PETITIONER: TROJAN & CO. LTD. Vs. RESPONDENT: RM. N. N. NAGAPPA CHETTIAR. DATE OF JUDGMENT: 20/03/1953 BENCH: MAHAJAN, MEHR CHAND BENCH: MAHAJAN, MEHR CHAND DAS, SUDHI RANJAN CITATION: 1953 AIR 235 1953 SCR 780 CITATOR INFO : R 1964 SC 136 (11) R 1966 SC 735 (8) R 1977 SC 890 (8) D 1980 SC 727 (11) ACT: Contract-Damages-Sale of shares-Sale induced by fraud- Measure of damages-Difference between price paid and market price on date of sale-Fluctuations of market and sudden closure of Stock Exchange, effect of--Interest on damages- Practice-Conflict between pleadings and proof-Decree on alternative claim not set up in plaint-Legality. HEADNOTE: Where a person is induced to purchase shares at a certain price by fraud the measure of damages which he is entitled to recover from the seller is the difference between the price which he paid for the shares and the real price of the shares on the date on which the shares were purchased. Ordinarily the market rate of the shares on the date when the fraud was practised would represent their real price in the absence of any other circumstance. If, however, the market was vitiated or was in a state of flux or 790 panic in consequence of the very fact that was fraudulently concealed, then the real value of the shares has to be determined on a Consideration of a variety of circumstances, disclosed by the violence led by the parties. A firm of sharebrokers sold 3,000 shares to the plaintiff who was a constituent of the firm, on the 5th April, 1937, at Rs. 77 and Rs. 77-4as, per share without disclosing to the plaintiff the fact that the shares were owned by one of the partners of the firm and also the fact that they had received telephonic information on that day from a member of the Stock Exchange that there was going to be a sharp decline in the price of the shares. On the 6th April the Stock Exchange Association passed a resolution for closing the Exchange on the 8th and 9th April. The plaintiff had to sell 2,000 shares through the defendants on the 20th April at Rs. 47 to Rs. 42 per share, and 1,000 shares on the 22nd April at Rs. 428as. The High Court awarded the difference between the price paid by the plaintiff and the prices fetched on resale as damages. On appeal, Held, that the prices received at the resale on the 20th and 22nd April could not represent the true value of the shares on the 5th April. The real question for determination was what the market value would have been on the 5th April of these shares if all the buyers and sellers know that the Stock Exchange was to be closed on the 8th and 9th April. Held also that the plaintiff was entitled to get interest on the amount awarded as damages from the 5th April till the date of suit on the principle that where money is obtained or retained by fraud a court of equity will order it to be returned with interest. Johnson v. Rex ([1904] A.C. 817) referred to. It is well settled that the decision of a case cannot be 'based on grounds outside the pleadings of the parties and that it is the case pleaded that has to be found. Where the plaintiff based his claim for a certain sum of money on the ground that the defendants had sold certain shares belonging to him without his instructions, but he was not able to prove that the sale was not authorised by him: Held, reversing the decision of the High Court, that the plaintiff could not be given a decree for the sum claimed on the ground of failure of consideration, as he had not set up any such alternative claim in the plaint or even at a later stage when he sought to amend the plaint. JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No..139 of 1962.
Appeal from the Judgment and Decree dated the 17th March,
1950, of the High Court of Judicature at Madras (Horwill and
Balakrishna Ayyar JJ.) in O.S.A. No. 34 of 1947, arising out
of
791
the Judgment and Decree dated the 18th April, 1947, of the
said High Court (Clark J.) in the exercise of the Ordinary
Original Civil Jurisdiction of the High Court in C. S. No.
208 of 1940.
V. Rangachari (K. Mangachary, with him) for the
appellant.
K. Krishnaswami Iyengar (K. Parasuram, with him) for the
respondent.
1953. March 20. The Judgment of the Court was delivered by
MAHAJAN J.-The dispute in this appeal is between a
constituent and a firm of stock-brokers. Some time before
April, 1936, the plaintiff, then a young man, came into
possession of property worth about 2 lakhs of rupees on a
partition between him and his brothers. In the hope of
getting rich by obtaining quick dividends by speculating on
the stock-exchange be, through the defendant firm and
certain other stockholders, entered into a series of
speculative transactions and it seems he did not fare badly
in the beginning. But subsequent events tell a different
tale.
