{"id":209424,"date":"1953-03-20T00:00:00","date_gmt":"1953-03-19T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/trojan-co-ltd-vs-rm-n-n-nagappa-chettiar-on-20-march-1953"},"modified":"2018-09-20T00:16:40","modified_gmt":"2018-09-19T18:46:40","slug":"trojan-co-ltd-vs-rm-n-n-nagappa-chettiar-on-20-march-1953","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/trojan-co-ltd-vs-rm-n-n-nagappa-chettiar-on-20-march-1953","title":{"rendered":"Trojan & Co. Ltd vs Rm. N. N. Nagappa Chettiar on 20 March, 1953"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Trojan & Co. Ltd vs Rm. N. N. Nagappa Chettiar on 20 March, 1953<\/div>\n
Equivalent citations: 1953 AIR 235, \t\t 1953 SCR 780<\/div>\n
Author: M C Mahajan<\/div>\n
Bench: Mahajan, Mehr Chand<\/div>\n
           PETITIONER:\nTROJAN & CO.  LTD.\n\n\tVs.\n\nRESPONDENT:\nRM. N. N. NAGAPPA CHETTIAR.\n\nDATE OF JUDGMENT:\n20\/03\/1953\n\nBENCH:\nMAHAJAN, MEHR CHAND\nBENCH:\nMAHAJAN, MEHR CHAND\nDAS, SUDHI RANJAN\n\nCITATION:\n 1953 AIR  235\t\t  1953 SCR  780\n CITATOR INFO :\n R\t    1964 SC 136\t (11)\n R\t    1966 SC 735\t (8)\n R\t    1977 SC 890\t (8)\n D\t    1980 SC 727\t (11)\n\n\nACT:\nContract-Damages-Sale  of   shares-Sale\t induced  by  fraud-\nMeasure of damages-Difference between price paid and  market\nprice  on  date of sale-Fluctuations of\t market\t and  sudden\nclosure\t of Stock Exchange, effect of--Interest on  damages-\nPractice-Conflict  between  pleadings  and  proof-Decree  on\nalternative claim not set up in plaint-Legality.\n\n\n\nHEADNOTE:\n   Where a person is induced to purchase shares at a certain\nprice  by fraud the measure of damages which he is  entitled\nto  recover  from the seller is the difference\tbetween\t the\nprice which he paid for the shares and the real price of the\nshares\ton  the\t date on which the  shares  were  purchased.\nOrdinarily  the market rate of the shares on the  date\twhen\nthe fraud was practised would represent their real price  in\nthe  absence  of any other circumstance.  If,  however,\t the\nmarket was vitiated or was in a state of flux or\n790\npanic in consequence of the very fact that was\tfraudulently\nconcealed,  then  the  real value of the shares\t has  to  be\ndetermined on a Consideration of a variety of circumstances,\ndisclosed by the violence led by the parties.\n  A firm of sharebrokers sold 3,000 shares to the  plaintiff\nwho  was a constituent of the firm, on the 5th April,  1937,\nat  Rs. 77 and Rs. 77-4as, per share without  disclosing  to\nthe plaintiff the fact that the shares were owned by one  of\nthe  partners  of the firm and also the fact that  they\t had\nreceived telephonic information on that day from a member of\nthe  Stock  Exchange  that there was going  to\tbe  a  sharp\ndecline\t in the price of the shares.  On the 6th  April\t the\nStock  Exchange Association passed a resolution for  closing\nthe Exchange on the 8th and 9th April.\tThe plaintiff had to\nsell  2,000 shares through the defendants on the 20th  April\nat Rs. 47 to Rs. 42 per share, and 1,000 shares on the\t22nd\nApril  at Rs. 428as.  The High Court awarded the  difference\nbetween\t the  price  paid by the plaintiff  and\t the  prices\nfetched on resale as damages.  On appeal,\n  Held,\t that the prices received at the resale on the\t20th\nand  22nd  April could not represent the true value  of\t the\nshares\t on   the  5th\tApril.\t The   real   question\t for\ndetermination  was what the market value would have been  on\nthe 5th April of these shares if all the buyers and  sellers\nknow that the Stock Exchange was to be closed on the 8th and\n9th April.\n  Held also that the plaintiff was entitled to get  interest\non the amount awarded as damages from the 5th April till the\ndate  of suit on the principle that where money is  obtained\nor  retained by fraud a court of equity will order it to  be\nreturned with interest.\n Johnson v. Rex ([1904] A.C. 817) referred to.\n  It  is well settled that the decision of a case cannot  be\n'based\ton grounds outside the pleadings of the parties\t and\nthat it is the case pleaded that has to be found.  Where the\nplaintiff based his claim for a certain sum of money on\t the\nground that the defendants had sold certain shares belonging\nto  him\t without his instructions, but he was  not  able  to\nprove  that  the  sale\twas not\t authorised  by\t him:  Held,\nreversing the decision of the High Court, that the plaintiff\ncould  not  be\tgiven a decree for the sum  claimed  on\t the\nground of failure of consideration, as he had not set up any\nsuch  alternative  claim in the plaint or even\tat  a  later\nstage when he sought to amend the plaint.\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL APPELLATE JURISDICTION: Civil Appeal No..139 of  1962.
\nAppeal\tfrom the Judgment and Decree dated the\t17th  March,
\n1950, of the High Court of Judicature at Madras (Horwill and
\nBalakrishna Ayyar JJ.) in O.S.A. No. 34 of 1947, arising out
\nof
\n791<\/span>
\nthe  Judgment and Decree dated the 18th April, 1947, of\t the
\nsaid  High Court (Clark J.) in the exercise of the  Ordinary
\nOriginal  Civil Jurisdiction of the High Court in C. S.\t No.
