Sutrame Govinda Rao vs Anugodu Matada Rudrayya and Others

Venkatasubba Rao, J.—The question to be decided is, whether Section 11, Civil Procedure Code, bars the trial of the present suit. The

facts may be shortly stated. The plaintiff is a trader in the Madras Presidency and the defendant is his agent residing in the Presidency of Bombay. I

shall, in my judgment, refer to the plaintiff as principal and to the defendant as agent. The duties of the agent were to purchase goods for the

principal, to advance, if necessary, moneys for that purpose, to sell the goods so purchased or to despatch them to other constituents named by

the principal. The agent filed O.S. No. 356 of 1919 on the file of the Havari Sub-Court claiming the balance of the amount alleged to be due to

him on account of the advance made by him for purchase of goods. In the plaint he gave credit for various sums including an item which represents

the sale proceeds of 82 bags of chillies belonging to the principal. It is this item which has been the subject of controversy in this appeal. The suit

was thus for the recovery of the advances made, less certain credits which inter alia included the sale proceeds referred to above. After the agent

filed the suit in the Havari Court, the; principal instituted a suit in the District Court, Anantapur, claiming damages from the agent on the ground that

the sale of the 82 bags in question was unauthorised and contrary to instructions. The agent applied to the District Court u/s 10, CPC for a stay of

the later suit and it was accordingly stayed. The agent''s suit in the Havari Court was then taken up and tried. The principal raised the contention

that a large sum was due to him in respect of damages for the unauthorised sale of 82 bags and if that amount was taken into consideration, the

agent would be found indebted to him far from his being liable to pay the agent any sum. At the trial, the, Sub-Judge of the Havari Sub-Court

directed the principal to pay a Court-fee on Rs. 3,053-10-0, the amount which the principal claimed as due to him. He, however, failed to pay the

Court-fee on the ground that he had already paid the requisite Court-fee on the plaint which he filed in the District Court, Anantapur. He requested

the Judge not to raise an issue in regard to damages stating that he intended to have, the claim to damages decided in the suit at Anantapur. The

Sub-Judge of Havari accordingly gave no decision of the question relating to the unauthorised sale of the 82 bags and passed a decree in favour of

the agent for a certain sum. The principal has now asked the Anantapur Court to proceed with the trial of his own suit. The Sub-Judge of

Anantapur dismissed the suit on the ground that the trial of it is barred u/s 11, Civil Procedure Code. The District Judge of Anantapur in appeal has

confirmed the decision of the Sub-Judge. The principal has filed the present appeal.

The point to be decided is whether the question of the principal''s right to claim damages from the agent has become res judicata. In the previous

suit the agent claimed the balance due in respect of the advances made by him in the course of the agency. There is no dispute, that that amount

was substantially due. The principal''s main defence was that he was entitled to set off a certain sum of money as damages on account of the sale of

the 82 bags in question contrary to his instructions. In effect, the principal admitted the amount due and claimed that on account of damages a

different sum would be payable to him. This amounts to a pleading of a set off. But as the sum claimed is not an ascertained sum of money, it is no

doubt true that Order 8, Rule 6, Civil Procedure Code, is inapplicable. But if cross demands arise out of one and the same transaction or are so

connected in their nature and circumstances that they can be looked upon as part of one transaction, Courts of Equity in England have held that the

defendant may be allowed to plead a set-off although the amount may be unascertained. The doctrine of equitable set-off has been recognised by

Indian Courts and it was open to the principal to plead in the former suit that an amount was due to him for damages. u/s 11, Explanation 4, any

matter which might and ought to have been made a ground of defence in the former suit should be deemed to have been a matter directly and

substantially in issue in that suit. There is no doubt that the claim to damages might have been a ground of defence in the former suit. The question

then is, ought the claim to have been made a ground of defence or, in other words, was it incumbent upon the principal to claim in the previous suit

the equitable set-off ? I put the question in this way because although the principal raised the contention relating to damages in the first instance, his

failure to have the issue tried leads to the same legal consequence as an entire omission to raise the plea.

It is conceded at the bar that a defendant is not under an obligation to plead a legal set-off and that his omission does not preclude him from

bringing a separate suit in respect of it. But it is urged so far as an equitable set-off is concerned, if the defendant fails to plead it, he does so at the

risk of the question becoming res judicata. I cannot agree to this contention. If there is no obligation on the part of a defendant to plead a legal set-

off, which is a matter of right, I fail to see why he should be in a worse position in regard to an equitable set-off which originally was merely

permissive in character. The, learned vakil for the agent has relied upon Mahabir Pershad Singh v. Macnaghten (1889) ILR 16 C 682 (PC). but a

close examination of the, facts of the case will show that this case does not support his argument. It will be seen that the mortgagor in that suit was

given a decree for the rents which according to the present contention ought to have been claimed by way of set-off in the previous suit by the

mortgagor. The claim disallowed by the Judicial Committee was the claim to have the two decrees, the decree in the mortgage suit and the decree

in the rent suit, set-off against each other and to treat as a consequence the mortgage decree as of no avail. This is not an authority bearing on the

question.