In 1937, two iron and steel companies in North India, vie.,
Indian Iron & Steel Co. Ltd., and the Bengal Iron & Steel
Co. Ltd., merged into one concern and a new issue of shares
was made. The scheme was that for every five shares which a
person held in the Indian Iron Co. Ltd. on 22nd April, 1937,
one fully paid up share would be given to him at a price of
Rs. 25. The market price at the time this scheme was
announced was about Rs. 55 per share. A wave of speculation
followed this announcement and there was a boom in the
market. Prices of Indian Iron shares were going up to
unreal heights. To stabilize the situation thus created by
heavy speculation, three members of the Committee of the
Calcutta Stock Exchange presented a petition to the
Committee on 5th April, 1937, to close the Calcutta Stock
Exchange
792
for a while. On the same evening plaintiff’s stockbroker
Annamalai Chettiar, who was carrying on business in firm
name Trojan & Co., had telephonic conversation with one
Ramdev Chokani, a member of the Calcutta Stock Exchange, on
this subject and from this conversation he gathered that a
sharp fall in the prices of Indian Irons was likely. At
that time Annamalai Chettiar had on his bands some 5,000 of
these shares. Shortly after this conversation and after
business hours the same night, between the hours of 7-30 and
8-30, Annamalai Chettiar rang up the plaintiff and suggested
to him that it would be a good thing for him to buy these
shares. The youthful plaintiff in his anxiety to got rich
quickly accepted the suggestion and purchased these shares,
some at Rs. 77 and others at Rs. 77-4-0. Another firm of
brokers, Ramlal & Co., had also in their hands another 4,000
of these shares. They too found in the plaintiff a ready
buyer. They also contacted him on the phone after Annamalai
had done so, and sold him 4,000 shares that they held. Out
of the lot which the plaintiff purchased from the defendants
he sold 1,300 shares to Ramanathan Chetti at cost price.
On the 6th April the Committee of the Calcutta Stock
Exchange Association passed a resolution closing the Stock
Exchange on the 8th and 9th April.
From the 6th April onwards the market sagged and the prices
came down, at first gradually and then literally at a, run.
The result of it was that the plaintiff had to sell at a
very heavy loss.
The defendants made demands on the plaintiff for the price
of those shares. Between 5th April and 20th April, 1937, he
made payments to defendants of various amounts totalling Rs.
60,000. A lot of 700 shares was sold by the plaintiff to
Pilani & Co. and on 19th April, 1937, he instructed the
defendants.for sale of the remaining 3,000 shares at the
best price obtainable. The defendants sold 2,000 shares on
20th April, 1937, for prices ranging between Rs. 47-4-0 to
793
Rs.44-12-0 per share. The remaining 1,000 shares were sold
by him through Messrs. Ramlal & Co. at Rs. 42-8-0 per share
on 22nd April, 1937. The result of it was that on 22nd May,
1937, when the accounts between the plaintiff and the
defendants were settled it was found that plaintiff was
heavily indebted to them in the sum of Rs. 51,712-7-0 and
the credit balance of Rs. 64,000 that he had with the
defendants at the end of March, 1937, had been wiped off.
For the amount found due he passed a promissory note in
favour of defendants, Exhibit P-33. After giving credit for
payments received on the promissory note the defendants
filed a suit against him (O.S. 150 of 1937) on the Original
Side of the Madras High Court and obtained an ex-parte
interim order for attachment before judgment and attached
plaintiff’s movable and immovable properties at Madras, and
also at Kottaiyur in Ramnad district. Owing to the
attachment proceedings the firm of Ramlal & Co. filed a
petition for adjudication of the plaintiff as an insolvent.
On 22nd September, 1937, Trojan & Co. also filed a petition
for the same relief. An order adjudicating the plaintiff an
insolvent was made by the High Court on 5th October, 1937,
on the petition of Ramlal & Co.
In the course of the insolvency proceedings defendants
tendered proof of their claim on the promissory note,
Exhibit P-33. The Official Assignee having acquired
knowledge about the telephonic conversation that had passed
between Annamalai Chettiar and Ramdev Chokani on the evening
of the 5th April, 1937, came to the conclusion that the
insolvent had been a victim of a fraud perpetrated by the
defendants and dismissed their claim. Defendants-firm was
guilty of fraud both in respect of the failure to disclose
the fact that the Indian Iron shares or most of them be-
longed to one of its partners, Annamalai Chettiar, and also
on account of the failure on its part to disclose its
knowledge of the likelihood of a slump in the market because
of the notice given by its members to close the Stock
Exchange.
