant company. There is no contract of agency and even if there is one the suits for accounting are not maintainable. The plaintiffs in O.S. Nos. 12/1973 and 30 of 1975 have no privity of contract with the first defendant and those suits are liable to be dismissed on that ground also.

The courts below have construed Ext. B2 as a contract of agency and the plaintiffs in O. S Nos 12/1973 and 30 of 1975 are found to be sub agents under the second defendant for the purpose of processing raw cashew nuts supplied by the first defendant The trial court held that the 2nd defendant as agent and the plaintiffs in the two other suits as sub agents are entitled to maintain the respective suits for accounts and preliminary decrees were passed in all the three suits for accounting. The lower appellate court has confirmed these preliminary decrees on its finding that the 2nd defendant is an agent of the first defendant and the plaintiffs in the two connected suits are sub agents entitled to a decree for accounting.

The first defendant''s suit O S. 42 of 1973 for recovery of the money due under the promissory note Ext. B9 was dismissed on the ground that the consideration for the promissory note was the advance payment of Rs. 2.500/- towards the processing charges payable under the contract

Ext. B2 and before the accounts are settled, no separate suit will lie on the basis of the promissory note. This decree was also confirmed by the lower appellate court.

Ext B2 leaves no room for doubt that the document evidences a works-contract between defendants 1 and 2. The 2nd defendant agrees to process raw cashew nuts supplied by the first defendant. The processing charges payable ere fixed at the rate mentioned in the agreement. The 2nd defendant is however, permitted to get the work done through other persons approved by the first defendant. The second defendant undertakes to do the processing work with due diligence and caution exercising proper care and attention for the safety of the goods and to ensure proper quality of the kernels intended for export. The document does not envisaged any agency arrangement and the 2nd defendant is not constituted an agent of the first defendant. Ext.B2 is in the nature of a contract of bailment within the meaning of Section 148 of the Indian Contract Act. The entrustment of goods by the first defendant to the 2nd defendant is for the purpose of processing, the 2nd defendant is not in any way entitled to deal with the goods except for the purpose for which it is entrusted and for that purpose, it is open to him to entrust the work to any other person of his choice subject to the approval of the first defendant. The instrument of goods for processing HIS not make the 2nd defendant an agent of the 1st defendant. He is an independent contractor for performance of the work entrusted to him and entitled to receive payment at the rate agreed upon between the pities The distinction between agents and independent contractors is brought out at page 12 in Bowstead on agency, 14th Edition as follows:-

Independent contractor, servant Much space has been devoted in books on agency to discussion of the relation between servants, agents and independent contractors. It has been said that all agents are servants or independent contractors; it has also been suggested that there is a class of agents who are neither servants nor independent contractors. It is submitted that the controversy is somewhat sterile. The dichotomy of servants and independent contractors is based on the degree of control exercised by the master or employer, and is principally relevant to determine his liability for torts of physical damage to person or property caused by others. The terminology of agency is based on the idea that one person make be bound by acts which he has authorised another to do, and is principally relevant to contract and the disposition of property, though it is sometimes used in analysing tort situations and has many other applications in the law. The two sets of terminology overlap, and it is not true that agency reasoning, being based on the idea of authorisation, is essentially more limited in scope, though of course in a particular case it may be so. Thus a person who is a servant may have a wide general authority and so may an independent contractor; but equally a person who is not a servant, because of the limited nature of his principal''s control over him, and may not be described as an independent contractor because he acts gratuitously, may have such authority. Again, there can be servants and independent contractors who would render their employers liable in tort but have no agency authority at all, and persons described by neither term who have. Though there are interconnections, both historical and ''practical, it is unlikely that the ideas involved and the terminology can be reduced to a satisfactory scheme:

In Indian Contract Act Specific Relief Acts, 10th Edition by Pollock and Mulla, it is stated at page 830:

Agency in law connotes an authority or capacity in one person to create legal relations between a person occupying the position of principal and third parties.

The test of agency is whether the person is purporting to enter into transaction on behalf of the principal or not. In order to Constitute an agency, it is not necessary to have a formal agreement. Mere use of the word "Commission" in the contract does no convert a relationship of vendor and purchaser into one of agency. But the fact that a person is paid commission for his work is not by itself enough to constitute agency. The words "the trust shall hold and manage the said Nazual Estate of the Government" could not be construed at conferring ownership but merely constituting agency".

