Trojan and Co. Ltd vs Rm. N. N. Nagappa Chettiar

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 20 March 1953

Coram: Mehr Chand Mahajan, Sudhi Ranjan Das

In the matter titled Trojan & Co. Ltd. versus Rm. N. N. Nagappa Chettiar, the Supreme Court of India delivered its judgment on the twentieth day of March, 1953. The opinion was authored by Justice Mehr Chand Mahajan, who also sat on the bench together with Justices Das and Sudhi Ranjan. The case is reported in the 1953 volume of the All India Reporter at page 235 and in the Supreme Court Reporter at page 780. Subsequent citations of the decision appear in the law reports of 1964, 1966, 1977, and 1980. The issues that came before the Court concerned the law of contracts, the assessment of damages where a sale of shares was induced by fraud, the appropriate measure of damages as the difference between the purchase price and the market price on the date of sale, the effect of market fluctuations and an abrupt closure of the Stock Exchange, the entitlement to interest on damages, the conflict that may arise between pleadings and proof, and the propriety of granting a decree on an alternative claim that had not been expressly set out in the plaint.

The Court explained that when a person is induced by fraud to buy shares at a certain price, the damages recoverable from the seller are measured by the difference between the amount actually paid and the true value of the shares on the date of purchase. Ordinarily, the market price on the day the fraud was committed is taken as the true value, unless the market was impaired, volatile, or in a state of panic because of the very fraud that was concealed. In such a situation, the true value must be ascertained by considering all relevant circumstances disclosed by the parties. In the present case, a firm of share-brokers sold three thousand shares to the plaintiff, who was a member of the firm, on 5 April 1937 at a price of Rs 77 and Rs 77-4as per share. The brokers failed to disclose that the shares belonged to one of the partners of the firm and that they had received a telephone communication on that same day from a Stock Exchange member warning of an imminent sharp decline in the share price. On 6 April, the Stock Exchange Association resolved to close the exchange on 8 and 9 April. Consequently, the plaintiff was compelled to sell two thousand shares through the defendants on 20 April at prices ranging from Rs 47 to Rs 42 per share, and the remaining one thousand shares on 22 April at a price of Rs 428as. The High Court awarded the plaintiff the difference between the original purchase price and the resale prices as damages. On appeal, the Supreme Court held that the resale prices obtained on 20 and 22 April could not be regarded as the genuine market value of the shares on 5 April. The decisive question, the Court observed, was what the market price would have been on 5 April had all buyers and sellers been aware that the Stock Exchange was to be closed on the 8th and 9th of April.

The Court observed that the Stock Exchange was scheduled to be closed on both the eighth and ninth days of April. It also held that the plaintiff was entitled to claim interest on the damages amount from the fifth of April until the date the suit was filed, based on the principle that money obtained or retained through fraud must be returned with interest by a court of equity. The decision referred to the authority Johnson v. Rex ([1904] A.C. 817) in support of that principle. The Court reiterated the well-settled rule that a judgment cannot be based on grounds that are not pleaded by the parties, and that the court must decide the case according to the allegations set out in the pleadings. In the present case the plaintiff had asserted a claim for a sum of money on the basis that the defendants had sold shares belonging to him without his instructions, but he failed to produce evidence that the sale had been unauthorized. Consequently, the Court reversed the High Court’s decision and ruled that the plaintiff could not obtain a decree for the amount claimed on the ground of failure of consideration, because he had never formulated an alternative claim in the original plaint nor introduced one when he later sought to amend the plaint. The judgment concerned Civil Appeal No. 139 of 1962, filed against a decree dated 17 March 1950 issued by the Madras High Court in Original Suit Application No. 34 of 1947, which itself arose from a decree dated 18 April 1947 rendered by the same High Court in the exercise of its ordinary original civil jurisdiction in Civil Suit No. 208 of 1940. Counsel for the appellant was V. Rangachari, assisted by K. Mangachary, while counsel for the respondent was K. Krishnaswami Iyengar, assisted by K. Parasuram. The judgment was delivered on 20 March 1953 by Justice Mahajan. The dispute involved a young plaintiff who, before April 1936, acquired property valued at approximately two lakh rupees through a partition with his brothers and subsequently entered into speculative stock-broker transactions through the defendant firm and other traders in the hope of obtaining quick dividends. Initially his speculative activities were profitable, but later events altered the outcome. In 1937 two North Indian iron and steel companies, Indian Iron & Steel Co. Ltd. and Bengal Iron & Steel Co. Ltd., merged to form a single concern and issued a new class of shares. The arrangement stipulated that for every five shares held in Indian Iron Co. Ltd. on 22 April 1937, a shareholder would receive one fully paid-up share at a price of Rs 25, while the market price of the shares at the time of the announcement was about Rs 55 per share. The announcement triggered a wave of speculation and a rapid increase in share prices. The speculative fervour created a boom in the market, encouraging many investors, including the plaintiff, to acquire additional shares in anticipation of further price appreciation. This heightened activity later formed the factual backdrop for the litigation concerning the alleged unauthorized sale of the plaintiff’s shares.