794
On an application made to the High Court against the order
of the Official Assignee it was set aside by Mockett J. and
he directed that the claim of the defendants be disposed of
on a court motion, the claim being heard as if it were a
suit. In pursuance of this direction Trojan and Co. on 29th
September, 1938, filed an application in the High Court, No.
313 of 1938. The Official Assignee representing the estate
of the plaintiff denied its liability on the promissory note
on the ground of fraud. On 15th March, 1940, Somayya J.
dismissed the claim of the defendants. He held the
defendants-firm guilty of fraud in both respects. From this
there was an appeal which was dismissed on 12th August,
1942. The defendants applied for leave to appeal to His
Majesty in Council but leave wag refused. Defendants then
applied to the Privy Council for special leave and that
application was also dismissed some time in October, 1943..
On the 28th September, 1940, when the appeal from the
decision of Somayya J. was still pending, the Official
Assignee as representing the estate of the plaintiff filed
the suit out of which this appeal arises against Trojan &
Co. for an account of the transactions between himself as
principal and the defendants as agents and claiming damages
for loss sustained by him and for various other reliefs.
The suit embraced in particular claims in respect of four
transactions. The first related to the 5,000 Indian Iron
shares. The second referred to a transaction of Associated
Cements. On 22nd March,1937, the plaintiff had sold through
the defendants 5O shares in Associated Cements at Rs.180-8-0
per share. On 30th March, 1937, he had similarly sold a
further 200 shares in Associated Cements at Rs. 183 per
share. The plaintiff did not have on hand even a single
share in Associated Cements. It became necessary for him
therefore to “cover the sales”. On 21st July, 1937,
defendants purchased on plaintiff’s account 100 shares at
Rs. 161-12-0 per share. On 1st September, 1937, they
purchased a further 150 shares at
795
Rs. 151 a share. The difference between the prices at which
these shares had been sold and bought amounted to Rs. 6,762-
8-0 and for this amount the defendants gave the plaintiff
credit by adjusting it towards the promissory note account.
In respect of this transaction the case of the Official
Assignee was that the purchase which had been made by the
defendants was not only unauthorized, but contrary to
instructions and was not valid and binding on the plaintiff
as it had been made after the commencement of the
insolvency. No claim was made in the alternative that if
this contention failed, the plaintiff was entitled to
recover the amount credited towards the promissory note on
the ground of failure of consideration. The third
transaction related to 300 shares in Tatas, and the fourth
one was in respect of shares in Ayer Mani Rubber Co. The
last claim was abandoned at the trial and the claim on the
third transaction was decreed in favour of the plaintiff and
the correctness of the order of the trial judge was not
canvassed in the appeal before the High Court. The amount
decreed as regards these 300 shares was in the sum of Rs.
1,050.
The defendants denied liability for the entire claim and
pleaded that they were not guilty of any fraud and that in
any case the plaintiff was not entitled to claim any damage,
as he could have easily sold away all his shares soon after
his purchase without incurring any loss, and that he
retained them in order to make profit.
The suit was first heard by Bell J. who decreed the claim
of the plaintiff on 9th March, 1943. The defendants
appealed. The appellate court set aside the decision of
Bell J. and ‘remanded the suit for fresh disposal on 26th
August, 1944. Meantime, that is to say, on 21st February,
1944, the adjudication of the plaintiff was annulled and on
his application he was brought on the record in the place of
the Official Assignee and he continued the suit. Clark J.
who tried the suit after remand gave a decree in favour of
103
796
the plaintiff for the sum of Rs. 61,787-9-0 with interest at
the court rate of six per cent. per annum from 1st
September, 1937, until payment or realization with costs.
Against this decree the defendants preferred an appeal. The
appellate Bench modified the decree of Clark J., and reduced
the amount of the decree by a sum of Rs. 9,100. Each party
was made to pay proportionate costs throughout. Leave to
appeal to this court against the decree was granted and the
appeal is now before us under the certificate so granted.
As above stated, the claim in respect of Ayer-Mani Rubber
shares was abandoned at the trial and the claim on the third
transaction relating to 300 shares in Tatas was decreed for
the sum of Rs. 1,050 and the correctness of this order was
not canvassed in the appeal before the High Court. The two
claims discussed in that court were in respect of the trans-
action of 5,000 Indian Iron shares and in respect of the
transaction made in Associated Cements. The dispute before
us so far as the Indian Iron shares are concerned has
narrowed down to the question of quantum of damages in
respect of 3,000 out of the 5,000 shares that were
transferred by the defendants to the plaintiff on the night
of the 6th April, 1937, 1,300 out of these shares having
been sold at cost price by the plaintiff the day after the
purchase, and 700 having been sold to Pilani & Co., and
regarding which the plaintiff’s claim was rejected in the
High Court and plaintiff preferred no further appeal.
