Contract Cases as per Course Outline

1. Adamson v. Jarvis
Adamson was an auctioneer who was given cattle by Jarvis. Here, the auctioneer was represented with the fact of principal
that he was the real owner of the cattle as well as goods. The auctioneer was unaware of the fact that the principal had no
right to sell the goods.

Jarvis was ordered to pay damages to Adamson. Adamson was entitled to recover the money he had to pay to the true
owner of cattle as well as any expenses incurred by him. The obligation to indemnify is a voluntary obligation taken by the
indemnifier. Adamson was allowed to follow the instruction and sold the cattle. But Jarvis was not the owner of the cattle.
The real owner of the cattle sued Adamson for conversion and he was successful in his case. Adamson had to pay damages
and he then sued Jarvis to be indemnified for the loss that he suffered by way of damages to be paid to the real owner.
Section -125 of the Indian Contract Act, 1872 comes into play when the indemnity holder is sued, that is under a specific
situation.

The Judgement of this case was that Jarvis was ordered to pay damages to Adamson as he did not tell the true fact about his
ownership. It was held that the defendant was liable for loss of plaintiff and compels to compensate him as per Section-125
of the 2nd rule.

2. Gajanan Moreshwar v. Moreshwar Madan

FACTS:
Plaintiff (P) got a plot of land on lease from municipal corp. of Mumbai. P allowed Defendant (D) to erect building on that
land. D, in this course, incurred debt of Rs.5ooo from building material supplier (K), twice. On both the occasion, P
mortgaged part of the land to K. P, on D’s request transferred the land to D, on the consideration that he (P) would be
discharged of all the liabilities arising out of that land. D failed to adhere to his consideration. P filed a suit for discharge of
liabilities on him, alleging D to be indemnifier.
ISSUE: Whether the suit for indemnity was premature as P had not yet incurred any loss as such?
CONTENTIONS (Defendant):
1. As per s. 124, the promisor promises to safeguard the other from the damage that is caused to him, not the damage
which may be caused to him. Since there is no damage to the plaintiff as yet, P is not entitled to sue the indemnifier.
(Shankar Nimbaji vs. Laxman Supdu, Chand Bibi vs. Santoshkumar Pal )
2. The liability of the plaintiff is not absolute but contingent. There is nothing to show that if the mortgagee was to sue to
enforce his mortgage and the property was sold, there would be any deficit for which the plaintiff would be liable.
HELD (High Court):
Justice Chagla
1. (w.r.t 1st contention of D) ICA is both an amending and a consolidating Act, and it is not exhaustive of the law of
contract. Section 124 deals only with one particular kind of indemnity in which the loss is caused by the conduct of the
indemnifier himself or of other person, but does not cover the cases outside this or cases when liability arises because of
something done by the indemnified at the request of the indemnifier. S. 124 talks about subsequent conduct but here
the liabilities were past, i.e. prior to the date when the contract was actually entered into force. Earlier to this contract,
all the acts were done merely on request and without any consideration and hence, were not binding. Therefore s.124
is inapplicable here.
2. (w.r.t 2nd contention of D) Under both the mortgage and the further charge there is a personal covenant by the
plaintiff to pay the amount due, and it would be open to the mortgagee to sue the plaintiff on the personal covenant
reserving his rights under the security. Therefore, the liability of the plaintiff under the personal covenant is absolute
and unconditional.
3. Principles of equity (as applied in English Courts) can be applied here to relieve P from all the liabilities (as ICA is not
exhaustive of the law of indemnity).

3. PUNJAB NATIONAL BANK LIMITED VS BIKRAM COTTON MILLS & ANR. (1970 AIR 1973, 1970 SCR (2) 462)
The parties and the stake holders in this case are as follows;
1. Ranjit Singh, the director of the company – surety

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2. Bikram Cotton Mills – Principal Debtor
3. Punjab National Bank – Creditor
This is a case of Guarantee as there is no question of whether the bank has suffered any losses brought
about via the conduct of the enterprise or by using the conduct of any different man or woman (in accordance with Sec
124, of Indian Contract Act, 1872) but, the whole case revolves around whether the organisation has failed to discharge
it’s duties towards the financial institution and solely if the bank has failed to discharge the duties, as solely then can
Ranjit Singh be held dependable towards the financial institution to complete the payment of the ultimate stability (in
accordance with Sec 126, of Indian Contract Act, 1872).
Indemnity provides compensation whereas guarantee works as an assurance. This case thus clarifies this difference
between guarantee and indemnity. In this case the bank was a debtor and therefore the primary liability lies on the
bank where as the secondary party to hold liability is of the surety being Ranjit Singh. Here though there stands no risk
involved on the bank, however the sections governing guarantee, there exists a duty to pay off debts thereby it is
established that whether there exists risk, the principle debtor and surety are legally liable.

