HERO HONDA MOTORS LTD. vs Suresh Babu

IN all these appeals M/s. Hero Honda Motors ltd. 2nd Opp. Party before the District Forum, Kozhikode is the appellant. As common questions arise in all these appeals they were heard and disposed of together. For convenience sake we are referring to the appellant as 2nd Opp. Party and the dealer as 1st Opp. Party.

THE respective complainants in all these cases booked Hero Honda Motor Cycle with the Texco Motors (P) Ltd. the 1st Opp. Party paying the full price of the vehicle and the grievance of the complainants is that in spite of several requests made by the complainants, the 1st Opp. Party did not deliver the vehicles. THE complainants in these cases prayed for a direction either for refund of the amount they paid with interest or for delivery of the vehicle. The District Forum, Palghat held in these cases that the 1st Opp. Party is the agent of 2nd Opp. Party and fastened liability on the 2nd Opp. Party also against 14 claims made by the complainants. In these appeals the 2nd Opp. Party has challenged this finding. The 1st Opp Party has not filed any appeals and therefore the order passed against the 1st Opp. Party, the dealer has become final in all these cases.

In order to appreciate the contentions raised by Counsel for appellants, it would be necessary to state briefly a few facts. The 1st Opp. Party was admittedly an authorised dealer of the 2nd Opp. Party. A publication was effected by the 2nd Opp. Party in the Mathrubhoomi daily in its issue dated 19.10.1990 stating that the customers should not make any direct payment to the 1st Opp. Party and that the 2nd Opp. Party would not be liable in respect of any amounts paid to the 1st Opp. Party for booking Hero Honda Motor Cycles. The complainants in Appeal Nos. 276, 404, 500/1992 and 537 of 1992 have paid the price of the vehicle before publication of the above advertisement while complainants in Appeal No. 148, 214, 499 and 501 of 1992 paid the price after publication. Priority allocations were made in respect of complainants in Appeal Nos. 276, 499, 500 and 537/1992 whereas no priority allocation was involved in respect of the orders placed by the complainants in-Appeal Nos. 148, 404 and 501.

IN the version filed by the appellant, before the District Forum, it was contended that there is no privity of contract between the 2nd Opp. Party namely M/s. Hero Honda Motors Ltd. and the complainants and that if there is any agreement between the complainants and the 1st Opp. Party, M/s. Texco Motors (P) Ltd. the remedy of the complainants is against the 1st Opp. Party only and not against the 2nd Opp. Party. It was also contended that the 1st Opp. Party was appointed as the dealer of the 2nd Opp. Party at his own risk and consequences and for the misdeeds of the dealer, the 2nd Opp. Party is not answerable and cannot be made liable. It was further averred that since the 1st Opp. Party was not acting in accordance with the terms and conditions of dealership and since there were many complaints against him, his dealership was terminated on 21.2.1991. Though in some complaints, it was specifically pleaded that the 1st Opp. Party is an agent of the 2nd Opp. Party and there is no specific denial of this averment, it was averred that as per the terms and conditions of the dealership agreement the 1st Opp. Party is not liable for any acts of 1st Opp. Party. Though memorandun of appeals as was originally filed the contention that the 1st Opp. Party is not the agent of the 2nd Opp. Party is not taken, or raised the appellant raised an additional ground stating that according to the agreement with the dealer, no relationship of agency is constituted and that relationship is on principal to principal basis.