The finding of Somayya J., that the defendants firm was
guilty of fraud both in respect of the failure to disclose
the fact that the Indian Iron shares or most of them
belonged to one of its partners, Annamalai Chettiar, and
also on account of its failure to disclose its knowledge of
the probable slump in the market by reason of the notice
given by three members of the Stock Exchange to temporarily
close it, was not contested before Clark J., and it was
conceded that that finding had become final. The main ques-
tion canvassed at this trial was whether the plaintiff
797
had suffered any damage as a consequence of this fraud and
if so, how were the damages to be measured. In the plaint
plaintiff claimed that he was entitled to be recompensed for
all loss and damage which he had suffered. A sum of Rs.
45,042-9-0 was credited in his account in respect of the
sale of 3,000 shares made on 20th and 22nd April, 1937. He
claimed the whole of this amount as damages on this count;
in other words, according to the plaintiff, the damage
suffered by him was to be measured according to the
difference between the purchase price of the shares and the
price for which they were ultimately sold. The shares were
bought on 5th April at Rs. 77 and Rs. 77-4-0 and sold at
prices ranging between Rs. 42-8-0 and Rs. 47-4-0 on the 20th
and 22nd April, 1937. This method of measuring damages was
successfully challenged by the defendants before the trial
judge. Clark J., in spite of holding that the measure of
damages in a case like this could not be as suggested by the
plaintiff, estimated the damage suffered by him at the
difference between the rate at which the plaintiff purchased
the shares and the rate at which he actually sold them, on
the ground that the price at which he sold them was more
than the fair value of these shares realizable on the 6th
April, 1937, between bona fide purchasers and sellers having
knowledge of the real state of affairs.
Before the appeal Bench of the High Court it was contended
that the trial judge was in error in his assessment of the
real value of these shares on 5th April, 1937, and that in
any case they could not be valued at four different rates.
It was urged that. damages had been over estimated. This
contention was negatived and it was held that in the circum-
stances of this case it could not be said that the plaintiff
acted unreasonably in holding on to the shares for the time
that be did and that the defendants had by their own double
dealings placed the plaintiff in a difficult position.
The learned-counsel for the appellant reiterated before us
the contentious raised by him in the High
798
Court and urged that the true measure of damages in actions
like this is the difference between the price paid and the
real value of the shares at the time of the transaction, and
that any loss caused to the plaintiff by his retaining the
shares after that date could not be decreed. It was
strenuously contended that had the plaintiff sold the
remaining shares like the 1,300 he sold, he would not have
suffered any damage whatsoever, as the market price of these
shares on the 6th and 7th was not below the cost price. It
was said that the loss that the plaintiff suffered was
merely due to the circumstance that he retained the shares
for a fortnight, and was not as a consequence of the fraud.
Lastly, it was contended that even if it could be held that
the market on the 6th and 7th was affected by the very fact
concealed from the plaintiff, its effect disappeared by the
10th April, when the fact became fully known and damage
should have been assessed on the difference between the
market price of these shares which ruled at Rs. 62 per share
on 10th April, 1937, and their cost price.
Now the rule is well settled that damages due either for
breach of contract or for tort are damages which, so far as
money can compensate, will give the injured party reparation
for the wrongful act and for all the natural and direct
consequences of the wrongful act. Difficulty however arises
in measuring the amount of this money compensation. A
general principle cannot be laid down for measuring it, and
every case must to some extent depend upon its own circum-
stance. It is, however, clear that in the absence of ,any
special circumstances the measure of damages cannot be the
amount of the loss ultimately sustained by the representee.
It can only be the difference between the price which he
paid and the price which he would have received if he had
resold them in the market forthwith after the purchase
provided of course that there was a fair market then. The
question to be decided in such a case is what could the
plaintiff have obtained if he had resold forthwith that
which he bad been induced to purchase by the fraud
799
of the defendants. In other words, the mode of dealing with
damages in such a case is to see what it would have cost him
to get out of the situation, i.e., how much worse off was
his estate owing to the bargain in which he entered into.
