Contract Law; M/s. Cochin Frozen Food Exports (P) Ltd. Vs. M/s. Vanchinad Agencies [Kerala High Court, 05-08-2016]

Contract Act, 1872 – S. 230 – Civil P.C. 1908 – Order 41 Rule 33- Appeal Suit – Powers of the appellate court – Contract is made by an agent for a merchant resident abroad – 1st defendant Agent in India on behalf of the 2nd defendant Principal in France entered into a contract with the plaintiff who processed frozen sea food in India – 3rd defendant is the negotiating bank of the 2nd defendant at France through whom the letter of credit was to be encashed – defendants 2 and 3 have not been impleaded in the appeal suit – appeal suit not properly constituted impleading all the parties to the suit and therefore liable to be dismissed as incompetent in the circumstances – Appeal Suit is dismissed.


IN THE HIGH COURT OF KERALAAT ERNAKULAM

V.CHITAMBARESH & K.HARILAL, JJ.

A.S. No. 152 of 1999

Dated this the 5th day of August, 2016

AGAINST THE JUDGMENT AND DECREE IN OS 150/1995 of ADDL.SUB COURT,KOCHI DATED 14-01-1999

APPELLANT/PLANTIFF

M/S. COCHIN FROZEN FOOD EXPORTS (P) LTD., AROOKUTTY FERRY ROAD, AROOR – 688 584 A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956 HAVING ITS REGISTERED OFFICE AT 4/398, AROOKUTTY FERRY ROAD, AROOR – 688 534, REPRESENTED BY ITS MANAGING DIRECTOR SRI. K. PRABHAKARAN.

BY ADVS. SRI. G. KEERTHIVAS SRI.P.R.VENKETESH SRI.P.V.JAYACHANDRAN

RESPONDENTS – DEFENDANTS 1, 4 AND 5

1. M/S. VANCHINAD AGENCIES, FROZEN SEA FOOD EXPORTER AND BUYERS REPRESENTATIVES, P.O. BOX NO. 392, KOCHI – 682 002 AND 2 OTHERS

BY ADVS. SRI. SUNIL SHANKAR SRI.V.V.ASOKAN SRI.K.N.SIVASANKARAN

J U D G M E N T

Chitambaresh, J.

This is an appeal suit not properly constituted and hence forbidden by law to be reckoned on merits despite the remand in the case titled

# Cochin Frozen Food Exports (P) Ltd. Vs. Vanchinad Agencies and others [(2004) 13 SCC 434]

2. The first defendant Agent in India on behalf of the second defendant Principal in France entered into a contract with the plaintiff who processed frozen sea food in India. The plaintiff accordingly exported 700 cartons of frozen sea food pursuant to Ext.A2 purchase order as amended by Ext.A3 purchase order issued by the first defendant. Defendants 4 and 5 are the partners of the first defendant and the third defendant is the negotiating bank of the second defendant at France through whom the letter of credit was to be encashed. The cargo shipped from Kochi in India on 30.06.1994 on the basis of an irrevocable letter of credit reached the destination at Marceille in France on 16.08.1994. But the payment towards the value of the cargo was not effected to the plaintiff and hence the suit was laid for realisation of a sum of 16,22,766.50 with interest.

3. The status of the first defendant as the agent of the second defendant was seriously disputed in the separate written statement filed by the first and the second defendant. It was contended that the first defendant was only an intermediary between the foreign buyer and the Indian exporter entitled only to a commission for the cargo shipped. The first and second defendants also contended that the cargo was seized by the French sanitary services on 19.08.1994 as it was unfit for human consumption. The second defendant pleaded that it had obtained a favourable order from the Commercial Court Records of Marseille cancelling the letter of credit. The second defendant contended that it had sustained loss on account of the fraud committed and that the offer to send back the goods was not responded to by the plaintiff. The first defendant added that it had at any rate no personal liability for the value of the goods exported by the plaintiff to the second defendant as claimed.

4. The trial court by judgment dated 14.01.1999 decreed the suit as against defendants 2 and 3 for a sum of 14,66,278/- with interest and dismissed the suit as against defendants 1, 4 and 5. The trial court found that the plaintiff had exported frozen sea food which was taken delivery of by the second defendant and that the letter of credit issued for its value was dishonoured. The trial court however held that no personal liability could be fastened on the second defendant or on defendants 4 and 5 as per the terms of Ext.A3 amended purchase order. A.S. No. 152/1999 filed by the plaintiff to extend the liability to defendants 1, 4 and 5 was dismissed by this court by judgment dated 10.02.2003. This court opined that a personal liability could be fastened on the Agent only if the Principal is undisclosed or cannot be sued even if disclosed. This court relied on

# Exceptions (2) and (3) of Section 230 of the Indian Contract Act, 1872

(the ‘Act’ for short) to hold that the Agent is not personally liable. The plaintiff pursued the matter in Civil Appeal No. 635/2005 whereupon the Supreme Court by order dated 20.01.2005 remanded the case to this court for decision on merits. The Supreme Court in Cochin Frozen Food Exports (P) Ltd.’s case (supra) directed the consideration of the applicability of Exception (1) to Section 230 of the Act. This is how the appeal suit impugning the decree to the extent prejudicial to the plaintiff comes up for hearing eleven years after the remand by the Supreme Court.

