Madhav Trading Company v. Union Of India

M.S. JOSHI, J.

( 1 ) THIS suit was instituted on 14-12-1973 by Madhav Trading Company, a

partnership firm carrying on business at Calcutta, against the Union of India,

(defendant No. 1), Salzgitter Stahl GMBH, a West German Company (defendant No.

2) and Madhav Trading Company, a partnership firm carrying on business of Rs.

1,06,999. 86. It was alleged by the plaintiff that it was a partnership firm duly

registered under the provisions of the Partnership Act. On 20-1-1971, the 1st

defendant, Union of India, invited tenders, for the supply of approximately 4,197

tonnes of steel sheets; It was stated in the invitation to tender, inter alia, that all

tenderers should give the names and addresses of the agents authorised to bid,

negotiate and conclude the contract and that agency commission would be payable

in India in Indian rupees. Defendant No. 2 informed the Union of India by its letter

dated 16-2-1971 that the plaintiff was its agent in India and was authorised to

negotiate in respect of the said tender enquiry on its behalf. Salzgitter Stahl GMBH

(hereinafter referred to as 'the German Firm') sent its quotation on 17-2-1971 and

mentioned therein specifically that the plaintiff was its agent and the price quoted

included a commission of 2 per cent payable to e plaintiff. The plaintiff negotiated

the said tender as agent of defendant No. 2. attended the opening of tenders by

defendant No. 1 and concluded the contract. Acceptance of the tender was

communicated by the Union of India through a telegram dated 20-3-1971 to

defendant No. 2 directly and on 19-4-1971 a formal contract was entered into by

the Union of India and the German Firm. It was provided by the said contract, in

addition to other things, that f. o. b. prices were inclusive of agency commission of 2

per cent which would be paid to the Indian agent of the seller in Indian currency

and Messrs. Madhav Trading Company was its agent. As agent of defendant No. 2,

the plaintiff caused the tender to be made to defendant No. 1 by defendant No. 2.

followed up and negotiated the same, got its final acceptance by defendant No. 1

and expedited the import licence. It repeatedly reminded defendant No. 1 about the

establishing of a letter of credit in favour of defendant No. 2 and ultimately

succeeded in getting it done on or about 4-8-1971. The said contract had been duly

completed and the commission at the rate of 2 per cent of the f. o. b. value

amounting to Rs. 1,06,999. 86 had become payable to it. Defendant No. 1 admitted

in writing dated 3-8-1971 that the agency commission would be paid by it direct to

the plaintiff in India. Later on the defendants began contending that the nomination

of the plaintiff as the agent in the said contract had been changed and defendant

No. 3 substituted in its place. According to the plaintiff the alleged change had been

made, if at all, after the conclusion of the contract and even after the opening or the

letter of credit. It was not open to the defendants to make that change unilaterally

and defendant No. 3 was not entitled to any commission. It was urged in the

alternative that the plaintiff having done all that was required to be done by it as

agent, it had performed its part of the contract and the defendants were liable to

pay the commission in dispute to it.

( 2 ) DEFENDANT No. 1 conceded in its written-statement that while submitting its

tender defendant No. 2 had intimated to the Union of India that the plaintiff was its

authorised agent in connection with the tender enquiry in question, still it offered

resistance to the suit contending, infer alia, that while returning the signed copies of

the contract, in its letter dated 29-4-1971 defendant No. 2 had intimated nomination

of defendant No. 3 as its agent in place of the plaintiff and there was a reference in

this letter to an earlier communication dated 3-3-1971. As the plaintiff had ceased to

be the agent of defendant No. 2 it was not entitled to the commission sued for. It

was urged by the Union of India further that there was no privity of contract

between it and the plaintiff and it was bound to follow the instructions of defendant

No. 2 in respect of the payment of the commission. It was denied by this defendant

that the plaintiff was a registered partnership firm or that the plaint has been signed

'and verified by a person competent to do so. Defendant No. 3 also controverted the

plaintiff's claim to the payment of the commission in dispute and pleaded that

defendant No. 2 had nominated this defendant as its agent and the payment of the

commission at the stipulated rate was due to it Defendant No. 2 did not put in

appearance and was proceeded against ex-parte. The conflicting pleadings of the

parties gave rise to the following issues :-1. Whether the plaintiff is a registered

partnership ?2. Whether the suit against defendant No. 1 is maintainable ?3.

