http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 13  

PETITIONER: TROJAN & CO.  LTD.

       Vs.

RESPONDENT: RM. N. N. NAGAPPA CHETTIAR.

DATE OF JUDGMENT: 20/03/1953

BENCH: MAHAJAN, MEHR CHAND BENCH: MAHAJAN, MEHR CHAND DAS, SUDHI RANJAN

CITATION:  1953 AIR  235            1953 SCR  780  CITATOR INFO :  R          1964 SC 136  (11)  R          1966 SC 735  (8)  R          1977 SC 890  (8)  D          1980 SC 727  (11)

ACT: Contract-Damages-Sale  of   shares-Sale  induced  by  fraud- Measure of damages-Difference between price paid and  market price  on  date of sale-Fluctuations of  market  and  sudden closure  of Stock Exchange, effect of--Interest on  damages- Practice-Conflict  between  pleadings  and  proof-Decree  on alternative claim not set up in plaint-Legality.

HEADNOTE:    Where a person is induced to purchase shares at a certain price  by fraud the measure of damages which he is  entitled to  recover  from the seller is the difference  between  the price which he paid for the shares and the real price of the shares  on  the  date on which the  shares  were  purchased. Ordinarily  the market rate of the shares on the  date  when the fraud was practised would represent their real price  in the  absence  of any other circumstance.  If,  however,  the market was vitiated or was in a state of flux or 790 panic in consequence of the very fact that was  fraudulently concealed,  then  the  real value of the shares  has  to  be determined on a Consideration of a variety of circumstances, disclosed by the violence led by the parties.   A firm of sharebrokers sold 3,000 shares to the  plaintiff who  was a constituent of the firm, on the 5th April,  1937, at  Rs. 77 and Rs. 77-4as, per share without  disclosing  to the plaintiff the fact that the shares were owned by one  of the  partners  of the firm and also the fact that  they  had received telephonic information on that day from a member of the  Stock  Exchange  that there was going  to  be  a  sharp decline  in the price of the shares.  On the 6th  April  the Stock  Exchange Association passed a resolution for  closing the Exchange on the 8th and 9th April.  The plaintiff had to sell  2,000 shares through the defendants on the 20th  April at Rs. 47 to Rs. 42 per share, and 1,000 shares on the  22nd April  at Rs. 428as.  The High Court awarded the  difference between  the  price  paid by the plaintiff  and  the  prices

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 13  

fetched on resale as damages.  On appeal,   Held,  that the prices received at the resale on the  20th and  22nd  April could not represent the true value  of  the shares   on   the  5th  April.   The   real   question   for determination  was what the market value would have been  on the 5th April of these shares if all the buyers and  sellers know that the Stock Exchange was to be closed on the 8th and 9th April.   Held also that the plaintiff was entitled to get  interest on the amount awarded as damages from the 5th April till the date  of suit on the principle that where money is  obtained or  retained by fraud a court of equity will order it to  be returned with interest.  Johnson v. Rex ([1904] A.C. 817) referred to.   It  is well settled that the decision of a case cannot  be ’based  on grounds outside the pleadings of the parties  and that it is the case pleaded that has to be found.  Where the plaintiff based his claim for a certain sum of money on  the ground that the defendants had sold certain shares belonging to  him  without his instructions, but he was  not  able  to prove  that  the  sale  was not  authorised  by  him:  Held, reversing the decision of the High Court, that the plaintiff could  not  be  given a decree for the sum  claimed  on  the ground of failure of consideration, as he had not set up any such  alternative  claim in the plaint or even  at  a  later stage when he sought to amend the plaint.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No..139 of  1962. Appeal  from the Judgment and Decree dated the  17th  March, 1950, of the High Court of Judicature at Madras (Horwill and Balakrishna Ayyar JJ.) in O.S.A. No. 34 of 1947, arising out of 791 the  Judgment and Decree dated the 18th April, 1947, of  the said  High Court (Clark J.) in the exercise of the  Ordinary Original  Civil Jurisdiction of the High Court in C. S.  No. 208 of 1940. V.   Rangachari   (K.    Mangachary,  with  him)   for   the appellant. K.   Krishnaswami Iyengar (K.  Parasuram, with him) for  the respondent. 1953.  March 20.  The Judgment of the Court was delivered by   MAHAJAN  J.-The  dispute  in this  appeal  is  between  a constituent  and a firm of stock-brokers.  Some time  before April,  1936,  the plaintiff, then a young  man,  came  into possession  of property worth about 2 lakhs of rupees  on  a partition  between  him and his brothers.  In  the  hope  of getting rich by obtaining quick dividends by speculating  on the  stock-exchange  be,  through  the  defendant  firm  and certain  other  stockholders,  entered  into  a  series   of speculative transactions and it seems he did not fare  badly in  the beginning.  But subsequent events tell  a  different tale. In 1937, two iron and steel companies in North India, vie., Indian  Iron & Steel Co. Ltd., and the Bengal Iron  &  Steel Co. Ltd., merged into one concern and a new issue of  shares was made.  The scheme was that for every five shares which a person held in the Indian Iron Co. Ltd. on 22nd April, 1937, one fully paid up share would be given to him at a price  of Rs.  25.   The  market price at the  time  this  scheme  was announced was about Rs. 55 per share.  A wave of speculation followed  this  announcement  and there was a  boom  in  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 13  