IN Appeal Nos. 148, 214, 500, 501 and 502/92 the District Forum ordered refund of the amounts collected to the complainants together with interest at 18% per annum. IN A. 502/92 the District Forum passed orders for refund as stated above and alternatively ordered for delivery of the vehicle. IN Appeal No. 207 and 537/92 the District Forum ordered refund of the amount together with interest at 12%. IN addition to this Rs. 500/- was ordered as cost in Appeal No. 215/92. IN Appeal No. 207/92 the District Forum ordered Rs. 5000/- as compensation and in Appeal No. 537/92 the District Forum ordered Rs. 500/- as cost. IN Appeal No. 499/92, the District Forum ordered interest at the rate of 9% only but in Appeal No. 404/92 there is direction to deliver the vehicle and also to pay interest at the rate of 18% per annum till the delivery. Learned Counsel for the appellant raised the following contentions in these appeals; (1). There is no relationship of principal and agent between 1st and 2nd Opp. Parties; (2) There is no sale of goods or hiring of service for consideration in these cases and therefore the complainants are not consumers; (3) The public was put to notice of the termination of dealership by publication in the Mathrubhoomi and therefore the 2nd Opp. Party is not answerable to any action of the 1st Opp. Party or any liability created by the 1st Opp. Party subsequent to termination of dealership; (4) None of the complainants have written to the appellant about payment before publication and therefore there is no liability on the part of 2nd Opp. Parry; (5) Priority arrangement ceased from January 1989 and in any event, thereafter there is no priority of contract between the 2nd Opp. Party and the complainants; (6) The 2nd Opp. Party was not negligent and therefore no compensation could be awarded against the 2nd Opp. Party; (7) The District Forum has no jurisdiction to award interest; (8) In none of the cases notice of interest was sent and therefore in any event interest can be awarded only from the date of demand. Before discussing the facts in individual cases, we would like to consider the question whether the 1st Opp. Party is an agent of the 2nd Opp. Party. As indicated above though no plea was taken in the version filed by the 1st Opp. Party that the 2nd Opp. Party is not its agent, it was contended that no liability can be fastened on the 2nd Opp. Party as there is no privity of contract between the complainants and the 1st Opp. Party. The appellant contended that the complainants placed the order for Motor Cycles only with the 1st Opp. Party and that since 1st Opp. Party misappropriated the amount without making corresponding payment to the 2nd Opp. Party, the dealership of the 1st Opp. Party was terminated and that the 2nd Opp. Party cannot be fastened with liability for the fraud and misappropriation committed by the dealer.

A photo copy of the agreement has been produced. Learned Counsel for the appellant argued that there is no presumption of agency and the burden is on the complainants to plead and establish that the dealership constitutes agency.

LEARNED Counsel has relied on Article VIII of the agreement entered into between the 1st Opp. Party and 2nd Opp. Party to establish that no agency was constituted. Though this document was not produced before the District Forum and no argument was also advanced there that there is no relationship of principal and agent, we permitted the Counsel to refer to the agreement. Article VIII of Annexure to Appeal reads as follows: "The Dealer contracts both with Hero Honda and with all others in pursuance hereof as a principal and not as an agent of Hero Honda or of any other principal. The Dealer shall not have any right or authority to, and shall not incur any debts or liabilities or transact any business whatsoever in the name of or for or on behalf of Hero Honda nor give any warranty nor make any representation, on behalf of Hero Honda other than those contained in the warranty nor in any way describe or represent itself as the agent of Hero Honda. Hero Honda shall not be responsible nor shall the Dealer have any authority to render Hero Honda responsible for any deposits received by the Dealer from customers of Products and Parts."

On the basis of this clause it was vehemently contended that the relationship between 1st Opp. Party and 2nd Opp. Party is on principal to principal basis. No doubt this Article provides that the dealer shall contract with Hero Honda and with others as principal and not as agent and it prohibits the dealer from incurring any liability in the name of Hero Honda and from making any representation on behalf of Hero Honda and purports to give immunity to the 2nd Opp. Party from any claim based on the commitment made by the 1st Opp. Party. Section 182 of Indian Contract Act defines agent and principal as follows: "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."

The relationship of agency arises wherever one person called the ''agent'' has authority, express or implie to act on behalf of another called the ''principal'' and consents so to act. The authority may also be implied from the subsequent assent of the principal or conduct of the principal.

IN Gordon Wood Roof & Co. (Madras) Ltd. v. Shaik M.A. Majeed & Co. (A.I.R. 1967 S.C. 181) the Supreme Court has considered the distinction between a contract of sale and contract of agency and made the following observation. "The essence of sale is the transfer of title to the goods for price paid or to be paid. The transferee in such case becomes liable to the transferor of goods as a debtor for the price to be paid and not as agent for the proceeds of sale. On the other hand, the essence of agency to sell is the delivery of goods to a person who is to sell them, not as his own property but as the property of the principal who continues to be the owner of goods and who is therefore liable to account for the proceeds."

Learned Counsel for the appellant argued that reading Article VIII of the agreement in the light of the above observations of the Supreme Court and Section 182 of the Contract Act the conclusion is irresistible that there is no relationship of agent and Principal between first and second Opp. Parties.

