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Kalyanji Kuwarji v. Tirkaram Sheolal
Factual and Procedural Background
The sole question in this revision is whether the Khamgaon Court has jurisdiction to try the present suit. The plaintiff is a merchant dealing in grain and cotton seed. The defendants reside and carry on business at Sonpat (Punjab) as merchants acting as commission agents in respect of these commodities. One Hokarmal, the plaintiff's agent at Sonpat, entered into an agreement with the defendants at Sonpat on the plaintiff's behalf that the plaintiff would send consignments from Khamgaon to the defendants, who would store the goods, await instructions and, when instructed, sell the goods and remit sale proceeds to the plaintiff less commission. Payment was not to be made at Khamgaon but at Delhi: defendants were to send accounts to the plaintiff, who would draw hundis on one Thakurdas of Delhi, the defendants guaranteeing that Thakurdas would honour the hundis. The plaintiff admitted bearing the commission charges on the hundis, so the net amount he received was the sale-proceeds less those commission charges. The lower courts held that payment occurred at Delhi (partly because Thakurdas was treated as plaintiff's agent for receipt) and that delivery and sale were at Sonpat, and therefore Khamgaon had no jurisdiction. The appellate findings of fact (venue, delivery, method of payment, and the arrangement between parties) are accepted by the revising court.
Legal Issues Presented
- Whether the Khamgaon Court has jurisdiction to try the suit given the contract, place of delivery, sale and payment arrangements.
- Whether the defendants, described as commission agents, acted as agents (so that the suit would be by a principal against an agent, possibly for accounts) or effectively became debtors after sale (so that an accounting is not the material cause of action), and how that characterization affects jurisdiction.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Blackwood Wright, Principal and Agent (text) | Explains that a commission agent is not a fiduciary in the fullest sense; monies received are treated as the agent's own and the relation often becomes debtor-creditor rather than strict fiduciary principal-agent. | Used to support the view that commission agents may, after sale, stand as debtors to the consignor rather than fiduciaries required to render accounts as a primary cause of action. |
| Jessel, M.R. (reported in the extract reproduced in Blackwood Wright) ((1881) 43 LT 171) | Describes commercial practice where commission agents treat receipts as their own, make advances, and account as debtors/creditors rather than as fiduciary agents. | The court relied on the extract to illustrate the commercial reality that commission agency often converts into debtor-creditor relations once the agent sells the goods. |
| Hellish, L.J., Ex parte White, In re Nevill, Jourdain & Co. ((1871) 6 Ch 397) | Recognizes that a person receiving goods as a commission agent may be agent up to the date of sale and thereafter be a debtor. | Adopted as an established principle supporting the conclusion that an agent can cease to be a principal's agent upon sale and become a debtor for the proceeds. |
| Sir Lawrence Jenkins C.J., (30 Bom 205) (1906) | Applied the same principle in the Indian context (p. 217) regarding commission agency and its change in character after sale under pakka adats. | Relied upon as an Indian application of the rule that commission agency may convert into debtor-creditor relations; supports the Court's factual conclusion about the parties' relationship. |
| Bowstead on Agency (text) and Story on Agency (text) | Textual authorities collecting similar instances and principles on commission agency and its commercial treatment. | Referenced to show doctrinal support for distinguishing between fiduciary agency and the commercial debtor-creditor relationship that often follows a commission agent's sale. |
| Reference: 40 Mad 402 (Privy Council, 1917) (cited as 40 Mad 402 (PC) at p. 408) | Indicates that failure to produce accounts may be a matter of proof though not necessarily a material part of the cause of action in certain circumstances. | Used to underline that accounting requirements relate to proof and may not constitute the material cause of action when the relation is debtor-creditor. |
Court's Reasoning and Analysis
The court proceeded from the accepted facts (contract made at Sonpat; defendants resident and trading at Sonpat; delivery to be at Sonpat; sales to be effected at or from Sonpat; payment method involving Delhi). It first considered whether the suit was essentially a claim by a principal against an agent (for accounts) which would make the place where accounts were rendered relevant to the cause of action.
The court examined the nature of commission agency. Relying on commercial authorities and extracts (Blackwood Wright, Jessel M.R., Hellish L.J., Bowstead, Story), the court observed that commission agents frequently hold receipts as their own and, by custom of trade, operate in a way that makes them debtors to the consignor for the amounts received. The court articulated a test: whether the commission agent, when selling, has authority to sell in his own name and to pass a valid title. If so, he acts as principal vis-à-vis purchasers and thereafter becomes a debtor to his erstwhile principal rather than remaining in a fiduciary agent relationship.