4. Amrit Lal Goverdhan Lalan v. State Bank of Travancore and Ors.

From <https://indiancaselaw.in/amrit-lal-goverdhan-lalan-v-state-bank-of-travancore-and-ors/>

FACTS:
Respondents 3 to 6, as partners of Respondent 2 firm (R2), entered into an agreement with a Bank (R1) to open a cash
credit account to the extent of Rs. 100,000 to be secured by goods to be pledged with the Bank. The agreement
provided that the borrowers shall be responsible for the quantity and quality of goods pledged. The appellant (A)
became surety for the borrowers w.r.t the account upto Rs.100,000 and allowed the Bank to recover, notwithstanding
any other security the Bank may hold. The stock pledged was initially valued at about Rs. 99,991 but after verification
shortage of goods to the value of Rs. 35,690 was found. It was alleged that R2-R6 must have taken away the goods.
They were granted time to make up the deficit but they failed to do so. After adjusting the money realized on the sale
of the goods pledged and other adjustments, a sum of Rs. 40,933.58 was found due to the Bank from R2-R6. The Bank
filed a suit against them and A.
HELD:
Trial Court: suit decreed.
High Court: decree confirmed
SUPREME COURT:
Contentions (Appellant, A)
1. Certain entries in the account books of the Bank showed that the maximum limit of credit was reduced to Rs.
50,000 and again raised to Rs. 100,000 without consulting the appellant, therefore there was variation in the
terms of the contract without the surety’s (appellant’s) consent and, under s. 133 of the Indian Contract Act the
liability of the appellant was discharged.
2. Under s. 135 of the Act, the conduct of the Bank in giving time to R2-R6 to make up the deficit in the quantity of
goods absolved A of all liability.
3. Under s. 141 of the Act, since a portion of the security was parted with or lost by the creditor without surety’s
consent, the liability of A was discharged to the extent of the value of the security so lost.
RAMASWAMI, J.
1. (w.r.t 1st contention of A) The entries in the books of account were mere internal instructions not legally
binding on the respondents, and in view of the formal record in the original agreement and letter of guarantee,
there could not have been a variation in the terms without a proper written agreement. Therefore, there was no
variance in the terms of the contract and the provisions of s. 133 of the Act were not attracted.
2. (w.r.t 2nd contention of A) The act of the Bank in giving time to the principal debtor to make up the quantity of
goods pledged is not tantamount to giving of time to the principal debtor for making payment of the money,
within the meaning of the section 135 and hence it is not attracted. What really constitutes a promise to give time
within the meaning of s. 135 of the Act is the extension of the period at which, the principal debtor was by the
original contract obliged to pay the creditor, by substituting a new and valid contract between them, or, whenever
the taking of a new security from the principal debtor operates as giving time.
3. (w.r.t 3rd contention of A) Under s. 140 of the Contract Act the surety is, on payment of the amount due by the
principal debtor, entitled to be put in the same position in which the creditor stood in relation to the principal

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 principal debtor, entitled to be put in the same position in which the creditor stood in relation to the principal
debtor. Under s. 141 of the Act the surety has a right to the securities held by the creditor at the date when he
became surety. The shortage was brought about by the negligence of the Bank and to that extent it must be
deemed to be a loss by the Bank of the security. Contention accepted.

From <https://indiancaselaw.in/amrit-lal-goverdhan-lalan-v-state-bank-of-travancore-and-ors/>
5. Sardar Kahan singh vs tek chand nanda

The facts of the case are that S. Jagdesh Singh who shall hereafter be referred to as the principal debtor had purchased
a true No. J & K 4177, which was financed by the plaintiff decree holder. S. Jagdesh Singh gave two people, the present
appellant S. Kahn Singh and Dulla Singh as the guarantors for the payment that would be due on the hire purchase
agreement dated 19-9-1955 Some payments were made but ultimately a pronote for Rs. 6,000 was executed on
26-7-1958 by the principal debtor and two sureties in favour of the respondent No. 1. An agreement was
simultaneously executed by these persons in favour of the plaintiff-respondent No. 1. When no payment was made, a
suit was instituted by the respondent No. I against the three person for Rs. 6,480. Rs. 6,000 as principal and Rs. 480 as
interest, describing Jagdesh Singh as the principal debtor, and the two other defendants, the appellants and the
respondent dulla Singh as the guarantors
Held :
This was a case when security was given in the Court. Here, as in the present case, the original contract as well as the
decree made the decretal amount payable in lump. By the arrangement arrived at between the principal debtor and
the creditor on
11-3-1963 an entirely new contract was substituted for the old one. This can be illustrated like this: Under Section 128
the liability of the surety is co-extensive with that of the principal debtor. Suppose in this case the decree-holder
wanted to take out execution of the entire decretal amount against the surety. The surety could at least have raised a
plea that as the creditor had agreed to realise the amount by instalments instead in one lump, he also would be
entitled to that benefit. Therefore, the remedy of the decree-holder to recover the entire sum in lump would be barred
under this com-promise. Even if the provisions of Section 135 would not come into play, this would be a complete
answer to the execution of the decree-holder. The crux of the matter is if the original contract is in any way materially
altered in the eye of law, a new contract is substituted for the old one, which makes the old contract impossible of
perfor-mance. To apply this principle again to the facts of the case, suppose the decree-
The contract of guarantee implies a co-extensive responsibility of the principal debtor with that of the surety. If the
contract cannot be proceeded against one, it cannot be similarly proceeded against another. This is the legal position
even if Sections 135 and 139 were not there. But the present case is fully coveted by the provisions contained in
Sections 135 and 139 of the Contract Act; or at least by the principles contained therein and therefore in our opinion
the surety has been entirely absolved and discharged of the responsibility to pay the decretal amount.

