PETITIONER: THE NEW MARINE COAL CO. (BENGAL) PRIVATE LTD. Vs. RESPONDENT: UNION OF INDIA DATE OF JUDGMENT: 05/04/1963 BENCH: GAJENDRAGADKAR, P.B. BENCH: GAJENDRAGADKAR, P.B. WANCHOO, K.N. GUPTA, K.C. DAS CITATION: 1964 AIR 152 1964 SCR (2) 859 CITATOR INFO : R 1964 SC1714 (10) R 1966 SC 580 (9) R 1980 SC1285 (18) RF 1980 SC1330 (5) F 1987 SC1603 (43) ACT: Goods delivered under illegal contract-Party receiving the same and enjoying the benefit-Bound to pay compensation- Estoppel by negligence-Should be pleaded-Elements of Estoppel by negligence-There must be a legal duty-Negligence must be the proximate course-Government of India Act, 1935, (25 & 26, Geo. 5, ch. 42) s. 175 (3)-Indian Contract Act, 1872 (IX of 1872), s. 70-Indian Evidence Act, 1872 (1 of 1872), s. 115. HEADNOTE: The appellant filed a suit on the Original Side of the Calcutta High Court against the respondent for the recovery of a certain amount representing the price of coal supplied to the respondent. The appellant's case was that if the contract under which the coal was supplied was illegal by, reason of it being in contravention of s. 175 (3) of the Government of India Act, 1935, the respondent was liable to pay compensation under s. 70 of the Indian Contract Act, since the Coal was not supplied gratuitously and the respondent had enjoyed the benefit thereof. The respondent's case was that the contract was illegal and s. 70 of the Indian Contract Act was not attracted. It was further alleged that the respondent had issued and sent bills to cover the amount and intimation cards in accordance with the usual practice and ordinary course of dealings. The respondent, it was allowed paid the amount by a cheque to a person authorised by the appellant and on presentation of proper receipts. It was therefore alternatively pleaded that the appellant's claim having been satisfied, he had no cause of action. It was established in the course of the trial that the appellant had not in fact authorised any person to issue the receipts but a certain person not connected with the appellant 860 firm, without the consent or knowledge of the appellant got hold of the intimation cards and bills addressed to the appellant forged the documents and fraudulently received the cheque from the respondent and appropriated the amount for himself. The respondent had not pleaded in its written statement that it was due to the negligence of the appellant that the third person was able to get hold of the intimation card and perpetrate the fraud. Neither was it proved in the case that the appellant was in fact negligent. The Trial Judge found that the respondent was bound to pay compensation under s. 70 of the Indian Contract Act and rejected the alleged payment of the bills and in the result decreed the amount prayed for by the appellant. The respondent thereupon appealed to a Division Bench. Both the judges agreed that the appeal should be allowed. Regarding the invalidity of the agreement and the inapplicability of s. 70 of the Contract Act both the Judges agreed in favour of the present respondent. But while one of the Judges was not prepared to consider the plea of negligence which was raised by the present respondent for the first time in the appeal the other judge held that there was negligence on the part of the present appellant. The present appeal was filed on a certificate granted by the High Court. In this Court, apart from the questions of the invalidity of the contract under s. 175 (3) of the Government of India Act and the applicability of s: 70 of the Contract Act, it was argued on behalf of the appellant that a plea of negligence should have been raised by the respondent in its pleadings and that the appellate court was in error in allowing such a plea to be raised for the first time in appeal. It Was contended further that in support of the plea of negligence it must be shown that the party against whom the plea is raised owed a duty to the party who raises the plea and that the negligence must not be merely or indirectly connected with the misleading effect but must be the proximate cause of the result. Held that the contract is illegal and void. If in pursuance of the void contract, the appellant has performed his part and the respondent has received the benefit of the performance of the contract by the appellant, s. 70 of the Contract Act would justify the claim made by the appellant against the respondent. State of West Bengal v, B. K . Mondal, [1962] Supp 1, S. C. R. 876, referred to. 861 Since a plea of negligence was not raised by the respondent in the trial court