Whether the suit against defendant No. 3 is not maintainable as there was no privity

of contract between the parties ?4. Whether the benefit was reserved under the

agreement dated 19th April, 1971 in favour of the plaintiffs ?. 5. Whether the

contract in question was unilaterally repudiated by defendant No. 1 ?6. Whether by

letters dated 3rd March. 1971 and Ann! 29. 1971 the contract: was terminated ?7.

Whether the plaintiff is entitled to commission ? It so, to what amount ?8. Relief.

( 3 ) THE plaintiff and defendant No. 1 have adduced oral as well as documentary

evidence. No evidence has been produced by defendant No. 3.

( 4 ) ISSUE No. 1 Exhibit Public Witness 1/5 tiled by the plaintiff provides

unimpeachable evidence of the registration of Madhav Trading Company on 13-2-

1967 and Ramesh Chand Kabra. who signed and verified the plaint and Natwar Lal

Kabra who signed and verified the replication, being among its partners. The issue is

found in favour of the plaintiff.

( 5 ) ISSUES 2, 4 and 7 It is shown by Exhibit D-6, the offer emanating from

defendant No. 2 for the supply of the steel in question, that the plaintiff was its

agent and the price quoted by this defendant included a commission of 2 per cent

for that agent. This offer was accepted by the Union of India through a telegram

sent to Salzgitler Stahl GMBH Export. Dusseldorf (West Germany), on 20-3-1971

(Exhibit P6) and a copy of the communication was sent to Messrs. Madhav Trading

Company in recognition of its being the agent of defendant No. 2. On 19-4-1971 the

Railway Board, acting on behalf of the Union of India, forwarded six copies of the

formal contract dated 19-4-1971 to the German Firm and required it to return four

of them duly signed. A copy of the said letter along with a copy of the contract was

despatched lo Messrs. Madhav Trading Company. It was in August 1971 that the

Railway Board informed defendant No. 2 vide its letter of 27th August, that two

amendments had been made to the contract dated 19-4-1971,. e. "delivery will be

completed by 30-9-1971" and "the name of the Indian Agent appearing in the clause

be substituted to read as "m/s. Metal International Corp. , F Block, Connaught Place.

New Delhi". " A copy of this letter was forwarded to Madhav Trading Company and

the firm was asked to note that it was no more agent against the contract and,

therefore, not authorised to exchange correspondence in respect thereof. It is plain

from the aforesaid documentary evidence that defendant No. 2 had nominated the

plaintiff as its agent in India for purposes of the aforesaid contract and that its derecognition as agent of the said defendant did not take place before 27-8-1971. The

defendants have led no evidence whatever to make out that defendant No. 3

performed any functions as agent of defendant No. 2 after 27-8-1971 nor it has

been pointed out from the side of the defendants that services of an agent were

needed for the execution of the contract in any manner subsequent to that date.

( 6 ) AS per Exhibit D-5, its letter dated 16-2-1971, defendant No. 2 informed the

Railway Board that Messrs. Madhav Trading Company was authorised to negotiate

on its behalf with the 1st defendant about tender enquiry S-99 of 1971 and, as

already stated, it informed the 1st defendant again vide its letter of offer dated 17-

2-1971 (Exhibit D6) that the plaintiff was its agent and the price demanded by it

included commission at the rate of 2 per cent payable to the said agent. The plaintiff

wrote a letter to the Railway Board on 19-2-1971 (Exhibit D7) that Shri Devendra

Mohan Lakhotia would be attending the opening of tenders on its behalf. Devendra

Mohan Lakhotia has appeared as Public Witness 3 and testified that he was present

at the time of the opening of the tenders. The plaintiff informed its principal through