Applying this test to the facts, the court noted that both parties were merchants dealing in the same commodities, commission agents typically deal with many principals and retail customers who treat the agent as the contracting principal, and commission agents in practice may mix stock and resell as their own. Given these commercial realities and the parties' conduct, the court concluded the defendants sold in their own right and were responsible to the plaintiff as debtors for the proceeds less agency charges.
Because the relation of principal and agent ceased upon sale, the plaintiff's right to claim an accounting "as a principal against his agent" no longer formed a material part of the cause of action; an accounting would be an evidentiary matter of proof rather than the foundation of the cause of action. Consequently, the jurisdictional facts (place of contract, delivery, sale and payment arrangements) did not vest jurisdiction in the Khamgaon Court.
Holding and Implications
The application is dismissed — the Khamgaon Court has no jurisdiction to try the suit.
Direct consequences: the lower courts were correct in concluding lack of jurisdiction; the suit cannot be maintained in Khamgaon on the facts found. Costs were awarded: the application dismissed with costs and counsel's fee fixed at Rs. 30. The court expressly limited its observations to the facts of this case and declined to lay down any sweeping general principle beyond those facts.
Disposition: Application dismissed.
1. The only question for determination in this revision is whether the Khamgaon Court has jurisdiction to try the present case. Both the lower Courts hold it has not. The plaintiff is a merchant who deals in the purchase and sale of grain and cotton seed. The defendants who reside and carry on business at Sonpat in the Punjab are also merchants who act as commission agents in respect of these commodities. When one of the plaintiff's agents, Hokarmal wasat Sonpat he entered into an agreement with the defendants at Sonpat on behalf of his principal for the sale of grain and cotton seed. The arrangement was this the plaintiff was to send the defendants consignments of these goods from time to time from Khamgaon the defendants were to keep these goods with them and await instructions from the plaintiff about the sale then as soon as the plaintiff gave them the word they were to sell and in due course hand over the sale proceeds to the plaintiff less their commission charges: the money however was not to be paid at Khamgaon but at Delhi. These are the facts found by the Appellate Court and must of course be accepted here. They are not disputed except as regards the place of payment. As regards that the method of payment was this: The defendants were to send the plaintiff accounts from time to time of the various sales made by them. The plaintiff was then to draw hundis on one Thakurdas of Delhi and the defendants guaranteed that Thakurdas would honour these hundis. Of course the question arises whether this was payment to the plaintiff at Khamgaon or at Delhi. The plaintiff admitted that he had to bear the commission charges on the hundis and so it is clear that the nett amount which he actually received was not the full amount due from the defendants but that sum less the commission charges on the hundis. The lower Courts deduce from this that Thakurdas was acting as the plaintiff's agent for the purposes of receiving these payments and therefore held that the payment was to be at Delhi. This conclusion is eminently reasonable and cannot be questioned in revision. So far as delivery is concerned, it was clearly to be at Sonpat. The plaintiff engaged the defendants to sell these goods for him and of course the defendants could not do this until they actually received the goods; indeed according to the plaint, the contract was that the goods were not to be sold till the plaintiff gave permission till then, they were to be stored by the defendants. Therefore we have the position here that the defendants reside at Sonpat, that the contract was made at Sonpat, that delivery was to be at Sonpat, that the sales were to be effected at or from Sonpat and that the money was to be paid at Delhi. None of these ingredients invest the Court at Khamgaon with jurisdiction. Then is there anything else which does? To determine that we must first ascertain the nature of the suit.
2. The defendants, as I have said, were employed by the plaintiff to sell goods for them as commission agents and so at first sight would appear to come within the definition of agent given in Section 182 of the Contract Act.
3. In that event the suit would of course be by a principal against his agent, and at one time I thought it was a suit for accounts, at any rate, so far as the primary relief is concerned. If that were so, then the place where the accounts were to be rendered would be an important ingredient in the cause of action, for a suit for accounts is naturally founded on the right of the plaintiff to receive an accounting from the other party. But such a right can only arise if the parties are in a fiduciary relationship to each other. Commission agents are of course agents up to a point and to that extent they stand in a position of active confidence towards their principals, but beyond that they are not agents in the real sense of the term and the relationship between the parties from then on is one of debtor and creditor. This distinction is to be found in Blackwood Wright's Principal and Agent, page 123:
A commission agent is not bound to keep separate accounts at his banker's for he is not a fiduciary agent, and the moneys he receives are his own since, by custom of trade, he is only liable as debtor to his employer for the amount received, and he often makes advances in anticipation of receiving the proceeds of the sale.
