Mohan Singh vs Firm Banwari Lal Satrup and Others

K. Kannan, J.—The plaintiffs suit for accounting for certain transactions done by defendants from Banwari Lal, represented through the 3rd defendant Satrup son of Banwari Lal, was decreed at the trial Court, but reversed in the appellate Court resulting in dismissal of the plaintiffs suit. The plaintiff had filed the suit for himself and as defendants 4 to 6 on a claim that they were co-owners and they had entrusted with the defendants 1 to 3 the work of selling their grains and fertilizers in the market. The plaintiff would contend that the defendants were Commission Agents and that on 06.01.1978, they had given Rs. 18,000/- to him and had also entrusted 5 bags of chemical fertilizers valued at Rs. 5,200/- for sale. The defence was that the defendants were pucca arhatias and the only entrustment that had been made was with reference to wheat grains given to them on 16.05.1978 of the value of Rs. 5,716/-, that there had been mutual credits and debits and at one time, the plaintiff owed the contesting defendants Rs. 40,240/- and when the demand was made by the defendants, the plaintiff had filed a case on untenable contention that they are liable to account. Some accounting entries were disputed at the trial Court and, therefore, an expert was also examined. This was to vouch for the genuineness of entries in the account book maintained by the plaintiff. The document had been received subject to objection from the defendant''s but the trial Court, while passing the decree, did not make any reference to the genuineness or otherwise of the entries, but found that the defendant was accountable. In the appellate Court, the contention was that the defendants 1 to 3 were not katcha arhatiyas, who could be characterized as agents who sell the grains in the presence of owners and take a commission. However, in the case of pucca arhatiyas, the transactions between an owner and arhatiya is a principal to principal and in the sale which the arhatiya ultimately makes to any third party, there is no privity of contract between the owner and the ultimate purchaser. On the basis of the finding that defendants 1 to 3 were pucca arhatiyas, the Court held that there cannot be a relationship of principal and agent and held further the question of accounting to the plaintiff, therefore, did not arise. It had also observed that the trial Court had not actually found the entries, produced by the plaintiff, as established and, therefore, even without rendering a finding about the genuineness of accounting entries, the Court could not have made the defendants 1 to 3 liable. Accordingly, the plaintiff''s suit was dismissed.

At the time when the second appeal was admitted, no substantial question of law has been framed which is irregular procedure. I have examined the facts brought out through the judgment of the court below and formulate the following question for consideration in this appeal:-

Whether the plaintiff''s suit for accounting could be dismissed on its finding that the defendants 1 to 3 being pucca arhatiyas did not fulfill the relationship of agent to a principal and, therefore, the suit for accounting was not maintainable?

One aspect that stands out as admitted is that the plaintiff and the defendant had transactions relating to the entrustment of grains or fertilizers by the plaintiff to the defendant. That the defendant had actually sold the goods of the plaintiff is also an admitted fact. Whether in the manner of adjusting the mutual credits and debits, there was any amount due and payable by the defendant to plaintiff had not been fully considered. The finding of relationship between the plaintiff and the defendants as principal to principal does not take away the requirement to adjudge on a duty for settlement of accounts between the parties. It is not merely a principal and agent relationship that give rise to a claim for accounting. A principal dealing with another principal entrusting his goods and the latter principal selling the goods in his own right as a person holding custody of the goods and recovering money from the purchaser still becomes accountable to the first principal, who entrusted the goods, for the amount that was payable for the initial entrustment. If there had been any amount realized by the principal provisionally at the time of entrustment and secured to himself a credit, if ultimately the sale by the arhatiya turned out to be for a value less than what was entrusted, the settlement would result in marking debits in the excess amounts realized by the first principal. If the sale value was more, the first principal will be entitled to a credit. Either way, the appellate Court was erroneous in assuming that there would be no liability for an accounting by the defendants 1 to 3 for the entrustment. The Court failed to note that the defendants themselves were contending for a position that the plaintiff had availed to himself large credits than the goods entrusted and, according to the defendant, an amount of Rs. 40,240/- payable. A decree for accounting only settles the mutual credits and debits and is not the same thing as granting decree for money for the plaintiff. Consequently, the appellate Court was not justified in dismissing the suit when the defendant himself was also trying to give evidence that some money was due from the plaintiff to the defendant. The appropriate relief in the suit by the appellate Court must have been only therefore to affirm the decree for accounting and explained that the relationship between the parties, namely, of the plaintiff and defendants 4 to 6 on one hand and defendants 1 to 3, on the other hand, was not in the capacity of principal and agent, but though in the capacity of principal to principal, there was requirement to examine the settlement of accounts for the mutual credits and debits and to that extent, all the transactions between parties that remained unsettled would require to be considered in the final decree proceedings. I set aside and judgment of the trial Court and allow the appeal, answering the substantial question of law that even if the relationship of the plaintiff to defendants 1 to 3 were to be reckoned as on principal to principal basis, the duty to account for all the transactions that were entrusted cannot be lost. The final decree shall consider the transactions between parties from the period 06.01.1978 upto 15.09.1979 when the defendants claimed that their firm was dissolved. The parties shall be at liberty to produce the account books to establish the mutual credits and debits between the same period and the same be directed to be examined by a Commissioner appointed by the Court, who has knowledge of accounting principles. If need be, considering the quantum of work and the affordability of the parties, a Chartered Accountant may be appointed as a Commissioner with the consent of both parties for working out the final settlement figures to enable the Court to pass a final decree therefor. The lower appellate Court''s judgment is set aside and the appeal is allowed granting a preliminary decree for accounting for the period referred to above. There shall be no direction as to costs.