market.   Prices  of  Indian Iron shares were  going  up  to unreal heights.  To stabilize the situation thus created  by heavy  speculation,  three members of the Committee  of  the Calcutta   Stock  Exchange  presented  a  petition  to   the Committee  on 5th April, 1937, to close the  Calcutta  Stock Exchange 792 for  a while.  On the same evening plaintiff’s  stockbroker Annamalai  Chettiar,  who was carrying on business  in  firm name  Trojan  & Co., had telephonic  conversation  with  one Ramdev Chokani, a member of the Calcutta Stock Exchange,  on this  subject and from this conversation he gathered that  a sharp  fall  in the prices of Indian Irons was  likely.   At that time Annamalai Chettiar had on his bands some 5,000  of these  shares.   Shortly after this conversation  and  after business hours the same night, between the hours of 7-30 and 8-30, Annamalai Chettiar rang up the plaintiff and suggested to  him that it would be a good thing for him to  buy  these shares.   The youthful plaintiff in his anxiety to got  rich quickly accepted the suggestion and purchased these  shares, some  at Rs. 77 and others at Rs. 77-4-0.  Another  firm  of brokers, Ramlal & Co., had also in their hands another 4,000 of  these shares.  They too found in the plaintiff  a  ready buyer.  They also contacted him on the phone after Annamalai had done so, and sold him 4,000 shares that they held.   Out of the lot which the plaintiff purchased from the defendants he sold 1,300 shares to Ramanathan Chetti at cost price. On  the  6th  April  the Committee  of  the  Calcutta  Stock Exchange  Association passed a resolution closing the  Stock Exchange on the 8th and 9th April. From the 6th April onwards the market sagged and the  prices came down, at first gradually and then literally at a,  run. The  result  of it was that the plaintiff had to sell  at  a very heavy loss. The  defendants made demands on the plaintiff for the  price of those shares.  Between 5th April and 20th April, 1937, he made payments to defendants of various amounts totalling Rs. 60,000.   A lot of 700 shares was sold by the  plaintiff  to Pilani  &  Co. and on 19th April, 1937,  he  instructed  the defendants.for  sale  of the remaining 3,000 shares  at  the best price obtainable.  The defendants sold 2,000 shares  on 20th April, 1937, for prices ranging between Rs. 47-4-0 to 793 Rs.44-12-0 per share.  The remaining 1,000 shares were  sold by him through Messrs.  Ramlal & Co. at Rs. 42-8-0 per share on 22nd April, 1937.  The result of it was that on 22nd May, 1937,  when  the  accounts between  the  plaintiff  and  the defendants  were  settled it was found  that  plaintiff  was heavily  indebted to them in the sum of Rs.  51,712-7-0  and the  credit  balance  of Rs. 64,000 that  he  had  with  the defendants  at the end of March, 1937, had been  wiped  off. For  the  amount found due he passed a  promissory  note  in favour of defendants, Exhibit P-33.  After giving credit for payments  received  on the promissory  note  the  defendants filed a suit against him (O.S. 150 of 1937) on the  Original Side  of  the  Madras High Court and  obtained  an  ex-parte interim  order for attachment before judgment  and  attached plaintiff’s movable and immovable properties at Madras,  and also  at  Kottaiyur  in  Ramnad  district.   Owing  to   the attachment  proceedings  the firm of Ramlal &  Co.  filed  a petition for adjudication of the plaintiff as an  insolvent. On 22nd September, 1937, Trojan & Co. also filed a  petition for the same relief.  An order adjudicating the plaintiff an insolvent  was made by the High Court on 5th October,  1937, on the petition of Ramlal & Co.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 13  