Exhibit Public Witness /1, a letter dated 23-2-1971, that it had received copy of their

offer No. 85. 771 and that it was disappointing that they had not offered any firm

validity but that it would do its best. Exhibit PW2/1, a letter sent by defendant No. 2

to the plaintiff informed it that the booking of 4197 tonnes of cold rolled steel sheets

to Railway Board had been confirmed vide cable dated 22nd March, 1971. The

Financial Adviser and Chief Accounts Officer of Integral Coach Factory, Perambur,

sent a letter to the plaintiff on 25-5-1971 (Exhibit P9) with reference to its letter

dated 19-5-1971 that necessary letter of credit would be arranged to be established

on receipt of instructions from the Railway Board, New Delh. The Railway Board

addressed the said officer on 27-7-1971 (Exhibit P. II) on the subject of import

licence in respect of the contract in question and endorsed a copy of the plaintiff

with a request to ensure that the shipment was effected immediately the letter of

credit was opened and it was asked to intimate that there would be no delay in

shipment. The Financial Adviser and Chief Accounts Officer, Integral Coach Factory,

Perambur, told the plaintiff through his letter dated 5/9-8-1971 that the requisite

letter of credit had been established by the State Bank of India, Madras, with a

particular Bank at Dusseldorf in favour of defendant No. 2. It is evident from this

evidence that the plaintiff was very much in the picture as agent of defendant No. 2

in connection with the contract dated 19-4-1971 upto 9-8-1971 and the plaintiff's

counsel submits that nothing remained to be done thereafter. Only one witness, Shri

Jagdish Pershad (D1w1), has appeared from the side of the defendants and its has

been conceded by him that Devendra Mohan Lakhotia was present at the time of

the opening of the tenders, that a copy of the contract was sent to the plaintiff

because upto that time it was shown by the records to be the Indian Agent of

defendant No. 2, that as per the contract 2 per cent commission was payable to the

Indian Agent of defendant No. 2, that when the contract was issued by defendant

No. 1 the plaintiff was shown as Indian agent, that the document returned duly

signed by defendant No. 2 did contain the name of the plaintiff as the Indian agent,

that as far as defendant No. 1 was concerned the formal deletion of the name of the

plaintiff as Indian agent of defendant No, 2 was made in August 1971 and it was

only after that amendment that they started dealing with defendant No. 3, that vide

contract dated 19-4-1971 the name of the Indian agent was communicated to the

Calcutta cell of the Railway Board and the Integral Coach Factory on 26-4-1971 and

those quarters were informed regarding the change of agent's name through their

letter dated 27-8-1971, that defendant No. 3 did not send any letter to defendant

No. 1 with regard to this tender between 19-4-1971 and 27-8-1971, that shipment

regarding the stores took place between 28-5-1971 and 25-9-1971, that part of the

quantity must have been inspected in Germany before the shipment on 25-8-1971,

that after the inspection of the stores, the only thing to be done by the seller was to

pack the stores and put them on board of the ship, that all such formalities like the

opening of letter of credit and accelerating the date of supply are completed before

the shipment is made, that the shipment in this case was made without the letter of

credit being operative and that a letter of credit was established on 4-8-1971. The

learned counsel for the plaintiff has urged in this context that by the time defendant

No. 3 was recognised as agent of defendant No. 2 nothing remained to be done by

the Indian agent of the said defendant and it must be conceded that there is not an

iota of evidence on the record that any functions of agent were performed by

defendant No. 3 for defendant No. 2 before or after 27-8-1971. No controversy has

been raised before me again on the point that 2 per cent of the price quoted by

defendant No. 2 was to be paid to its agent by the Union of India in Indian currency

on successful completion of the contract and that the said contract has been duly

performed. The Union of India insisted on the appointment of an agent in India by

Defendant No. 2 obviously to serve the ends of its own convenience and it has not

been alleged by this defendant or by the German Firm that the plaintiff was found

wanting in any respect. It has also not' been controverted at the Bar that 2 per cent

of the price payable for the supplies has been withheld by the Union of India and it

is payable by way of commission to the Indian agent of defendant No. 2. The

conclusion is inescapable that the said amount of commission is to be paid to the

plaintiff and defendant No. 3 is entitled to no part of it.

