judgement:
Appeal No. 164 of 1964.
Appeal from the judgment and decree dated December 15, 1959 of the Madras High Court in O.S. Appeal No. 22 of 1955.
P. Ram Reddy and A. V. Velayudhan Nair, for the appellant.
K. R. Chaudhuri, and K. Rajendra Choudhury, for the respondent.
The Judgment of the Court was delivered by Ramaswami, J.
This appeal is brought against the judgment of the High Court of Madras dated December 15, 1959 in O.S. Appeal No. 22 of 1955.
The respondent was a trader at Madras in hides and skins.
The appellant was a firm, Gordon Woodroffe and Company (Madras), Limited, doing business among other things as exporters of hides and skins.
For the period of 8 months commencing from January, 1949, there were as many as 101 contracts entered into between the appellant and the respondent.
The case of the respondent was that he entered into an agreement with the appellant to act as agents for shipping the goods (hides and skins) to United Kingdom and for finding purchasers there.
It is alleged that the appellant used to make payment to the respondent in respect of the goods sent to it for shipment in the nature of advances and he 3 used to set off these advances when payment was made to the respondent after the goods were shipped.
The respondent will hereinafter be referred to as the plaintiff and the appellant as the defendants.
The plaintiff tentatively claimed a sum of Rs. 56,564/and odd as due to him as balance of the price of the goods and a further sum of Rs. 40,275/ as representing the loss sustained by him by reason of the defendants ' conduct in not shipping his goods under the "Shaik mark".
The plaintiff accordingly prayed that an account should be taken of the dealings between the parties for the period in question.
The defendants contested the suit on the ground that it was not an agent of the plaintiff but it purchased hides from the plaintiff for export and for resale in the United Kingdom.
The case of the defendants was that there was an outright purchase of the goods from the plaintiff for the purpose of resale in the United Kingdom.
The defendants also contended that a sum of Rs. 4,351 / and odd was due to it from the plaintiff and it prayed for a decree against the plaintiff for that amount by way of counter claim.
The trial Judge held, by his judgment dated May 6, 1954 that the defendants were only purchasers of the goods from the plaintiff and the idea of agency was quite inconsistent with the nature of the transactions between the parties.
The trial Judge came to the conclusion that the plaintiff was bound by the statements of account rendered by the defendants from time to time.
After giving an opportunity to the parties to produce further evidence, the trial Judge held that since there was no fraud the accounts could not be reopened and the claim of the plaintiff with regard to Rs. 157/ in respect of the marine insurance alone was sustainable.
The trial Judge accordingly dismissed the suit and decreed that counter claim of the defendants after deducting the said sum of Rs. 157/ .
The plaintiff preferred an appeal to the High Court of Madras under the Letters Patent.
By its judgment dated December 15, 1959 the High Court reversed the decision of the trial Judge and held that the defendants acted as del credere agents of the plaintiff for effecting the sale of the plaintiff 's goods in the United Kingdom.
On this basis the High Court decreed the plaintiff 's suit and directed the taking of accounts, as prayed for, from the defendants, though in respect of some of the items the claim of the plaintiff was negatived.
The High Court also held that the plaintiff was liable to pay to the defendants the amount claimed by them by way of counter claim.
The first question presented for determination in this case is whether the defendants were acting as del credere agents of the plaintiff or whether the defendants were outright purchasers of the goods supplied to them by the plaintiff.
In the approach to this question it is necessary to notice the distinction between a contract of sale and a contract of agency.
The essence of sale is the transfer of the title to the goods for price paid or to be paid.
The transferee in such case becomes liable to the transferor of the goods 4 as a debtor for the price to be paid and not as agent for the proceeds of the sale.
On the other hand, the essence of agency to sell is the delivery of the 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 the goods and who is therefore liable to account for the proceeds.
The true legal relationship between the parties in the present case has, therefore, to be inferred from the nature of the contract, its terms and conditions and the nature of respective obligations undertaken by the parties.
It is necessary, at this stage, to set out briefly the course of the dealings between the parties which has been summarised by the High Court as follows: "The plaintiff used to purchase tanned hides of all sorts in Periamet (Madras), and in his godown assort them according to quality, pack them into bales and mark them with his mark, viz., Shaik or section M. A. Mark.
Then the bales would be delivered into the defendants ' godown where the bales would be opened and re assorted so as to conform to London specification and standard.
In the process of putting the goods into that shape, there used to be necessity for the defendants to cut and trim the pieces and sometimes call on the plaintiff for replacement of the pieces which fell below the standard.
Thereafter, the defendants used to re pack them into bales each weighing 600 pounds and then ship the goods themselves as shippers and obtain the necessary shipping documents on the basis of c.i.f. contracts.
The goods would be shipped to the defendants ' London Office where they were sold to London purchasers.
All the expenses incurred in connection with the goods prior to shipment, such as carriage, trimming and assortment in the defendants ' godown were all to be borne by the plaintiffs.
So also expense in connection with the shipment, such as freight, insurance, short weight, etc., were all to be home by the plaintiff.
After the goods were shipped and as soon as the shipping documents were got ready.
the price of the goods was calculated at the price fixed in the contract notes and after deducting the expenses and the advances with interest thereon, the balance, if any, was paid to the plaintiff either by cheque or by credit being given in his accounts.
For every shipment a contract note was being sent by the defendants to the plaintiff.
So also, a statement of account with a covering letter as well as a cheque for the balance found due to the plaintiff were being sent to the plaintiff from time to time.
In all, there were 101 contract forms and several statements of accounts sent to the plaintiff 5 in respect of the shippers.
To none of those contracts or statements of account did the plaintiff raise any objection at any time.
" The question whether the defendants took delivery of the plaintiff 's goods as agents for sale or whether they purchased the goods outright must largely depend upon the terms of the contract of which a sample is exhibit P 1.
All the 101 contracts were prepared in the same printed form.
Exhibit P 1 is the contract dated January 21, 1949.
It is in the form of a letter sent by the defendants to the plaintiff.
It opens with the sentence "We confirm buying from you for resale the following subject to U.K. Import Licence".
Then follows a description of the goods giving the number of bales, the average weight and range, the assortment and the price per lb.
in pennies.
The price quoted is said to be c.i.f.
less 21 per cent.
The goods were already shipped by the s.s. 'City of Florence '.
The seller is said to be liable to pay brokerage at the rate of one pie per lb.
Then follow the terms of the contract which are to the following effect: " Landed weight to be accepted, payment on presentation of documents in order.
It is understood that the above goods are for re sale in United Kingdom.
You are responsible irrespective of any inspection by us in Madras for selection and quality of the goods at destination where inspection and acceptance thereof will be made by our agents or the ultimate buyers.
In the event of any dispute or claim in respect of goods covered by this contract, failing amicable settlement with buyers, such claim is to be submitted to arbitration according to the custom of the trade in the United Kingdom and the result of such settlement or arbitration is binding on you.
We have a charge or lien on all goods covered by this contract for all moneys advanced by us including expenses incurred and interest thereon.
Insurance through Gordon Woodroffe Company, Madras, Limited.
Time is an essence of the contract.
" In the first place, it is important to notice that the contract in the opening portion specifically makes a mention of the fact that the defendants were buying the goods for resale, and in the paragraph containing the terms of the contract it is reiterated that the goods were intended for resale in the United Kingdom.
On the face of it, therefore, the contract is clearly not one of agency for sale but it reads as an agreement of sale.
If the defendants were intended to be constituted as the agents for sale the terms of the contract would have been entirely different.
Another important feature in this case is that there is a definite price fixed in the contract for the plaintiff 's goods.
According to the plaintiff the rates fixed in the contract were the ones at which the goods were sold to London 6 purchaser and not a different rate and the defendants were agents who were obtaining for him only the price at which the goods were sold at London.
It is true that the defendants admit that before fixing the price as between themselves and the plaintiff they used to ascertain the London price by cable.
It is also true that the plaintiff was debited in the statement of account with the expenses of the cable.
Even so, if the defendants were simply acting as agents for the sale there was no need at all to fix the price in the contract as between them and the plaintiff.
It was contended for the plaintiff that according to the contracts the prices fixed are c.i.f.
less 2 1/2 per cent and discount of 21 per cent was the commission for the defendants as agents.
There is no use of the word " commission" in the contracts and we see no reason to hold that 2 1/2 per cent should be taken as commission and not as a margin of profit.
The important point is that if the contract was one of agency there was no need to mention the price at all as between the plaintiff and the defendants.