\n208 of 1940.\n<\/p>\n
V.   Rangachari\t  (K.\t Mangachary,  with  him)   for\t the
\nappellant.\n<\/p>\n
K.   Krishnaswami Iyengar (K.  Parasuram, with him) for\t the
\nrespondent.\n<\/p>\n
1953.  March 20.  The Judgment of the Court was delivered by
\n  MAHAJAN  J.-The  dispute  in this  appeal  is\t between  a
\nconstituent  and a firm of stock-brokers.  Some time  before
\nApril,\t1936,  the plaintiff, then a young  man,  came\tinto
\npossession  of property worth about 2 lakhs of rupees  on  a
\npartition  between  him and his brothers.  In  the  hope  of
\ngetting rich by obtaining quick dividends by speculating  on
\nthe  stock-exchange  be,  through  the\tdefendant  firm\t and
\ncertain\t other\tstockholders,  entered\tinto  a\t series\t  of
\nspeculative transactions and it seems he did not fare  badly
\nin  the beginning.  But subsequent events tell\ta  different
\ntale.\n<\/p>\n
In 1937, two iron and steel companies in North India, vie.,
\nIndian\tIron & Steel Co. Ltd., and the Bengal Iron  &  Steel
\nCo. Ltd., merged into one concern and a new issue of  shares
\nwas made.  The scheme was that for every five shares which a
\nperson held in the Indian Iron Co. Ltd. on 22nd April, 1937,
\none fully paid up share would be given to him at a price  of
\nRs.  25.   The\tmarket price at the  time  this\t scheme\t was
\nannounced was about Rs. 55 per share.  A wave of speculation
\nfollowed  this\tannouncement  and there was a  boom  in\t the
\nmarket.\t  Prices  of  Indian Iron shares were  going  up  to
\nunreal heights.\t To stabilize the situation thus created  by
\nheavy  speculation,  three members of the Committee  of\t the
\nCalcutta   Stock  Exchange  presented  a  petition  to\t the
\nCommittee  on 5th April, 1937, to close the  Calcutta  Stock
\nExchange
\n792<\/span>
\nfor  a while.  On the same evening plaintiff’s\tstockbroker
\nAnnamalai  Chettiar,  who was carrying on business  in\tfirm
\nname  Trojan  & Co., had telephonic  conversation  with\t one
\nRamdev Chokani, a member of the Calcutta Stock Exchange,  on
\nthis  subject and from this conversation he gathered that  a
\nsharp  fall  in the prices of Indian Irons was\tlikely.\t  At
\nthat time Annamalai Chettiar had on his bands some 5,000  of
\nthese  shares.\t Shortly after this conversation  and  after
\nbusiness hours the same night, between the hours of 7-30 and
\n8-30, Annamalai Chettiar rang up the plaintiff and suggested
\nto  him that it would be a good thing for him to  buy  these
\nshares.\t  The youthful plaintiff in his anxiety to got\trich
\nquickly accepted the suggestion and purchased these  shares,
\nsome  at Rs. 77 and others at Rs. 77-4-0.  Another  firm  of
\nbrokers, Ramlal & Co., had also in their hands another 4,000
\nof  these shares.  They too found in the plaintiff  a  ready
\nbuyer.\tThey also contacted him on the phone after Annamalai
\nhad done so, and sold him 4,000 shares that they held.\t Out
\nof the lot which the plaintiff purchased from the defendants
\nhe sold 1,300 shares to Ramanathan Chetti at cost price.
\nOn  the\t 6th  April  the Committee  of\tthe  Calcutta  Stock
\nExchange  Association passed a resolution closing the  Stock
\nExchange on the 8th and 9th April.\n<\/p>\n
From the 6th April onwards the market sagged and the  prices
\ncame down, at first gradually and then literally at a,\trun.
\nThe  result  of it was that the plaintiff had to sell  at  a
\nvery heavy loss.\n<\/p>\n
The  defendants made demands on the plaintiff for the  price
\nof those shares.  Between 5th April and 20th April, 1937, he
\nmade payments to defendants of various amounts totalling Rs.
\n60,000.\t  A lot of 700 shares was sold by the  plaintiff  to
\nPilani\t&  Co. and on 19th April, 1937,\t he  instructed\t the
\ndefendants.for\tsale  of the remaining 3,000 shares  at\t the
\nbest price obtainable.\tThe defendants sold 2,000 shares  on
\n20th April, 1937, for prices ranging between Rs. 47-4-0 to
\n793<\/span>
\nRs.44-12-0 per share.  The remaining 1,000 shares were\tsold
\nby him through Messrs.\tRamlal & Co. at Rs. 42-8-0 per share
\non 22nd April, 1937.  The result of it was that on 22nd May,
\n1937,  when  the  accounts between  the\t plaintiff  and\t the
\ndefendants  were  settled it was found\tthat  plaintiff\t was
\nheavily\t indebted to them in the sum of Rs.  51,712-7-0\t and
\nthe  credit  balance  of Rs. 64,000 that  he  had  with\t the
\ndefendants  at the end of March, 1937, had been\t wiped\toff.
\nFor  the  amount found due he passed a\tpromissory  note  in
\nfavour of defendants, Exhibit P-33.  After giving credit for
\npayments  received  on the promissory  note  the  defendants
\nfiled a suit against him (O.S. 150 of 1937) on the  Original
\nSide  of  the  Madras High Court and  obtained\tan  ex-parte
\ninterim\t order for attachment before judgment  and  attached
\nplaintiff’s movable and immovable properties at Madras,\t and
\nalso  at  Kottaiyur  in\t Ramnad\t district.   Owing  to\t the
\nattachment  proceedings\t the firm of Ramlal &  Co.  filed  a
\npetition for adjudication of the plaintiff as an  insolvent.
\nOn 22nd September, 1937, Trojan & Co. also filed a  petition
\nfor the same relief.  An order adjudicating the plaintiff an
\ninsolvent  was made by the High Court on 5th October,  1937,
\non the petition of Ramlal & Co.\n<\/p>\n
In  the\t course\t of the\t insolvency  proceedings  defendants
\ntendered  proof\t of  their claim  on  the  promissory  note,
\nExhibit\t  P-33.\t  The  Official\t Assignee  having   acquired
\nknowledge about the telephonic conversation that had  passed
\nbetween Annamalai Chettiar and Ramdev Chokani on the evening
\nof  the\t 5th April, 1937, came to the  conclusion  that\t the
\ninsolvent  had been a victim of a fraud perpetrated  by\t the
\ndefendants  and dismissed their claim.\tDefendants-firm\t was
\nguilty\tof fraud both in respect of the failure to  disclose
\nthe  fact  that the Indian Iron shares or most of  them\t be-
\nlonged to one of its partners, Annamalai Chettiar, and\talso
\non  account  of\t the failure on its  part  to  disclose\t its
\nknowledge of the likelihood of a slump in the market because
\nof  the\t notice\t given by its members  to  close  the  Stock
\nExchange.\n<\/p>\n
794<\/span><\/p>\n
On  an application made to the High Court against the  order
\nof the Official Assignee it was set aside by Mockett J.\t and
\nhe directed that the claim of the defendants be disposed  of
\non  a  court motion, the claim being heard as if it  were  a
\nsuit.  In pursuance of this direction Trojan and Co. on 29th
\nSeptember, 1938, filed an application in the High Court, No.