The Court described how the market for Indian Iron shares had risen to extraordinary levels. In order to curb the excessive speculation, three members of the Committee of the Calcutta Stock Exchange filed a petition on 5 April 1937 requesting a temporary closure of the exchange. On the evening of the same day, the plaintiff’s stockbroker, Annamalai Chettiar, who operated under the firm name Trojan & Co., spoke on the telephone with Ramdev Chokani, a member of the Calcutta Stock Exchange. From that conversation Chettiar concluded that a sharp decline in the price of Indian Iron shares was imminent. At that moment Chettiar possessed about five thousand of the shares in his possession. Shortly after the call, and after business hours, between 7:30 p.m. and 8:30 p.m., Chettiar called the plaintiff and advised him that purchasing those shares would be advisable. The young plaintiff, eager to become rich quickly, accepted the recommendation and bought the shares, some at a price of Rs 77 and others at Rs 77-4-0. Another brokerage firm, Ramlal & Co., held an additional four thousand shares. That firm also identified the plaintiff as a willing buyer, contacted him by telephone after Chettiar’s call, and sold him the four thousand shares it owned. From the total shares bought from the defendants, the plaintiff later sold one thousand three hundred shares to Ramanathan Chettiar at the original cost price. On 6 April the Committee of the Calcutta Stock Exchange Association adopted a resolution to close the exchange on 8 April and 9 April. From 6 April onward the market began to slump, first gradually and then rapidly, causing the plaintiff to incur a heavy loss when he was forced to sell. The defendants subsequently demanded payment for the shares purchased. Between 5 April and 20 April 1937 the plaintiff made a series of payments to the defendants that amounted in total to Rs 60,000. He sold seven hundred shares to Pilani & Co., and on 19 April 1937 he instructed the defendants to sell the remaining three thousand shares at the best possible price. The defendants sold two thousand of those shares on 20 April 1937 for prices ranging from Rs 47-4-0 to Rs 44-12-0 per share. The final one thousand shares were sold through Ramlal & Co. on 22 April 1937 at Rs 42-8-0 per share. When the accounts were finally reconciled on 22 May 1937, it was determined that the plaintiff owed the defendants Rs 51,712-7-0, and that the credit balance of Rs 64,000 that the plaintiff had with the defendants at the end of March 1937 had been completely exhausted. To settle the amount found due, the plaintiff executed a promissory note in favour of the defendants, identified as Exhibit P-33. After giving

After the plaintiff’s credit was taken for the payments received on the promissory note, the defendants instituted a suit against him, identified as Original Suit No. 150 of 1937, in the Original Side of the Madras High Court. The defendants secured an ex-parte interim order for attachment before judgment and consequently attached the plaintiff’s movable and immovable property both in Madras and at Kottaiyur in Ramnad district. The attachment proceedings prompted the firm of Ramlal & Co. to file a petition seeking adjudication of the plaintiff as an insolvent. On 22 September 1937, Trojan & Co. also filed a petition requesting the same relief. The High Court, acting on the petition of Ramlal & Co., issued an order on 5 October 1937 adjudicating the plaintiff to be an insolvent. During the insolvency proceedings the defendants presented proof of their claim on the promissory note, identified as Exhibit P-33. The Official Assignee, having learned of a telephone conversation that took place on the evening of 5 April 1937 between Annamalai Chettiar and Ramdev Chokani, concluded that the insolvent had been the victim of fraud perpetrated by the defendants and consequently dismissed their claim. The Official Assignee found the defendants-firm guilty of fraud on two grounds: first, for failing to disclose that most of the Indian Iron shares actually belonged to one of its partners, Annamalai Chettiar; and second, for failing to disclose its knowledge that a market slump was likely because its members had given notice to close the Stock Exchange. An application made to the High Court challenging the Official Assignee’s order was set aside by Mockett J, who directed that the defendants’ claim be disposed of on a court motion, treating the claim as if it were a suit. In compliance with this direction, Trojan & Co. filed an application in the High Court, numbered 313 of 1938, on 29 September 1938. The Official Assignee, representing the plaintiff’s estate, denied liability on the promissory note on the ground of fraud. On 15 March 1940, Somayya J dismissed the defendants’ claim, holding the defendants-firm guilty of fraud in both respects. An appeal from that judgment was dismissed on 12 August 1942. The defendants subsequently applied for leave to appeal to His Majesty in Council, but leave was refused. They then sought special leave from the Privy Council, which was also dismissed in October 1943. While the appeal from Somayya J’s decision was still pending, on 28 September 1940 the Official Assignee, on behalf of the plaintiff’s estate, instituted the suit from which the present appeal arises, naming Trojan & Co. as the defendant. The suit sought an account of the transactions conducted between the plaintiff, acting as principal, and the defendants, acting as agents, and claimed damages for losses sustained as well as various other reliefs. The suit specifically encompassed claims relating to four separate transactions, the first of which concerned the Indian Iron shares.