the appellant is entitled to contend that it had no opportunity to meet this plea and dealing with it in appeal has, therefore, been unfair to it. Before invoking a plea of estoppel on the ground of negligence, some duty must be shown to exist between the parties and negligence must be proved in relation to such duty. The Arnold v, The Cheque Bank, (1876) 1 C.P.D. 578, referred to. The negligence alleged must be proved to be the proximate or the immediate cause of the loss. Bexendale v. Bennett, (1878) 3 Q. B. D. 525, referred to. The broad proposition "that whenever one of two innocent persons must suffer by the acts of a third, he who enables such third person to occasion the loss, must sustain it" laid down by Ashhurst, J., in Lickbarrow v. Mason, 2 T. R. 63, on which one of the,Judges of the Division Bench has based his decision cannot be sustained as valid in law. Commonwealth Trust Ltd. v. Akotey, [1926] A. C. 72, Mercantile Bank of India Ltd. v. Central Bank of India Ltd. (1937) L. R. 65 I. A. 75, R. E. Jones Ltd. v. Waring & Gillow Ltd., [1926] A. C. 670 and Farquharson Bros. & Co. v. King & Co., [1902] A. C. 325, referred to. The appellant cannot be charged with negligence. which, in turn, can be held to be the proximate cause of the loss caused to the respondent. The appellant is entitled to be compensated under s. 70 of the Contract Act. JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 421 of 1961.
Appeal from the judgment and decree dated December 24, 1959
of the Calcutta High Court in Appeal from Original Decree
No. 181 of 1956.
M. C. Setalvad, S. C. Ghose, J. B. Dadachanji, O.C. Mathur
and Ravinder Narain, for the appellant.
862
Bishan Narain and P. D, Xenon, for the respondent.
1963. April 5. The judgment of the Court was delivered by
GAJENDRAGADKAR J.–This appeal arises out of a suit filed by
the appellant, the New Marine Coal (Bengal) Private Ltd.
against the respondent, the Union of India, on the original
side of the Calcutta High Court to recover Rs. 20,343/8/-.
The appellant’s case was that it had supplied coal to the
Bengal Nagpur Railway Administration in the month of.June,
1949, and the amount claimed by it represented the price of
the said coal and salestax thereon. The appellant also made
an alternative case, because it was apprehended that the
respondent may urge that the contract sued on was illegal
and invalid since it did not comply with s.175 (3) of the
Government of India Act, 1935. Under this alternative
claim, the appellant alleged that the coal had been supplied
by the appellant not intending so to do gratuitously, and
the respondent had enjoyed the benefit thereof, and so, the
respondent was bound to make compensation to the appellant
in the form of the value of the said Coal under s. 70 of the
Indian Contract Act. The appellant’s case was that since
the said amount had to be paid to it at its Esplanade office
in Calcutta, the original side of the Calcutta High Court
had jurisdiction to entertain the said suit. Since a part
of the cause of action had accrued outside the limits of the
original jurisdiction of the Calcutta High Court, the
appellant obtained leave to see under cl. 12 of the Letters
Patent.
In its written statement, the respondent admitted the
delivery of the coal to the Bengal Nagpur Railway
Administration and did not dispute the appellant’s case that
it had forwarded to the
863
respondent bills in regard to the amount alleged to be
payable to the appellant for the said supply. The
respondent, however, pleaded that the contract on which the
suit was based was illegal inasmuch as it had been entered
into in contravention of the provisions of s. 175 (3) of’
the Government of India Act, 1935; and it was urged that s.
70 of the Indian Contract Act had no application. Besides,
the respondent alleged that following the usual practice and
course of dealings between the parties, an intimation card
was issued and sent to the appellant by the respondent
requesting the appellant to obtain payment on presentation
of a proper receipt and authority against its bills in
question. Thereafter, the respondent, on receipt of the
said intimation card and a proper receipt executed on behalf
of the appellant, paid the amount covered by the said bills
by an ‘account payee’ cheque on the Reserve Bank of India
drawn in favour of the appellant which was delivered to the
person purporting to have authority to receive payment on
behalf of the appellant. The respondent thus alternatively
pleaded satisfaction of the claim, and so, urged that the
appellant had no cause of action for the suit.