In  the  course  of the  insolvency  proceedings  defendants tendered  proof  of  their claim  on  the  promissory  note, Exhibit   P-33.   The  Official  Assignee  having   acquired knowledge about the telephonic conversation that had  passed between Annamalai Chettiar and Ramdev Chokani on the evening of  the  5th April, 1937, came to the  conclusion  that  the insolvent  had been a victim of a fraud perpetrated  by  the defendants  and dismissed their claim.  Defendants-firm  was guilty  of fraud both in respect of the failure to  disclose the  fact  that the Indian Iron shares or most of  them  be- longed to one of its partners, Annamalai Chettiar, and  also on  account  of  the failure on its  part  to  disclose  its knowledge of the likelihood of a slump in the market because of  the  notice  given by its members  to  close  the  Stock Exchange. 794 On  an application made to the High Court against the  order of the Official Assignee it was set aside by Mockett J.  and he directed that the claim of the defendants be disposed  of on  a  court motion, the claim being heard as if it  were  a suit.  In pursuance of this direction Trojan and Co. on 29th September, 1938, filed an application in the High Court, No. 313 of 1938.  The Official Assignee representing the  estate of the plaintiff denied its liability on the promissory note on  the  ground of fraud.  On 15th March, 1940,  Somayya  J. dismissed  the  claim  of  the  defendants.   He  held   the defendants-firm guilty of fraud in both respects.  From this there  was  an appeal which was dismissed  on  12th  August, 1942.   The  defendants applied for leave to appeal  to  His Majesty  in Council but leave wag refused.  Defendants  then applied  to  the Privy Council for special  leave  and  that application was also dismissed some time in October, 1943..   On  the  28th September, 1940, when the appeal  from  the decision  of  Somayya  J. was still  pending,  the  Official Assignee  as representing the estate of the plaintiff  filed the  suit out of which this appeal arises against  Trojan  & Co.  for an account of the transactions between  himself  as principal and the defendants as agents and claiming  damages for  loss  sustained by him and for various  other  reliefs. The  suit embraced in particular claims in respect  of  four transactions.   The first related to the 5,000  Indian  Iron shares.  The second referred to a transaction of  Associated Cements.  On 22nd March,1937, the plaintiff had sold through the defendants 5O shares in Associated Cements at Rs.180-8-0 per  share.   On 30th March, 1937, he had similarly  sold  a further  200  shares in Associated Cements at  Rs.  183  per share.   The  plaintiff did not have on hand even  a  single share  in Associated Cements.  It became necessary  for  him therefore  to  "cover  the  sales".   On  21st  July,  1937, defendants  purchased on plaintiff’s account 100  shares  at Rs.  161-12-0  per  share.  On  1st  September,  1937,  they purchased a further 150 shares at 795 Rs. 151 a share.  The difference between the prices at which these shares had been sold and bought amounted to Rs. 6,762- 8-0  and for this amount the defendants gave  the  plaintiff credit by adjusting it towards the promissory note  account. In  respect  of this transaction the case  of  the  Official Assignee  was that the purchase which had been made  by  the defendants  was  not  only  unauthorized,  but  contrary  to instructions and was not valid and binding on the  plaintiff as   it  had  been  made  after  the  commencement  of   the insolvency.   No claim was made in the alternative  that  if this  contention  failed,  the  plaintiff  was  entitled  to recover  the amount credited towards the promissory note  on

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 13  

the   ground  of  failure  of  consideration.    The   third transaction  related to 300 shares in Tatas, and the  fourth one  was  in respect of shares in Ayer Mani Rubber  Co.  The last  claim was abandoned at the trial and the claim on  the third transaction was decreed in favour of the plaintiff and the  correctness  of the order of the trial  judge  was  not canvassed  in the appeal before the High Court.  The  amount decreed  as regards these 300 shares was in the sum  of  Rs. 1,050. The  defendants  denied liability for the entire  claim  and pleaded  that they were not guilty of any fraud and that  in any case the plaintiff was not entitled to claim any damage, as he could have easily sold away all his shares soon  after his  purchase  without  incurring  any  loss,  and  that  he retained them in order to make profit. The  suit was first heard by Bell J. who decreed the  claim of  the  plaintiff  on  9th  March,  1943.   The  defendants appealed.   The  appellate court set aside the  decision  of Bell  J. and ’remanded the suit for fresh disposal  on  26th August,  1944.  Meantime, that is to say, on 21st  February, 1944, the adjudication of the plaintiff was annulled and  on his application he was brought on the record in the place of the  Official Assignee and he continued the suit.  Clark  J. who  tried the suit after remand gave a decree in favour  of 103 796 the plaintiff for the sum of Rs. 61,787-9-0 with interest at the  court  rate  of  six  per  cent.  per  annum  from  1st September,  1937, until payment or realization  with  costs. Against this decree the defendants preferred an appeal.  The appellate Bench modified the decree of Clark J., and reduced the amount of the decree by a sum of Rs. 9,100.  Each  party was  made to pay proportionate costs throughout.   Leave  to appeal to this court against the decree was granted and  the appeal is now before us under the certificate so granted.  As above stated, the claim in respect of Ayer-Mani  Rubber shares was abandoned at the trial and the claim on the third transaction relating to 300 shares in Tatas was decreed  for the  sum of Rs. 1,050 and the correctness of this order  was not canvassed in the appeal before the High Court.  The  two claims discussed in that court were in respect of the trans- action  of  5,000 Indian Iron shares and in respect  of  the transaction made in Associated Cements.  The dispute  before us  so  far  as the Indian Iron  shares  are  concerned  has narrowed  down  to  the question of quantum  of  damages  in respect  of  3,000  out  of  the  5,000  shares  that   were transferred by the defendants to the plaintiff on the  night of  the  6th April, 1937, 1,300 out of these  shares  having been  sold at cost price by the plaintiff the day after  the purchase,  and  700 having been sold to Pilani  &  Co.,  and regarding  which the plaintiff’s claim was rejected  in  the High Court and plaintiff preferred no further appeal.  The  finding of Somayya J., that the defendants  firm  was guilty  of fraud both in respect of the failure to  disclose the  fact  that  the  Indian Iron shares  or  most  of  them belonged  to  one of its partners, Annamalai  Chettiar,  and also on account of its failure to disclose its knowledge  of the  probable  slump in the market by reason of  the  notice given by three members of the Stock Exchange to  temporarily close  it,  was not contested before Clark J.,  and  it  was conceded that that finding had become final.  The main ques- tion canvassed at this trial was whether the plaintiff 797 had  suffered any damage as a consequence of this fraud  and if  so, how were the damages to be measured.  In the  plaint