The law on this subject has been very appositely stated in
McConnel v. Wright(1) by Lord Collins in these terms:-
“As to the principle upon which damages are assessed in
this case, there is no doubt about it now. It has been laid
down by several judges, and particularly by Cotton L. J. in
Peek v. Derry(2), but the common sense and principle of the
thing is this. It is not an action for breach of contract,
and, therefore, no damages in respect of prospective gains
which the person contracting was entitled by his contract to
expect to come in, but it is an action of tort-it is an
action for a wrong done whereby the plaintiff was tricked
out of certain money in his pocket ; and therefore, prima
facie the highest limit of his damages is the whole extent
of his loss, and that loss is measured by the money which
was in his pocket and is now in the pocket of the company.
That is the ultimate, final, highest standard of his loss.
But, in so far as he has got an equivalent for that money,
that loss is diminished; and I think, in assessing the
damages, prima facie the assets as represented are taken to
be an equivalent and no more for the money which was paid.
So far as the assets are an equivalent, he is not damaged;
so far as they fall short of being an equivalent, in that
proportion he is damaged.”
The sole point for determination therefore in the case is
whether the shares handed over to the plaintiff were an
equivalent for the money paid or whether they fell short of
being the equivalent and if so, to what extent. Ordinarily
the market rate of the shares on the date when the fraud wag
practised would represent their real price in the absence of
any other circumstance. If, however, the market was
vitiated or was in a state of flux or panic in consequence
of the very fact that was fraudulently concealed,
(1) [1903] 1 Ch. 546. (2) 37 Ch. D. 541.
800
then the real value of the shares has to be determined on a
consideration of a variety of circumstances disclosed by the
evidence led by the parties. Thus though ordinarily the
market rate on the earliest date when the real facts became
known may be taken as the real value of the shares, never-
theless, if there is no market or there is no satisfactory
evidence of a market rate for some time which may safely be
taken as the real value, then if the representee sold the
shares, although not bound to do so, and if the resale has
taken place within a reasonable time and on reasonable terms
and has not been unnecessarily delayed, then the price
fetched at the resale may well be taken into consideration
in determining retrospectively the true market value of the
shares on the crucial date. If there is no market at all or
if the market rate cannot, for reasons referred to above, be
taken as the real or fair value of the thing and the
representee has not sold the things, then in ascertaining
the real or fair value of the thing on the date when deceit
was practised subsequent events may be taken into account,
provided such subsequent events are not attributable to
extraneous circumstances which supervened on account of the
retaining of the thing. These, we apprehend, are the well
settled rules for ascertaining the loss and damage suffered
by a party, in such circumstances.
If damages had been measured on the rules above stated by
the courts below, this court would have then respected the
concurrent finding on this point as the question of
assessment of damages primarily is a question of fact and
the concurrent findings of the courts below on such points
except in very exceptional circumstances are not reviewed by
this court. We however find that in spite of the
circumstance that the courts below correctly enunciated the
rule of measuring damages in such cases, they estimated them
on the difference between the cost price and the price
realized at the sale on the 20th and 22nd at four different
rates. These four rates could obviously not represent the
true value of the shares on the 5th.
801
Moreover the finding that the true value of these shares
was lower than what was actually realized on their resale on
the 20th and 22nd is not based on any evidence whatsoever.
Such a finding could only be arrived at on the basis of
evidence on the record and by reference to that evidence,
and this has not been done. The High Court did not make an
attempt to find out to what extent the value of the ‘Shares
fell short of being an equivalent for the money taken from
the plaintiff. Without determining this crucial issue we
think it was not right to estimate the damage on the vague
finding that the true value of the shares was lower than the
value which they fetched at the resale on the 20th and 22nd.
In this situation, we have no alternative but to-arrive at
our own finding on this question in spite of the concurrent
finding and we have to find as to what could be said to have
been the true value of these shares on the relevant date.
In other words, the question for our determination is what
the market value would have been on 5th April of these
shares if all buyers and sellers had information that the
market was to be closed on 8th and 9th April to enable
settlement of outstanding transactions to be effected, and
had appreciated the effect of that decision. In the words
of Buckley J. in Broome v. Speak(1), it is indeed a
difficult question to answer beat that difficulty is no
ground for refusing to answer it as has been done by the
court below.
in order to determine the real price of these 3,000 shares
sold to plaintiff by concealment of certain facts, the first
question that needs decision is whether the market for these
shares, the rate prevailing wherein would prima facie be a
true index of their value, had been affected by the very
fact concealed of which the plaintiff complains. In this
case from the proved facts it is clear that the market rate
of these shares was seriously affected by reason of the
impending decision of the Stock Exchange for closing it to
stop the wave of speculation that had taken the frenzy of
the market by reason of the merger of the two steel
(1) [1931] I. Ch. 586.