On these pleadings, seven substantive issues were framed by
the learned trial judge. Issues I & 2 which were framed in
respect of the jurisdiction of the Court were not pressed by
the respondent, and so, no findings were recorded on them.
On issue No. 3 the learned trial judge found that the
contract on which the appellant based his claim was invalid
and unenforceable. Issue No. 4 in regard to the alleged
payment of the bills was found against the respondent. On
issue No. 5, the trial Court held that the respondent was
bound to pay -to the appellant the amount claimed by way of
compensation. Issue No. 6 which was raised by the respon-
dent under s. 80 of the Code of Civil Procedure was not
pressed, and therefore, no finding was recorded
864
on it, Issue No. 7 which was framed on the appellant’s
allegation that its claim had been admitted by the
respondent was answered against the appellant. In the
result, the main finding on issue No. 5 decided the fate of
the suit and since the said finding was in favour of the
appellant, a decree was passed directing the respondent to
pay to the appellant Rs. 20,030/81-. This amount, according
to the decree, had to carry interest at the rate of 6
Percent per annum.
This decree was challenged by the respondent by an appeal
before a Division Bench of the said High Court. The appeal
was heard by P. B. Mukarji and Bose JJ. Both the learned
judges agreed that the respondent’s appeal should be allowed
and the appellant’s claim dismissed with costs, but their
decision was based on different grounds. Bose J. held that
the contract sued on was invalid and that the claim made by
the appellant for compensation under s. 70 of the Indian
Contract Act was not sustainable. He also found that the
appellant’s contention that the said contract which was
initially invalid had been duly ratified, had not been
proved. it is on these grounds that Bose J. came to the
conclusion that the appellant’s claim could not be granted.
Incidentally, it may be added that Bose J., was not prepared
to consider the plea of negligence which was raised by the
respondent for the first time in appeal.
Mukarji, J., who delivered the principal judgment of the
Appeal Court agreed with Bose J. in holding that the
contract was invalid and s. 70 was inapplicable. He,
however, took the view that the said contract had been duly
ratified and so, he proceeded to examine the question as to
whether the appellant’s claim was justified on the merits.
On this part of the case, the learned judge took the view
that even if both the appellant and the respondent. dent
were held to be innocent, since the respondent
Appeal dismissed.
865
had actually parted with the money, the appellant was not
entitled to require the respondent to pay over the said
money again, because he thought that as held by Ashhurst J.
in Lickbarrow v. Mason (1), it was a well recognised
principle of law “that whenever one of two innocent per-sons
must suffer by the acts of a third, he who enables such
third person to occasion the loss must sustain it.” In the
opinion of the learned judge, the intimation card had been
duly sent by post by the respondent to the appellant and the
fact that the said intimation card went into unauthorised
hands of dishonest persons who used it fraudulently for the
purpose of obtaining a cheque for the amount in question
from the respondent, showed that the appellant had by his
negligence enabled the said fraudulent persons to secure the
cheque, and so, it was not open to the appellant to claim
the amount from the respondent. It is on these grounds that
Mukharji, J., allowed the appeal and dismissed the
appellant’s suit with costs. It is against this judgment
and -degree that the appellant has come to this Court with a
certificate granted by the said High Court.
In the courts below, elaborate arguments were urged by the
a ties on the question as to whether the contract, the
subject-matter of the Suit, was invalid and if yes, whether
a claim for compensation made by the appellant could be
sustained under s. 70 of the Indian Contract Act. Both
these questions are concluded by a recent decision of this
Court in the State of We,-RI Bengal v. MIS. B. K. Mondal &
Sons (2). As a result of this decision, there can be no
doubt that the contract on which the suit is based is void
and unenforceable, and this part of the decision is against
the appellant. It is also clear under this decision that if
in pursuance of the said void contract, the appellant has
performed his part and the respondent has received the
benefit of the performance of the contract by the appellant,
(1) 2 T. R. 63, 70.
(2) [1962] Supp. 1 S.C.R. 876.
866
section 70 would justify the claim made by the appellant
against the respondent. This part of the decision is in
favour of the appellant. It is therefore unnecessary to
deal with this aspect of the matter at length.