\n313 of 1938.  The Official Assignee representing the  estate
\nof the plaintiff denied its liability on the promissory note
\non  the\t ground of fraud.  On 15th March, 1940,\t Somayya  J.
\ndismissed  the\tclaim  of  the\tdefendants.   He  held\t the
\ndefendants-firm guilty of fraud in both respects.  From this
\nthere  was  an appeal which was dismissed  on  12th  August,
\n1942.\tThe  defendants applied for leave to appeal  to\t His
\nMajesty\t in Council but leave wag refused.  Defendants\tthen
\napplied\t to  the Privy Council for special  leave  and\tthat
\napplication was also dismissed some time in October, 1943..
\n  On  the  28th September, 1940, when the appeal  from\tthe
\ndecision  of  Somayya  J. was still  pending,  the  Official
\nAssignee  as representing the estate of the plaintiff  filed
\nthe  suit out of which this appeal arises against  Trojan  &
\nCo.  for an account of the transactions between\t himself  as
\nprincipal and the defendants as agents and claiming  damages
\nfor  loss  sustained by him and for various  other  reliefs.
\nThe  suit embraced in particular claims in respect  of\tfour
\ntransactions.\tThe first related to the 5,000\tIndian\tIron
\nshares.\t The second referred to a transaction of  Associated
\nCements.  On 22nd March,1937, the plaintiff had sold through
\nthe defendants 5O shares in Associated Cements at Rs.180-8-0
\nper  share.   On 30th March, 1937, he had similarly  sold  a
\nfurther\t 200  shares in Associated Cements at  Rs.  183\t per
\nshare.\t The  plaintiff did not have on hand even  a  single
\nshare  in Associated Cements.  It became necessary  for\t him
\ntherefore  to  “cover  the  sales”.   On  21st\tJuly,  1937,
\ndefendants  purchased on plaintiff’s account 100  shares  at
\nRs.  161-12-0  per  share.  On\t1st  September,\t 1937,\tthey
\npurchased a further 150 shares at
\n795<\/span>
\nRs. 151 a share.  The difference between the prices at which
\nthese shares had been sold and bought amounted to Rs. 6,762-
\n8-0  and for this amount the defendants gave  the  plaintiff
\ncredit by adjusting it towards the promissory note  account.
\nIn  respect  of this transaction the case  of  the  Official
\nAssignee  was that the purchase which had been made  by\t the
\ndefendants  was\t not  only  unauthorized,  but\tcontrary  to
\ninstructions and was not valid and binding on the  plaintiff
\nas   it\t had  been  made  after\t the  commencement  of\t the
\ninsolvency.   No claim was made in the alternative  that  if
\nthis  contention  failed,  the\tplaintiff  was\tentitled  to
\nrecover\t the amount credited towards the promissory note  on
\nthe   ground  of  failure  of  consideration.\t The   third
\ntransaction  related to 300 shares in Tatas, and the  fourth
\none  was  in respect of shares in Ayer Mani Rubber  Co.\t The
\nlast  claim was abandoned at the trial and the claim on\t the
\nthird transaction was decreed in favour of the plaintiff and
\nthe  correctness  of the order of the trial  judge  was\t not
\ncanvassed  in the appeal before the High Court.\t The  amount
\ndecreed\t as regards these 300 shares was in the sum  of\t Rs.
\n1,050.\n<\/p>\n
The  defendants\t denied liability for the entire  claim\t and
\npleaded\t that they were not guilty of any fraud and that  in
\nany case the plaintiff was not entitled to claim any damage,
\nas he could have easily sold away all his shares soon  after
\nhis  purchase  without\tincurring  any\tloss,  and  that  he
\nretained them in order to make profit.\n<\/p>\n
The  suit was first heard by Bell J. who decreed the  claim
\nof  the\t plaintiff  on\t9th  March,  1943.   The  defendants
\nappealed.   The\t appellate court set aside the\tdecision  of
\nBell  J. and ‘remanded the suit for fresh disposal  on\t26th
\nAugust,\t 1944.\tMeantime, that is to say, on 21st  February,
\n1944, the adjudication of the plaintiff was annulled and  on
\nhis application he was brought on the record in the place of
\nthe  Official Assignee and he continued the suit.  Clark  J.
\nwho  tried the suit after remand gave a decree in favour  of
\n103<\/span>
\n796<\/span>
\nthe plaintiff for the sum of Rs. 61,787-9-0 with interest at
\nthe  court  rate  of  six  per\tcent.  per  annum  from\t 1st
\nSeptember,  1937, until payment or realization\twith  costs.
\nAgainst this decree the defendants preferred an appeal.\t The
\nappellate Bench modified the decree of Clark J., and reduced
\nthe amount of the decree by a sum of Rs. 9,100.\t Each  party
\nwas  made to pay proportionate costs throughout.   Leave  to
\nappeal to this court against the decree was granted and\t the
\nappeal is now before us under the certificate so granted.