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 13  

plaintiff claimed that he was entitled to be recompensed for all  loss  and damage which he had suffered.  A sum  of  Rs. 45,042-9-0  was  credited in his account in respect  of  the sale of 3,000 shares made on 20th and 22nd April, 1937.   He claimed  the whole of this amount as damages on this  count; in  other  words,  according to the  plaintiff,  the  damage suffered  by  him  was  to  be  measured  according  to  the difference between the purchase price of the shares and  the price for which they were ultimately sold.  The shares  were bought  on  5th April at Rs. 77 and Rs. 77-4-0 and  sold  at prices ranging between Rs. 42-8-0 and Rs. 47-4-0 on the 20th and 22nd April, 1937.  This method of measuring damages  was successfully  challenged by the defendants before the  trial judge.   Clark J., in spite of holding that the  measure  of damages in a case like this could not be as suggested by the plaintiff,  estimated  the  damage suffered by  him  at  the difference between the rate at which the plaintiff purchased the  shares and the rate at which he actually sold them,  on the  ground  that the price at which he sold them  was  more than  the fair value of these shares realizable on  the  6th April, 1937, between bona fide purchasers and sellers having knowledge of the real state of affairs.  Before the appeal Bench of the High Court it was contended that  the trial judge was in error in his assessment of  the real  value of these shares on 5th April, 1937, and that  in any  case they could not be valued at four different  rates. It  was urged that. damages had been over  estimated.   This contention was negatived and it was held that in the circum- stances of this case it could not be said that the plaintiff acted unreasonably in holding on to the shares for the  time that be did and that the defendants had by their own  double dealings placed the plaintiff in a difficult position.  The learned-counsel for the appellant reiterated before us the contentious raised by him in the High 798 Court and urged that the true measure of damages in  actions like  this is the difference between the price paid and  the real value of the shares at the time of the transaction, and that  any loss caused to the plaintiff by his retaining  the shares  after  that  date  could not  be  decreed.   It  was strenuously  contended  that  had  the  plaintiff  sold  the remaining  shares like the 1,300 he sold, he would not  have suffered any damage whatsoever, as the market price of these shares on the 6th and 7th was not below the cost price.   It was  said  that  the loss that the  plaintiff  suffered  was merely  due to the circumstance that he retained the  shares for a fortnight, and was not as a consequence of the  fraud. Lastly, it was contended that even if it could be held  that the market on the 6th and 7th was affected by the very  fact concealed from the plaintiff, its effect disappeared by  the 10th  April,  when the fact became fully  known  and  damage should  have  been assessed on the  difference  between  the market price of these shares which ruled at Rs. 62 per share on 10th April, 1937, and their cost price.  Now  the rule is well settled that damages due either  for breach of contract or for tort are damages which, so far  as money can compensate, will give the injured party reparation for  the  wrongful act and for all the  natural  and  direct consequences of the wrongful act.  Difficulty however arises in  measuring  the  amount of this  money  compensation.   A general principle cannot be laid down for measuring it,  and every  case must to some extent depend upon its own  circum- stance.   It is, however, clear that in the absence of  ,any special  circumstances the measure of damages cannot be  the amount of the loss ultimately sustained by the  representee.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 13  