802
companies doing business in northern India. The market
reports for the week ending March 19, show that the Indian
Irons were standing at or around Rs. 55. By Satur day the
3rd April after the announcement of the terms of the merger
by reason of the keen speculation the shares were being
dealt at around Rs. 73. On Monday the 6th April the price
was Rs. 77. On Tuesday the 6th, the day when the decision
was taken to close the market for two days, these shares
touched Rs. 79 but by the close of business fell back to Rs.
72 a sudden drop of Rs. 7. On Wednesday the 7th April in the
Calcutta market they closed at Rs. 58, a drop of Rs. 14 in a
day. These sudden rises and falls in the market during the
course of these two days are sufficient indication of the
fact that the drop was due to the decision of the Stock
Exchange to close the Exchange for two days. There is no
evidence that any other factor was then disturbing the
market rate of these shares. The share market report of the
defendants themselves issued on 10th April, 1937, amply
bears out this fact. In this report it was stated as
follows :-
” The outstanding feature of the Indian markets during the
week under review was the sudden landslide in Indian Iron
and Steel shares, which proved infectious to the other
sections of the market. The week opened with a cheerful
bullish sentiment and Indian Iron and Steels touched Rs. 80.
At this dizzy height, the markets lost their equilibrium and
frenzied selling resulted in a sensational decline of about
25 points. The heavy liquidation was due to a predominance
of weak holders-that had come into the market at a late
stage. Further, selling was accentuated by the decision of
Calcutta Stock Exchange to close the Calcutta market on the
8th and 9th April to enable brokers to make deliveries and
effect settlements for transactions in Indian Iron and Steel
shares. Heavy volume of business has been outstanding
between brokers on account of the delay in getting
certificates. Prospect of immediate delivery of share
certificates scared off weak holders and prices declined on
heavy liquidation.”
803
It is clear therefore that the decision of the calcutta
Stock Exchange to close the Calcutta market on 8th and 9th
affected the market prices considerably. The Calcutta
market on the 7th dropped from 72 to 58 as already stated.
The decision of the Calcutta Stock Exchange was published in
the Hindu of Madras on the evening of the 7th. From the
statement of account, Exhibit P-41, filed by Trojan & Co. on
7th, about half a dozen transactions in these shares took
place through them. Most of the transactions, it appears,
were by small holders of 100 scrips or so, who unloaded
their shares between 71 to 60 per share. On the 8th three
transactions took place at Rs. 62. No transaction took place
between 8th and 14th. There were two transactions on the
14th at Rs. 56, and there was a transaction on the 16th at
Rs. 57-8-0. On the 20th Trojan and Co. sold 2,000 of the
plaintiff’s shares at rates varying between Rs. 44-12-0 and
Rs. 47-4-0.
According to the statement of account of another broker,
Ramlal & Co., there were about 16 transactions in these
shares on the 7th. Most of them were sold in lots of 100 or
200 and the sale price of these shares ranged from Rs. 74 to
64. On the 8th there were a few transactions, the rates
varying between Rs. 57 to Rs 66. There was a transaction on
the 9th at Rs. 60. There were two or three transactions on
the 10th also near about this rate. No transaction after
the 10th made by this company has been exhibited on the
record. Exhibit P-23 is another weekly share market report
of Trojan & Co. issued on 17th April, 1937. It states as
follows :-
“In the first place, Indian Irons are very cheap around
Rs. 46. The company is doing extremely well and the stage
is set for a steady rise to Rs. 70……………
Indian Iron and Steels fluctuated between Rs. 55 to Rs. 60
and closed at Rs. 47. The recent hectic speculation has
brought its own nemesis.”
This report proves that there was really no market as it
appears from the evidence on the record in
104
804
Madras between the 8th and 17th which was a Saturday, and on
the 17th the prices seemed to be settling down at Rs. 46.