It may be that in most cases the prices which the defendants obtained from the London purchasers were the same as the prices stipulated in the contracts with the plaintiff but the fact remains that they obtained 21 per cent discount on the sale price, that is to say, they purchased the goods from the plaintiff 2 1/2% per cent less and sold them to their London purchasers at the full price, so that 2 1/2 per cent was their margin of profit.
It is possible that sometimes they sold the goods to the London purchasers at a higher price in which case they would be entitled to the difference in prices as a profit in addition to the 2 1/2 per cent which they got from the plaintiff.
In all there are 101 contract forms and in accordance with these contract forms statements of account were furnished by the defendants to the plaintiff.
Exhibit P 1A is the statement of account dated January 25, 1949 based upon the contract note exhibit P 1.
It is true that the plaintiff did not sign any one of the contract forms, but all of them were received by the plaintiff without any objection.
Statements of account were Prepared in terms of these contracts and the plaintiff was receiving moneys from the defendants on the basis of these contracts and according to the price fixed therein.
He did not, at any time, raise the slightest protest against the terms of the contract or against the price fixed therein.
On the other hand, he received all the contract forms and statements of account as well as the moneys sent to him by cheque.
The plaintiff cannot, therefore, be heard to say that he was not a consenting party to the contracts.
There is also the circumstance that before the goods were shipped to London they were subjected to a process of trimming and reassortment in the godowns of the defendants with a view to make them conform to London standard and selection.
In that process the defendants often called upon the plaintiff to replace the 7 pieces found defective.
If the defendants were merely acting as agents the process of trimming and reassorting in the godowns to make the goods conform to London standards and specifications will be unnecessary, for in that case the defendants were merely bound to ship the goods as they were delivered to them.
Another important feature of the transaction is that in several contracts time was fixed for delivery of the goods.
In some cases like the contracts in forms like P 1 to P 3 the shipment has been effected before the contract forms were issued but there are some contracts which contained the stipulation that the bales were to be sent to the godowns of the defendants for shipment to be effected "promptly" which according to D.W. 1, Ayyalu Chetti meant two weeks.
There were also some contracts like exhibit D 2(a) which required the goods to be sent for shipment to be effected within one month, and some other contracts within two months.
All the contracts provided that time should be the essence of the contract.
If the defendants were acting only as agents for the sale there is no reason why there should be a stipulation in the contract as to the time fixed for the delivery and the stipulation that time should be the essence of the contract.
There is also a further condition in the contracts that the sales tax was on seller 's account, the seller being the plaintiff.
This circumstance also indicates that the legal relationship between the parties was that of a seller and a purchases and not of a principal and agent.
On behalf of the plaintiff it was argued that according to the contract the goods were to be marked with the plaintiff 's mark.
It is true that in some of the defendants ' letters such as exhibit P 10 it was mentioned that the bales were sent with the plaintiff 's mark in some shipments but this circumstance has not significance.
It only means that the buyer resold the goods to the London purchaser with the mark of the plaintiff.
It was also contended on behalf of the plaintiff that "premium" was paid to the plaintiff in case the goods supplied were of special quality.
It is in evidence, that the "premium" was extra price obtained in London if the Board of Control was satisfied about the special quality of the goods (vide D 1O).
It was pointed out that if the defendants were purchasers the premium should go to them but in some cases the premium was paid to the plaintiff.
Exhibits P 7, P 10 and P 1 8, show that for some shipments the premium was paid to the plaintiff. 'The explanation of D.W. 1, Ayyalu Chetti is that in some cases the premium was paid to the plaintiff ex gratia.
If in London the quality of the goods was found particularly good the premium was obtained from the London purchaser, that is to say, the premium was obtained not as in terms of the contract but as a special payment if the goods happened to be of good quality.
It is a payment therefore, L/S5SCI 3 8 made outside the terms of the contract and there is nothing significant if the defendants considered it fair and just to pay the whole of the premium to the plaintiff or to share it with him in some cases.
It was also contended by the plaintiff that According to the terms of the contract the landed weight was to be accepted and the plaintiff was to be responsible for the selection and quality of goods at the destination where inspection would be made by the defendants ' agents or the ultimate London buyers.
In some statements of account sent by the 'defendants the plaintiff has been debited various amounts for shortage in weight at London.
The plaintiff was also informed about the claims made by the London purchasers on the ground of low standard and selection, that is to say, the plaintiff was made answerable for weight as well as quality.
It is true that the liability of the, plaintiff is an additional burden thrown upon him under the terms of the contract but it is of 'no significance in considering the question as to whether the as transfer of title to the goods at the time of shipment from the plaintiff to the defendants.
On behalf of 'the plantiff reference was also made to the fact that the contracts provided for a Hen on all the, goods covered by the contracts for all moneys advanced by the defendants, including expenses incurred and interest thereon.
it is the admitted position that for purchasing skins and hides, the plaintiff was taking large sums of money as advances from the defendants.
We find from the several statements of account that reference is made to all such advances.
These advances together with interest thereon are deducted from the sale price payable to the plaintiff and for the balance alone cheques were sent: to him.
It appears that on a later date, i.e., in June, 1949 the defendants took a regular hypothecation deed, exhibit P 19 from the plaintiff in respect of all the advances to be made by the defendants.
But it should be noticed that in making such advances, the defendants were only acting as creditors of the plaintiff and were, therefore, entitled to charge interest on such advances till they actually purchased the goods from the plaintiff.
After the purchase of the goods they did not charge any interest on the moneys paid by them.
It appears from the statements of account that interest, was charged on advances upto the date of shipment.
In other words the title in the goods passed to the defendants at the moment of shipment of the goods and the fact was that interest was charged on all advances only upto the date of shipment.
The charge or lien on the, goods, therefore, subsisted till the time of shipment i.e., till the title in the goods passed to the defendants under the con.
tract of sale.
We are, therefore, unable to agree with the Counsel for the plaintiff that the clause with regard to the.
lien is not consistent with the theory of the transactions being an outright sale,.
There was also a suggestion on behalf of the plaintiff that there cannot be a contract of sale subject to c.i.f. terms if there was an out right sale at Madras between the parties.
We do not think 9 there is any substance in this argument.
The primary object of the contract was that there,was a purchase by the defendants from the plaintiff of the goods for resale in the United Kingdom and in keeping with this object the buyer stipulated with the seller for delivery of the goods abroad and for that purpose adopted a c.i.f. form of &de.
It is also contended on behalf of the plaintiff that the term with regard to arbitration "according to the custom obtaining in United Kingdom" was not compatible with the theory of a sale between the parties.
It is not possible to accept this argument as correct.
It is open to the plaintiff to agree that even after the sale had taken place any dispute with regard to the quality of the goods and selection may be submitted to arbitration in the United Kingdom.
It is true that a clause of this description is unusual but it is not inconsistent with the theory that there was a sale of goods between the parties at Madras.
We have already observed that the contracts in this case were not c.i.f. contracts but the price alone was fixed on a c.i.f. basis.
It is well established that even an agent can become a pur chaser when an agent pays the price to the principal on his own responsibility.
In Ex parts White, In re Nevil(1) T & Co. were in the habit of sending goods for sale to N who was a partner in the, firm of N & Co., but received these, goods on his private account.
The course of dealing between T & Co. and N was that the goods were accompanied by a price list.
N sold the goods on what terms he pleased, and each month sent to T & Co., an ac.
count of the goods he had sold, debiting himself with the prices named for, them in the price list, and at the expiration of another month he paid the amount in cash without any regard to the prices at which he had sold the goods, or the length of credit he had given.
On these facts it was held by the Court of Appeal in Chancery that though both the parties might look upon the business as an agency, N did not, in fact, sell the goods as agent of T & Co., but on his own account, upon the terms of his paying T & Co. for them at a fixed rate if he sold them, and the moneys he received for them were therefore his own moneys, which T & Co., had no right to follow.
A similar principle has been expressed in W. T. Lamb and Sons vs Goring Brick Company, Ltd.(1) In that case, certain manufacturers of ,bricks and other building materials, by an agreement in writing, appointed a firm of builders ' merchants as sole selling agents of all bricks and other materials manufactured at their works".
The agreement was expressed to be for three years and afterwards continuous subject to twelve months ' notice by either party.
While the ;agreement was in force the manufacturers informed the merchants that they intended in the future to sell their goods themselves without the intervention of any agent, (1) (2) L/S5SCI 3(a) 10 and thereafter they effected sales to customers directly.