It  can  only be the difference between the price  which  he paid  and the price which he would have received if  he  had resold  them  in  the market forthwith  after  the  purchase provided  of course that there was a fair market then.   The question  to  be decided in such a case is  what  could  the plaintiff  have  obtained if he had  resold  forthwith  that which he bad been induced to purchase by the fraud 799 of the defendants.  In other words, the mode of dealing with damages in such a case is to see what it would have cost him to  get out of the situation, i.e., how much worse  off  was his  estate owing to the bargain in which he  entered  into. The  law on this subject has been very appositely stated  in McConnel v. Wright(1) by Lord Collins in these terms:-  "As  to the principle upon which damages are  assessed  in this case, there is no doubt about it now.  It has been laid down by several judges, and particularly by Cotton L. J.  in Peek v. Derry(2), but the common sense and principle of  the thing is this.  It is not an action for breach of  contract, and,  therefore, no damages in respect of prospective  gains which the person contracting was entitled by his contract to expect  to  come in, but it is an action of  tort-it  is  an action  for a wrong done whereby the plaintiff  was  tricked out  of certain money in his pocket ; and  therefore,  prima facie  the highest limit of his damages is the whole  extent of  his loss, and that loss is measured by the  money  which was  in his pocket and is now in the pocket of the  company. That  is the ultimate, final, highest standard of his  loss. But,  in so far as he has got an equivalent for that  money, that  loss  is  diminished; and I think,  in  assessing  the damages, prima facie the assets as represented are taken  to be  an equivalent and no more for the money which was  paid. So  far as the assets are an equivalent, he is not  damaged; so  far as they fall short of being an equivalent,  in  that proportion he is damaged."  The sole point for determination therefore in the case  is whether  the  shares handed over to the  plaintiff  were  an equivalent for the money paid or whether they fell short  of being the equivalent and if so, to what extent.   Ordinarily the market rate of the shares on the date when the fraud wag practised would represent their real price in the absence of any  other  circumstance.   If,  however,  the  market   was vitiated  or was in a state of flux or panic in  consequence of the very fact that was fraudulently concealed,  (1) [1903] 1 Ch. 546.        (2) 37 Ch.  D. 541. 800 then the real value of the shares has to be determined on  a consideration of a variety of circumstances disclosed by the evidence  led  by the parties.  Thus though  ordinarily  the market rate on the earliest date when the real facts  became known  may be taken as the real value of the shares,  never- theless,  if there is no market or there is no  satisfactory evidence of a market rate for some time which may safely  be taken  as the real value, then if the representee  sold  the shares,  although not bound to do so, and if the resale  has taken place within a reasonable time and on reasonable terms and  has  not  been unnecessarily delayed,  then  the  price fetched  at the resale may well be taken into  consideration in determining retrospectively the true market value of  the shares on the crucial date.  If there is no market at all or if the market rate cannot, for reasons referred to above, be taken  as  the  real  or fair value of  the  thing  and  the representee  has not sold the things, then  in  ascertaining the real or fair value of the thing on the date when  deceit was  practised subsequent events may be taken into  account,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 13  

provided  such  subsequent events are  not  attributable  to extraneous circumstances which supervened on account of  the retaining  of the thing.  These, we apprehend, are the  well settled rules for ascertaining the loss and damage  suffered by a party, in such circumstances.  If damages had been measured on the rules above stated  by the  courts below, this court would have then respected  the concurrent  finding  on  this  point  as  the  question   of assessment  of damages primarily is a question of  fact  and the  concurrent findings of the courts below on such  points except in very exceptional circumstances are not reviewed by this   court.   We  however  find  that  in  spite  of   the circumstance that the courts below correctly enunciated  the rule of measuring damages in such cases, they estimated them on  the  difference  between the cost price  and  the  price realized at the sale on the 20th and 22nd at four  different rates.   These four rates could obviously not represent  the true value of the shares on the 5th.                            801 Moreover  the  finding that the true value of  these  shares was lower than what was actually realized on their resale on the  20th and 22nd is not based on any evidence  whatsoever. Such  a  finding could only be arrived at on  the  basis  of evidence  on the record and by reference to  that  evidence, and this has not been done.  The High Court did not make  an attempt to find out to what extent the value of the  ’Shares fell  short of being an equivalent for the money taken  from the  plaintiff.  Without determining this crucial  issue  we think  it was not right to estimate the damage on the  vague finding that the true value of the shares was lower than the value which they fetched at the resale on the 20th and 22nd. In  this situation, we have no alternative but to-arrive  at our own finding on this question in spite of the  concurrent finding and we have to find as to what could be said to have been  the true value of these shares on the  relevant  date. In  other words, the question for our determination is  what the  market  value  would have been on 5th  April  of  these shares  if all buyers and sellers had information  that  the market  was  to  be closed on 8th and 9th  April  to  enable settlement  of outstanding transactions to be effected,  and had  appreciated the effect of that decision.  In the  words of  Buckley  J.  in  Broome v.  Speak(1),  it  is  indeed  a difficult  question  to answer beat that  difficulty  is  no ground  for  refusing to answer it as has been done  by  the court below.  in order to determine the real price of these 3,000 shares sold to plaintiff by concealment of certain facts, the first question that needs decision is whether the market for these shares,  the rate prevailing wherein would prima facie be  a true  index  of their value, had been affected by  the  very fact  concealed of which the plaintiff complains.   In  this case from the proved facts it is clear that the market  rate of  these  shares was seriously affected by  reason  of  the impending  decision of the Stock Exchange for closing it  to stop  the wave of speculation that had taken the  frenzy  of the market by reason of the merger of the two steel (1)  [1931] I. Ch. 586. 802 companies  doing  business in northern  India.   The  market reports  for the week ending March 19, show that the  Indian Irons  were standing at or around Rs. 55.  By Satur day  the 3rd April after the announcement of the terms of the  merger by  reason  of the keen speculation the  shares  were  being dealt  at around Rs. 73.  On Monday the 6th April the  price was  Rs. 77.  On Tuesday the 6th, the day when the  decision