A works contract is not a contract of agency and the person who undertakes to do the work is not an agent of the other contracting party Construing Ext. B2 and in particular clause I thereof I have no doubt that the document embodies the terms of a works contract and not a contract of agency constituting the 2nd defendant an agent of the first defendant company.

The suits O. S. 12 of 1973 and 30 of 1975 are by persons who have privity of contract with the first defendant. The respective contracts Exts. A1 and B11 are only with the 2nd defendant. In the Indian Contract and Specific Relief Act 10th edition by Pollock and Mulla, it is stated at page, 37: "Privity of contract - The doctrine of privity of contract implies a mutuality of will and is interation of parties and their successors. It creates a legal bond or tie or vinculum juris personal to the parties. The rule is that no one but the parties to a contract can be bound by it or entitled under it. This doctrine which prevents a third party to enforce a contract operates with equal logic to forbid the contracting parties to enforce obligations against a stranger. So that a contract between A & B cannot impose a liability upon C. A person cannot be subjected to the burden of a contract to which he is not a party. It is the counter part of the proposition that a third party cannot acquire rights under a contract.

The plaintiffs in O. S. 12 of 1973 and 30 of 1975 are not therefore entitled to any relief against the first defendant.

The 2nd defendant''s suit O S 48 of 1973 against the first defendant for accounts is also not maintainable for the reason that an independent contractor is not entitled to the relief of settlement of accounts with the other contracting party. A Full Bench of the Jammu and Kashmir High Court in a decision reported in Triloki Nath v. Dharmarth Council, Srinagar (A. I. R 1975 JK 76) stated at page 77:

The scope of suit for accounts is limited to a certain number of cases for instance between one partner against another, between the beneficiary against the executor or administrator, between mortgagor against the mortgagee, between cestui que trust against a trustee and between principal against an agent. But no suit for accounts can be maintained by a promisee against a promisor or as between two contracting parties In AIR 1925 Lah 100 it was held that a suit for rendition -if brought by the sons of certain (sic)

The Supreme Court in the decision reported in Narandas Morardas Gaziwala and Others Vs. S.P. Am. Papammal and Another, considered the English Law on the subject of accountability by the Principal to the agent and stated at paragraph 5:-

(5)- In our opinion, the legal position in India is not different Though an agent has no statutory right tor an account from his principal, never the less there may be special circumstances rendering it equitable that the principal should account to the agent. Such a case may arise where all the accounts are in the possession of the principal and the agent does not possess accounts to enable him to determine his claim for commission against his principal. The right of the agent may also arise in an exceptional case where his remuneration depends on the extent of dealings which are not known to him or where he cannot be aware of the extent of the amount due to him unless the accounts of his principal are gone into This view is borne out by the decision of the Madras High Court in Ramachandra Madhavadoss Co. Vs. Moovakat Moidunkutti Birankutti and Brothers, , of the Lahore High Court in AIR 1933 483 (Lahore) and of the Nagpur High Court in Basant Kumar v Roshanlal ILR (J954) Nag 435 : AIR 1954. Nag. 300).

No exceptional circumstances enabling the agent 10 call upon the principal to render accounts of dealings is brought out in these cases and for that reason also no relief can be granted against the first defendant company.

The Administrative Officer of the first defendant company examined as DW-3 has clearly admitted in his deposition that a sum of Rs. 2,500/- paid as per Ext. B9 promissory note was by way of advance towards the processing charges. It is further admitted by DW-3 that Ext.B9 is only by way of security for the amounts advanced to be adjusted towards the processing charges that may later be found due from the first defendant to the 2nd defendant In view of this admission by DW-3 a separate suit for recovery of the amount due under the promissory note Ext.B9 is only to be dismissed. S. A. Nos. 153, 168 and 189 of 1981 are allowed and the decree for accounting passed against the first defendant in O. S. Nos, 12 of 1973, 48 of 1973 and 30 of 1975 are set aside. The 2nd defendant has not appealed against the decree for accounting passed against him in O. S. Nos. 12/83 and 30 of 1975. The respective decrees in these two suits directing 2nd defendant to account are not interfered with in these Second Appeals. O. S. 48 of 1973 is dismissed. I confirm the decree of the courts below in O. S 42 of 1973 and dismiss S. A. No 166 of 1981. The parties will suffer their respective costs in these Second Appeals.