\n As above stated, the claim in respect of Ayer-Mani  Rubber
\nshares was abandoned at the trial and the claim on the third
\ntransaction relating to 300 shares in Tatas was decreed\t for
\nthe  sum of Rs. 1,050 and the correctness of this order\t was
\nnot canvassed in the appeal before the High Court.  The\t two
\nclaims discussed in that court were in respect of the trans-
\naction\tof  5,000 Indian Iron shares and in respect  of\t the
\ntransaction made in Associated Cements.\t The dispute  before
\nus  so\tfar  as the Indian Iron\t shares\t are  concerned\t has
\nnarrowed  down\tto  the question of quantum  of\t damages  in
\nrespect\t of  3,000  out\t of  the  5,000\t shares\t that\twere
\ntransferred by the defendants to the plaintiff on the  night
\nof  the\t 6th April, 1937, 1,300 out of these  shares  having
\nbeen  sold at cost price by the plaintiff the day after\t the
\npurchase,  and\t700 having been sold to Pilani\t&  Co.,\t and
\nregarding  which the plaintiff’s claim was rejected  in\t the
\nHigh Court and plaintiff preferred no further appeal.
\n The  finding of Somayya J., that the defendants  firm\twas
\nguilty\tof fraud both in respect of the failure to  disclose
\nthe  fact  that\t the  Indian Iron shares  or  most  of\tthem
\nbelonged  to  one of its partners, Annamalai  Chettiar,\t and
\nalso on account of its failure to disclose its knowledge  of
\nthe  probable  slump in the market by reason of\t the  notice
\ngiven by three members of the Stock Exchange to\t temporarily
\nclose  it,  was not contested before Clark J.,\tand  it\t was
\nconceded that that finding had become final.  The main ques-
\ntion canvassed at this trial was whether the plaintiff
\n797<\/span>
\nhad  suffered any damage as a consequence of this fraud\t and
\nif  so, how were the damages to be measured.  In the  plaint
\nplaintiff claimed that he was entitled to be recompensed for
\nall  loss  and damage which he had suffered.  A sum  of\t Rs.
\n45,042-9-0  was\t credited in his account in respect  of\t the
\nsale of 3,000 shares made on 20th and 22nd April, 1937.\t  He
\nclaimed\t the whole of this amount as damages on this  count;
\nin  other  words,  according to the  plaintiff,\t the  damage
\nsuffered  by  him  was\tto  be\tmeasured  according  to\t the
\ndifference between the purchase price of the shares and\t the
\nprice for which they were ultimately sold.  The shares\twere
\nbought\ton  5th April at Rs. 77 and Rs. 77-4-0 and  sold  at
\nprices ranging between Rs. 42-8-0 and Rs. 47-4-0 on the 20th
\nand 22nd April, 1937.  This method of measuring damages\t was
\nsuccessfully  challenged by the defendants before the  trial
\njudge.\t Clark J., in spite of holding that the\t measure  of
\ndamages in a case like this could not be as suggested by the
\nplaintiff,  estimated  the  damage suffered by\thim  at\t the
\ndifference between the rate at which the plaintiff purchased
\nthe  shares and the rate at which he actually sold them,  on
\nthe  ground  that the price at which he sold them  was\tmore
\nthan  the fair value of these shares realizable on  the\t 6th
\nApril, 1937, between bona fide purchasers and sellers having
\nknowledge of the real state of affairs.\n<\/p>\n
 Before the appeal Bench of the High Court it was contended
\nthat  the trial judge was in error in his assessment of\t the
\nreal  value of these shares on 5th April, 1937, and that  in
\nany  case they could not be valued at four different  rates.
\nIt  was urged that. damages had been over  estimated.\tThis
\ncontention was negatived and it was held that in the circum-
\nstances of this case it could not be said that the plaintiff
\nacted unreasonably in holding on to the shares for the\ttime
\nthat be did and that the defendants had by their own  double
\ndealings placed the plaintiff in a difficult position.
\n The learned-counsel for the appellant reiterated before us
\nthe contentious raised by him in the High
\n798<\/span>
\nCourt and urged that the true measure of damages in  actions
\nlike  this is the difference between the price paid and\t the
\nreal value of the shares at the time of the transaction, and
\nthat  any loss caused to the plaintiff by his retaining\t the
\nshares\tafter  that  date  could not  be  decreed.   It\t was
\nstrenuously  contended\tthat  had  the\tplaintiff  sold\t the
\nremaining  shares like the 1,300 he sold, he would not\thave
\nsuffered any damage whatsoever, as the market price of these
\nshares on the 6th and 7th was not below the cost price.\t  It
\nwas  said  that\t the loss that the  plaintiff  suffered\t was
\nmerely\tdue to the circumstance that he retained the  shares
\nfor a fortnight, and was not as a consequence of the  fraud.
\nLastly, it was contended that even if it could be held\tthat
\nthe market on the 6th and 7th was affected by the very\tfact
\nconcealed from the plaintiff, its effect disappeared by\t the
\n10th  April,  when the fact became fully  known\t and  damage
\nshould\thave  been assessed on the  difference\tbetween\t the
\nmarket price of these shares which ruled at Rs. 62 per share
\non 10th April, 1937, and their cost price.\n<\/p>\n
 Now  the rule is well settled that damages due either\tfor
\nbreach of contract or for tort are damages which, so far  as
\nmoney can compensate, will give the injured party reparation
\nfor  the  wrongful act and for all the\tnatural\t and  direct
\nconsequences of the wrongful act.  Difficulty however arises
\nin  measuring  the  amount of this  money  compensation.   A
\ngeneral principle cannot be laid down for measuring it,\t and
\nevery  case must to some extent depend upon its own  circum-
\nstance.\t  It is, however, clear that in the absence of\t,any
\nspecial\t circumstances the measure of damages cannot be\t the
\namount of the loss ultimately sustained by the\trepresentee.
\nIt  can\t only be the difference between the price  which  he
\npaid  and the price which he would have received if  he\t had
\nresold\tthem  in  the market forthwith\tafter  the  purchase
\nprovided  of course that there was a fair market then.\t The
\nquestion  to  be decided in such a case is  what  could\t the
\nplaintiff  have\t obtained if he had  resold  forthwith\tthat
\nwhich he bad been induced to purchase by the fraud
\n799<\/span>
\nof the defendants.  In other words, the mode of dealing with
\ndamages in such a case is to see what it would have cost him
\nto  get out of the situation, i.e., how much worse  off\t was
\nhis  estate owing to the bargain in which he  entered  into.