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 13  

was  taken  to close the market for two days,  these  shares touched Rs. 79 but by the close of business fell back to Rs. 72 a sudden drop of Rs. 7. On Wednesday the 7th April in the Calcutta market they closed at Rs. 58, a drop of Rs. 14 in a day.  These sudden rises and falls in the market during  the course  of these two days are sufficient indication  of  the fact  that  the drop was due to the decision  of  the  Stock Exchange  to close the Exchange for two days.  There  is  no evidence  that  any  other factor was  then  disturbing  the market rate of these shares.  The share market report of the defendants  themselves  issued on 10th  April,  1937,  amply bears  out  this  fact.  In this report  it  was  stated  as follows :- "  The outstanding feature of the Indian markets during  the week  under review was the sudden landslide in  Indian  Iron and  Steel  shares,  which proved infectious  to  the  other sections  of  the market.  The week opened with  a  cheerful bullish sentiment and Indian Iron and Steels touched Rs. 80. At this dizzy height, the markets lost their equilibrium and frenzied selling resulted in a sensational decline of  about 25 points.  The heavy liquidation was due to a  predominance of  weak  holders-that had come into the market  at  a  late stage.  Further, selling was accentuated by the decision  of Calcutta Stock Exchange to close the Calcutta market on  the 8th  and 9th April to enable brokers to make deliveries  and effect settlements for transactions in Indian Iron and Steel shares.   Heavy  volume  of business  has  been  outstanding between   brokers  on  account  of  the  delay  in   getting certificates.   Prospect  of  immediate  delivery  of  share certificates scared off weak holders and prices declined  on heavy liquidation." 803 It  is  clear therefore that the decision  of  the  calcutta Stock  Exchange to close the Calcutta market on 8th and  9th affected  the  market  prices  considerably.   The  Calcutta market  on the 7th dropped from 72 to 58 as already  stated. The decision of the Calcutta Stock Exchange was published in the  Hindu  of Madras on the evening of the 7th.   From  the statement of account, Exhibit P-41, filed by Trojan & Co. on 7th,  about half a dozen transactions in these  shares  took place  through them.  Most of the transactions, it  appears, were  by  small holders of 100 scrips or  so,  who  unloaded their  shares between 71 to 60 per share.  On the 8th  three transactions took place at Rs. 62. No transaction took place between  8th and 14th.  There were two transactions  on  the 14th  at Rs. 56, and there was a transaction on the 16th  at Rs.  57-8-0.  On the 20th Trojan and Co. sold 2,000  of  the plaintiff’s shares at rates varying between Rs. 44-12-0  and Rs. 47-4-0.  According  to the statement of account of another  broker, Ramlal  &  Co., there were about 16  transactions  in  these shares on the 7th.  Most of them were sold in lots of 100 or 200 and the sale price of these shares ranged from Rs. 74 to 64.   On  the 8th there were a few transactions,  the  rates varying between Rs. 57 to Rs 66.  There was a transaction on the 9th at Rs. 60.  There were two or three transactions  on the  10th also near about this rate.  No  transaction  after the  10th  made by this company has been  exhibited  on  the record.  Exhibit P-23 is another weekly share market  report of  Trojan & Co. issued on 17th April, 1937.  It  states  as follows :-  "In  the first place, Indian Irons are very  cheap  around Rs.  46.  The company is doing extremely well and the  stage is set for a steady rise to Rs. 70...............  Indian Iron and Steels fluctuated between Rs. 55 to Rs. 60