4. The learned author then quotes a passage from the judgment of Jessel, M.R is (1881) 43 LT 171. (1881) 43 LT 171 Unfortunately the report is not available here and so I am obliged to rely upon this extract from the judgment as reproduced in Blackwood Wright's book:
A commission agent is liable to the consignor of the goods for the amount received, and in the ordinary course of business he makes advances to the consignor, for which he charges interest and debits himself with the amount received when they are received and credits himself with interest on the other side of the account so that the real transaction between the parties is for the consignor to treat such consignee as creditor for his advances and interest and to regard him as debtor for the amount received and interest.
5. Similar remarks founded on the same case are to be found in Bowstead on Agency, 8th Edn., p. 152 and also in Story on Agency, p. 305. The Contract Act, it is true, does not draw this fine distinction between different classes of agents but the Act is not exhaustive and so far as this part, of the law is concerned it merely lays down general principles in wide and general terms. For instance the definition of agent given in S. 182 is wide enough to embrace a servant pure and simple, even a casual employee a man who is engaged by me in the streets to black my boots; but it cannot for a moment be contended that they are therefore all to be placed in the same category also in any case, I am of opinion, that, so far as the sales in this case are concerned, the defendants were not acting on behalf of the plaintiff but on behalf of themselves. The intention was that the plaintiff would look to the commission agents and the commission agents to the persons to whom they sold. No privity of Contract was intended to be established between the plaintiff and the purchasers as would have been the case in a case of agency pure and simple.
6. The fact that a person who receives goods from another as a commission agent and then sells them for him may be an agent up to a certain point, that is up to the date of the sale, and thereafter be a debtor pure and simple was recognized by Hellish, L.J in (1871) 6 Ch 397. Ex parte White, In re Nevill, Jourdain & Co., (1871) 6 Ch 397 , 10 LJ Bk 73 , 24 LT 45 , 19 WR 488 This principle was applied to India in the case of pakka adats by Sir Lawrence Jenkins C.J in 30 Bom 205 (1906) 30 Bom 205 , 7 Bom LR 611 at p. 217. Story has collected a number of similar instances in his Work on Agency, p. 200. In my opinion the same rule applies here. Of course this must not be carried too far. I am not laying down any general principle. I am confining myself strictly to the facts which, arise in this case. The test to my mind is I this: does the commission agent when he sells have authority to sell in his own name? Has he authority in his own right to pass a valid title? If he has then he is acting as a principal vis-a-vis the purchasers and not merely as an agent and there, fore from that point on he is a debtor of his erstwhile principal and not merely an agent. Whether this is so or not must of course depend upon the facts in each particular case. It may be that these terms will be found to exist in most commission agency cases, but again there may be cases in which they are absent and in which the relation of principal and agent continues to the end. Therefore my observations must not be carried beyond the facts of this case.
7. So far as this case is concerned, we know that the plaintiff and the defendants are both merchants each dealing in the same commodities. We also know that commission agents in general deal with a large number of what I may call principals scattered throughout India and sometimes abroad. It can hardly be supposed that the customers who come to their shops say in Sonpat as here, for purchasing a given quantity of cotton seed or grain look beyond them to these other persons resident else where or deal with them otherwise than as principals in their own behalf. A customer in such circumstances can scarcely be expected to ask or know or even care who is the owner of each handful of grain he purchases; in fact, it may well be that the commission agents themselves do not know once they have bought the grain from their godowns and mixed it with other stook which is being retailed in their shops nor would the principals care who these purchasers are. Their contracts are with the commission agents and ordinarily no privity is established between the principals and the ultimate purchasers. In general there is nothing to prevent these commission agents from purchasing the commodities themselves at the price named by their principals and then selling thereafter at a profit to themselves. This profit they would be entitled to retain. A mere agent could not do that. Looking then to the general dealing between the parties in this case, looking to the fact that these conditions are the usual conditions upon which commission agents operate and to the fact that the defendants were themselves grain and seed merchants actually running a shop, I am clear that the understanding-between the parties was that the defendants were to sell the grain and cotton seed in their own right and be responsible to the plaintiff as debtors for the sale-proceeds less their agency charges.
8. Once that is accepted, then the relation, ship of principal and agent ceases and the plaintiff's right to claim an accounting as a principal against his agent goes. In that case the accounting qua accounting is no part of the cause of action. I do not say that it is relevant. I do not say that the defendants would not fail if they omitted to produce their accounts. They might in conceivable circumstances, even if the burden were on the plaintiff, though, of course, I say nothing about that here: see 40 Mad 402 (1917) 1 AIR PC 6 , 39 IC 659 , 44 IA 98 , 40 Mad 402 (PC) at p. 408. But all that would merely be a matter of proof. It would not constitute a material part of the cause of action. It follows from this that the lower Courts have decided the case aright. The Khamgaon Court has no jurisdiction. The application is therefore dismissed with costs. Counsel's fee Rs. 30.
V.B/R.K
9. Application dismissed.
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