An action was then brought by the merchants for breach of the agreement.
It was hold by the Court of Appeal that the effect of the agreement was to confer on the plaintiffs the sole right of selling the goods manufactured by the defendants at their works, so that neither the defendants themselves nor any agent appointed by them, other than the plaintiffs, should have the right of selling such goods.
It was also held that the agreement was one of vendor and purchaser and not one of principal and agent.
Though the term 'agent ' was used in the agreement, the Court of Appeal considered that the substance of the transaction was that the manufacturers sold their bricks to the so called agent who in turn sold them on their own responsibility to customers.
The price charged by the manufacturers to the sole selling agents was the ruling market price and the sole selling agents were allowed a deduction of 10 per cent by way of commission on that price.
The manufacturers had no concern at what rate the sole selling agents sold the goods to customers.
It was clear from these facts that the sale by the selling agents to customers was a transaction in which the manufacturers were not interested and there was no privity of contract between the manufacturers and the ultimate purchasers.
Reference may be made, in this connection to the following passage from Blackwood Wright, 'Principal and Agent '.
Second Edn.
page 5: "In commercial matters, where the real relationship is that of vendor and purchaser.
persons are sometimes called agents when, as a matter of fact, their relations are not those of principal and agent at all, but those of vendor and purchaser.
If the person called an 'agent ' is entitled to alter the goods, manipulate them, to sell them at any price that he thinks fit after they have been so manipulated, and is still only liable to pay for them at a price fixed beforehand, without any reference to the price at which he sold them, it is impossible to say that the produce of the goods so sold was the money of the consignors, or that the relation of principal and agent exists Ex parte White, In re Nevill (1871).
397A purchaser has not to account to his vendor , his only duty is to pay him; and all the other rights and duties which exist between principal, and agent do not exist between vendor and purchaser Ex parte Bright, In re Smith (1879), 10 Ch.
566; Ex parte White, In re Nevill (1871) 6 Ch.
" For the reasons already given we are of the opinion that the defendants were purchasers of the plaintiffs goods under the several contracts and not his agents for sale and the view taken by the High Court on this aspect of the case is not correct and must be overruled.
11 We pass on to consider the second question involved in this viz., whether there was a settled account between the parties and whether it is open to the plaintiff to reopen it.
It is admitted in this case that for almost every shipment the defendants prepared a statement of account and sent it to the plaintiff giving full particulars of the amount due to him together with the deduction and showing the net balance payable to him and enclosing a cheque for such balance or giving a credit for the sum the accounts.
Copies of such accounts are exhibit P 1A,P 2A and P 3A corresponding to the contracts Exs.
P 1, P 2 and P 3.Copies of other accounts have been filed by the defendants in the Court and marked exhibit D 18 series.
The plaintiff in his evidence did not deny the receipt of these accounts.
On the contrary, he admitted in cross examination that for every shipment he was getting accounts and cheques for the balance due.
It is an admitted fact that to these statements of account no objection was raised by the plaintiff at any time.
Nor a single document has been produced on his side to show that he ever wrote to the defendants raising an objection to the statements of account.
Not only the plaintiff failed to raise objection to the several statements of account but at one stage sent a memorandum to the defendants accepting the accuracy of the accounts.
On June 20, 1949, the defendants wrote a letter, exhibit P 16, to the plaintiff stating that there was a balance of Rs. 1,26,379/7/2 payable by him, and that against the balance they were holding certain goods belonging to the plaintiff and asking him to confirm the statements.
On June 22, 1949 the defendants again wrote a letter exhibit D 5, en closing a statement of account exhibit P 17 showing the said balance of Rs. 1,26,379/7/2 and asking the plaintiff for confirmation.
On receipt of this statement the plaintiff signed the memorandum, exhibit D 4 on June 22, 1949 and sent it to the defendants confirming the correctness of the balance as due by him and also confirming the stock of his goods remaining with the defendants.
The plaintiff conceded in his evidence having signed exhibit D 4 after the receipt of the statement of account, exhibit P 17.
The plaintiff explained that he did not look into the correctness of the figures but believed exhibit P 1 7 to be correct '&as it was sent by an English firm".
The plaintiff also said that he was told by the defendants ' broker that if he did not sign it, it would be harmful to him.
The trial Judge refused to accept the explanation of the plaintiff and held that the plaintiff had accepted all statements of account as correct and, therefore, it must be held in law that the accounts were settled and the plaintiff could be allowed to reopen it only by proof of fraud or mistake or any other sufficient equitable ground.
The legal position is that the accounts are settled or stated if they are submitted and accepted as correct by the other side to whom the accounts have been rendered.
Such a statement of 12 accounts need not be in writing, nor is it necessary that before the accounts are settled, they should be gone into by the parties and scrutinised and supported by vouchers.
It is sufficient if the accounts are accepted and such acceptance may be inferred by conduct of parties.
As observed in Diniell 's Chancery Practice, eighth edition, Vol. 1, p. 419: "The mere delivery of an account will not constitute a stated account without some evidence of acquiescence which may afford sufficient legal presumption of a settlement.
" There is also the following passage in Bullen and Leake 's Prece.
dents of Pleadings, ninth edition, p. 584: "It is not enough for the accounting party merely to deliver his account; there must be some evidence that the other, party has accepted ' it as correct But such acceptance need not be express; contemporaneous or subsequent conduct may amount to a sufficient acquiescence.
Again, in Willis vs Jernegan(1) the Lord Chancellor was dealing with the two objections raised by ' the plaintiffs counsel to the defendant 's plea of a stated account.
It was observed by the Lord Chancellor that there was no absolute necessity that the account should be signed by the parties who had mutual dealings to make it a stated account, for even where there were transactions, suppose, between a merchant in England and a merchant beyond sea, and an account was transmitted to England from the person who was abroad, it was not the signing which would make it a stated account, but the person to whom it was sent, keeping it by him any length of time, without making any objection which should bind him and prevent his entering into an open account afterwards.
In another case, Tickel vs Short, (2) the Lord Chancellor expressed the opinion that it is the rule of the Court that where a merchant kept an account current by him for about two years without objection, the Court will consider that the accounts are stated or settled.
The same principle has been expressed by the Bombay High Court in Seth Maneklal Mansukhbhai vs Jwaladutt Rameshwar Pillani(3) in which it was pointed out that it was sufficient if the accounts were accepted and such acceptance might be inferred by conduct of parties.
The contention on behalf of the defendants is that there has been a "stated" or "settled" account in this case and in the ab.
sence of fraud, mistake or any other sufficient equitable ground it is not liable to be reopened at the instance of the plaintiff.
In connection it is necessary to state that the expression "account (1) ; (2)[1750 51) 2 Ves.
(Son.) 239.
(3) I.L.R. 13 stated" has more than one meaning.
It sometimes means a claim to payment made by one party and admitted by the other to be correct An account stated in this sense is no more than an admission of a debt out of court, while it is no doubt cogent evidence against the admitting party, and throws upon him the burden of proving that the debt is not due, it may, like any other admission, be shown to have been made in error.
Where the transaction is of this character, it makes no difference whether the account is said lo be " 'stated" or to be "stated and agreed";, the so called agreements is,without consideration and amounts to no more than an admission.
There is however a second.
kind of account stated where the, account contains items both of credit and debit, and the figures on both sides are adjusted between the parties and a balance struck.
This is called by Mr. Justice Blackburn, in Laycock vs Pickkes(1) a "real account stated " and he describes it as follows: "There is a real account stated, called in old law an insimul computassent, that is to say, when several items of claim are brought into account on either side, and, being set against one another, a balance is struck, and the consideration for the payment of the balance is the discharge of the items on each side.
It is then the same as if each item was paid and a discharge given for each, and in consideration of that discharge the balance was agreed.
to be due.
It is not necessary,.
in order to make out a real account stated, that the debts should be debts in praesenti or that they should be regal debts.
I think equitable claims might might be, brought into account, and I am not certain that a moral obligation is not sufficient.
It is to be taken as if the sums had been really paid down on each side; and the balance is recoverable as if money had been really taken in satisfaction; subject to this, that where some of the items are such that, if they had been actually paid, the party paying them would have been able to recover them back as on a failure of consideration, the account stated would be invalidated.
" In the present case, the "settled account" between the parties falls within the second kind of "account stated" and it is to an account of this description that the equitable doctrine of "settled account" has to be considered.