\nThe  law on this subject has been very appositely stated  in
\nMcConnel v. Wright(1) by Lord Collins in these terms:-
\n “As  to the principle upon which damages are  assessed\t in
\nthis case, there is no doubt about it now.  It has been laid
\ndown by several judges, and particularly by Cotton L. J.  in
\nPeek v. Derry(2), but the common sense and principle of\t the
\nthing is this.\tIt is not an action for breach of  contract,
\nand,  therefore, no damages in respect of prospective  gains
\nwhich the person contracting was entitled by his contract to
\nexpect\tto  come in, but it is an action of  tort-it  is  an
\naction\tfor a wrong done whereby the plaintiff\twas  tricked
\nout  of certain money in his pocket ; and  therefore,  prima
\nfacie  the highest limit of his damages is the whole  extent
\nof  his loss, and that loss is measured by the\tmoney  which
\nwas  in his pocket and is now in the pocket of the  company.
\nThat  is the ultimate, final, highest standard of his  loss.
\nBut,  in so far as he has got an equivalent for that  money,
\nthat  loss  is\tdiminished; and I think,  in  assessing\t the
\ndamages, prima facie the assets as represented are taken  to
\nbe  an equivalent and no more for the money which was  paid.
\nSo  far as the assets are an equivalent, he is not  damaged;
\nso  far as they fall short of being an equivalent,  in\tthat
\nproportion he is damaged.”\n<\/p>\n
 The sole point for determination therefore in the case\t is
\nwhether\t the  shares handed over to the\t plaintiff  were  an
\nequivalent for the money paid or whether they fell short  of
\nbeing the equivalent and if so, to what extent.\t  Ordinarily
\nthe market rate of the shares on the date when the fraud wag
\npractised would represent their real price in the absence of
\nany  other  circumstance.   If,\t however,  the\tmarket\t was
\nvitiated  or was in a state of flux or panic in\t consequence
\nof the very fact that was fraudulently concealed,
\n (1) [1903] 1 Ch. 546.\t      (2) 37 Ch.  D. 541.\n<\/p>\n
800<\/span><\/p>\n
then the real value of the shares has to be determined on  a
\nconsideration of a variety of circumstances disclosed by the
\nevidence  led  by the parties.\tThus though  ordinarily\t the
\nmarket rate on the earliest date when the real facts  became
\nknown  may be taken as the real value of the shares,  never-
\ntheless,  if there is no market or there is no\tsatisfactory
\nevidence of a market rate for some time which may safely  be
\ntaken  as the real value, then if the representee  sold\t the
\nshares,\t although not bound to do so, and if the resale\t has
\ntaken place within a reasonable time and on reasonable terms
\nand  has  not  been unnecessarily delayed,  then  the  price
\nfetched\t at the resale may well be taken into  consideration
\nin determining retrospectively the true market value of\t the
\nshares on the crucial date.  If there is no market at all or
\nif the market rate cannot, for reasons referred to above, be
\ntaken  as  the\treal  or fair value of\tthe  thing  and\t the
\nrepresentee  has not sold the things, then  in\tascertaining
\nthe real or fair value of the thing on the date when  deceit
\nwas  practised subsequent events may be taken into  account,
\nprovided  such\tsubsequent events are  not  attributable  to
\nextraneous circumstances which supervened on account of\t the
\nretaining  of the thing.  These, we apprehend, are the\twell
\nsettled rules for ascertaining the loss and damage  suffered
\nby a party, in such circumstances.\n<\/p>\n
 If damages had been measured on the rules above stated\t by
\nthe  courts below, this court would have then respected\t the
\nconcurrent  finding  on\t this  point  as  the  question\t  of
\nassessment  of damages primarily is a question of  fact\t and
\nthe  concurrent findings of the courts below on such  points
\nexcept in very exceptional circumstances are not reviewed by
\nthis   court.\tWe  however  find  that\t in  spite  of\t the
\ncircumstance that the courts below correctly enunciated\t the
\nrule of measuring damages in such cases, they estimated them
\non  the\t difference  between the cost price  and  the  price
\nrealized at the sale on the 20th and 22nd at four  different
\nrates.\t These four rates could obviously not represent\t the
\ntrue value of the shares on the 5th.\n<\/p>\n
\t\t\t   801<\/span><\/p>\n
Moreover  the  finding that the true value of  these  shares
\nwas lower than what was actually realized on their resale on
\nthe  20th and 22nd is not based on any evidence\t whatsoever.
\nSuch  a\t finding could only be arrived at on  the  basis  of
\nevidence  on the record and by reference to  that  evidence,
\nand this has not been done.  The High Court did not make  an
\nattempt to find out to what extent the value of the  ‘Shares
\nfell  short of being an equivalent for the money taken\tfrom
\nthe  plaintiff.\t Without determining this crucial  issue  we
\nthink  it was not right to estimate the damage on the  vague
\nfinding that the true value of the shares was lower than the
\nvalue which they fetched at the resale on the 20th and 22nd.
\nIn  this situation, we have no alternative but to-arrive  at
\nour own finding on this question in spite of the  concurrent
\nfinding and we have to find as to what could be said to have
\nbeen  the true value of these shares on the  relevant  date.
\nIn  other words, the question for our determination is\twhat
\nthe  market  value  would have been on 5th  April  of  these
\nshares\tif all buyers and sellers had information  that\t the
\nmarket\twas  to\t be closed on 8th and 9th  April  to  enable
\nsettlement  of outstanding transactions to be effected,\t and
\nhad  appreciated the effect of that decision.  In the  words
\nof  Buckley  J.\t in  Broome v.\tSpeak(1),  it  is  indeed  a
\ndifficult  question  to answer beat that  difficulty  is  no
\nground\tfor  refusing to answer it as has been done  by\t the
\ncourt below.\n<\/p>\n
 in order to determine the real price of these 3,000 shares
\nsold to plaintiff by concealment of certain facts, the first
\nquestion that needs decision is whether the market for these
\nshares,\t the rate prevailing wherein would prima facie be  a
\ntrue  index  of their value, had been affected by  the\tvery
\nfact  concealed of which the plaintiff complains.   In\tthis
\ncase from the proved facts it is clear that the market\trate
\nof  these  shares was seriously affected by  reason  of\t the
\nimpending  decision of the Stock Exchange for closing it  to
\nstop  the wave of speculation that had taken the  frenzy  of
\nthe market by reason of the merger of the two steel
\n(1)  [1931] I. Ch. 586.\n<\/p>\n
802<\/span><\/p>\n
companies  doing  business in northern\tIndia.\t The  market
\nreports\t for the week ending March 19, show that the  Indian
\nIrons  were standing at or around Rs. 55.  By Satur day\t the
\n3rd April after the announcement of the terms of the  merger
\nby  reason  of the keen speculation the\t shares\t were  being
\ndealt  at around Rs. 73.  On Monday the 6th April the  price
\nwas  Rs. 77.  On Tuesday the 6th, the day when the  decision
\nwas  taken  to close the market for two days,  these  shares
\ntouched Rs. 79 but by the close of business fell back to Rs.