( 7 ) IT has been urged on behalf of the Union of India that there was no privity of

contract between the plaintiff and this defendant and the plaintiff had no right to

sue this defendant for the amount in dispute. It has, however, been established as

stated above beyond doubt that under the contract between the Union of India and

the 2nd defendant, 2 per cent of the price of the goods was to be retained by the

Union of India for payment as commission to the Indian agent of the German Firm

on the completion of the contract and that amount has, in fact, been retained by it

and the contract stands already performed by the German Firm. The contract

aforesaid thus reserved a benefit for the plaintiff and the amount of the commission

remains with the Union of India by way of trust for the plaintiff. The general rule of

law, of course, is that only one or the other party to the contract can approach the

court for its enforcement, not a stranger. But there are exceptions engrafted on this

rule on equitable considerations and one of them firmly recognised is that if the

contract has the effect of creating a trust in favour of a third person such person

may sue to have the obligation arising for his benefit fulfilled. It was held by a

Division Bench of the Lahore High Court in Torabaz Khan and another v. Nanak

Chand and another (A.. R. 1932 Lahore 566) (1) that the principle that a person

who is not a party to a contract could not take advantage of its provisions is

inapplicable to India. This ruling was followed by Tapp,. in Gauri Shankar and

another v. Mangal and others (A.. R. 1933 Lahore 178) (2) who found that a

beneficiary under the contract can enforce the same in spite of not being a party

thereto. Their Lordships of the Privy Council observed in Mt. Dan Kuer v. Mt. Sarla

Devi (A.. R. 1947 Privy Council 8) (3), a case concerning a family arrangement, that

it was too late to doubt the rule which had prevailed in India that where a contract

is intended to secure a benefit to a third party as a beneficiary he may sue in his

own right to enforce it. In Lingam Ramaseshayya v. Myneni Ramayya and others

(A.. R. 1957 Andhra Pradesh 964) (4) Vishwanatha Sastri,. , discussed in detail the

previous English and Indian case law on the subject and returned the finding that a

person though a stranger to the contract can sue thereon if the same creates a trust

in his favour. The Supreme Court had an occasion to deal with the issue in a more

recent case, M. C. Chacko v. The State Bank of Travancore (A.. R. 1970 Supreme

Court 504) (5) and observed that "it is settled law that a person not a party to a

contract cannot, subject to certain well recognised exceptions, enforce the terms of

the contract : the recognised exceptions are that beneficiaries under the terms of

the contract or where the contract is a part of the family arrangement may enforce

the covenant".

( 8 ) THE learned counsel for the defendants have frankly admitted that there can

be no quarrel with the view of the law propounded by the authorities cited above. I

would in the circumstances decide the issues in favour of the plaintiff.

( 9 ) ISSUE No. 3 : There is certainly no privity of contract between the Madhav

Trading Company, the plaintiff, p. nd Messrs. Metal International Corporation,

defendant No. 3, but defendant No. 3 does not lay claim to the commission sued for

by the plaintiff and it is. therefore, a proper party to the proceedings undeniably. If

defendant No. 3 had not been impleaded in the suit, any decree passed in favour of

the plaintiff would not have been binding on it and a positive scope left for litigation

to recover the same commission being launched by the said defendant. It is,

therefore, found that impleading of defendant No. 3 was fully justified, though there

was no contractual link between this firm and the plaintiff.

( 10 ) ISSUE No. 5 : It is indisputable that the contract between the Union of India

and the 2nd defendant was amended by the 1st defendant vide Exhibit P-13 and

this was done without the plaintiff being taken into confidence by this defendant or

by defendant No. 2. De-recognition of the plaintiff as agent of defendant No. 2 was

thus unilateral. The issue is decided accordingly.

( 11 ) ISSUE No. 6 : It was pleaded by the 1st defendant that the name of

defendant No. 3 was substituted for that of the plaintiff as agent of defendant No. 2

as per advice received from the last-mentioned defendant through the German

Firm's letters dated 3-3-1971 and 29-4-1971. The aforesaid letters have not,

however, been proved. It cannot, therefore, be held that the plaintiff's contract of

agency was terminated through the aforesaid letters.

( 12 ) IN consequence of the findings recorded above the plaintiff's suit is decreed

for recovery of the aforesaid amount against defendant No. 1. There shall, however,

be no order as to costs. As against defendants 2 and 3 the suit is dismissed, but

without costs.