6. State Bank of Saurashtra vs. Chitranjan Rangnath Raja and Anr.

Facts:
The appellant-bank allowed a cash credit facility limited to Rs. 75,000/- to the Principal Debtor (PD) on his pledging
5,000 tins of groundnut oil under the lock and key of the Bank and on personal guarantee of the Respondent-Surety.
However, afterwards when the Bank lost the pledged tins and sued the legal representative of PD (after the death of
PD) and the Surety to repay the debt, Surety contested discharge of his liability.
Contentions:
BANK- By Cl.5 of guarantee, surety could not claim discharge from the guarantee contract even when the Bank had
released any other security; such that in instant case, surety remains liable. Moreover, under Cl.7, Surety cannot claim
discharge even if the creditor Bank has any other guarantee, security or remedy from the principal debtor.
SURETY- The Bank was negligent in parting away with the security such that the Surety was discharged to the extent of
the value of tins of oil.
Held:
Trial Court- The trial court held that there was negligence on the part of the Bank with regard to the safe custody of the
pledged oil tins but as the contract of guarantee entered into by the surety with the Bank was independent of the
pledge of goods given by the principal debtor, the surety is not discharged from his liability under the guarantee.
High Court- On account of the conduct of the parties, the pledge of the goods and subsequent contract of guarantee
(entered into within the same time frame) were part of the one composite transaction and they evidenced that the
principal debtor had offered two securities, one the pledge of oil tins and another personal guarantee of the surety:
since the bank was utterly negligent in dealing with the pledged goods leading to their loss, therefore, surety is

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 since the bank was utterly negligent in dealing with the pledged goods leading to their loss, therefore, surety is
discharged under Section 139 and 141 of the Indian Contract Act.
Issues:
1. Whether the pledge of the goods and the guarantee contract amounted to one single transaction.
2. Whether S.141 is applicable here. If yes, to what extent is the Surety discharged?
Judgment:
In order to attract section 141 of the Contract Act, it must be shown that the creditor had taken more than one security
from the principal debtor at the time when the contract of guarantee was entered into and irrespective of the fact
whether the surety knew of such other security offered by the principal debtor, if the creditor loses or without the
consent of the surety parts with the other security, the surety would be discharged to the extent of the value of the
security. The letter of guarantee executed by the Surety and the pledging of the goods evidenced one composite
transaction; such that, as found by the High Court, the principal debtor had offered two securities, (i) the pledge of
goods, (ii) personal guarantee of the Surety. The Surety himself agreed to give personal guarantee on the specific
understanding and with the full knowledge of the Bank that the principal debtor was offering another security, namely,
pledge of goods. First security, namely, the pledged goods are lost to the Bank on account of its negligence. As the
current market price of 5000 oil tins would have satisfied the Bank’s entire claim, the Surety would be released to the
whole extent.
With regard to contention upon Cl.5, release of security implies a volitional act on the part of the Bank. In the present
case, the bank had lost the security on account of negligence which cannot be equated with release. Further, w.r.t Cl.7,
the expression ‘any other guarantee, security or remedy’ therein mentioned must be security other than the pledged
goods (Amrit Lal Goverdhan Case).
7. Jagdish Chandra Trikha vs Punjab National Bank

the plaintiff's father had entrusted a box containing 480 totals of gold ornaments and Jewellery to the defendant's bank at
Peshawar before the partition of the country. The jewellery box was locked, wrapped and sealed when delivered. A proper
receipt describing to the plaintiff in Delhi, it was not in the same condition as it was delivered to Peshawar. The Lahore
branch of the bank had put their own wrapper on rhe box and it was not now locked.
The plaintiff claimed the gold ornaments and jewellery deposited with the bank or their value amounting to Rs. 372400.
It was held that the position of the Bank was that of a bailee and it failed in its duty to take care of the goods and return
them to the plaintiff. The bank was liable to pay the sun of ₹3,72,400 along with simple interest @ 12% p.a. from the date of
the institution of the suit till the date of realisation of the amount.