Assuming then that the appellant is entitled to claim the
amount from the respondent, two questions still remain to be
considered. The first question is whether the intimation
card on the production of which the respondent always
proceeded to’ issue a cheque against the bills received by
it from the appellant, was received by the appellant or not,
and if this question is answered in the affirmative, the
other question which will call for our decision is whether
by virtue of the fact that after the intimation card had
been duly posted by the respondent to the appellant it fell
into dishonest hands and was fraudulently used by some
persons, that would create an impediment -in the way of the
appellant’s claim on the ground that the appellant was
negligent and his negligence creates estoppel. Before
addressing ourselves to these questions, it would be
necessary to set out the material facts as to the dispatch
of the intimation card and the fraudulent use which was made
of it by persons in whose hands the said card appears to
have fallen. It appears that according to the ordinary
course of business, on receiving the bills from the
appellant, the respondent used to send an intimation card to
the appellant and the said card had to be sent back by the
appellant with a person having the authority of the
appellant to receive the payment and when it was so produced
before the respondent, a cheque used to be issued. In the
present case, it is common ground that a bill was sent by
the appellant to the respondent making a total claim of Rs.
20,343/8/- on August 18, 1949. Thereafter, on October 10,
1949, the respondent sent the intimation card to the
appellant addressed at its place of business 135, Canning
Street, Calcutta. This card intimated to the appellant
867
that its claim for the amount specified in its bill would be
paid on presentation of a proper receipt and authority
between 11 A.M. to 3 P.M. on ordinary days and between 11
A.M. to 1 P. M. on Saturdays. Along with the card, a form
of the receipt was sent and the appellant was asked to sign
it. This intimation card was duly posted. Later, one Mr.
B. L, Aggarwal produced the intimation card before the
respondent. In doing so he produced an endrosement which
purported to show that the appellant had authorised him to
receive the payment on its behalf. When the intimation card
with the appropriate authority was shown to the respondent,
Mr. Aggarwal was asked to pass a receipt and when the
receipt was passed in the usual form, an ‘account payee’
cheque for the amount in question was given to him. Mr.
Aggarwal took the cheque and left the respondent’s office.
Meanwhile, it appears that some persons had entered into a
conspiracy to make fraudulent use of the intimation card
which had gone into their custody. In order to carry out
this conspiracy, they purported to form a limited company
bearing the same name as that of the appellant. A
resolution purported to have been passed by the Directors
of this fictitious company on October 17, 1949 authorised
the opening of an account in favour of the Company in the
United Commercial Bank Ltd., Calcutta. This resolution
purported to be signed by the Chairman of the Board of
Directors Mr. Abinash Chander Chatterji. Armed with this
resolution an, application was made to open an account in
the United Commercial Bank Ltd., and while doing so, the
Articles of Association purporting to be the Articles of the
said fictitious Company were produced and the account was
opened with a cheque of Rs. 500/- on October 27, 1949. On
October 26, 1919, the cheque received from the
868
respondent was credited in the said account, and as was to
be expected, withdrawals from this account, began in quick
succession, with the result that by November 1, 1949, only
Rs. 68/- were left in this account. That, in brief, is the
story of the fraud which has been committed in respect of
the cheque issued by the respondent to the appellant for the
bill dated August 18, 1949.
In the Courts below, the appellant denied that it had
received the intimation card from the respondent,and it was
alleged on its behalf that in delivering the cheque to the
person who presented the said card with the authority
purporting to have been issued by the appellant, it cannot
be said that the respondent bad given the cheque to any
person authorised by the appellant, and so, the appellant
was justified in saying that it had not received the payment
for its bill. In support of its case, the appellant
examined its Director., Mr. Parikh and its officer, Mr.
Bhat. The respondent led no oral evidence; it, however,
relied on the fact that the intimation card bore the postal
mark which showed that it had been posted and it was urged
that the said postal mark raised a presumption that the card
which had been duly posted in the Post office must have, in
ordinary course, reached the addressee. The trial Court
noticed the fact that the intimiation card did not bear a
corresponding delivery mark as it should have, and it took
the view that the onus was on the respondent to show that
the said card had in fact been delivered to the appellant.