\n72 a sudden drop of Rs. 7. On Wednesday the 7th April in the
\nCalcutta market they closed at Rs. 58, a drop of Rs. 14 in a
\nday.  These sudden rises and falls in the market during\t the
\ncourse\tof these two days are sufficient indication  of\t the
\nfact  that  the drop was due to the decision  of  the  Stock
\nExchange  to close the Exchange for two days.  There  is  no
\nevidence  that\tany  other factor was  then  disturbing\t the
\nmarket rate of these shares.  The share market report of the
\ndefendants  themselves\tissued on 10th\tApril,\t1937,  amply
\nbears  out  this  fact.\t In this report\t it  was  stated  as
\nfollows :-\n<\/p>\n
”  The outstanding feature of the Indian markets during\t the
\nweek  under review was the sudden landslide in\tIndian\tIron
\nand  Steel  shares,  which proved infectious  to  the  other
\nsections  of  the market.  The week opened with\t a  cheerful
\nbullish sentiment and Indian Iron and Steels touched Rs. 80.
\nAt this dizzy height, the markets lost their equilibrium and
\nfrenzied selling resulted in a sensational decline of  about
\n25 points.  The heavy liquidation was due to a\tpredominance
\nof  weak  holders-that had come into the market\t at  a\tlate
\nstage.\tFurther, selling was accentuated by the decision  of
\nCalcutta Stock Exchange to close the Calcutta market on\t the
\n8th  and 9th April to enable brokers to make deliveries\t and
\neffect settlements for transactions in Indian Iron and Steel
\nshares.\t  Heavy\t volume\t of business  has  been\t outstanding
\nbetween\t  brokers  on  account\tof  the\t delay\tin   getting
\ncertificates.\tProspect  of  immediate\t delivery  of  share
\ncertificates scared off weak holders and prices declined  on
\nheavy liquidation.”\n<\/p>\n
803<\/span><\/p>\n
It  is\tclear therefore that the decision  of  the  calcutta
\nStock  Exchange to close the Calcutta market on 8th and\t 9th
\naffected  the  market  prices  considerably.   The  Calcutta
\nmarket\ton the 7th dropped from 72 to 58 as already  stated.
\nThe decision of the Calcutta Stock Exchange was published in
\nthe  Hindu  of Madras on the evening of the 7th.   From\t the
\nstatement of account, Exhibit P-41, filed by Trojan & Co. on
\n7th,  about half a dozen transactions in these\tshares\ttook
\nplace  through them.  Most of the transactions, it  appears,
\nwere  by  small holders of 100 scrips or  so,  who  unloaded
\ntheir  shares between 71 to 60 per share.  On the 8th  three
\ntransactions took place at Rs. 62. No transaction took place
\nbetween\t 8th and 14th.\tThere were two transactions  on\t the
\n14th  at Rs. 56, and there was a transaction on the 16th  at
\nRs.  57-8-0.  On the 20th Trojan and Co. sold 2,000  of\t the
\nplaintiff’s shares at rates varying between Rs. 44-12-0\t and
\nRs. 47-4-0.\n<\/p>\n
 According  to the statement of account of another  broker,
\nRamlal\t&  Co., there were about 16  transactions  in  these
\nshares on the 7th.  Most of them were sold in lots of 100 or
\n200 and the sale price of these shares ranged from Rs. 74 to\n<\/p>\n
64.   On  the 8th there were a few transactions,  the  rates
\nvarying between Rs. 57 to Rs 66.  There was a transaction on
\nthe 9th at Rs. 60.  There were two or three transactions  on
\nthe  10th also near about this rate.  No  transaction  after
\nthe  10th  made by this company has been  exhibited  on\t the
\nrecord.\t Exhibit P-23 is another weekly share market  report
\nof  Trojan & Co. issued on 17th April, 1937.  It  states  as
\nfollows :-\n<\/p>\n
 “In  the first place, Indian Irons are very  cheap  around
\nRs.  46.  The company is doing extremely well and the  stage
\nis set for a steady rise to Rs. 70……………
\n Indian Iron and Steels fluctuated between Rs. 55 to Rs. 60
\nand  closed  at Rs. 47.\t The recent hectic  speculation\t has
\nbrought its own nemesis.”\n<\/p>\n
 This  report proves that there was really no market as\t it
\nappears from the evidence on the record in
\n104<\/span>
\n804<\/span>
\nMadras between the 8th and 17th which was a Saturday, and on
\nthe  17th the prices seemed to be settling down at  Rs.\t 46.
\nOn the 19th the plainti gave to the, defendants an order  to
\nsell  his 3,000 shares and it was said “Please\tretain\tthis
\norder  till-executed”.\t The defendants were  only  able  to
\ndispose\t of  2,000  of these shares on the  20th  at  prices
\nvarying\t between Rs. 44-12-0 to Rs. 47-4-0.   The  remaining
\n1,000  shares the plaintiff was able to sell through  Ramlal
\nand  Co.  at Rs. 42-8-0 on 22nd April, 1937.   It  is  quite
\npossible and probable that had the plaintiff placed an order
\nbefore\tthe  19th,  say\t on  the  16th\tor  17th,  with\t the
\ndefendants or with Ramlal & Co., he might have been able  to
\nsell  these 1,000 shares also at about the same price as  he
\nwas  able to dispose of his 2,000 shares.  No member of\t the
\ndefendants-firm\t gave evidence in the case.  Plaintiff\twent
\ninto  the witness box and stated that had he known what\t the
\ndefendants  knew,  he would not have purchased\tthe  shares.