On the 19th the plainti gave to the, defendants an order to
sell his 3,000 shares and it was said “Please retain this
order till-executed”. The defendants were only able to
dispose of 2,000 of these shares on the 20th at prices
varying between Rs. 44-12-0 to Rs. 47-4-0. The remaining
1,000 shares the plaintiff was able to sell through Ramlal
and Co. at Rs. 42-8-0 on 22nd April, 1937. It is quite
possible and probable that had the plaintiff placed an order
before the 19th, say on the 16th or 17th, with the
defendants or with Ramlal & Co., he might have been able to
sell these 1,000 shares also at about the same price as he
was able to dispose of his 2,000 shares. No member of the
defendants-firm gave evidence in the case. Plaintiff went
into the witness box and stated that had he known what the
defendants knew, he would not have purchased the shares.
The information was withheld from him that these shares were
likely to godown. He said that he was told by the
defendants to sell the shares but no purchasers were
available and in spite of his keenness to liquidate them he
was not able to do so before the 20th and 22nd, that he
approached Trojan & Co., the defendants-firm for selling
them, but they were not able to sell more than 2,000
shares.’ Considering the whole of this material, we are
satisfied that the market rate prevailing on the 5th, 6th
and 7th had been affected by reason of the decision of the
Calcutta Stock Exchange to keep the market closed on the 8th
and 9th and the market did not settle down till about the
17th or 18th and the prices then ruling can in the
circumstances of this case be said to be their true market
price. In our judgment, Rs. 46 per share was the real price
of these shares when they were put in the plaintiff’s pocket
and he got Rs. 46 for each share in lieu of what he paid for
either at Rs. 77 or at Rs. 77-4-0. He is entitled to
commission also which he would have to pay on the sale of
these shares. The difference between these
805
two rates is the damage that he has suffered and he is
entitled to it. For the reasons given above we modify the
order passed by Clark J., and by the appellate Bench of the
High Court to the extent indicated above and we estimate the
plaintiff’s damage at Rs. 93,000 on account of the 3,000
shares at the rate of Rs. 31 per share.
The second question canvassed before the High Court and
also before us was in respect of the Associated Cement
shares. As above stated, the plaintiff’s account was
credited in the sum of Rs. 6,762-8-0 on account of the
purchase of these shares. Plaintiff had pleaded that the
transaction was not authorised by him and that it had been
made in contravention of his instructions. He had claimed
compensation on the ground of breach of instructions he did
not in the alternative claim on the ground of failure of
consideration the amount credited by the defendants in the
promissory note account and which credit disappeared by
reason of the failure of the suit on the promissory note.
At the hearing of the case before Bell J. the contention
that the purchase was unauthorized was abandoned by counsel
and the same position was adopted before Clark J. During
cross-examination of the plaintiff it was elicited that he
either instructed the defendants to purchase the shares or
at any rate ratified the purchase which the defendants had
made on his behalf. It was argued before the appellate
Bench of the High Court that having pleaded one thing and
having led evidence in support of that thing but later on
having been forced to admit in the witness box that the true
state of things was different the plaintiff had disentitled
himself to relief as regards these shares and he could not
be granted the relief that he had not asked for. The High
Court negatived this contention on the ground that though a
claim for damages in respect of a particular transaction may
fail, that circumstance was no bar to the making of a
direction that the defendants should pay the plaintiff the
money actually due in respect of that particular
transaction. It also held
806
that the plaintiff’s claim in respect of this item of
Rs.6,762-8-O was with in limitation. We are unable to
uphold. the view taken by the High Court on this point. It
is well settled that the decision of a case cannot be based
on grounds outside the pleadings of the parties and it is
the case pleaded that has to be found. Without an amendment
of the plaint the court was not entitled to grant the relief
not asked for and no prayer was ever made to amend the
plaint so as to incorporate in it an alternative case. The
allegations on which the plaintiff claimed relief in respect
of these shares are clear and emphatic. There was no
suggestion made in the plaint or even when its amendment was
sought at one stage that the plaintiff in the alternative
was entitled to this amount on the ground of failure of
consideration. That being so, we see no valid grounds for
entertaining the plaintiff’s claim as based on failure of
consideration on the case pleaded by him. In disagreement
with the courts below we hold that the plaintiff was wrongly
granted a decree for the sum of Rs. 6,762-8-0 in respect of
the Associated Cement shares in this suit. Accounts settled
could only be reopened on proper allegations.