It then considered the oral evidence adduced by the appe-
llant and having regard to the fact that. no evidence had
been led by the respondent, it came to the conclusion that
the respondent had failed in showing that the intimation
card had been duly delivered to the appellant.
Substantially ‘ it is on the basis of this finding that the
decree was passed by the trial Court in favour of the
appellant.
869
In appeal, Mukarji, J. took the view, and we think.,
rightly, that the posting of the card having been duly
proved, a presumption arose that it must have been delivered
to the addressee in ordinary course. He also considered the
oral evidence given by Mr. Parikh and Mr. Bhat and was not
satisfied that it was trustworthy. In particular, the
learned judge was inclined to take the view that Mr.
Parikh’s statement that his office did not employ any
dispatch clerk and did not keep any Chiti note-book like the
Inward and Outward Register was unbelievably. In the
result, he made a finding that the appellant was negligent
in receiving, arranging, recording and dealing with letters
addressed to it.
The position of the evidence in respect of this point is no
doubt unsatisfactory. It appears that Mr. Parikh who is the
Director of the appellant Company since 1948 is also the
Director of K. Wara Ltd. which manages eight collieries like
that of the appellant. K. Wara Ltd., has its office at 135,
Canning Street. The appellant Company also has one office
at the said place. A Post Box in which letters addressed to
the appellant and K. Wara Ltd. could be dropped has been
kept on the ground floor of the building in which the said
offices are situated. The said Post Box is locked and
naturally the key is given to one or the other of the Peons
to open the said Box and take out the letters and deliver
them to Mr. Parikh Mr. Parikh’s evidence shows that his
denial that be had received any intimation card could not be
accepted at its face value for two reasons; the first was
that even if the intimation card had been received by the
Peon and had not been delivered by him to Mr. Parikh, Mr.
Parikh would not know that the card had been received and
though his statement that he did not get the card may be
literally true,, it would not be true in the sense that the
card had not been delivered to the
870
appellant Company. Besides., Mr. Parikh’s statement that he
did not employ any dispatch clerk and kept no inward or
outward register is prima facie unbelievable, and so,
Mukarji J.was inclined to hold that the intimation card may
have been received by the appellant Company.Having made
this finding, Mukarji J. proceeded to examine the true
legal position in regard to the appellant’s claim, and as we
have already observed,he held that since the appellant was
guilty of negligence which facilitated the commission of
the offence by some strangers,it was precluded from making a
claim against the respondent.As we have already seen, Bose,
J. has put his decision on the narrow ground that the
contract was invalid and s. 7o did not help the appellant.
That ground, however, cannot now sustain the final
conclusion of Bose,J., in view of the recent decision of
this Court in the case of M/s. B. K. Mondal & Son’s(1).
Therefore, in dealing with the present appeal,we will assume
that the finding recorded by Mukarji J., is correct and
that the intimation card sent by the respondent to the
appellant can be deemed to have been delivered to the
appellant. The question which arises for our decision then
is:if the intimation card was thereafter taken by somebody
else and fraudulently used,does that create an estoppel
against the appellant in regard to the claim made by it in
the present case ?
In dealing with this point, it is necessary to bear in mind
that though the evidence given by Mr. Parikh may be
unsatisfactory and may.justify the conclusion that despite
his denial, the intimation card may have been delivered to
Mr. Parikh, it is not the respondent’s case that Mr. Parikh
deliberately allowed either one of his employees or somebody
else to make fraudulent use of the said intimation card. In
other words, we must deal with the point of law raised by
the appellant on the basis that Mr. Parikh had no connection
whatever with the
(1) [1962] Supp. 1 S.C.R. 876.
871
fraud committed on the respondent and that whoever obtained
the intimation card from Mr. Parikh’s office and used it for
a fraudulent purpose acted on his own without the knowledge
or consent of Mr. Parikh. The short question which falls to
be considered is if the arrangement for keeping the
intimation card in safe custody was not as good and
effective as it should have been and somebody managed to
pilfer the said card, does it justify the respondent’s case
that the appellant was negligent and by virtue of its
negligence, it is estopped from making the present claim ?