\nThe information was withheld from him that these shares were
\nlikely\tto  godown.   He  said\tthat  he  was  told  by\t the
\ndefendants  to\tsell  the  shares  but\tno  purchasers\twere
\navailable and in spite of his keenness to liquidate them  he
\nwas  not  able to do so before the 20th and  22nd,  that  he
\napproached  Trojan  & Co., the defendants-firm\tfor  selling
\nthem,  but  they  were\tnot able to  sell  more\t than  2,000
\nshares.’  Considering  the whole of this  material,  we\t are
\nsatisfied  that the market rate prevailing on the  5th,\t 6th
\nand  7th had been affected by reason of the decision of\t the
\nCalcutta Stock Exchange to keep the market closed on the 8th
\nand  9th and the market did not settle down till  about\t the
\n17th  or  18th\tand  the  prices  then\truling\tcan  in\t the
\ncircumstances  of this case be said to be their true  market
\nprice.\tIn our judgment, Rs. 46 per share was the real price
\nof these shares when they were put in the plaintiff’s pocket
\nand he got Rs. 46 for each share in lieu of what he paid for
\neither\tat  Rs.\t 77 or at Rs. 77-4-0.\tHe  is\tentitled  to
\ncommission  also which he would have to pay on the  sale  of
\nthese shares.  The difference between these
\n805<\/span>
\ntwo  rates  is\tthe damage that he has suffered\t and  he  is
\nentitled  to it.  For the reasons given above we modify\t the
\norder passed by Clark J., and by the appellate Bench of\t the
\nHigh Court to the extent indicated above and we estimate the
\nplaintiff’s  damage  at Rs. 93,000 on account of  the  3,000
\nshares at the rate of Rs. 31 per share.\n<\/p>\n
 The  second question canvassed before the High\t Court\tand
\nalso  before  us  was in respect of  the  Associated  Cement
\nshares.\t  As  above  stated,  the  plaintiff’s\taccount\t was
\ncredited  in  the  sum of Rs. 6,762-8-0 on  account  of\t the
\npurchase  of these shares.  Plaintiff had pleaded  that\t the
\ntransaction  was not authorised by him and that it had\tbeen
\nmade  in contravention of his instructions.  He had  claimed
\ncompensation on the ground of breach of instructions he\t did
\nnot  in\t the alternative claim on the ground of\t failure  of
\nconsideration  the amount credited by the defendants in\t the
\npromissory  note  account and which  credit  disappeared  by
\nreason\tof the failure of the suit on the  promissory  note.
\nAt  the\t hearing of the case before Bell J.  the  contention
\nthat the purchase was unauthorized was abandoned by  counsel
\nand  the  same position was adopted before Clark  J.  During
\ncross-examination  of the plaintiff it was elicited that  he
\neither\tinstructed the defendants to purchase the shares  or
\nat  any rate ratified the purchase which the defendants\t had
\nmade  on  his behalf.  It was argued  before  the  appellate
\nBench  of the High Court that having pleaded one  thing\t and
\nhaving\tled evidence in support of that thing but  later  on
\nhaving been forced to admit in the witness box that the true
\nstate of things was different the plaintiff had\t disentitled
\nhimself\t to relief as regards these shares and he could\t not
\nbe  granted the relief that he had not asked for.  The\tHigh
\nCourt negatived this contention on the ground that though  a
\nclaim for damages in respect of a particular transaction may
\nfail,  that  circumstance  was no bar to  the  making  of  a
\ndirection  that the defendants should pay the plaintiff\t the
\nmoney\tactually   due\tin  respect   of   that\t  particular
\ntransaction.  It also held
\n806<\/span>
\nthat  the  plaintiff’s\tclaim in respect  of  this  item  of
\nRs.6,762-8-O  was  with\t in limitation.\t We  are  unable  to
\nuphold. the view taken by the High Court on this point.\t  It
\nis well settled that the decision of a case cannot be  based
\non  grounds outside the pleadings of the parties and  it  is
\nthe case pleaded that has to be found.\tWithout an amendment
\nof the plaint the court was not entitled to grant the relief
\nnot  asked  for\t and no prayer was ever made  to  amend\t the
\nplaint so as to incorporate in it an alternative case.\t The
\nallegations on which the plaintiff claimed relief in respect
\nof  these  shares  are clear and  emphatic.   There  was  no
\nsuggestion made in the plaint or even when its amendment was
\nsought\tat one stage that the plaintiff in  the\t alternative
\nwas  entitled  to this amount on the ground  of\t failure  of
\nconsideration.\t That being so, we see no valid grounds\t for
\nentertaining  the plaintiff’s claim as based on\t failure  of
\nconsideration  on the case pleaded by him.  In\tdisagreement
\nwith the courts below we hold that the plaintiff was wrongly
\ngranted a decree for the sum of Rs. 6,762-8-0 in respect  of
\nthe Associated Cement shares in this suit.  Accounts settled
\ncould only be reopened on proper allegations.
\nThe next point canvassed in the courts below was in respect
\nof  the\t claim of the plaintiff regarding  interest  on\t the
\namount\tfound due to the plaintiff from 5th April, 1937,  to
\nthe  date  of the suit.\t It was contended that\tno  interest
\ncould be allowed on damages because to do so would amount to
\nawarding  damages on damages which is opposed  to  precedent
\nand  principle.\t  Clark\t J., however,  awarded\tinterest  by
\nplacing\t  reliance  on\tcertain\t English   decisions   which
\nenunciate the rule that an agent who receives or deals\twith
\nthe  money of his principal improperly and in breach of\t his
\nduty  or who refused to pay it over on demand is  liable  to
\npay interest from the time when he so receives or deals with
\nthe  same  or from the time of the demand.  We think  it  is
\nwell settled that interest is allowed by a court of eqity in
\nthe case of money obtained or retained by fraud.  As
\n\t\t\t   807<\/span>
\nstated\tin  article 423 of Volume 1 of Halsbury,  the  agent
\nmust  also  pay interest in all cases of fraud\tand  on\t all
\nbribes and secret profits received by him during his agency.