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 13  

and  closed  at Rs. 47.  The recent hectic  speculation  has brought its own nemesis."  This  report proves that there was really no market as  it appears from the evidence on the record in 104 804 Madras between the 8th and 17th which was a Saturday, and on the  17th the prices seemed to be settling down at  Rs.  46. On the 19th the plainti gave to the, defendants an order  to sell  his 3,000 shares and it was said "Please  retain  this order  till-executed".   The defendants were  only  able  to dispose  of  2,000  of these shares on the  20th  at  prices varying  between Rs. 44-12-0 to Rs. 47-4-0.   The  remaining 1,000  shares the plaintiff was able to sell through  Ramlal and  Co.  at Rs. 42-8-0 on 22nd April, 1937.   It  is  quite possible and probable that had the plaintiff placed an order before  the  19th,  say  on  the  16th  or  17th,  with  the defendants or with Ramlal & Co., he might have been able  to sell  these 1,000 shares also at about the same price as  he was  able to dispose of his 2,000 shares.  No member of  the defendants-firm  gave evidence in the case.  Plaintiff  went into  the witness box and stated that had he known what  the defendants  knew,  he would not have purchased  the  shares. The information was withheld from him that these shares were likely  to  godown.   He  said  that  he  was  told  by  the defendants  to  sell  the  shares  but  no  purchasers  were available and in spite of his keenness to liquidate them  he was  not  able to do so before the 20th and  22nd,  that  he approached  Trojan  & Co., the defendants-firm  for  selling them,  but  they  were  not able to  sell  more  than  2,000 shares.’  Considering  the whole of this  material,  we  are satisfied  that the market rate prevailing on the  5th,  6th and  7th had been affected by reason of the decision of  the Calcutta Stock Exchange to keep the market closed on the 8th and  9th and the market did not settle down till  about  the 17th  or  18th  and  the  prices  then  ruling  can  in  the circumstances  of this case be said to be their true  market price.  In our judgment, Rs. 46 per share was the real price of these shares when they were put in the plaintiff’s pocket and he got Rs. 46 for each share in lieu of what he paid for either  at  Rs.  77 or at Rs. 77-4-0.   He  is  entitled  to commission  also which he would have to pay on the  sale  of these shares.  The difference between these 805 two  rates  is  the damage that he has suffered  and  he  is entitled  to it.  For the reasons given above we modify  the order passed by Clark J., and by the appellate Bench of  the High Court to the extent indicated above and we estimate the plaintiff’s  damage  at Rs. 93,000 on account of  the  3,000 shares at the rate of Rs. 31 per share.  The  second question canvassed before the High  Court  and also  before  us  was in respect of  the  Associated  Cement shares.   As  above  stated,  the  plaintiff’s  account  was credited  in  the  sum of Rs. 6,762-8-0 on  account  of  the purchase  of these shares.  Plaintiff had pleaded  that  the transaction  was not authorised by him and that it had  been made  in contravention of his instructions.  He had  claimed compensation on the ground of breach of instructions he  did not  in  the alternative claim on the ground of  failure  of consideration  the amount credited by the defendants in  the promissory  note  account and which  credit  disappeared  by reason  of the failure of the suit on the  promissory  note. At  the  hearing of the case before Bell J.  the  contention that the purchase was unauthorized was abandoned by  counsel and  the  same position was adopted before Clark  J.  During

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 13  

cross-examination  of the plaintiff it was elicited that  he either  instructed the defendants to purchase the shares  or at  any rate ratified the purchase which the defendants  had made  on  his behalf.  It was argued  before  the  appellate Bench  of the High Court that having pleaded one  thing  and having  led evidence in support of that thing but  later  on having been forced to admit in the witness box that the true state of things was different the plaintiff had  disentitled himself  to relief as regards these shares and he could  not be  granted the relief that he had not asked for.  The  High Court negatived this contention on the ground that though  a claim for damages in respect of a particular transaction may fail,  that  circumstance  was no bar to  the  making  of  a direction  that the defendants should pay the plaintiff  the money   actually   due  in  respect   of   that   particular transaction.  It also held 806 that  the  plaintiff’s  claim in respect  of  this  item  of Rs.6,762-8-O  was  with  in limitation.  We  are  unable  to uphold. the view taken by the High Court on this point.   It is well settled that the decision of a case cannot be  based on  grounds outside the pleadings of the parties and  it  is the case pleaded that has to be found.  Without an amendment of the plaint the court was not entitled to grant the relief not  asked  for  and no prayer was ever made  to  amend  the plaint so as to incorporate in it an alternative case.   The allegations on which the plaintiff claimed relief in respect of  these  shares  are clear and  emphatic.   There  was  no suggestion made in the plaint or even when its amendment was sought  at one stage that the plaintiff in  the  alternative was  entitled  to this amount on the ground  of  failure  of consideration.   That being so, we see no valid grounds  for entertaining  the plaintiff’s claim as based on  failure  of consideration  on the case pleaded by him.  In  disagreement with the courts below we hold that the plaintiff was wrongly granted a decree for the sum of Rs. 6,762-8-0 in respect  of the Associated Cement shares in this suit.  Accounts settled could only be reopened on proper allegations. The next point canvassed in the courts below was in respect of  the  claim of the plaintiff regarding  interest  on  the amount  found due to the plaintiff from 5th April, 1937,  to the  date  of the suit.  It was contended that  no  interest could be allowed on damages because to do so would amount to awarding  damages on damages which is opposed  to  precedent and  principle.   Clark  J., however,  awarded  interest  by placing   reliance  on  certain  English   decisions   which enunciate the rule that an agent who receives or deals  with the  money of his principal improperly and in breach of  his duty  or who refused to pay it over on demand is  liable  to pay interest from the time when he so receives or deals with the  same  or from the time of the demand.  We think  it  is well settled that interest is allowed by a court of eqity in the case of money obtained or retained by fraud.  As                            807 stated  in  article 423 of Volume 1 of Halsbury,  the  agent must  also  pay interest in all cases of fraud  and  on  all bribes and secret profits received by him during his agency. Their  Lordships of the Privy Council in johnson  v.  Rex(1) observed as follows: --   "In  order to guard against any possible  misapprehension of  their Lordships’ views they desire to say that in  their opinion there can be no doubt whatever’ that money  obtained by  fraud  and  retained  by fraud  can  be  recovered  with interest,  whether  the proceedings be taken in a  court  of equity,  or  a  court  of law, or  in  a  court,  which  has