From <https://legalviews.co.in/about-us-1/f/bailment?blogcategory=Contract>

8. RD Saxena Vs Balram Prasad

Facts of the Case

The appellant was appointed as a legal advisor to the Madhya Pradesh State Co-operative Bank Ltd. (herein referred to
as ‘Bank’) in 1990. He used to conduct cases on behalf of the said bank. Subsequently, on 17.7.1993 the bank terminated
the retainers of the appellant; and requested him to return his files related to the bank. Instead of returning the files, he
informed the bank that only after dues amounting to rupees 97,100/- were paid will he return the files.

Hence, the Bank filed a complaint before the State Bar Council of Madhya Pradesh on 3.2.1994; wherein the appellant
contended that he has a right of lien on those files; whereas the respondent contended that the appellant is guilty of
professional misconduct by not returning the files to his client.

Subsequently, the matter got transferred to the disciplinary committee of Bar Council of India; wherein the appellant was
held guilty of professional misconduct and was imposed a fine of rupees 1000/-; and also debarred him from practicing for
18 months; and was directed to return all the case bundles of the client without any delay.

Issue

Whether the advocate can have a lien on the litigation papers entrusted to him by his clients for pending fees?

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Whether the advocate can have a lien on the litigation papers entrusted to him by his clients for pending fees?

Judgment: Decision of the court

Rule of Law-
Section 148 of the Contract Act defines the bailment which states that; if the goods are transferred from one person to
another for some purpose; and after completion of the purpose the goods have to be returned to; or otherwise disposed of
according to the directions of the person delivering them then such transfer can be termed as a bailment.

But in this case, the goods are not bailed to the appellant/advocate as there was no delivery of the goods; because the
advocate owned paper on his account.

The term ‘goods’ has to be understood in the sense of the Goods and Sales Act, 1930 wherein section 2(7) states “every
kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and
things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.”
Thus the goods which fall in the purview of section 171 should have marketability i.e. they should be saleable.

The case files in the present case are neither saleable nor can be converted into money; hence section 171 is of no merit.

Court’s Conclusion: R.D. Saxena Vs. Balram Prasad

In thPunishment will be altered to reprimanding the appellant. However, if any person commits this type of professional
misconduct in the future; then Bar Council will determine respective punishment; and the lesser punishment imposed in
this case should not be taken under the ambit of precedent.>

9. Shiv Nath Rai Ram Dhari and Ors v Union of India

The Supreme Court in Shiv Nath Rai Ram Dhari and Ors v Union of India AIR 1965 SC 1666 has construed misconduct to
mean ‘mere negligence or omission would not be enough but that negligence or omission should be such that a
businessman would say that it amounted to bad management or mismanagement’.

10. The Morvi Mercantile Bank Ltd. and Anr. v. Union of India

From <https://indiancaselaws.wordpress.com/2012/01/21/the-morvi-mercantile-bank-ltd-and-anr-v-union-of-india/>

FACTS:

A firm doing business in Bombay entrusted goods worth Rs.35500 with the Railway for delivery in Delhi. The goods
were consigned to “self” and the firm endorsed the railway receipts to a Bank against an advance of Rs. 20,000 made
by the Bank to the firm. The firm also executed a promissory note in favour of the Bank for that amount. When the
goods reached the destination, the Bank refused to take delivery, on the ground that they were not the goods
consigned by the firm. The Bank, thereafter filed a suit for the recovery of the value of the goods against the Railway.

ISSUE:

Can an owner of goods make a valid pledge of them by transferring the railway receipt representing the said goods?
What value such a document carry for this purpose?

HELD:

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 Trial Court: Dismissed the suit of bank.

High Court: Allowed the appeal and decreed the claim for Rs. 20,000 on the ground that as pledgee of the goods, the
Bank suffered loss only to the extent of the loss of its security.

• Both the Bank[1] and the Railway appealed to SC.

SUPREME COURT

Contention (Railway): The endorsement of the railway receipt in favour of the Bank did not constitute a pledge of the
goods covered by the receipt and the Bank had no right to sue for compensation.

Held

Subba Rao[2], Raghubar Dayal and Bachawat, J J

An owner of goods can make a valid pledge of them by transferring the railway receipt representing the said goods.[3]
The firm by endorsing the railway receipts in favour of the Bank, for consideration, pledged the goods covered by the
said receipts, to the Bank, and the Bank being the pledgee could maintain the suit for the recovery of the full value of
consignment amounting to Rs. 35,500.
A pledge being a bailment of goods under s. 172 of the Contract Act the pledgee, as a bailee will have the same
remedies as the owner of the goods would have against a third person for deprivation of the said goods or injury to
them under s. 180 of the Act.