The next point canvassed in the courts below was in respect
of the claim of the plaintiff regarding interest on the
amount found due to the plaintiff from 5th April, 1937, to
the date of the suit. It was contended that no interest
could be allowed on damages because to do so would amount to
awarding damages on damages which is opposed to precedent
and principle. Clark J., however, awarded interest by
placing reliance on certain English decisions which
enunciate the rule that an agent who receives or deals with
the money of his principal improperly and in breach of his
duty or who refused to pay it over on demand is liable to
pay interest from the time when he so receives or deals with
the same or from the time of the demand. We think it is
well settled that interest is allowed by a court of eqity in
the case of money obtained or retained by fraud. As
807
stated in article 423 of Volume 1 of Halsbury, the agent
must also pay interest in all cases of fraud and on all
bribes and secret profits received by him during his agency.
Their Lordships of the Privy Council in johnson v. Rex(1)
observed as follows: —
“In order to guard against any possible misapprehension
of their Lordships’ views they desire to say that in their
opinion there can be no doubt whatever’ that money obtained
by fraud and retained by fraud can be recovered with
interest, whether the proceedings be taken in a court of
equity, or a court of law, or in a court, which has
jurisdiction both equitable and legal.”
The appeal court affirmed the view of Clark J. on this
point. The learned counsel for the appellant contended that
the decisions relied upon concerned cases where the agent
had retained some money of his principal in his hands but
that in the present case the claim was merely for damages.
This contention is fallacious. By reason of the transaction
brought about by fraudulent concealment plaintiff paid to
the defendants a sum of Rs. 60,000 in cash which he would
not have parted with otherwise and he also lost the money
which stood at his credit with the defendants. It is thus
clear that the agents had a large sum of the plaintiff with
them which they would not have acquired but by reason of the
fraud that they practised on him. In this view of the case
we see no force in the contention of the learned counsel and
we repel it.
The only other point that was argued before us was in
respect of future interest. It was not denied that
plaintiff was entitled to future interest as allowed to him
at the rate of 6% on the amount found due. it was however
argued that the plaintiff should not have been allowed
interest for the period of one year and six months during
which the decree stood satisfied. The facts are that on 9th
March, 1943, a decree for Rs. 51,805-1-0 carrying interest
at six per cent. was
(1) [1904] A.C. 817.
808
passed in favour of the plaintiff. On the 11th May, 1943,
an amount of Rs. 71,000 due under this decree was paid by
the defendants to the Official Assignee. This amount was
returned by the Official Assignee to the defendants on 12th
September, 1944, after that decree had been set aside.
Meanwhile the plaintiff’s adjudication had been annulled and
he had been brought on the record on 16th March, 1944. It
was contended that during the period when the money remained
with the Official Assignee who was the plaintiff no future
interest was payable as the decree stood satisfied during
that period. The High Court rejected this contention on the
ground that when this money was paid into court, it was
coupled with a prayer that it should not be paid out to the
creditors of the insolvent’s estate pending disposal of the
appeal, and therefore as the money was not distributable
amongst the insolvent’s creditors, interest for this period
had been rightly allowed. In our opinion, this view -cannot
be sustained. So far as the defendants judgment-debtors are
concerned they had done their part and paid the money to the
decree-holder and had thus satisfied the decree. It was
open to the Official Assignee, the decree-holder, not to
take the money on the condition on which it was given to him
and if he had not taken the money from the defendants he
could then justly have claimed future interest on this
amount, but having taken the money and kept it, it could not
be said that during this period anything was due to the
plaintiff from the defendants. The defendants certainly had
paid the decretal amount and whether the plaintiff or his
predecessor in interest was able to use it or not was a
circumstance wholly immaterial in considering whether future
interest should or should not be allowed. In our judgment,
the plaintiff was not entitled to future interest at the
rate allowed for one year and six months period, beginning
from 9th March, 1943, and ending with 12th September, 1944.
The appeal is therefore allowed to the extent indicated
above. The decree of the High Court will be
809
modified and plaintiff will be entitled to damages in the
sum of Rs. 93,000 on the 3,000 Indian Iron shares. The
decree given to the plaintiff in respect of’ Rs. 6,762-8-0
is set aside over and above the’ decree for Rs. 9,100 in his
favour set aside by the High Court. In the calculation of
future interest the plaintiff will not be allowed interest
from 9th March, 1943, to 12th September, 1944. In the
result the decree given to the plaintiff in the sum of Rs.
61,787 is reduced to Rs. 42,175. He will get interest at
six per cent. per annum from 5th April, 1937, until payment
or realization except for a period of one year and six
months. Plaintiff will get proportionate costs throughout.
Appeal allowed in part.
Agent for the appellant: Ganpat Rai.
Agent for the respondent: M. S. K. Sastri.