The suit incorporated a claim that concerned five thousand shares of Indian Iron that had been dealt with by the parties. The second claim related to a separate transaction involving shares of the company Associated Cements, which were sold by the plaintiff through the defendants. On 22 March 1937 the plaintiff sold through the defendants fifty shares of Associated Cements at a price of Rs.180-8-0 per share. On 30 March 1937 he further sold two hundred shares of Associated Cements at Rs.183 per share to the market. The plaintiff did not possess any share of Associated Cements in his personal possession at the time of these sales. Consequently it became necessary for him to obtain substitute shares that he had previously sold in order to cover the sales. On 21 July 1937 the defendants purchased on the plaintiff’s account one hundred shares at Rs.161-12-0 per share. On 1 September 1937 they purchased an additional one hundred fifty shares at Rs.151 per share to fulfill his obligation. The price difference between the amounts at which the shares were sold and the amounts at which they were later bought amounted to Rs.6,762-8-0. The defendants adjusted this difference against the plaintiff’s account on the promissory note, thereby giving him a credit for that sum. The Official Assignee contended that the purchase made by the defendants was unauthorised, contrary to instructions, and therefore not binding on the plaintiff because it occurred after the commencement of insolvency. No alternative claim was raised that, if the unauthorised purchase argument failed, the plaintiff was entitled to recover the amount credited on the ground of failure of consideration. The third transaction involved three hundred shares of Tata, and the fourth concerned shares in Ayer Mani Rubber Co. The claim relating to the Ayer Mani Rubber shares was abandoned during the trial, while the claim concerning the Tata shares was decreed in favour of the plaintiff for Rs.1,050, and that decree was not challenged in the appeal before the High Court. The defendants denied liability for the whole claim, asserted that they had not committed any fraud, and argued that the plaintiff could have sold his shares shortly after acquiring them without incurring loss, retaining them only for profit.

The suit was first heard by Bell J., who after hearing arguments from both parties and considering the evidence, decreed in favour of the plaintiff on 9 March 1943. The defendants appealed the decision, arguing that the decree was based on an erroneous assessment of the transactions, and that the lower court had erred in its findings, and the appellate court set aside Bell J.’s decree and remanded the suit for fresh disposal on 26 August 1944. Meanwhile, on 21 February 1944 the plaintiff’s adjudication was annulled, and upon his application he was substituted in the place of the Official Assignee, thereby assuming the rights and obligations of the plaintiff, and continued the suit as the proper plaintiff. After the remand, Clark J. tried the suit and granted a decree in favour of the plaintiff for Rs.61,787-9-0, with interest at a court rate of six per cent per annum from 1 September 1937 until payment or realization, together with costs, thereby confirming the liability arising from the transactions and fully compensating the plaintiff for the losses suffered. The defendants appealed against this decree, contending that the amount awarded was excessive, that the court had misapplied legal principles governing the calculation of damages, and seeking to overturn the financial award.