\nTheir  Lordships of the Privy Council in johnson  v.  Rex(1)
\nobserved as follows: —\n<\/p>\n
  “In  order to guard against any possible  misapprehension
\nof  their Lordships’ views they desire to say that in  their
\nopinion there can be no doubt whatever’ that money  obtained
\nby  fraud  and\tretained  by fraud  can\t be  recovered\twith
\ninterest,  whether  the proceedings be taken in a  court  of
\nequity,\t or  a\tcourt  of law, or  in  a  court,  which\t has
\njurisdiction both equitable and legal.”\n<\/p>\n
 The  appeal  court affirmed the view of Clark J.  on  this
\npoint.\tThe learned counsel for the appellant contended that
\nthe  decisions relied upon concerned cases where  the  agent
\nhad  retained some money of his principal in his  hands\t but
\nthat  in the present case the claim was merely for  damages.
\nThis contention is fallacious.\tBy reason of the transaction
\nbrought\t about by fraudulent concealment plaintiff  paid  to
\nthe  defendants a sum of Rs. 60,000 in cash which  he  would
\nnot  have parted with otherwise and he also lost  the  money
\nwhich  stood at his credit with the defendants.\t It is\tthus
\nclear that the agents had a large sum of the plaintiff\twith
\nthem which they would not have acquired but by reason of the
\nfraud that they practised on him.  In this view of the\tcase
\nwe see no force in the contention of the learned counsel and
\nwe repel it.\n<\/p>\n
 The  only  other point that was argued before\tus  was\t in
\nrespect\t of  future  interest.\t It  was  not  denied\tthat
\nplaintiff was entitled to future interest as allowed to\t him
\nat  the rate of 6% on the amount found due. it\twas  however
\nargued\tthat  the  plaintiff should not\t have  been  allowed
\ninterest  for the period of one year and six  months  during
\nwhich the decree stood satisfied.  The facts are that on 9th
\nMarch,\t1943, a decree for Rs. 51,805-1-0 carrying  interest
\nat six per cent. was
\n(1)  [1904] A.C. 817.\n<\/p>\n
808<\/span><\/p>\n
passed\tin favour of the plaintiff.  On the 11th May,  1943,
\nan  amount of Rs. 71,000 due under this decree was  paid  by
\nthe  defendants to the Official Assignee.  This\t amount\t was
\nreturned by the Official Assignee to the defendants on\t12th
\nSeptember,  1944,  after  that decree had  been\t set  aside.
\nMeanwhile the plaintiff’s adjudication had been annulled and
\nhe  had been brought on the record on 16th March, 1944.\t  It
\nwas contended that during the period when the money remained
\nwith  the Official Assignee who was the plaintiff no  future
\ninterest  was payable as the decree stood  satisfied  during
\nthat period.  The High Court rejected this contention on the
\nground\tthat  when this money was paid into  court,  it\t was
\ncoupled with a prayer that it should not be paid out to\t the
\ncreditors of the insolvent’s estate pending disposal of\t the
\nappeal,\t and  therefore as the money was  not  distributable
\namongst the insolvent’s creditors, interest for this  period
\nhad been rightly allowed.  In our opinion, this view -cannot
\nbe sustained.  So far as the defendants judgment-debtors are
\nconcerned they had done their part and paid the money to the
\ndecree-holder  and  had thus satisfied the decree.   It\t was
\nopen  to  the Official Assignee, the decree-holder,  not  to
\ntake the money on the condition on which it was given to him
\nand  if\t he had not taken the money from the  defendants  he
\ncould  then  justly  have claimed future  interest  on\tthis
\namount, but having taken the money and kept it, it could not
\nbe  said  that during this period anything was\tdue  to\t the
\nplaintiff from the defendants.\tThe defendants certainly had
\npaid  the decretal amount and whether the plaintiff  or\t his
\npredecessor  in\t interest was able to use it or\t not  was  a
\ncircumstance wholly immaterial in considering whether future
\ninterest should or should not be allowed.  In our  judgment,
\nthe  plaintiff\twas not entitled to future interest  at\t the
\nrate  allowed for one year and six months period,  beginning
\nfrom 9th March, 1943, and ending with 12th September, 1944.
\n The  appeal is therefore allowed to the  extent  indicated
\nabove.\tThe decree of the High Court will be
\n\t\t\t   809<\/span>
\nmodified  and plaintiff will be entitled to damages  in\t the
\nsum  of\t Rs. 93,000 on the 3,000 Indian\t Iron  shares.\t The
\ndecree\tgiven to the plaintiff in respect of’ Rs.  6,762-8-0
\nis set aside over and above the’ decree for Rs. 9,100 in his
\nfavour\tset aside by the High Court.  In the calculation  of
\nfuture\tinterest the plaintiff will not be allowed  interest
\nfrom  9th  March,  1943, to 12th September,  1944.   In\t the
\nresult\tthe decree given to the plaintiff in the sum of\t Rs.
\n61,787\tis reduced to Rs. 42,175.  He will get\tinterest  at
\nsix per cent. per annum from 5th April, 1937, until  payment
\nor  realization\t except\t for a period of one  year  and\t six
\nmonths.\t Plaintiff will get proportionate costs throughout.\n<\/p>\n
\t\t\t     Appeal allowed in part.\n<\/p>\n
Agent  for  the\t appellant:  Ganpat  Rai.\n<\/p>\n
Agent for the respondent: M. S. K. Sastri.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Trojan & Co. Ltd vs Rm. N. N. Nagappa Chettiar on 20 March, 1953 Equivalent citations: 1953 AIR 235, 1953 SCR 780 Author: M C Mahajan Bench: Mahajan, Mehr Chand PETITIONER: TROJAN & CO. LTD. Vs. RESPONDENT: RM. N. N. NAGAPPA CHETTIAR. DATE OF JUDGMENT: 20\/03\/1953 BENCH: MAHAJAN, MEHR CHAND BENCH: […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-209424","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nTrojan & Co. Ltd vs Rm. N. N. Nagappa Chettiar on 20 March, 1953 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/trojan-co-ltd-vs-rm-n-n-nagappa-chettiar-on-20-march-1953\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Trojan & Co. Ltd vs Rm. N. N. 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