ARTICLE III (2) says payment for the products and parts shall be made through an irrecoverable and confirmed letter of credit or such other mode of payment as specified by Hero Honda from time to time. Such letter of credit shall be established in a manner satisfactory to Hero Honda with a leading bank acceptable to Hero Honda. Article VIII states property in the products and parts shall pass to the dealer when full payment for the same has been made and products and parts are handed over for despatch. In many of these cases there were booking by the complainants on payment of Rs. 500/-. These amounts were admittedly sent to Hero Honda and priority allocations were made by Hero Honda Company. Such allocations were made by Hero Honda in Appeal Nos. 27, 499, 500 and 537/92. At a certain stage, production increased and there was no necessity of booking and even without any booking for a priority allocation of vehicles, the company was able to deliver the vehicles. According to the appellant priority booking ceased to exist from January 1989. Priority allocations were made by Hero Honda, though Rs. 500/- was initially collected by the 2nd Opp. Party on behalf of Hero Honda. In Appeal No. 276/92 the complainant deposited Rs. 500/- on 26.2.1988 and priority No. 899 was issued by Hero Honda company to the complainant as can be seen from Exbt. A2. The price of the vehicle was paid on 31.12.1988 on intimation given to the effect that the turn of the complainant in that appeal for delivery has matured and accordingly Rs. 16,000/- the full price of the vehicle to be paid. Exbt. A2 is a communication sent by the 1st Opp. Party to the complainant in that case. It states, that "Out principals M/s. Hero Honda Motors allotted your motor cycle". It is admitted that only after allotment according to priority, it was necessary for the customer to remit the balance. Finding that the vehicle was not delivered, the complainant sent a letter to the dealer on 30.10.1990 requesting to give delivery of the vehicle. There was no response and on 25.10.1990 the complainant sent a letter to the company requesting to refund the amount with interest. A5 is acknowledgement produced by the complainant to prove that the company received the letter. No reply was sent for quite a long time. However on 29.5.91 Exbt. A6 letter was sent to the complainant stating that the dealership of the 2nd respondent was terminated with effect from 21.2.1991 and a publication was effected. Learned Counsel appearing for complainants argued that Hero Honda has not stated that the dealer was not its agent and that as such it was not liable to refund the amounts. They also contended that there was also no denial of the receipt of the amount. It is true that the only defence taken in this letter is that the dealership was terminated. Learned Counsel for complainants pointed out that when payment was made by the complainants, dealership subsisted and therefore the defence taken in the reply can hardly be sustained. The public notice of termination of service of the dealer was published in Mathrubhoomi issue dated 19.10.90. It is admitted in the argument note submitted on behalf of the appellant, that the complainants in Appeal Nos. 276, 404 and 500 of 1992 and Appeal No. 537 of 1993 made payments prior to the publication. On the basis of these materials, the Counsel for complainants argued that Whatever be the legal effect of Article VIII of the agreement which specifically provides that the relationship of the 1st Opp. Party and 2nd Opp. Party is principal to principal basis, the conduct of the Opp. Parties would give rise to a relationship of principal and agent. They pointed out that the 2nd Opp. Party has allowed the 1st opportunity to accept booking of the vehicles on behalf of the 2nd opportunity. The advance paid by customers was sent by 1st Opp. Party to the 2nd Opp. Party and it was the 2nd Opp. Party who allotted priority numbers. Article III (2) states that the booking of the products is Hero Honda property and Hero Honda shall have the right at its sole discretion to transfer the booking of products made/though the dealer without payment of any compensation. Under Article III (6) dealer is bound to act according to the advice and guidance of the 2nd Opp. Party concerning marketing policy. The price shall be fixed on the basis of price list prepared and furnished by Hero Honda from the time and Hero Honda can change the price list of products without previous notice. In Exbt. A2 1st Opp. Party referred the 2nd Opp. Party as "Our principal Hero Honda" and that in Exbt A6 reply sent by the 2nd Opp. Party to the complainant in AS 276/92 there is no denial of principal and agent relationship.