From <https://indiancaselaws.wordpress.com/2012/01/21/the-morvi-mercantile-bank-ltd-and-anr-v-union-of-india/>
11. Loon Karan Sohanlal v. John & Co
FACTS:
Plaintiff-appellant contracted with John and Co. (henceforth called J&C) for sale and delivery of goods. Plaint was buyer
and J&C was seller. Sethiya & Co (S&C) were agents of J&C. App contended that
1. S&C should be liable for non delivery of 152 bales of yarn to def.
2. Refund of price

In Loon Karan Sohanlal v. John & Co.[9], Dhawan J. of the Allahabad High Court put forward the test for determining
whether there exists the relationship of agency. He explained that in American Jurisprudence it is clearly mentioned
that mere use of the words agent and agency does not by itself create a relationship of agency and the same law is
followed in India. He added that it has been held in several decisions that just because the parties have named their
relationship as agency is not a conclusive proof unless the incidence of this relationship, as disclosed by evidence,
justifies a finding of agency. He also said that the courts, while examining the evidence, must try to find out the true
nature of the relationship and the functions and powers assigned to the so-called agent
Plaint argued that he was employed by govt to purchase yarn- therefore he is an agent. This is wrong- there is a
difference between a person employed In do an act for another and a person who does an act at the bidding if another.
In the first case, the act is of the person employing, there is agency under $182 and employer must indemnify under
$222. In the latter, the act is of the person being employed, no agency and no indemnification unless specific indemnity
contract exists. Plaint only employed to sell yarn (licensee) and hence no agency.
Held in favour of def
12. Pannalal Jankidas Vs. Mohanlal and Anr.
Facts
Plaintiffs, as agents of the defendants had stored the goods in Government godowns, requiring permit to supply them
to the defendants. In the meanwhile, due to the fire in godown, the goods got burned up and plaintiffs got
compensation of 50% of damage caused in respect of the goods as they were uninsured. However, plaintiffs sued
defendants to be indemnified against the rest 50% of damages caused to the goods while handling those as latter’s
agent. The defendants pleaded, and it was found as a fact that plaintiffs had agreed to insure the goods and even
charged defendants, nevertheless omitted to insure the goods; they further pleaded that they were entitled to set off

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 charged defendants, nevertheless omitted to insure the goods; they further pleaded that they were entitled to set off
or counter claim for the value of the goods destroyed as damages caused to them by the neglect or breach of duty of
the plaintiffs.
Issues: What damages are plaintiffs liable to pay to the defendants for failure to insure the goods which were
destroyed?

From <https://indiancaselaw.in/pannalal-jankidas-vs-mohanlal-and-anr/>

As per Majority:
“Where two parties have made a contract which one of them has broken the damages which the other party ought to
receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising
naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably
be supposed to have been in the contemplation of both parties at the time they made the contract, as the probable
result of the breach of it.” (HADLEY v. BAXENDALE)
Restitutio In Integrum: “the party who has suffered the loss should be placed in the same position, as far as
compensation in money can do it, as if the party in breach had performed his contract or fulfilled his duty”
As full compensation under the Ordinance was payable on proof of the existence of a fire insurance policy irrespective
of the terms of the policy, and the non-recovery of half the value of the goods from the Government under the
Ordinance was due to the absence of a fire insurance policy, the loss to the defendants arose directly from the neglect
or breach of duty of the plaintiffs to insure the goods as they had been instructed and agreed to do; intervention of the
Ordinance did not break the chain of causation or make the loss remote or indirect as the liability of plaintiffs arises not
because of the Ordinance but because of the breach of their duty in failing to insure, which has taken place apart from
the Ordinance and which is not affected by the Ordinance.
Even when there would have been no such ordinance passed, defendants could have filed a suit against the fire
insurance policy contending that the fire, and not the explosion, was the cause of destruction of goods such that court
would then have decided the liability and rights of the parties. Therefore, contending that had the ordinance not there,
only nominal damages would have been given, cannot hold true.
Ordinance did not create any new liability but only quantified the damages such that failure of plaintiffs to insure the
goods must now be measured on new basis; and the fact that it did not exist at the time of the explosion and could not
have been in the contemplation of the parties was irrelevant for deciding the question of liability. Therefore, plaintiffs
must put the defendants in the same position as they would have been had the goods been insured.

From <https://indiancaselaw.in/pannalal-jankidas-vs-mohanlal-and-anr/>

Pannalal Jankidas v. Mohanlal, AIR 1951 SC 144, where the Supreme Court for the first time held that the party in
breach must compensate in respect of the direct consequences flowing from the breach and not in respect of loss or
damage indirectly or remotely caused. This rule is based on the broad principle that the party who has suffered the loss
should be placed in the same position, as far as compensation in money can do it, as if the party in breach had
performed his contract or fulfilled his duty.