This statement of the law has been affirmed by Lord Wright in delivering the opinion of the Judicial Committee in Bishnu Chan vs Birdhari Lal(2) as the follows: "Indeed, the essence of an account stated is not the ' character of the items on one side or the other, but the (1) 4 B. and B., 497.
(2) A.I.R. 1934 P.C. 147, 14 fact that are cross items of account and that the parties mutually agree the several accounts of each.
and by treating the items so agreed on the one side as discharging the items on the other side pro tanto, go on to agree that the balance only is payable.
Such a transaction is in truth bilateral and creates a new debt and a new cause of action.
There are mutual promises, the one side agreeing to accept the amount of the balance of the debt as true (because there must in such cases be.
at least in the end, a creditor to whom the balance is due) and to pay it, the other side agreeing the entire debt as at a certain figure and then agreeing that it has been discharged to such and such an extent, so that there win be complete satisfaction on payment of the agreed balance.
Hence, there is mutual consideration to support the pro mises on either side and to constitute the new cause of action.
The account stated is accordingly binding.
save that it may be re opened on any ground for instance.
fraud or mistake which would justify setting aside any other agreement.
" In the present case, the 'correctness of the statements of account furnished by the defendants has been challenged by the plaintiff under 13 heads.
In view of our finding that the transactions between the parties were not on the basis of an agency but on the basis of an outright sale the accounts cannot be reopened under any of these heads of challenges.
The trial court has already gone into the evidence and has reached the finding that there was no fraud, mistake or any other sufficient equitable ground for reopening the finality of the accounts.
As regards one item, viz., rebate in marine insurance, the trial court has ordered that the plaintiff should be given credit for a small sum of Rs. 157/ though there was no evidence of fraud on the part of the defendants.
The trial court has rejected the claim of the plaintiff for reopening the accounts on any other ground and in view of our finding that the legal relationship between the parties was not one of agency, we see no reason for interfering with the decision of the trial court on this aspect of the case also.
For the reasons expressed, we allow this appeal and set aside the judgment and decree of the High Court in O.S. Appeal No. 22 of 1955 dated the 15th December, 1959 and restore the judgment and decree of the trial Judge dated May 6, 1954 dismissing the suit of the plaintiff and granting a decree for the counter claim of the defendants.
The defendants are entitled to the costs of this appeal in this Court and in the High Court.
Appeal allowed.

summary:
The respondent was a trader in hider.
and skins and the appellant was an exporter.
During the period January to August 1949, there were several contracts between them.
The contracts mentioned that the appellant was buying the goods for resale in U.K.
The price quoted was C.I.F. less 2 1/2 %.
The contracts also provided that time should be the essence of the contract, that the sales tax was on respondent 's ac count, that the respondent was answerable for weight as well as quality, that there should be a lien on the goods for moneys advanced by the appellant, and that any dispute regarding quality should be settled by arbitration according to the custom of the trade in the U.K.
The course of dealing between them showed that before the goods were shipped they were subjected to a process of trimming and reassortment in the godowns of the appellant with a view to make them conform to London standards, that the goods were marked with the respondent 's mark and that premiums were paid to the respondent in case the goods supplied were of special quality.
The respondent filed a suit on the original side of the High Court praying that an account should be taken of the dealings between himself and the appellant on the ground that the appellant was his agent.
The appellant 's case was, that there was an outright purchase of the respondent 's goods and that the appellant was not an agent of the respon dent.
The trial Judge dismissed the suit.
On appeal the High Court held that the appellant acted as a del credere agent of the respondent and directed the taking of accounts.
In appeal to this Court, it was contended by the appellant that: (i) the terms of the contracts and the course, of dealing between the parties showed that the appellant was not the agent of the respondent but was an outright purchaser of the goods, and (ii) that there was a settled account between the parties which the respondent could not reopen.
HELD:(i) The appellant was the purchaser of the respondent 's goods under the several contracts and not his agent for sale, and therefore, the view taken by the High Court was not correct.
The essence of sale is the transfer of title to the goods for price paid, or to be paid, whereas the essence of the agency to sell is the delivery of the 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 the goods, and the agent is liable to account for the proceeds.
On the terms of the contract and the course of dealing between the parties, the contract was not one of agency for sale but was an agreement of sale.
The appellant purchased the goods from the respondent 2 1/2% less and sold them to the London purchasers at the full price so that the 2 1/2 % was its margin of profit and not its agency commission.
The fact that the goods were sent with the respondents 2 mark, that the premium was paid outside the terms of the contract, that the appellant considered it fair and just to pay the whole of the premium to the respondent or to share it with him, and that additional burden with respect to weight and quality was thrown on the respondent, have no significance, in deciding the nature of the contract.
The clause with regard to lien is consistent with the transac tion being an outright sale, because the appellant was acting as creditor of the respondent and charged interest on advances only till the date of shipment of the goods when it became the purchaser of the goods from the respondent.
An agent can become a purchaser when the agent pays the price to the principal on his own responsibility.
The clause regarding arbitration in the U.K., though unusual, is not also inconsistent with there being a sale of goods between the parties in India.
[3H 4B; 5G H.] (ii) The accounts were settled between the parties and the respondent could not be allowed to reopen the settled account as there was no proof of fraud, mistake or any other sufficient ground.
Accounts are "settled or started" if they are submitted and accepted as correct by the other side to whom they have been rendered.
For almost every shipment the appellant prepared a full and detailed statement of account and sent it to the respondent.
The account contained items both of credit and debit and the figures on both sides were adjusted between the parties and a balance struck and the respondent accepted their accuracy and never raised any objection to them.
[11H; 14 E F].
Bishnu Chand vs Girdhari Lal, (1934) L. R. 61 I.A. 273 and Laycock vs Pickles, 4 B and S 497, applied.


judgement:
ivil Appeals Nos. 4 and 6 of 1953.
Appeals under article 132(1) of the Constitution of India from the judgment and Order dated the 4th December, 1952, of the High Court of Judicature of the State of Madhya Bharat at Gwalior in Civil Miscellaneous Cases Nos.
614 of 1951 and 1 of 1952.
P.R. Das (B. Sen, with him) for the appellant in C.A. No. 4 of 1953.
749 Rameshwar Nath for the appellant in C.A. No. 6 of 1953.
M.C. Setalvad, Attorney General for India, and K. A. Chitale, Advocate General of Madhya Bharat (Shiv Dayal, with them) for the respondent.
February 2.
The Judgment of the Court was delivered by MAHAJAN C.J.
These appeals preferred on behalf of three zamindars of the State of Madhya Bharat against the judgment of the High Court of Judicature of that State dated the 4th December, 1952, raise common constitutional questions and can be disposed of by one judgment.
The State also preferred cross appeals against the same judgment.
During the pendency of these appeals, two petitions under article 32 of the Constitution of India were also made to this court to obtain the same relief as was claimed by the appellants in their respective appeals.
During the course of the arguments, the counsel appearing for the appellant in Civil Appeal No. 5 of 1953 asked leave to withdraw the appeal.
This was granted and the appeal was dismissed as having been withdrawn.
Petitioner.
Nos. 116 and 117 of 1953 preferred under article 3 were also withdrawn and were accordingly dismissed.
Civil Appeals Nos. 4 and 6 of 1953 were argued before us and this judgment concerns them alone.
The appellant in Civil Appeal No. 4 of 1953, Rajendra Maloji Rao Shitole, is the proprietor of extensive landed properties in the State of Madhya Bharat comprising 260 villages under different Sanads granted to his ancestors by the Rulers of Gwalior from time to time.
It was alleged by him that his income from these properties was in the sum of Rs. 2,61,637 and that the State of Madhya Bharat, under purported exercise of its powers under section 3 of the Madhya Bharat Abolition of Jagirs Act, was about to issue a Notification for resumption of all his land.
By a petition dated the 7th December, 1951, preferred to the High Court he asked for a mandamus to restrain the State from issuing any Notification under section 3(1) of the Act in respect of his properties and from 750 interfering with rights in the said property.
The appellant in Civil Appeal No. 6 of 1953 is another Jagirdar of the same State.
He preferred a similar petition to the High Court praying for the same relief.
These two petitions, along with a number of other petitions preferred under article 226 of the Constitution challenging the validity of the Madhya Bharat Abolition of Jagirs Act and praying for the issue of a mandamus restraining the State from issuing the Notification under section 3(1) of the said Act, were heard by a Bench of three Judges of the High Court of Madhya Bharat.