WE directed the Counsel for the appellants to file a statement whether the 2nd Opp. Party received the amounts paid by the complainants. If the amounts paid by the complainants were received by the 2nd Opp. Party, irrespective of the question of principal and agent relationship, there would be liability on the part of 2nd Opp. Party to refund the money paid. Pursuant to this direction, Sri. Ilam C. Kamboj Company Secretary of Hero Honda Motors filed an affidavit and produced Annexures A 1 to A6. It is admitted in the affidavit, that the dealer has opened a letter of credit in accordance with the terms of the agreement for sum of Rs. 6 lakhs and the dealer used to reinstate the amount from time to time based on sales. Annexure A3 is the account with Texco Motors, the 1st Opp. Party. It shows more than 50 lakhs has been received by the 2nd Opp. Party. Exbt. A3 also shows that even on 31.1.1991 a demand draft for Rs. 4,50,000/- was received by the complainant. The receipts of these amounts are after payments were made by the complainants. It is also admitted by the 2nd Opp. Party customers who booked Hero Honda with the 1st Opp. Party claimed refund of the amount and the 2nd Opp. Party paid Rs. 5,04,771.97 to 20 such customers. It is seen from Exbt. A3 that on 23.8.90 Rs. 4,00,000/- was received by the 2nd Opp. Party from the 1st Opp. Party and on 24.9.1990 another sum of Rs. 2,70,000/- was received by the 2nd Opp. Party from the 1st Opp. Party. WE asked a specific question to the Counsel for the appellant, whether among the 20 customers to whom the amounts paid were refunded included any customers who got priority allotment later than the complainants in these cases. The Counsel was not able to deny that refund was made to customers who are below in the priority allotment. Counsel is also not in a position to explain why amounts were refunded to 20 customers if no liability is fastened on the 2nd Opp. Party The only explanation offered is that the 2nd Opp. Party wanted to keep good customer relationship and keep the reputation of the company high. It is seen from the affidavit that on the date of alleged termination of dealership of the 1st Opp. Party the Company was having a balance of Rs. 4,41,073.63/- to the credit of the dealer. It is also pertinent to note that 2nd Opp. Party paid back the amounts to 20 customers after version in some of these complaints was filed. This would be clear from Exbt. A6.

AS defined in Section 182 of the Contract Act an agent is a person employed to do an act for another or to represent another in dealings with third person. However, the relationship has to be determined not on the basis of mere nomenclature of words used in the agreement, but on consideration of all terms of agreement and substance of the transaction and subsequent conduct of the parties. The complainants contended that considered in that light, conclusion is irresistable that the relationship is that of principal and agent in many areas relating to the transaction. Aftr hearing of the appeals is over, learned Counsel appearing for appellant placed before us a decision of the National Commission in Hero Honda Motors Ltd. v. K.B. Muralidharan and Another (Revision Petition No. 305 of 1993) where the National Commission had occasion to consider the agreement between Hero Honda and M/s. Texco Motor (P) Ltd. the dealer who is 1st Opp. Party in all these cases. It held that the transactions between Hero Honda and the dealer were as principal to principal. This decision covered the main dispute raised in these appeals and reversed the orders passed by the District Forum and State Commission holding that the relationship of principal and agent existed between 1st and 2nd Opp. Parties.

It is clear from the order of the National Commission that though is no relationship of principal and agent between 1st and 2nd respondents if payments were received from the complainants by the 2nd Opp. Party, the 2nd Opp. Party would be responsible to refund the amounts so received together with interest. The 2nd respondent has made priority allocations in respect of complainants in Appeal Nos. 276, 499, 500 and 537 of 1992 after receiving Rs. 500/- each. In the circumstances the 2nd Opp. Party would be liable to pay to the complainants in the above appeals Rs. 500/- each together with interest at the rate of 12% from the date of the payment. Though there is evidence to show that there was balance of Rs. 4,41,073.63 to the credit of the 1st Opp. Party on the date of termination of dealership of 1st Opp. Party there is no clear evidence to show that the amounts collected from the complainants towards price of the vehicle were sent to the 2nd Opp. Party except the amounts collected for priority allocations. In the circumstances we are unable to say that the 2nd Opp. Party is liable to refund the price paid by the complainants except to the extent indicated above. We therefore hold that the 2nd Opp. Party cannot be fastened with the liability except in regard to the amounts collected for priority allocations as indicated above.

IN the light of our finding that relationship of 1st and 2nd Opp. Parties is on principal to principal basis it is not necessary to consider other contentions raised by the appellant. Coming to the relief portion of the order of the District Forum we find reliefs granted in these cases are not uniform. Interest awarded varies from 9% to 18%. In modification of the reliefs granted in all these cases we direct that the 1st Opp. Party to refund the amount paid by the complainants together with interest at the rate of 12% per annum in all these cases. This will not proclude the 1st Opp. Party from proceeding against the 2nd Opp. Party in case any amounts were due to 1st Opp. Party from the 2nd Opp. Party in transactions between them. We direct the parties to bear their respective costs in the peculiar circumstances of the case. Appeals allowed.