In dealing with this question, it is necessary to remember
that the plea of negligence on which estoppel was pleaded by
the respondent against the appellant had not been alleged in
the written statement. It is remarkable that the pleadings
of both the parties completely ignored the fact known to
both of them before the present suit was filed that a cheque
had been issued by the respondent and had been fraudulently
used by some strangers. The appellant in its plaint does
not refer to the issue of the cheque and its fradulent use
and makes a claim as though the respondent had not honoured
the bill submitted to it by the appellant; whereas the
respondent in its written statement ignores the fact that
the cheque had not been received by the appellant but had
been fraudulently obtained and encashed by some other
persons. That being the nature of the pleadings filed by
the parties in the Trial Court, neither party pleaded any
negligence against the other. It is true that both the
parties argued the point of negligence against each other in
the appellate Court. The appellant urged that the
respondent should not have delivered the cheque to the
person who presented the bill and the intimation card
because a stamped receipt had not been produced by the said
person as it should have been; the appellant’s case was that
it was usual that
872
a stamped receipt had to be produced alongwith the
intimation card by a person duly authorised by the appellant
before the cheque was delivered to him and since without a
stamped receipt the cheque had been delivered, the
respondent was guilty of negligence. This point has been
rejected by Mukarji J., but that is another matter.
On the other hand, the respondent pleaded that the appellant
was negligent inasmuch as the intimation card which had been
sent to it and which must be presumed to have been delivered
to it fell into the hands of strangers owing to the
negligent manner in which it was handled after it was
delivered in the Letter Box of the appellant in 135, Canning
Street, Calcutta. As we have already noticed, Bose, J.,
refused to entertain the plea of negligence urged by both
the parties, whereas Mukarji J., considered it and made a
finding in favour of the respondent and against the
appellant.
Mr. Setalvad contends that a plea of negligence should have
been raised by the respondent in its pleadings and the
appellate Court was, therefore, in error in allowing such a
plea to be raised for the first time in appeal. In our
opinion, there is some force in this contention. Negligence
in popular language and in common sense means failure to
exercise that care and diligence which the circumstances
require. Naturally what amounts to negligence would always
depend upon the circumstances and facts in any particular
case. The nature of the contract, the circumstances in
which the performance of the contract by one party or the
other was expected, the degree of diligence, care and
attention which, in ordinary course, was expected to be
shown by the parties to the contract, the circumstances
under which and the reason for which failure to show due
diligence occurred are all facts which would be relevant
before a judicial finding can be made on the plea
873
of negligence. Since a plea of negligence was not raised by
the respondent in the trial Court, the appellant is entitled
to contend that it had no opportunity to meet this plea and
dealing with it in appeal has, therefore, been unfair to it.
Apart. from this aspect of the matter, there is another
serious objection which has been taken by Mr. Setalvad
against the view which prevailed with Mukarji, J. He argues
that when a plea of estoppel on the ground of negligence is
raised, negligence to which reference is made in support of
such a plea is not the negligence as is understood in
popular language or in common sense ; it has a technical
denotation. In support of a plea of estoppel on the ground
of negligence, it must be shown that the party against whom
the plea is raised owed a duty to the party who raises the
plea. just as estoppel can be pleaded on the ground of
misrepresentation or act or omission, so can estoppel be
pleaded on the ground of negligence ; but before such a plea
can succeed, negligence must be established in this
technical sense . As Halsbury has observed : “before anyone
can be estopped by a representation inferred from negligent
conduct, there must be a duty to use due care towards the
party misled, or towards the general public of which he is
one (1).” There is another requirement which has to be
proved before a plea of estoppel on the ground of negligence
can be upheld and that requirement is that “the negligence
on which it is based should not be indirectly or remotely
connected with the misleading effect assigned to it but must
be the proximate or real cause of that result (2).”
Negligence, according to Halsbury, which can sustain a plea
of estoppel must be in the transaction itself and it should
be so connected with the result to which it led that it is
impossible to treat the two separately. This aspect of the
matter has not been duly examined by Mukarji J. when he made
his finding against the appellant.
(1) Halsbury’s Laws of England Vol. 15, page 243. par& 451.