The ,court, by a majority judgment, declared that the Madhya Bharat Abolition of Jagirs Act No. XXVIII of 1951 was valid except as regards section 4(1)(g) and sub clauses (iv) and (v) of clause 4 of Schedule I which were held illegal and inoperative.
A writ of mandamus was directed to be issued to the State Government directing it not to give effect to the procisions of the impugned Act stated above.
Leave to appeal to the Supreme Court was granted to the paries and in pursuance of the leave the appellants referred the appeal above mentioned and the State referred the two cross appeals.
The cross appeals were not pressed by the learned Attorney General and nothing more need be said about them.
They are therefore dismissed with costs.
As regards Civil Appeals .
Nos. 4 and 6 of 1953, the facts are: That in April, 1948, after the partition of India, and the formation of two Dominions, India and Pakistan, the Rulers of the States of Gwalior, Indore and certain other States in Central India being convinced that the welfare of the people of that region could best be secured by the establishment of a State comprising the territories of ' their respective States with a common Executive, Legislature and Judiciary entered into an agreement for the formation of a United State of Gwalior, Indore and Malwa (Madhya Bharat).
It was resolved by them to entrust to a Constituent Assembly consisting of elected representatives of the people the drawing up of a democratic Constitution for the State within the framework of the Constitution of India to which the Rulers of these 751 States had acceded.
The covenant entered into by these Rulers was published on the 7th October, 1948.
The Rulers agreed, under article III of the covenant, to elect a Rajpramukh of the United State, and by article VI the Ruler of each Covenanting State agreed to make over the administration of the State to the Rajpramukh not later than the first day of July, 1948, and it was agreed that thereupon all rights, authority and jurisdiction belonging to the Ruler which appertain, or are incidental to, the Government of the Covenanting States shall vest in the United State and were thereafter to be exercisable only as provided by the covenant or by the Constitution to be framed thereunder.
By article X it was agreed that as soon as practicable a Constituent Assembly, for the purpose of framing a Constitution for the United State within the framework of the covenant and the Constitution of India, was to be formed and clause (2) of the said article provided: "The Rajpramukh shall constitute not later than the first day of August, 1948, an interim Legislative Assembly for the United State in the manner indicated in Schedule IV.
" Schedule IV laid down the following procedure for the constitution of the Legislative Assembly: "1.
The Legislative Assembly shall consist of (a) forty members elected by the members of the Gwalior Legislative Assembly; (b) fifteen members elected by the members of the Indore Legislative Assembly; and (c) twenty members elected by an electoral college to be constituted by the Rajpramukh in consultation with the Government of India to represent Covenanting States other than Gwalior and Indore.
The election shall be by proportional representation by means of the single transferable vote.
The Rajpramukh may make rules for carrying into effect the foregoing provisions of this Schedule and securing the due constitution of the interim Legislative Assembly.
" 752 In pursuance of this covenant the Rajpramukh took the oath of office on the 28th of May, 1948.
In the meantime 40 members representing the Indore group were elected to the interim legislative assembly on the 8th and 9th of May, 1948, respectively.
As regards the election of 20 members that had to be elected by an electoral college, what happened was this.
The Ministry of States, Government of India, on the 5th July, 1948, informed the Rajpramukh that there were many practical difficulties in setting up an electoral college consisting of elected representatives of the various States, because in many of the smaller States there were no elected bodies of any kind.
After considering the various difficulties it was suggested to the Rajpramukh that the twenty seats may be allocated between the different States in a certain manner mentioned in the latter and out of these, fourteen may be allotted to the nominees of the Praja Mandal and the remaining six may be nominated by the Rajpramukh himself.
This suggestion was modified by a letter of the 19th of November, 1948, and it was finally agreed upon that the Madhya Bharat Provincial Congress Committee may be asked to elect six persons 'to represent the smaller States in the Madhya Bharat interim legislative assembly.
This suggestion was not exactly in accord with what had been indicated in clause 1 (c) of Schedule IV.
These representatives were elected in the manner suggested in the two letters, on the 19th October, 1948, and they were declared to be validly elected in terms of the covenant.
On the 30th of October, 1948, the Rajpramukh promulgated an Ordinance entitled "The Interim Legislative Assembly Ordinance Samvat 2005", Ordinance No. 18 of 1948.
In the preamble to the Ordinance it was declared that in accordance with the provisions of the covenant the legislative assembly had already been duly constituted.
The various sections of the Ordinance provided for the working of the interim legislative assembly, i.e., the manner in which it could be summoned and dissolved or prorogued, how its President and Deputy President were to be elected and how it was to exercise the power of 753 voting and what number of members would constitute the quorum.
On the 6th of December, 1948, the Ordinance was repealed and Act XXIII of 1949 took its place.
The legislative assembly thus constituted was actually functioning on the 26th of January, 1950, when the Constitution of India: came into force.
In the meantime, by subsequent covenants, the Rulers of the Covenanting States had agreed to accept the Constitution of India as the Constitution of the United State of Madhya Bharat and had abandoned their covenant of forming a separate Constituent Assembly for framing a Constitution for the United State of Madhya Bharat.
After the coming into force of the Constitution of India the interim legislative assembly constituted by the Rajpramukh and which was functioning on the 26th of January, 1950, continued to function till some time in the year 1952 when new elections took place and a legislative assembly in conformity with the provisions of the Constitution of India was duly constituted.
On the 30th of November, 1949, the Government of the State of Madhya Bharat introduced a Bill entitled the "Madhya Bharat Abolition of Jagirs Bill ' before the interim legislative assembly and the Bill was passed into an Act on the 28th of August, 1951, and having been reserved for the consideration of the President received his assent on the 27th November, 1951.
It was published in the Madhya Bharat Gazette Extraordinary on the 7th of December, 1951.
The said Act, by section 3, provided for a date to be appointed by the Government by notification for resumption of all jagir lands in the State and by section 4 it provided that as from such a date, the right, title and interest of every jagirdar and of every other person claiming through him in his jagir lands including forests, trees, fisheries, wells, tanks, ponds, water channels, ferries, pathways, village sites, huts, bazaars and mela grounds and mines and minerals whether being worked or not, 'shall stand resumed to the State free from all encumbrances.
The Act also provided a scheme for assessment of compensation m respect of jagirs thus resumed.
754 The appellants contested the validity of this law on a number of grounds, and, inter alia, on the following : (1) That the so called legislature which passed the Act was not a legislature within the meaning of the covenant entered into by the Rulers of Gwalior, Indore and certain other States in Central India for the formation of the United State of Gwalior, Indore and Malwa (Madhya Bharat) or_within the meaning of Schedule IV of the said covenant.
(2) That the legislature of Madhya Bharat was, not competent to enact the said Act and the said acquisition or resumption of jagirs was not for a public.
purpose and there was no provision for payment of compensation as understood in law, the compensation provided for being wholly illusory and the Act was a fraud on the Constitution.
Before the High Court, Mr. P.R. Das who appeared for most of the petitioners, confined his arguments some of the grounds mentioned in clause (2)above.
His first contention that the impugned Act was passed by a legislature not validly constituted, he reserved for arguing before this court as the Madhya Bharat High Court by a Full Bench decision in Shree Ram Dubey vs The State of Madhya Bharat(1), had already repelled that contention.
The two points argued by him before the High Court were: (1) That there was no public purpose behind the acquisition for the resumption of jagir lands and therefore the Act was unconstitutional and illegal.
(2) That some of the provisions of the impugned Act were ultra vires in so far as they constituted a fraud on the Constitution.
Both these points which, were urged before the High Court were not argued before us by the learned counsel.
The point that there was no public purpose behind the acquisition was abandoned because it was concluded by the decision of this court in the Orissa Zamindari appeals, K.C. Gajapati Narayan Deo and Others vs The State of Orissa(2).
A.I.R. 1952 M.B. 57 178.
; ; 755 As regards the second point, as already indicated, three provisions of the impugned Act had been declared void by the High Court and Mr. Das contented himself by accepting that decision.
The 'State Government had impugned the correctness of the decision of the High Court declaring these three provisions of the Act to be void but it also did not press that point.
The result of these concessions in this court is that the arguments in the two appeals were limited to the first point urged in the petition, namely, whether the impugned Act was passed by a Legislature not validly constituted under the covenant entered into by the Rulers of Madhya Bharat.
Mr. P.R. Das contended that as the Interim Legislative Assembly was not constituted according to the provisions of Schedule IV of the covenant it was a body of usurpers and therefore any laws made by it were wholly void and of no effect whatsoever.