The appellate bench altered the decree originally granted by Clark J., decreasing the monetary award by the sum of Rs 9,100, and subsequently ordered that each side should bear costs in proportion to their respective positions throughout the proceedings. Leave to appeal this decree to the Supreme Court was duly granted, and the present appeal is now before the Court on the basis of the certificate that was issued to permit such further review. As earlier indicated, the plaintiff’s claim relating to the Ayer-Mani Rubber shares was abandoned during trial, and the claim concerning the third transaction involving three hundred shares of the Tata company was adjudicated for a sum of Rs 1,050; the correctness of that particular decree was not raised before the High Court and therefore was not part of the issues canvassed in the earlier appeal. The two matters that were examined before the High Court concerned the transaction involving five thousand Indian Iron shares and the transaction concerning the Associated Cements company. With respect to the Indian Iron shares, the dispute that now reaches this Court has been narrowed to the question of the quantum of damages payable for three thousand of the five thousand shares that the defendants transferred to the plaintiff on the night of 6 April 1937. Of those three thousand shares, the plaintiff sold one thousand three hundred of them at the original cost price on the day following the purchase, and sold seven hundred to Pilani & Co.; the plaintiff’s claim regarding those seven hundred shares was dismissed by the High Court and the plaintiff elected not to pursue any further appeal on that point. The finding of Somayya J. that the defendants’ firm had committed fraud by failing to disclose that the Indian Iron shares, or at least the majority of them, were owned by one of its partners, Annamalai Chettiar, and by failing to reveal its knowledge of an impending market slump indicated by a notice from three members of the Stock Exchange to temporarily close trading, was not contested before Clark J., and the parties conceded that this finding had become final. The principal issue put to trial therefore concerned whether the plaintiff had suffered any loss as a result of the fraud and, if loss was established, how such damages should be measured. The plaintiff asserted in his pleading that he was entitled to full compensation for every loss and damage he had incurred. He pointed out that a credit of Rs 45,042-9-0 had been entered into his account in respect of the sale of three thousand shares on 20 April and 22 April 1937, and he claimed the entire amount as damages, arguing that his loss should be measured by the difference between the purchase price of the shares and the price at which they were ultimately sold. The shares had been bought on 5 April at prices of Rs 77 and Rs 77-4-0, and subsequently sold at prices ranging from Rs 42-8-0 to Rs 47-4-0 on the two sales dates in April 1937. The defendants successfully challenged this method of measuring damages before the trial judge. Nonetheless, Clark J., despite holding that

In assessing the plaintiff’s loss, the trial judge refused to accept the method suggested by the plaintiff and instead calculated the damage as the difference between the price at which the plaintiff bought the shares and the price at which he actually sold them. The judge reasoned that the sale price exceeded the fair value that could have been realised on 6 April 1937 in a market of bona-fide purchasers and sellers who were aware of the true state of affairs. On appeal before the High Court, the defence argued that the trial judge had erred in estimating the real value of the shares on 5 April 1937 and further contended that the shares could not be valued at four different rates, asserting that the damages had been grossly over-estimated. The appellate court rejected this submission, holding that, given the facts of the case, it could not be said that the plaintiff had acted unreasonably in retaining the shares for the period he did, and that the defendants, by means of their own double dealings, had placed the plaintiff in a difficult position. The counsel for the appellant reiterated before this Court the same contentions raised in the High Court, insisting that the proper measure of damages in such cases should be the difference between the purchase price and the true value of the shares at the time of the transaction, and that any loss attributable to the plaintiff’s decision to keep the shares after that date could not be awarded. It was vigorously argued that, had the plaintiff disposed of the remaining shares in the same manner as the 1,300 shares already sold, he would have incurred no loss, because the market price on 6 and 7 April was not below his cost price. The loss, it was said, arose solely from the plaintiff’s choice to retain the shares for a fortnight, not from the fraud alleged. Finally, it was submitted that even if the market on 6 and 7 April had been affected by the concealed fact, that effect vanished by 10 April when the fact became fully known; consequently, damages should be measured on the basis of the market price of Rs 62 per share on 10 April 1937 minus the cost price. The Court noted that the prevailing rule is that damages for breach of contract or tort are intended, to the extent money can compensate, to give the injured party reparation for the wrongful act and for all natural and direct consequences of that act. However, the Court observed that measuring such monetary compensation is difficult, that no single general principle governs all cases, and that each case must be assessed according to its own particular circumstances.