(2) Halsbury’s Laws of England Vol. 15 page 245 para 453,
874
Mukarji, J. thought that the principle laid down by
Ashhurst, J. in the case of Lackbarrow (1), was a broad and
general principle which applied to the facts in the present
case. It may be conceded that as it was expressed by
Ashhurst, J., in the case of Lickbarrow, the proposition no
doubt has been stated in a broad and general manner.
Indeed, the same proposition has been affirmed in the same
broad and general way by the Privy Council in Commonwealth
Trust Ltd. v. Akotey (2). In that case, the respondent who
was a grower of cocoa in the Gold Coast Colony, consigned by
railway 1050 bags of cocoa to L., to whom he had previously
sold cocoa. Before a difference as to the price had been
settled L. sold the cocoa to the appellants and handed the
consignment notes to their agent, who reconsigned the cocoa
to the appellants. The appellants bought in good faith and
for the full price. The respondent then sued the appellants
for damages for conversion. It was held by the Privy
Council that by his conduct the respondent was precluded
from setting up his title against the appellants, and so his
claim was rejected. In support of the view taken by the
Privy Council, reliance was placed on the well-known
statement of Ashhurst, J., in the case of Lickbarrow) 1),
and so, it may be conceded that the broad principle
enunciated by Ashhurst,J., received approval from the Privy
Council.
Subsequently, however, this question has been elaborately
examined by the Privy Council in Mercantile Bank of India
Ltd. v. Central Bank of India Ltd., (1), and the validity of
the broad and general proposition to which we have just
referred has been seriously doubted by the Privy Council.
Lord Wright who delivered the judgment of the Board,
referred to the decision in the case of Lickbarrow (1), and
observed “‘that it may well be that there were facts in that
case not fully elucidated in the report which would justify
the decision; but on the
(1) 2 T.R. 63, 70. (2) [1926] A.C. 72.
(3) (1937) L.R. 65 I.A. 75, 86,
875
face of it their Lordships do not think that the case is one
which it would be safe to follow.” Then reference was made
to the opinion of Lord Sumner in the case of R . E. Jones
Ltd. v. Waring & Gillow Ltd., (1) where the principle
enunciated by Ashhurst J. was not accepted, because it was
held that the principle of estoppel must ultimately depend
upon a duty. Lord Lindley similarly in Farquharson Bros. &
Co. v. King & Co. (2), pointed out that the dictum of
Ashhurst J. was too wide. A similar comment has been made
as to the said observation by other judges to which Lord
Wright has referred in the course of his judgment. It would
thus be seen that in the case of The Mercantile Bank of
India Ltd. (3 ) the Privy Council has seriously doubted the
correctness of the broad observations made by Ashhurst J, in
the case of Lickbarrow (4), and has not followed the
decision in the care of Commonwealth Trust Ltd. (5).
Therefore, it must be held that the decision of Mukarji J,
which proceeded on the basis of the broad and unqualified
proposition enunciated by Ashhurst, J., in the case of
Lickbarrow cannot be sustained as valid in law.
There arc two other decisions to which reference may
usefully be made in considering this point. In Arnold v.
The Cheque Bank, (6), Lord Coleridge, C.J., in dealing with
the question of negligence, observed that “no authority
whatever had been cited before them for the contention that
negligence in the custody of the draft will disentitle the
owner of it to recover it or its proceeds from a person who
has wrongfully obtained possession of it. In the case
before them, there was nothing in the draft or the
endorsement with which the plaintiff had anything to do,
calculated in any way to mislead the defendants. It was
regularly endorsed and was then enclosed in a letter to the
plaintiffs correspondents, to be sent through the post.
There could be no negligence in relying on the honesty of
their
(1) (1926) A.C. 670.
(2) [1902] A.C. 325.
(3) (1937) L.R, 65 I.A. 75, 86.
(4) 2 T. If. 63, 70.
(5) [1926] A.C. 72.
(6) (1876) C P.D. 578, 588,
876
servants in the discharge of their ordinary duty, that of
conveying letters to the post; nor can there be any duty to
the general public to exercise the same care in transmission
of the draft as if any or every servant employed were a
notorious thief.” These observations illustrate how before
invoking a plea of estoppel on the ground of negligence,
some duty must be shown to exist between the parties and
negligence must be proved in relation to such duty.