It was urged that the two bodies, viz. Praja Mandal and the Provincial Congress Committee who, in two separate divisions, elected fourteen and six members, did not constitute ' an electoral college to fulfil the requirement of clause 1 (c) of Schedule IV, and the members elected could not be said to have been elected in the manner prescribed by the Schedule and that the Rajpramukh and the Government of India, in the absence of an amending covenant, had no power to vary the provisions of the Schedule.
It was said that the object of clause 1 (c) of Schedule IV was that the election of 20 members should be by an electoral college constituted by the Rajpramukh in consultation with the Government of India to represent the Covenanting States other than Gwalior and Indore and that the election by the Praja Mandal and the Congress Committee of 14 and 6 members was in clear breach of the terms of the covenant and that in this manner no representation was given to the minorities and full effect was not given to the rule that the election should be by proportional representation by means of single transferable vote.
The learned Attorney General met these contentions by urging, (1) that the question was not open having regard to the provisions of article 385 of the Constitution of India 756 (2) that the election of 20 members representing the eighteen States took place in literal compliance of the covenant, (3) that in any event there was substantial compliance with the covenant, and lastly (4) that the declarations made in the Ordinance by the Rajpramukh and the provisions contained in the Ordinance were conclusive and were accepted by all the States concerned and could no longer be challenged.
After a careful consideration of the respective arguments addressed by Mr. P.R. Das and the learned Attorney General we have reached the conclusion that it is not necessary to consider in detail all the points discussed by the learned counsel, as in our judgment the question seems to be concluded by the provisions of article 385 of the Constitution of India.
There is no gainsaying the fact that the election of 20 members to represent the 18 States was not made strictly in the manner indicated in Schedule IV of the covenant, but it also cannot be disputed, and in fact was not disputed before the High Court, that the Legislative Assembly which passed the impugned Act was on the 26th of January, 1950, in spite of its defective constitution, in fact functioning as the Legislature of the State of Madhya Bharat.
It had been declared to have come into existence by an Ordinance promulgated by the Rajpramukh and its factual existence is apparent from the laws that it made subsequent to its formation.
Part XXI of the Constitution of India deals with "Temporary and Transitional Provisions".
About two dozen articles in this Part concern themselves with the solution of the problems of their interval in between the repeal of the Government of India Act and the coming into being of bodies and authorities formed by the Constitution.
Until the House or Houses of Legislature or bodies and authorities formed by the Constitution could be duly formed it was necessary to say with certain definiteness as to what bodies or authorities would exercise and perform the duties conferred by the different provisions of the Constitution in the meantime.
When a silent revolution was taking place and Princely kingdoms were fast 757 disappearing and a new democratic Constitution was being set up and a provision had to be made for the interval between the switch over from one Constitution to another, there was hardly any time to enquire and consider whether the bodies or authorities or House or Houses of Legislature formed under the old Constitutions which were being scrapped had been formed in strict compliance with the provisions of those Constitutions or whether there were any defects in their formation.
The Constitution makers therefore took notice of their factual existence and gave them recognition under the Constitution and invested the bodies that were actually functioning as such, whether regularly or irregularly, with the authority to exercise the powers and perform the duties conferred by the provisions of the Constitution.
That is clearly the scheme of all the articles mentioned in Part XXI of the Constitution.
Particular reference may be made to articles 379, 382 and to article 385 which specifically governs the present case.
Article 379 is in these terms: "(1) Until both Houses of Parliament have been duly constituted and summoned to meet for the first session under the provisions of this Constitution, the body functioning as the Constituent Assembly of the Dominion of India immediately before the commencement of this Constitution shall be the provisional Parliament and shall exercise all the powers and perform all the duties conferred by the provisions of this Constitution on Parliament.
Explanation.
For the purposes of this clause.
the Constituent Assembly of the Dominion of India includes (i) the members chosen to represent any State or other territory for which representation is provided under clause (2), and (ii) the members chosen to fill casual vacancies in the said Assembly.
" The provision made in this article in unambiguous terms makes the body.
functioning as the Constituent Assembly, whether constituted perfectly or 758 imperfectly and whatever its membership on the date immediately before the commencement of the Constitution, as the provisional Parliament and vests it with all the functions and duties conferred by the provisions of the Constitution on the Parliament.
The President was given power under the provisions of this article to add members to this body to give representation to certain States who were not previously represented, and it was specifically prescribed that if there are any vacancies then the vacancies could be filled up and the members returned to fill these vacancies will be considered members of the provisional Parliament.
These specific provisions are indicative of the fact that the Constitution makers, in enacting this article, took notice of the factual existence of certain bodies without concerning themselves with the question whether they had been validly constituted under the Constitution that brought them into being.
Article 382 of the Constitution is similarly worded.
It provides that until the House or Houses of the Legislature of each State specified in Part A of the First Schedule has or have been duly constituted and summoned to meet for the first session under the provisions of this Constitution, the House or Houses of the Legislature of the corresponding Province functioning immediately before the commencement of this Constitution shall exercise the powers and perform the duties conferred by the provisions of this Constitution on the House or Houses of the Legislature of such State.
Article 385 is in exact conformity with the two earlier articles.
It provides that "Until the House or Houses of the Legislature of a State specified in Part B of the First Schedule has or have been duly constituted and summoned to meet for the first session under the provisions of this Constitution, the body or authority functioning immediately before the commencement of this Constitution as the Legislature of the corresponding Indian State shall exercise the powers and perform the duties conferred by the provisions of this Constitution on the House or Houses of the Legislature of the State so specified.
" 759 The whole intent and purpose of these articles was to give recognition to those bodies or authorities or House or Houses of Legislature which were actually functioning before the 26th of January, 1950, and to invest them with the powers conferred by the provisions of this Constitution.
The Constitution makers wanted to indicate the arrangements made by them for the interval with certain amount of definiteness in order to avoid any disputes during the interim period as to who the body or authority was, to exercise the powers conferred by the provisions of the Constitution.
They therefore chose the formula that whichever body or authority or House or Houses of Legislature was actually functioning immediately before the commencement of the Constitution would be the body or authority or the House that would exercise the powers and perform the duties conferred by the provisions of this Constitution on the House, body or authority specified in the Constitution.
They did not take any risk on this question and the bodies actually functioning were, like persona designata, invested with powers conferred by the Constitution.
That being the scheme of this Part and that being also the clear and unambiguous language of article 385 it follows that the Madhya Bharat .
Interim Legislative Assembly that was actually functioning on the 26h January, 1950, was invested by the Constitution of India with powers conferred by the provisions of the Constitution, irrespective of the fact whether it had been properly constituted in accordance with the terms of the covenant or not.
The inquiry into this question thus became barred by adopting this procedure.
Such a procedure was fully justified and was rounded upon considerations of policy and necessity for, the protection of the public and individuals whose interests may be affected thereby.
It is manifest that endless confusion would have resulted if the Constitution had not adopted that formula and had not barred an inquiry into all questions as to the original formation of such bodies by giving validity and recognition to those bodies or authorities as were actually functioning on the 26th of January, 1950.
Not only did it give 760 validity and recognition to those bodies which were in fact functioning.
then but it also invested these designated bodies and authorities with powers conferred by the provisions of the Constitution itself.
That being our view as to the true meaning and 'intent of the language employed in article 385 of the Constitution it follows that the contention raised by Mr. P.R. Das as to the defective formation of the Interim Legislative Assembly of Madhya Bharat has no validity.
Even if that body was not formed in strict compliance with the provisions indicated in Schedule IV of the covenant its defective formation does not affect the constitutionality of the impugned statute.
The impugned statute was passed in the year 1951 after the Constitution of India had given recognition to, and conferred powers on, the Assembly under article 385 of the Constitution.
When it made this law it was exercising its powers under the Constitution of India and not under the covenant which brought it into existence.
The result therefore is that the only contention that Mr. P.R. Das argued before us cannot be sustained and it must be held that it is not well founded.
For the reasons given above we see no force in these two appeals and they are therefore dismissed with costs.
Appeals dismissed.
Agent for the appellant in C.A. No. 4: 1.
N. Shroff.
Agent for the appellant in C.A. No. 6 :Rajinder Narain.

dataset_name: IN-Abs

summary:
The decision of the Madhya Bharat High Court declaring section 4 (1) (g) and sub cls.