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 13  

jurisdiction both equitable and legal."  The  appeal  court affirmed the view of Clark J.  on  this point.  The learned counsel for the appellant contended that the  decisions relied upon concerned cases where  the  agent had  retained some money of his principal in his  hands  but that  in the present case the claim was merely for  damages. This contention is fallacious.  By reason of the transaction brought  about by fraudulent concealment plaintiff  paid  to the  defendants a sum of Rs. 60,000 in cash which  he  would not  have parted with otherwise and he also lost  the  money which  stood at his credit with the defendants.  It is  thus clear that the agents had a large sum of the plaintiff  with them which they would not have acquired but by reason of the fraud that they practised on him.  In this view of the  case we see no force in the contention of the learned counsel and we repel it.  The  only  other point that was argued before  us  was  in respect  of  future  interest.   It  was  not  denied   that plaintiff was entitled to future interest as allowed to  him at  the rate of 6% on the amount found due. it  was  however argued  that  the  plaintiff should not  have  been  allowed interest  for the period of one year and six  months  during which the decree stood satisfied.  The facts are that on 9th March,  1943, a decree for Rs. 51,805-1-0 carrying  interest at six per cent. was (1)  [1904] A.C. 817. 808 passed  in favour of the plaintiff.  On the 11th May,  1943, an  amount of Rs. 71,000 due under this decree was  paid  by the  defendants to the Official Assignee.  This  amount  was returned by the Official Assignee to the defendants on  12th September,  1944,  after  that decree had  been  set  aside. Meanwhile the plaintiff’s adjudication had been annulled and he  had been brought on the record on 16th March, 1944.   It was contended that during the period when the money remained with  the Official Assignee who was the plaintiff no  future interest  was payable as the decree stood  satisfied  during that period.  The High Court rejected this contention on the ground  that  when this money was paid into  court,  it  was coupled with a prayer that it should not be paid out to  the creditors of the insolvent’s estate pending disposal of  the appeal,  and  therefore as the money was  not  distributable amongst the insolvent’s creditors, interest for this  period had been rightly allowed.  In our opinion, this view -cannot be sustained.  So far as the defendants judgment-debtors are concerned they had done their part and paid the money to the decree-holder  and  had thus satisfied the decree.   It  was open  to  the Official Assignee, the decree-holder,  not  to take the money on the condition on which it was given to him and  if  he had not taken the money from the  defendants  he could  then  justly  have claimed future  interest  on  this amount, but having taken the money and kept it, it could not be  said  that during this period anything was  due  to  the plaintiff from the defendants.  The defendants certainly had paid  the decretal amount and whether the plaintiff  or  his predecessor  in  interest was able to use it or  not  was  a circumstance wholly immaterial in considering whether future interest should or should not be allowed.  In our  judgment, the  plaintiff  was not entitled to future interest  at  the rate  allowed for one year and six months period,  beginning from 9th March, 1943, and ending with 12th September, 1944.  The  appeal is therefore allowed to the  extent  indicated above.  The decree of the High Court will be                            809 modified  and plaintiff will be entitled to damages  in  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 13  

sum  of  Rs. 93,000 on the 3,000 Indian  Iron  shares.   The decree  given to the plaintiff in respect of’ Rs.  6,762-8-0 is set aside over and above the’ decree for Rs. 9,100 in his favour  set aside by the High Court.  In the calculation  of future  interest the plaintiff will not be allowed  interest from  9th  March,  1943, to 12th September,  1944.   In  the result  the decree given to the plaintiff in the sum of  Rs. 61,787  is reduced to Rs. 42,175.  He will get  interest  at six per cent. per annum from 5th April, 1937, until  payment or  realization  except  for a period of one  year  and  six months.  Plaintiff will get proportionate costs throughout.                              Appeal allowed in part. Agent  for  the  appellant:  Ganpat  Rai. Agent for the respondent: M. S. K. Sastri.