In the case, the Court explained that when there were no special circumstances, the amount of damages could not be measured by the total loss finally suffered by the representee. Instead, the measure of damages could only be the difference between the price that the representee had paid for the shares and the price that he could have obtained if he had sold the shares immediately in a fair market after purchasing them. The Court therefore identified the principal question as follows: what amount could the plaintiff have received if he had promptly resold the shares that he had been induced to buy by the defendants’ fraudulent conduct? In other words, the method of assessing damages required the Court to determine how much it would have cost the plaintiff to extricate himself from the transaction, that is, how much poorer his estate became as a result of entering into the bargain. The Court cited the authority of McConnel v. Wright, where Lord Collins had set out the principle governing such assessments. He observed that the principle was now well established, having been stated by several judges, especially by Cotton L.J. in Peek v. Derry. The essential point, according to Lord Collins, was that the claim was not an action for breach of contract; consequently, no damages could be awarded for any prospective gains that the contracting party might have expected under the contract. Rather, it was an action in tort, a claim for a wrong that had been committed by deceiving the plaintiff out of money that was in his pocket. Accordingly, the highest possible measurement of the plaintiff’s loss was the total amount of money that had passed from his pocket into the company’s pocket. That amount represented the ultimate and final standard of his loss. However, the Court noted that if the plaintiff had received an equivalent value for that money, the loss would be reduced. In assessing damages, the assets represented to the plaintiff were to be treated as an equivalent, and no more, for the money paid. If the assets were indeed an equivalent, the plaintiff suffered no loss; if the assets fell short of being an equivalent, the plaintiff was damaged in proportion to the shortfall. The Court therefore concluded that the sole issue to be determined was whether the shares delivered to the plaintiff constituted an equivalent value for the money he paid, or whether they were deficient, and if so, to what degree. As a general rule, the market price of the shares on the date when the fraud was committed would be taken as their true value, assuming no other circumstances interfered. Nevertheless, if the market had been distorted, disturbed, or panicked as a result of the very fact that had been fraudulently concealed, the true value of the shares would have to be ascertained by considering those abnormal market conditions.

The Court observed that the value of the shares must be determined by examining the various circumstances presented in the evidence offered by the parties. It noted that, as a general rule, the market price on the earliest date when the true facts became known may be taken as the actual value of the shares. However, the Court explained that if no market existed or if satisfactory evidence of a market price for a sufficient period was unavailable, another approach was necessary. In such a situation, where the representee chose to sell the shares—though not compelled to do so—and the resale occurred within a reasonable time, on reasonable terms, and without unnecessary delay, the price obtained at that resale could be considered in retrospect to determine the true market value of the shares on the critical date.

The Court further stated that where there was absolutely no market, or where the market price could not be relied upon as the fair value for reasons previously identified, and where the representee had not sold the shares, the assessment of the fair value on the date of the deceit could incorporate subsequent events. This incorporation was permissible only so long as those later events were not caused by external circumstances that arose because the shares were retained. The Court characterized these principles as well-settled rules for ascertaining loss and damage in such cases.

Regarding the lower courts, the Court indicated that if damages had been measured according to the aforementioned rules, the present Court would have respected the concurrent findings of those courts, because the assessment of damages is primarily a factual determination and ordinarily is not reviewed unless exceptional circumstances arise. Nevertheless, the Court found that although the lower courts correctly articulated the appropriate rule for measuring damages, they instead based their calculation on the difference between the cost price and the price realized at the sales on the 20th and 22nd, applying four separate rates. The Court held that those four rates could not represent the true value of the shares on the 5th of April. Moreover, the conclusion that the true value of the shares was lower than the amount realized at the resale on the 20th and 22nd was unsupported by any evidence. Such a conclusion could be reached only by reference to evidence on record, which the lower courts had failed to provide.

The Court noted that the High Court had not attempted to determine the extent to which the value of the shares fell short of being an equivalent for the money taken from the plaintiff. Without resolving this essential issue, the Court found it improper to estimate damages on the vague finding that the true value of the shares was lower than the resale price obtained on the 20th and 22nd.

In this case the Court observed that it could not rely on the concurrent finding of the lower court and therefore had to arrive at its own conclusion regarding the true value of the shares on the relevant date. The issue for determination was the market value of the three thousand shares on 5 April 1937, assuming that all buyers and sellers were aware that the Stock Exchange would be closed on 8 and 9 April to permit settlement of outstanding transactions and that they had taken that information into account. The Court quoted Buckley J. in Broome v Speak, noting that although the question was difficult, difficulty did not justify refusing to answer it as the lower court had done. To ascertain the real price of the shares sold to the plaintiff through concealment of certain facts, the first matter to decide was whether the prevailing market rate would ordinarily constitute a true index of the shares’ value, or whether that rate had been distorted by the very fact concealed, namely the impending closure of the market.