(iv) and (v) of cl. 4 of Schedule I of Madhya Bharat Abolition of Jagirs Act (XXVIII of 1951) as illegal and inoperative was not questioned by either of the parties.
It was however, contended that the impugned Act (XXVIII of 1951) was void as it was not passed by a validly constituted legislature within the meaning of the covenant entered into by the Rulers of Madhya Bharat as the provisions of cl. 1(c) of Schedule IV of the covenant for the election of 20 members were not complied with.
Held, that as the Madhya Bharat Legislative Assembly actually functioning on the 26th January, 1950, the validity of the Acts passed by it could not be questioned in view of article 385 of the Constitution irrespective of the fact whether it had been proPerly constituted in accordance with the terms of the covenant or not Scope of articles 379, 382 and 385 discussed.


judgement:
Appeal No. 102 of 1964.
Appeal by special leave from the judgment and order dated July 30, 1962 of the Punjab High Court (Circuit Bench) at Delhi in Civil Writ No. 402 D of 1962.
D. Goburdhan for the appellants.
section G. Patwardhan and B. R. G. K. Achar for the respondents.
The Judgment of the Court was delivered by Wanchoo, J.
The only question raised in this appeal by special leave from the judgment of the Punjab High Court is the interpretation of section 9 (1) of the Evacuee Interest (Separation) Act, No. LXIV of 1951 (hereinafter referred to as the Act).
The question arises in this way.
The appellants were mortgagees of certain properties, including a house, on the basis of a, mortgage bond dated July 19. 1928.
The consideration of the bond was Rs. 25,000 and interest was provided at nine per cent per annum compoundable annually.
Out of the properties covered by the bond, one of the properties was sold to Bibi Chand Tara on October 23, 1937 subject to the earlier mortgage of 1928.
In October 1949, Bibi Chand Tara was declared an evacuee.
In 1939 the appellant filed a suit against the orignal mortgagors and others including Bibi Chand Tara for the amount due under the mortgage.
A preliminary decree was passed in their favour in March 1942 and the final decree followed in April 1945.
It appears that certain sums were received by the appellants before they had filed the suit.
Certain other sums were also received after the preliminary and final decrees.
It further appears that certain Zamindari properties which were also included in the mortgage had been sold after the final decree and the money appropriated towards the decree.
Another house which was also included in the mortgage bond was sold later and the sale money was again appropriated towards the decree.
Eventually the appellants put the decree in execution in November 1952 against the house in dispute for a sum of Rs. 60,000 and odd,.
There was a sale in that execution proceeding, but it was set aside on the application of the Assistant Custodian, Patna.
Thereafter the appellants made an application before the Assistant Custodian for the recovery of the mortgage money claimed by them.
and in this application their claim was for Rs. 40.000 and.
This application was also dismissed as it was filed before a wrong authority.
Eventually the.
appellants filed a claim for the same.
amount before the Competent Officer under the Act. inasmuch As the property in dispute was composite property in Which, the evacuee had mortgagor 's interest while the appellants who are non evacuee 's had mortgagees ' interest which had ripened into a decree for sale.
This application was resisted by the Custodian on a number of grounds.
In the present appeal we are only.
57 concerned with one ground based on section 9 (1) of the Act.
, The contention of the Custodian was that the appellants were not entitled to any interest higher than five per cent per annum simple from the date of the mortgage under section 9 (1) of the Act.
Therefore the Custodian claimed that the entire transaction should be reopened from the date of the mortgage and the amounts already received by the appellants should be taken into account after allowing interest at five per cent per annum simple to them and if, more interest had been paid that should be credited towards the principal and after such accounting the sum if any due on the mortgage could be claimed by the appellants.
The Competent Officer held that though the provisions of section 9 (1) were retrospective to a certain extent they could not be stretched to mean that if a mortgagee had already realised interest at a rate exceeding five per centum Per annum simple even before the Act came into force the excess would go to liquidate the principal amount proportionately.
He therefore held that in the absence of special provision to the effect that past accounts should be reopened, the amount received as interest prior to the decree could not be taken into account.
The Competent Officer further held that the principal money could not be reduced on account of any excess realisation of interest when such excess was realised before the Act came into force.
He therefore ordered that (1) the amount of interest exceeding five per cent per annum before the institution of the suit would not reduce the principal amount, (2) the appellants would be entitled to simple interest at six Per cent per annum, i.e. the rate at which interest was decreed in their favour in the mortgage suit from the date of the institution of the suit till November 26, 1952 on the principal sum only, (3) the appellants would be entitled to interest at five per cent per annum simple from November 27, 1952, and (4) the appellants would also be entitled to costs of the suit decreed in their favour.
The actual amount due was ordered to be worked out on these principles.
The Custodian took the matter in appeal to the Appellate Officer.
The Appellate Officer held that on the words of section 9 (1) the entire account must be made afresh on the basis of interest being ,,allowed at five per cent per annum simple on the principal amount from . ' the date; of the.
mortgage and that any sums received over above this would go to reduce the principal.
He therefore allowed the appeal and set aside the order of the Competent Officer and ordered account to be taken in the manner indicated by him.
The appellants,then applied to the punjab High Court by a writ petition, which was dismissed in limine.
Their application for a leave to Appeal to this Court was also dismissed.
Thereafter they ,obtained special leave from this: Court, and, that is how the matter has come before us L/S5SCI 6 58 The Act deals with separation of the interest of an evacuee from the interest of a non evacuee in composite properties.
Under section 2 (d) "composite property" inter alia means any property which, or any property in which an interest, has been declared to be evacuee property and in which the interest of the evacuee is subject to mortgage in any form in favour of a person, not being an evacuee.
Under section 2 (h), "principal money" in relation to a mortgage deed executed by an evacuee inter alia means in the case of mort gage deed which has not been executed by way of renewal of a prior mortgage deed, the sum of money advanced by way of loan at the time of the execution of the mortgage deed.
Under section 3 the Act and the rules and orders made thereunder have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any such law, save as otherwise expressly provided in the Act.
Sections 4 to 8 provide for machinery for separation of the claims of evacuees and non evacuees in composite properties.
Then we come to section 9(1) which is in these terms: "(1) Notwithstanding anything to the contrary in any law or contract or any decree or order of a civil court or other authority, where the claim is made by a mortgagee, no mortgaged property of an evacuee shall, subject to the provisions of subsection (2) be liable for the payment of interest at a rate exceeding five per cent per annum simple on the principal money advanced or deemed to have been advanced.
" It is unnecessary to refer to section 9(2) for we are not concerned with that provision in the present appeal.
We may however refer to section 8(3) which is material and in these terms: "(3) If there is any dispute as to whether a liability is a mortgage debt or not or whether any claim submitted under section 7 exists, the Competent Officer shall decide such dispute : Provided that a decree of a civil court '(other than an ex parte decree passed after the 14th day of August, 1947) shall, subject to the provisions of sections 9 and 10, be binding on the Competent Officer in respect of any matter which has been finally decided by such decree , and where any matter was decided by an ex parte decree passed by a civil court after the 14th day of August, 1947, the Competent Officer may decide such matter afresh and on such decision being made the ex parte decree shall be deemed to have no effect." 59 Section 10 provides for separation of the interest of evacuee from the interest of claimants in composite properties and lays down how that will be done.
Clause (b) specially provides for the manner in which the claim of a mortgagee will be dealt with by the Competent Officer, but we are not concerned with the details of that provision.
It will be seen from a consideration of these provisions that the Competent Officer is bound by the decree of a civil court except an ex parte decree passed after August 14, 1947 in respect of a mortgage subject to the provisions of sections 9 and 10.
Section 10 indicates how the Competent Officer is to separate the interest of an evacuee from the interest of a non evacuee, even in the case of a decree except an ex parte decree passed after August 14, 1947.
Section 9(1) provides for interest at five per cent per annum simple, and the decree in a mortgage suit except an ex parte decree passed after August 14, 1947 which is otherwise binding on the Competent Officer is subject to the provisions of section 9(1) as to interest.
It will also be noticed that there is no provision in the Act which specifically provides for reopening of transactions relating to mortgage and taking accounts from the date of the mortgage on the basis of interest provided in section 9(1) and for crediting anything paid as interest over and above the rate provided in section 9(1) to wards principal.
Prima facie therefore in the absence of such a provision it cannot be assumed that the legislature intended that a mortgage transaction should be reopened from the date of the mortgage and accounts taken afresh and anything paid in excess of five per cent per annum simple interest applied towards reduction of the principal amount.