From <https://indiacorplaw.in/2018/10/supreme-courts-balanced-approach-damages-contract-law.html>

13. Sushila Devi vs The State Of Bihar

(Kafi lambe facts thee click on the link and read)
From <https://legaldata.in/court/read/1179912>

Held:
On the basis of the discussions made above, I have no hesitation in holding that in the light of the decision of the
Supreme Court in Basanti Devi, the liability to make payment of the insured amount still lies with the Insurance
Company. It is clarified that in case the Insurance Company feels that it suffered a damage due to default of its agent,
the police head-quarter/Supdt. of Police, it will be open to it to bring such action against them as may be permissible
under law but that would not absolve it from making payment of the insured amount to the petitioner. The Insurance
Company is, accordingly, directed to make payment of the insured amount to the petitioner

From <https://legaldata.in/court/read/1179912>
14. Dirghayu Mahavir Diagnostic, Muzaffarpur Vs State of Bihar. High Court of Patna (India)

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14. Dirghayu Mahavir Diagnostic, Muzaffarpur Vs State of Bihar. High Court of Patna (India)

Issue Contract Act (9 of 1872) - Section 201; Constitution of India - Article 14

From <https://vlex.in/vid/ms-dirghayu-mahavir-diagnostic-655262065>

The services that are required to be provided are of emergency nature. On the one hand, the State did not provide the
facility and, on the other hand, it has terminated the contract. At any rate the respondents did not invoke any specific
clauses in the agreement for cancelling the agency. Hence the plea of the respondents as regards arbitration cannot be
accepted.
The result of the impugned order is that the Government hospitals are without any facilities. The respondents want the
matter to lie over, because if arbitration is initiated, it will take its own time. This Court would not permit such
approach, lest the public interest suffers.

From <https://indiankanoon.org/doc/67316663/>

15. Kailash Sharma vs. The Patna Municipal Corporation and Ors.

From <https://indiancaselaw.in/kailash-sharma-vs-the-patna-municipal-corporation-and-ors/>

Facts:
The Appellant-Company sold a certain number of fogging machines (used for killing mosquitoes) to the Respondent-
Corporation for which the payment had to be made within one week of delivery. The Respondents did not pay within one
week. The Respondent did not communicate with the appellants w.r.t the payment afterwards too. After 6 months of using
the machine, the Respondents communicated with the appellants, but only to complain about the fogging machines’
inefficiency. They said that the machines were defective. Next, the Respondents intended to return the machines. The
Appellants have filed this suit to recover the payment of machines from the respondents. This Judgement is given after
three year of the delivery of goods.
Issue: Whether the Respondents are liable to pay for the machines (liable to pay if repudiation of transaction not allowed).
Relevant Provision(s): Section 13(2), 32, 42 and 59 of Sale of Goods Act, 1930
Case Analysis:
According to section 42 of the Sale of Goods Act, the act of receiving the machine, after demonstration, using it and
retaining it for a long time amounts to valid acceptance. In this case, the Respondents have accepted the machines.
The Court in this case discussed Section 32 of the Act (payment and delivery are concurrent conditions) and noted that the
law provides that payment and delivery are concurrent but that is subject to an agreement otherwise. Here the agreement
was for payment within one week of delivery. Furthermore, in the present case, three years are over.
Section 13 (2) of the Indian Sale of Goods Act, 1930, clearly states that where there is a warranty then at best the purchaser
can raise a claim for damage but cannot repudiate the transaction itself as is being sought to be done by the Corporation.
This section was read with Section 59 of the Act. Section 59 says that a buyer is not by reason of a breach of warranty (by
the seller) entitled to reject the goods. He may sue for damages or for breach of warranty. Here too, the Respondents, after
using the machines for a long time, cannot simply return the machines to the appellants without payment for the machines.
The court eventually held that the Respondent-Corporation is at fault in law for the non-payment. The facts are merely a
pretext to withhold the payment.
Conclusion: Respondents were held to be liable to pay for the fogging machines as they could not legitimately return the
machines after use/ repudiate the transaction.

From <https://indiancaselaw.in/kailash-sharma-vs-the-patna-municipal-corporation-and-ors/>

16. KD Kamnath and Company vs CIT

Facts Of the case:
The appellant is a firm consisting of six partners and the partnership was constituted under the document dated March 20,
1959. The business of the partnership, as recited in the deed, is stated to have been carried on in partnership from October
1, 1958. The partnership was registered under the Indian Partnership Act, 1932 (hereinafter to be referred as "the
Partnership Act"), on or about August 11, 1959.

For the assessment year 1959-60, corresponding to the previous year ending March 31, 1959, the appellant filed an

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For the assessment year 1959-60, corresponding to the previous year ending March 31, 1959, the appellant filed an
application to the Income-tax Officer, " A " Ward, Dharwar, under section 26A for registration of the partnership in the
name of M/s. K. D. Kamath and Co. The Income-tax Officer, by his, order dated September 28, 1960 declined to grant
registration on the ground that there was no genuine partnership brought into existence by the deed of March 20, 1959,
and that the claim of the firm having been constituted is not genuine.

