Supreme Court: In a case wherein the respondent was given leave to appeal by the Calcutta High Court (‘High Court’) under Section 109(c) of the Civil Procedure Code, 1908, the 3-Judges Bench of M.C. Mahajan, Chandrasekhara Aiyar and Vivian Bose*, JJ., held that a right of action would normally accrue to either party on the day following the specified day for delivery and though both parties treated the contract as alive after the specified day for delivery, the condition of payment remained and thus, the respondent’s claim to delivery of shares and also to damages, failed. The Court further held that leave to appeal should not have been given as questions raised on facts were already settled by concurrent findings of the courts below and moreover, there were no questions of law involved relating to general and substantial public importance.
The respondent was a pleader who for a time speculated in the share market, and the appellant was his broker. The dispute was related to certain share transactions and though there were several transactions between the parties, but the dispute centred around certain shares in three companies, (a) National Tobacco Company, (b) Champdany Jute Mills, and (c) Titaghur Paper Company. The Supreme Court stated that so far as the shares in the last two were concerned, it was concluded by a concurrent finding of fact that the respondent was never ready and willing to take delivery. The Supreme Court opined that there was evidence to support the finding and if it was accepted, then the respondent could not succeed. The Supreme Court noted that the respondent’s main relief was for specific delivery of the shares and he asked for damages in the alternative and hence opined that it made no difference because the respondent’s part of the contract was to take delivery on payment of the price, and if he was not ready and willing to do that on the appropriate date, then his claim must fail.
The respondent’s counsel submitted that the contracts between the parties were governed by the rules of the Calcutta Stock Exchange (‘CSE’) because, though the respondent was not a member of CSE, the contracts between him and the appellant were, according to their agreements, to be governed by those rules. The counsel further contended that on a proper construction of those rules, the appellant was bound to offer delivery before any question of the respondent’s unwillingness to accept could arise.
The Supreme Court held that the rules were merely for the regulation of the business of CSE, and they were based on the assumption that both parties were in earnest and desired to go through with the contract. The Supreme Court held that the rules did not affect the general law of contract which relieved the appellant of performance if he could prove that the respondent was not ready and willing to carry out his part of the bargain; also, it was open to the parties by express or implied agreement later to vary the terms of their original contract.
The Supreme Court noted that the Champdany shares were purchased on 05-04-1946 and the Titaghur shares on 02-05-1946 and according to the agreements, the customs, rules, and practices of CSE were to govern these contracts. The Supreme Court observed that under these rules, delivery was to be on the third day after the contract and delivery was subject to cash payment, but neither party offered to give delivery or take delivery within that time. The Supreme Court observed that a right of action would normally have accrued to one or the other on the fourth day, but neither side attempted to enforce its rights until 03-07-1946 and on that day, the respondent called on the appellant to deliver the shares to Allahabad Bank on certain terms.
The Supreme Court noted that both the lower courts held that the respondent did not have the sum necessary to effect payment lying to his credit at the Bank and that he made no arrangements for an overdraft, though he had a fixed deposit there which had not then matured and so could have made such an arrangement had he so wished.
The Supreme Court opined that “both parties treated the two contracts as still alive, as they were entitled to do; either that was the original understanding or there was a novation. But whether one proceeds on the footing that it was the original contract or was a fresh one reviving the old, the condition of payment on delivery remained”. The Supreme Court held that the only offer of payment which the respondent made was a futile one and not genuine and thus, the respondent’s claim regarding those shares was bound to fail. The Supreme Court opined that the fault was the respondent’s and not the appellant’s and thus, this part of the claim was rightly dismissed.
The Supreme Court noted that the respondent purchased 400 National Tobacco shares on different dates in May 1946 and later, he sold 800 shares to the appellant. The Supreme Court further noted that both the lower courts held that the purchase of 400 shares was adjusted against the sale of 800 shares, therefore whatever claim the respondent might have had in respect of those 400 was fully squared up on 02-05-1946, when the adjustment was made. After that, on 11-06-1946, the respondent further purchased 1100 National Tobacco shares. The Supreme Court opined that there was an express agreement that the respondent was to pay a margin deposit of Rs. 10,000 within a day, failing which the appellant would be entitled to sell and since the respondent did not pay; therefore, the respondent committed a breach and lost all rights in the shares on 13-06-1946.
The Supreme Court noted that the appellant did not sell all the 1100 shares and the respondent claimed that he had a right at any rate to those which were not sold. The Supreme Court further noted that this contention was based on the fact that the 1100 shares were “cum rights”, which meant that a holder of the original shares was entitled to obtain an equivalent number of new shares at par. The Supreme Court agreed with the appellate court that when the respondent broke his contract regarding the 1100 shares by omitting to furnish the requisite margin deposit, his rights ended and with them, the right to demand the privileges to which the holder of the shares was entitled.
The Supreme Court noted that the respondent succeeded in part in the High Court and the Trial Judge gave him a decree for Rs. 8612, which was reduced on appeal to Rs. 5596-4-0. The Supreme Court held that there had been no cross-appeal by the appellant, thus, this decree would stand but the respondent’s appeal would be dismissed. The Court further held that leave to appeal should not have been given as questions raised on facts were already settled by concurrent findings of the courts below and moreover, there were no questions of law involved relating to general and substantial public importance. Lastly, the Supreme Court held that the respondent would not get its costs of the appeal because it did not file its statement in time.
[Jotindra Lal Mitra v. Purshottam Choubey and Co., (1952) 1 SCC 481, decided on 16-04-1952]
*Judgment authored by: Justice Vivian Bose
Note: Reciprocal promises in share transactions
In a contract, the promisor and the promisee, both undertake certain obligations towards each other. These obligations can also be a reciprocal promise or a promise in exchange for one. Sections 51 to 58 of the Contract Act, 1872, provides for the law on reciprocal promises. While Sections 51 and 52 explain the different situations where a reciprocal promise may be relevant, Sections 53 and 54 pertain to situations where one party fails to perform its obligation. Reciprocal promises can be of three types, (a) Mutual and independent; (b) Conditional (c) Concurrent.
Advocates who appeared in this case :
For the Appellant: N.C. Chatterjee, Senior Advocate (Rameshwar Nath, Advocate, with him)
For the Respondent: S.B. Jathar, Advocate
Buy Code of Criminal Procedure, 1973 HERE