We have therefore to see whether there is anything in the words of section 9(1) which leads to this result in the absence of a specific provision to that effect in the Act.
Section 9(1) begins with a non obstante clause and lays down that it will apply notwithstanding anything to the contrary in any law or contract or any decree or order of a civil court or other authority.
It then provides that where a claim is made by a mortgagee, as in the present case, no mortgaged property of an evacuee shall be liable for the payment of interest at a rate exceeding five per cent per annum simple on the principal money advanced.
The key words in the provision are "no mortgaged property shall be liable".
These words indicate that the Competent Officer when he comes to deal with a liability under a mortgage must calculate this liability on the basis that interest should be allowed only on the principal amount and only at the rate of five per cent per annum simple.
, The liability which the Competent Officer has to determine is with respect to the amount still due to the non evacuee.
Further as the non obstante clause includes any decree of a civil court and as such decree is subject to section 9(1) in view of the proviso to section 8(3), the Competent Officer would not be bound by the calculation of interest made by the civil court and would have to determine the 60 liability still due on the mortgage himself on the basis of simple interest at the rate of five per cent per annum on the principal sum advanced.
Any calculation made by the civil court in arriving at the sum decreed by it on the basis of interest at more than five per cent per annum so far as the liability still due is concerned would not be binding on the Competent Officer and he will have to make his own calculations on the basis of simple interest at the rate of five per cent per annum.
Similarly in a case where there is no decree and there is still some liability on the mortgage, the Competent Officer would not be bound by the rate of interest mentioned in the mortgage deed and will calculate the liability still due on the basis of simple interest at the rate of five per cent per annum on the principal amount advanced.
But section 9(1) clearly shows that it applies only where the liability is still due and there is nothing in the words of section 9(1) which gives power to the Competent Officer to reopen the account under the mortgage from the date of the mortgage and for that purpose treat anything paid as interest under the contract over and above five per cent per annum simple interest as payment towards reduction of the principal amount Section 9(1) in our opinion only deals with liability still due and does not contemplate that any payments made already under the contract as interest should be taken partly towards interest and partly towards principal if they are above five per cent per annum simple interest.
As section 9(1) speaks only of the liability of the mortgaged property it can only take in liability still due, for whatever has been paid in accordance with the contract towards interest is no longer a liability.
This conclusion based on the words of section 9(1) is enforced by the fact that there is no specific provision in the Act for reopening all accounts under the mortgage from the date of the mortgage, treating any interest paid already at a rate higher than five per cent per annum simple as going towards reduction of the principal sum.
Two situations may arise before the Competent Officer in such circumstances when calculating the liability under a mortgage.
In one case there may be no decree already passed in favour of the mortgagee.
In such a case in calculating the liability still due on the mortgage, the Competent Officer will calculate that liability on the basis of simple interest at the rate of five per cent per annum on the principal money advanced and may ignore the rate of interest mentioned in the contract.
But even so, the words of section 9(1) do not give him power to reopen the accounts and what ever has been paid towards interest, if it is not in excess of the contractual rate of interest though it may be in excess of the rate of five per cent per annum simple interest, cannot be taken into account in reducing the principal amount.
But whatever is still due under the mortgage will have to be worked out on the basis of simple interest at the rate of five per cent per annum on the prin cipal amount advanced.
We may illustrate this by an example, 61 Suppose a mortgage was entered into on January 1, 1949 and the interest therein is nine per cent per annum.
Suppose that interest for the years 1949 and 1950 has been paid at the contractual rate but nothing has been paid thereafter.
in such a case, the amount paid in excess of five per cent per annum for 1949 and 1950 will not go to reduce the principal; but thereafter interest will be calculated at five per cent per annum to arrive at the liability on the mortgaged property or what is still due.
The second case which may arise before the Competent Officer would be a case where a decree has been passed on the mort gage bond except an ex parte decree passed after August 14, 1947.
In such a case also the Competent Officer cannot take into account anything paid in excess of five per cent per annum simple interest before the date of the suit provided it is not at more than the contractual rate; but as the decree is subject to section 9(1), the Competent Officer will have to calculate interest at five per cent per annum simple from the date of the suit and cannot award more interest in calculating the liability still due under the mortgage.
Of course in both the cases if before the suit nothing has been paid towards interest or if something has been paid but it is less than five per cent per annum simple interest on the principal amount advanced.
the Competent Officer in calculating the liability still due on the mortgage will have to allow five per cent per annum simple interest from the date of the mortgage to make up the deficiency, if any.
As we read section 9(1), we find no provision in it for reopening the account from the very beginning and utilising any interest paid in excess of five per cent per annum simple but within the contractual rate towards reducing the principal amount.
Section 9(1) only deals with the liability of the mortgaged property which may still be due when the claim is made before the Competent Officer.
Though the provision is retrospective in the sense that where the liability is still there, interest has to be calculated at five per cent per annum simple there is nothing in the words of section 9(1) which authorises the reopening of accounts and utilising the excess over five per cent per annum towards reduction of principal provided the payment of interest already made is within the contractual rate.
In this view the order of the Appellate Officer by which he ordered the reopening of the accounts and which was upheld by the High Court is incorrect.
At the same time we are of opinion that the order of the Competent Officer is also not quite correct, though it is more in accord with the interpretation of section 9(1) which we have indicated above.
On the view we have taken the liability will be calculated thus: Any amount paid before the date of the suit i.e. December 11, 1939, provided it is not more than the contractual rate of interest though it may be above five per cent per annum simple will not go to reduce the principal amount.
From the date of the suit till the date of the final decree i.e. April 25.
62 1945, the appellants will only be entitled to simple interest at the rate of five per cent per annum on the principal amount advanced for the decree though binding on the Competent Officer is subject, under the proviso to section 8 (3), to section 9 (1).
Further from the date of the final decree also the appellants will be entitled to simple interest at the rate of five per cent per annum on the principal amount only.
Any payments made after the date of the suit will be adjusted first towards interest at the ' rate of five per cent per annum simple and any payment made in excess thereof will go to reduce the principal.
The appellants will also be entitled to the costs of the suit which was decreed in their favour, but there will be no interest on such costs.
The account will be made up accordingly to determine the liability due under the mortgage.
Thereafter it will be for the Competent Officer to deal with the matter as provided under section 10(b) or (c).
We therefore allow the appeal.
The writ petition is allowed and the order of the Appellate Officer is set aside and the order of the Competent Officer varied in the manner indicated above.
The appellants will get their costs from the Custodian Evacuee Property.
Appeal allowed.

summary:
The appellants were mortgagees of properties including a house on the basis of a mortgage bond executed in 1928.
The interest provided in the bond was 9 % per annum compoundable annually.
In 1937 the house above referred to was sold to B subject to the earlier mortgage.
In 1939 the appellants filed a suit against the original mortgagors and others including B for the, amount due under the mortgage.
Certain amounts towards the discharge of the liability under the mortgage were received by the appellants before as well as after the filing of the suit.
A preliminary decree was passed in favour of the appellants in 1942 and the final decree in 1945.
In 1949, B was declared an evacuee.
When in 1952 the appellants put their decree in execution the property was treated as "composite property" and the Custodian of Evacuee Property contended before the Competent Officer that the appellants were not entitled to any interest higher than five per cent per annum simple from the date of the mortgage under section 9(1) of the Evacuee Interest (Separation) Act, 64 of 1951.
The Custodian accordingly claimed that the entire transaction should be rib opened from the date of the mortgage and if more than five per cent simple interest had been received by the appellants the excess should be credited towards the principal amount.
The Competent Officer held that the limit of five per cent could not apply before the Act came into force.
The Appellate Officer however upheld the contention of the Custodian.
The appellants thereupon filed a writ petition in the High Court which was dismissed in limine.
By special leave they appealed to this Court.
HELD:Section 9(1) only deals with the liability of the mortgaged property which may still be due when the claim is made before the competent officer.
Though the provision is retrospective in the sense that where the liability is still there, interest has to be calculated at five per cent per annum simple, there is nothing in the Words of section 9(1) which authorises the reopening of the accounts ,and utilising the excess over five per cent per annum simple.
towards reduction of principal provided the payment of interest al ready made in within the contractual rate.
[61 F] On the above view the maximum rite of interest laid down in s.(1) was not applicable before the date of the suit.
But under section 8(3) the decree of the Court was subject.
to section 9 and therefore after the date of the suit the said rate was applicable.
Directions 'given accordingly [61 H] L/S5SCI 6 56