From <https://www.legalserviceindia.com/legal/article-7944-brief-of-kd-kamnath-and-company-vs-cit-.html>
The said officer further held that the business should be held to be the sole concern of K. D. Kamath. For coming to this
conclusion, the Income-tax Officer has mainly relied on clauses 8, 9, 12 and 16 of the partnership deed. Though the Income-
tax Officer has used a loose expression that there is no genuine partnership, the sum and substance of his finding is that
there is no relationship of partners inter se created under the said document.

Issue:
• Whether the deed dated March 20, 1959, and marked exhibit A is an instrument of partnership on the basis of which
the appellant firm is eligible to be granted registration under section 26A of the Indian Income-tax Act, 1922
Held:
In the result, we answer the question of law in the affirmative and in favour of the assessee. This answer given by us to the
question referred to the High Court by the Income-tax Appellate Tribunal will be substituted in the place of that given by the
High Court. We accordingly reverse the judgment and order of the High Court and allow the appeal with costs here and in
the High Court.

From <https://www.legalserviceindia.com/legal/article-7944-brief-of-kd-kamnath-and-company-vs-cit-.html>

17. Cox v. Hickman (1860) 8 H.L.C. 268

From <https://lexpeeps.in/cox-v-hickman-1860-8-h-l-c-268/>
Facts
Benjamin Smith and Josiah Timmis Smith carried on business as iron workers and corn merchants under the name of B
Smith & Son. They owed a lot of money to the creditors and a meeting took place, amongst whom were Cox and
Wheatcroft. A deed of arrangement was executed by more than six-sevenths in number and value of the creditors. The
trusts were enumerated and the lease was fixed at 21 years. They were to carry on business under the name of “The
Stanton Iron Company”. The deed also contained a clause which prevented them from suing the Smiths for existing
debts. Cox never acted as trustee, and Wheatcroft resigned after six weeks after which no trustee was appointed.
The goods for the business were provided by Hickman who drew 3 bills of exchange, which the business accepted but
did not honour.
The suit was first tried in front of Lord Jervis who ruled in favour of the defendants. The action was then taken to the
Exchequer Chamber wherein three judges wanted to uphold the judgement and the other three were for reversing it.
Issues
Whether there is a partnership between the traders who were in essence the creditors of the firm.
Contentions
The counsel for Wheatcroft contended that:
1. There was no action against the appellant, as if Hickman had heard that Cox and Wheatcroft were the trustees, he
would have realized that Cox had never been a trustee and Wheatcroft had resigned.
2. The ownership of the partnership never changed and was still owned by the Smiths.
3. A qualified benefit derived from a trade does not make a person a partner in it. Here, unless the profits are taken,
there exists no partnership.
The counsel for Cox contended that:
1. The defendant can be held liable only if:
1.1 He put his name on the bill
1.2 Authorised someone else to put their name on the bill
1.3 Held himself to have given the authority
1. As to the first and third points he is not liable. As far as the second is concerned, the defendant cannot be held
liable unless an agency is proved.
2. It is up to the defendant to show that the plaintiff is a partner.
The counsel for Hickman contended that:

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 The counsel for Hickman contended that:
1. There was a contract of partnership under which business was to be carried out for the benefit of creditors
2. The scheduled creditors are allowed to participate in the profits of the firm thereby making them partners
3. Any one of the partners may bind all the others by the acceptance of the bills in the regular course of business
Judgement
The deed gave special powers to the creditors. They were given the choice by majority regarding whether or not the
trade should be continued and making rules and regulations as to the carrying out of that trade, which are the powers
that partners have.
The creditors, however, did not carry out the business of the trade when they could have but let the trustees do the
same. By this act f theirs, they did not make themselves partners of the trade. If they had carried out they business
they could have made sure none of the trustees accepted the bill of exchange as they would be the principals.
The deed in this case is merely an arrangement between the creditors and the Smiths, to repay the creditors out of
existing and future profits. This relationship between the creditors and debtors is not enough to constitute a
relationship between a principal and agent. Trustees are liable as they are the agent by the contract but the creditors
are not the principals of the trustees.
Held
The decision of the Court of Common Pleas was reversed and the defendant’s were not held liable.

From <https://indiancaselaw.in/cox-v-hickman/>

18. Dena Bank vs Bhikhabhai Prabhudas Parekh & Co.

From <https://indiankanoon.org/doc/375776/>

Dena Bank (hereinafter the Bank for short), who is appellant before us, filed a suit for recovery of a sum of
Rs.19,27,142.29 paise with future interest and costs against a partnership firm namely, M/s Bhikhabhai Prabhudas
Parekh & Co. and its partners. The suit was based inter alia on a mortgage by deposit of title deeds made by the
partnership firm and its partners on 24.4.1969. The suit sought for enforcement of the mortgage security. During the
pendency of the suit some of the defendants expired and their legal representatives were brought on record. Three
tenants in the mortgage property were also joined as parties to the suit so as to eliminate the possibility of their
causing any hindrance in the enforcement of the charge created by the equitable mortgage of the property in favour of
the Bank.