5. We heard Mr.G. Keerthivas, Advocate on behalf of the appellant and Mr. Sunil Shankar, Advocate on behalf of the respondents.

6. Let us at the outset recapitulate Section 230 of the Act which reads as follows:

# 230. Agent cannot personally enforce, nor be bound by, contracts on behalf of principal

In the absence of any contract to that effect an agent cannot personally enforce contracts entered into by him on behalf of his principal, nor is he personally bound by them.

Presumption of contract to contrary – Such a contract shall be presumed to exist in the following cases:-

(1) where the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad;

(2) where the agent does not disclose the name of his principal;

(3) where the principal, though disclosed, cannot be sued.

The contention of the plaintiff is that the contract was made by the first defendant Agent for the sale or purchase of goods for the second defendant who was a merchant resident abroad. It is the case of the plaintiff that Exception (1) to Section 230 of the Act would apply and that the first defendant is therefore personally bound by the contract. The presumption of personal liability under a contract as per Exception (1) to Section 230 of the Act is however rebuttable and not absolute. The defendants have a case that the very contract of the second defendant with the plaintiff and its local banker (Indian Bank, Kochi) was scrapped by the Commercial Court Records of Marseille. The foreign judgment found amongst the records was refused to be marked for the reason that the evidence in the case had been closed and arguments commenced. The foreign judgment declared the contract entered into between the plaintiff and the second defendant as well as the credit facility as being null and void.

7. The trial court though has not admitted the foreign judgment in evidence has curiously enough held that the same was obtained by fraud and hence not binding on the plaintiff. The reason for holding so is that the period of the letter of credit was extended solely to facilitate the second defendant to obtain an order from court. An order was obtained from the Commercial Court Records of Marseille by the second defendant before the expiry of the extended period of the letter of credit. Is this finding sufficient to hold that the foreign judgment was obtained by fraud and hence not conclusive under Section 13(e) of the Code of Civil Procedure, 1908? We are afraid not as held by the Supreme Court in

# Sankaran Govindan Vs. Lakshmi Bharathi and others [AIR 1974 SC 1764]

referring to

# Jacobs Vs. Beaver [17 Ont.L.R.496]

“As Garrow, J. said in Jacobs v. Beaver (supra), the fraud relied upon must be extrinsic or collateral and not merely fraud which is imputed from alleged false statements made at the trial which were met with counterstatement and the whole adjudicated upon by Court and so passed into the limbo of estoppel by the judgment. That estoppel cannot be disturbed except upon allegation and proof of new and material facts which were not before the former court and from which are to be deduced the new proposition that the former judgment was obtained by fraud.”

(emphasis supplied)

8. Thus utmost care and caution should be exercised while holding that a foreign judgment was procured by fraud which would otherwise operate as an estoppel against the plaintiff. There cannot be a retrial of the issue on merits unless the foreign judgment is dislodged for weighty reasons which are wholly absent. We would have remanded the case to the trial court to enable the parties to have the foreign judgment admitted in evidence and for a finding on its conclusiveness. The parties could also be afforded an opportunity to lead further evidence to establish that the foreign judgment was obtained by fraud and hence not conclusive. But we are shocked to decipher that defendants 2 and 3 have not been impleaded in the appeal suit wherein defendants 1, 4 and 5 alone are the respondents. A remand of the suit for retrial of the issues is impossible unless all the defendants in the suit are eo-nominee impleaded in the appeal suit also against the decree. The decree impugned in the appeal suit exonerating defendants 1, 4 and 5 from the plaint liability has obviously become final as far as defendants 2 and 3 are concerned.

9. The decree passed against defendants 2 and 3 cannot be put into execution now since more than two decades have rolled on and they are also not parties to the appeal suit. Defendants 1, 4 and 5 if now found liable are bound to be indemnified by the second defendant as the consequence of a lawful act done by an Agent under Section 222 of the Act. It will be unjust to make the second defendant vulnerable to such liability without being afforded an opportunity to contest the suit on merits after remand. The question as to whether the first defendant is an Agent of the second defendant or only an intermediary broker entitled to commission is also an ancilliary issue. This is in the context of the plea that the credit is given exclusively to the Principal under an irrevocable letter of credit and not to the Agent who is therefore not personally liable. We are unable to pronounce on all these issues after a full fledged adjudication without defendants 2 and 3 on the party array who are unwittingly not impleaded. The valuable right of defendants 2 and 3 to rake up all the issues under Order XLI Rule 33 of the Code of Civil Procedure, 1908 has also been whittled down. This is so notwithstanding the fact that the plaintiff alone has filed the appeal and defendants 2 and 3 have not filed any independent appeal or objection to the decree.

10. In short the finding on all the issues in the suit remain intact as far as defendants 2 and 3 are concerned and the same would operate as resjudicata atleast to a limited extent. Neither can we accede to the request of the plaintiff to grant a decree for money in entirety as against defendants 1, 4 and 5 also in this appeal suit. Nor can we countenance the plea that there is no embargo for a decree to be passed against defendants 1, 4 and 5 in confirmity with the decree passed against defendants 2 and 3. We hold that the Appeal Suit is not properly constituted impleading all the parties to the suit and therefore liable to be dismissed as incompetent in the circumstances.

The Appeal Suit is dismissed. No costs.

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