Similarly, in Baxendale v. Bennett, (1) Bramwell, L.J., had
occasion to consider the same point. In that case, the
defendant gave H. his blank acceptance on a stamped paper
and authorised H. to fill in his name as drawer. H.
returned the blank acceptance to the defendant in the same
state in which he received it. The defendant put it into a
drawer of his writing table at his chambers, which was
unlocked, and it was lost or stolen. C. afterwards filled
in his own name without the defendant’s authority, and an
action was brought on it by the plaintiff as endorsee for
value. The court of Appeal held that the defendant was not
liable on the bill. Dealing with the question of negligence
attributed to the defendant, Bramwell L.J. observed that
“the defendant may have been negligent, that is to say, if
he had the paper from a third person, as a bailee bound to
keep it with ordinary care, he would not have kept it in a
drawer unlocked.” But, said the learned judge, this
negligence is not the proximate or effective cause of the
fraud. A crime was necessary for its completion, and so, it
was held that the defendant was not liable on the bill.
This decision shows that negligence must be based on a duty
owed by one party to the other and must, besides, be shown
to have been the proximate or the immediate cause of the
loss.
It is in the light of this legal position that the question
about estoppel raised by the respondent
(1)) (1878) 3 Q,. B. D. 525, 530.
877
against the appellant in the Appellate Court may be
considered. Can it be said that when the appellant received
the intimation card, it owed a duty to the respondent to
keep the said card in a locked drawer maintaining the key
all the time with its Director? It would not be easy to
answer this question in the affirmative; but assuming that
the appellant had a kind of duty towards the respondent
having regard to the fact that the intimation card was an
important document the presentation of which with an
endorsement as to authorisation duly made would induce the
respondent to issue a cheque to the person presenting it,
can the Court say that in trusting its employees to bring
letters from the letter box to the Director, the appellant
had been negligent ? As we have already observed, in dealing
with the present dispute on the basis that the intimation
card bad been dropped in the letter box of the appellant, it
is possible to hold either that the said card was collected
by the Peon and given over to Mr. Parikh, or it was not. In
the former case, after Mr. Parikh got the said card, it had
been removed from Mr. Parikh’s table by someone, either by
one of the employees of Mr. Parikh or some stranger. In the
latter case, though, technically, the card had been
delivered in the latter box of the appellant, it had not
reached Mr. Parikh. In the absence of any collusion between
Mr. Parikh and the person who made fraudulent use of the
intimation card, can the respondent be heard to say that Mr.
Parikh did not show that degree of diligence in receiving
the card or in keeping it in safe custody after it was
received as he should have ? In our opinion, it would be
difficult to answer this question in favour of the
respondent. In ordinary course of business, every office
that receives large correspondence keeps a letter box
outside the premises of the office. The box is locked and
the key is invariably given to the Peon to collect the
letters after they are delivered by Postal Peons. This
course
878
of business proceeds on the assumption which must inevitably
be made by all businessmen that the servants entrusted with
the task of collecting the letters would act honestly.
Similarly, in ordinary course of business, it would be
assumed by a businessman that after letters are placed on
the table or in a file which is kept at some other place,
they would not be pilferred by any of his employees. Under
these circumstances, if the intimation card in question was
taken away by some fraudulent person, it would be difficult
to hold that the appellant can be charged with negligence
which, in turn, can be held to be the proximate cause of the
loss caused to the respondent. In our opinion, therefore,
Mukarji.J. was in error in holding that the respondent could
successfully plead estoppel by negligence against the
appellant. As we have already observed, the question as to
whether the claim made by the appellant against the
respondent under S. 70 is concluded by the decision of this
Court in the case of M/s. B. K. Mondal & Sons (1), in
favour of the appellant, and so, it must be held that the
Division Bench of the High Court erred in dismissing the
appellant’s claim.
The result is, the appeal is allowed., the decree passed by
the appellate Court is set aside and that of the trial Court
restored with costs throughout.
Appeal allowed.
[1962] Supp. I. S. R. 876 .
879