From <https://indiankanoon.org/doc/375776/>

Held:
The High Court has relied on Section 25 of the Partnership Act, 1932 for the purpose of holding the partners as
individuals liable to meet the tax liability of the firm. Section 25 provides that every partner is liable, jointly with all the
other partners and also severally for all acts of the firm done while he is a partner. A firm is not a legal entity. It is only a
collective or compendious name for all the partners. In other words, a firm does not have any existence away from its
partners. A decree in favour of or against a firm in the name of the firm has the same effect as a decree in favour of or
against the partners. While the firm is incurring a liability it can be assumed that all the partners were incurring that
liability and so the partners remain liable jointly and severally for all the acts of the firm. This principle cannot be
stretched and extended to such situations in which the firm is deemed to be a person and hence a legal entity for
certain purpose.

From <https://indiankanoon.org/doc/375776/>

19. Beacon Industries v. Anupam Ghosh

In the case of Beacon Industries v. Anupam Ghosh, a criminal suit was instituted on the issue of bouncing of cheques.
The High Court in this regard had held that section 69 (2) of the Act clearly lays out that a civil suit cannot be filed but it
does not bar the filing of a private complaint. Therefore, the bouncing of the cheque was purely a criminal liability and
not to be treated as a part under the exemption of the Act. It can hence be concluded that a suit apart from a civil suit
can be instituted by any partner of the unregistered firm. Among the list, this provision is rather unfettering in nature.

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 can be instituted by any partner of the unregistered firm. Among the list, this provision is rather unfettering in nature.

From <https://lawcorner.in/what-are-the-effects-of-non-registration-of-firm/>

20. B.K. Kapoor & Anr. vs Mrs. Tajinder Kapoor & Anr. (2008)
In this case, the plaintiff-respondent filed a suit for the dissolution of the partnership and claimed that as per the terms of
the agreement the plaintiff was entitled to 18% of the profit in the first Rs.75,000, 12% in the next Rs.75,000 of book profit
and 8% in the balance amount of book profit.

As the relation was not well mentioned in the plaint due to which it was difficult to continue the partnership. So a notice of
suit issued to the petitioners who moved an application under Section 8 of the Act claiming that the suit raised is covered
under the arbitrary agreement.

But in the end, it was held that the petitioners are seeking the dissolution on the just and equitable ground covered
under Section 44 of the arbitrary act and not as the term of the partnership deed and therefore the matter could not be
referred to the arbitration under section 8.

From <https://blog.ipleaders.in/dissolution-of-a-partnership/>

21. M/S Diamond Nation v. Deputy State Tax Commissioner (2019)

Facts:

In the case of M/S Diamond Nation v. Deputy State Tax Commissioner (2019), the Registrar of Firms had refused to
register Go Green Diamonds LLP as a partner in the firm of the petitioners. The reason stated by the Registrar of Firms
for the rejection of the application by the petitioners was that an LLP cannot become a partner in a partnership firm.

From <https://blog.ipleaders.in/limited-liability-partnership-act-2008/>

Arguments by the petitioners

The petitioners contended that Section 4 of the Indian Partnership Act provides that a legal person can be a partner of
a partnership firm. Section 2(d) of the LLP Act provides that an LLP shall be a body corporate and have a separate
identity distinct from its members. Thus, an LLP can be a partner in a partnership firm.

Arguments by the respondents

The respondents contended that a joint reading of Sections 25 and 49 of the Indian Partnership Act makes it clear that
all the partners of a partnership are jointly and severally liable. However, the partners of an LLP, by virtue of the LLP
Act, enjoy limited liability. Furthermore, a partnership firm does not have any identity separate from its members,
while an LLP enjoys a separate legal personality. Thus, admitting an LLP as a partner of a partnership firm would lead to
ambiguities.

The issue before the Court

Whether an LLP can be admitted as a partner of the partnership firm.

Judgment

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The Court primarily referred to the judgment of Dulichand Laxminaraya v. Commissioner of Income Tax (1956), where
an individual, three firms, and a joint family wanted to enter into a partnership, and the Court had held that since a
firm is not a person, it cannot enter into a partnership.

The Court held that permitting an LLP to be a partner in a partnership firm would frustrate Sections 25 and 49 of the
Partnership Act. The limited liability of the partners of an LLP runs against the purpose of Section 25 of the Partnership
Act. A body of persons cannot be a partner.

The Court thus concluded that there is cohesiveness between the provisions of the LLP Act and the provisions of the
Partnership Act and the Registrar had rightly refused to register the LLP as a partner.

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