The next case relied upon is Ameenammal v. Meenakshi (1920) 12 L W 173. The facts are entirely different and such observations as there are

in the judgment of Sadasiva Aiyar, J. to the effect that it is imperative upon a defendant to plead an equitable set-off are obiter and are opposed to

the practice and the decisions of the English Courts. See Jenner v. Morris (1891) 3 De G F & J 45 : 45 E R 795 Halsbury''s, p. 485. Pichi Aiyar

and Another Vs. Subbarayar alias Subramania Aiyar, . also supports my view.

It is riot obligatory therefore upon a defendant to plead an equitable set-off. But there is a feature in the present case which presents some little

difficulty. In the agent''s suit he gave credit for a certain item which according to him represented the sale proceeds of the 82 bags in question. A

decree was passed on the footing that the principal was entitled to that credit. The effect of this is, that the principal has already obtained by virtue

of this decree a portion of the damages which he claims he is entitled to. If, in the present action, the Court comes to the conclusion that the

principal is entitled to damages, it will become necessary to reduce the amount which otherwise may be awarded to him by the sum for which he

has obtained credit in the previous suit. In other words, if it is held that the question of damages has not become res judicata the principal will, in

effect, be allowed to split up his claim to damages, and as he has obtained a portion in the first action the balance will be awarded in the second. It

is the propriety of this proceeding that has to be decided in this appeal. There is no Indian case on the point, but the law is clearly laid down in

English decisions that this procedure is authorised.

In Mondel v. Steel 8 M W 858 : 151 ER 1288 it was held:

In all actions for goods sold and delivered with a warranty, or for work and labour, as well as in actions for goods agreed to be supplied according

to a contract, it is competent for the defendant to show how much less the subject-matter of the action was worth by reason of the breach of the

contract, and to the extent that he obtains, or is capable of obtaining, an abatement of the price on that account, he must be considered as having

received satisfaction for the breach of contract ; and he is precluded from recovering in another action to that extent, but no more."" To take a

concrete instance, suppose A entrusts his watch to B for repairs to be effected. B effects the repairs but breaks the lid and delivers the watch to A.

B sues A for Rs. 50 charges for repairing the watch. A may plead that he is not liable to pay B Rs. 50, because he estimates the damage to his

watch by the lid having been broken at Rs. 125. If A''s case is made out the suit of B is dismissed. This suit will not bar A from claiming in a

separate action the balance of the damages payable to him, namely, Rs. 75. The principle on which this decision is based is that in truth there was

no dividing of the cause of action, but the employer is merely allowed to defend himself by showing how much less the subject-matter of the action

was worth by reason of the breach of the contract. To the extent that he obtains an abatement of price or wages, he must be considered as having

received satisfaction for the breach of the contract and he is precluded, from recovering in another action only to that extent. The previous suit

does not operate as a bar to any further extent. This principle applies in actions for goods sold and delivered with a warranty as also for work and

labour. The judgment of the Court which was delivered by Parke, B. traces the course of the decisions on this point and deals exhaustively with

this subject.

Daves v. Hedges (1871) LR 6 Q B 687. takes the matter a little further. The defendant has the option to obtain an abatement in the first action,;

but he is not bound to do so. Hannen, J., who delivered his own as well as Blackburn, J.''s judgment, says at page 692 :__

We have, though not without some doubt, come to the conclusion that the better rule is, that the defendant has the option, if he pleases, to divide

the cause of action, and use it in diminution of damages, in which case, as Parke, B. says, he is concluded to the extent to which he obtained, or

was capable of obtaining, a reduction, or he may, as in the present case, claim no reduction at all, and afterwards sue for his entire cause of action.

Going back to the illustration which I have given, A, the owner of the watch, is not bound to plead in B''s action that he is entitled to an

abatement. He may allow a decree to be passed for the sum claim, namely Rs. 50, and bring a second suit for the damages sustained by him,

namely, Rs. 125. The first action is not a bar to the second suit. In the case of Daves v. Hedges (1871) LR 6 Q B 687. the process is described as

dividing the cause of action, but nevertheless the second suit is not held to be barred. The point again is very fully considered in the judgment.

Following these two decisions I hold that the question of the principal''s right to claim damages from the agent has not become res judicata. The

Second Appeal is, therefore, allowed, the decision of the District Judge is reversed and the suit is remanded for trial on the merits. I make no order

as to costs. The appellant will have a refund of the Court-fee paid on the Memorandum of Appeal in this and in the Lower Appellate Court.

As the Subordinate Judge''s Court at Anantapur is not in existence at present, the suit will be tried by the District Judge of Anantapur.