The factual record showed that the market rate for the Indian Iron and Steel shares had been seriously affected by the announced decision of the Stock Exchange to close for two days in order to curb speculative frenzy caused by the merger of two steel companies operating in northern India. Market reports for the week ending 19 March indicated that the shares were trading around Rs 55. After the merger terms were announced, on Saturday 3 April the shares were dealing at approximately Rs 73. On Monday 6 April the price rose to Rs 77. On Tuesday, the day the decision to close the market was taken, the shares briefly reached Rs 79 but closed the business day at Rs 72, a sudden decline of Rs 7. The following day, Wednesday 7 April, the Calcutta market closed at Rs 58, reflecting a further drop of Rs 14 in a single day. These abrupt fluctuations during the two-day period were deemed sufficient indication that the decline resulted from the Stock Exchange’s closure. No other factor was shown to have disturbed the market rate. The defendants’ own share-market report dated 10 April 1937 confirmed this, stating that the most notable feature of the week was the sudden landslide in Indian Iron and Steel shares, attributing the movement to the market-closing decision.

The defendants’ market report observed that the sharp rise in Indian Iron and Steel shares spread to other sections of the market. The week began with a buoyant, bullish mood and the shares reached a peak of Rs 80. At that lofty level the market lost its balance and a burst of frantic selling produced a dramatic fall of roughly twenty-five points. The heavy liquidation was attributed to the dominance of weak holders who had entered the market late. In addition, the selling was intensified by the Calcutta Stock Exchange’s decision to close the Calcutta market on 8 April and 9 April so that brokers could make deliveries and settle transactions in Indian Iron and Steel shares. Because certificates were delayed, a large volume of business remained outstanding between brokers. The prospect of having to deliver share certificates immediately frightened the weak holders, causing further price declines through heavy liquidation. It was therefore clear that the Calcutta Stock Exchange’s closure on 8 April and 9 April materially affected market prices. On 7 April the Calcutta market price fell from Rs 72 to Rs 58, as previously noted. The closure decision was announced in the Madras edition of The Hindu on the evening of 7 April. According to Exhibit P-41, the statement of account filed by Trojan & Co. on 7 April, about six transactions in these shares were carried out through that firm. Most of those transactions involved small holders possessing roughly one hundred shares each, and they sold their shares at prices ranging from Rs 71 down to Rs 60. On 8 April three transactions occurred at Rs 62, after which no transaction was recorded between 8 April and 14 April. Two transactions were noted on 14 April at Rs 56, and a further transaction took place on 16 April at Rs 57-8-0. On 20 April Trojan & Co. sold two thousand of the plaintiff’s shares at prices varying between Rs 44-12-0 and Rs 47-4-0. A separate statement of account from another broker, Ramlal & Co., showed about sixteen transactions on 7 April. Most of those were in blocks of one hundred or two hundred shares, with sale prices ranging from Rs 74 to Rs 64. On 8 April a few transactions were recorded at prices between Rs 57 and Rs 66. A transaction on 9 April occurred at Rs 60, and two or three transactions on 10 April were also around that level. No transactions after 10 April by this broker were presented in the record. Exhibit P-23, another weekly share-market report issued by Trojan & Co. on 17 April 1937, stated that Indian Iron shares were very cheap at around Rs 46, that the company was performing extremely well, and that conditions were set for a steady rise to Rs 70. The report further noted that Indian Iron and Steel shares fluctuated between Rs 55 and Rs 60 and closed at Rs 47, adding that the recent hectic speculation had produced its own adverse consequences. This report demonstrated that there was effectively no active market during the period in question.

From the evidence presented on record in Madras, the Court observed that between the 8th and the 17th of the month, which fell on a Saturday, the share price appeared to stabilize at around Rs 46 by the 17th. On the 19th, the plaintiff gave the defendants a written order directing them to sell his holding of three thousand shares, and the order was accompanied by the instruction “Please retain this order till-executed.” The defendants succeeded in disposing of two thousand of those shares on the following day, the 20th, at transaction prices ranging from Rs 44-12-0 to Rs 47-4-0. The remaining one thousand shares were later sold by the plaintiff through Ramlal and Co. on 22 April 1937 at a price of Rs 42-8-0. The Court noted that it was quite possible and, indeed, probable that, had the plaintiff placed the selling instruction earlier—perhaps on the 16th or 17th—with either the defendants or Ramlal and Co., he might have been able to dispose of the remaining thousand shares at a price comparable to that obtained for the two thousand shares already sold.

No representative of the defendants’ firm gave testimony in the proceedings. The plaintiff testified that, had he possessed the information known to the defendants, he would not have purchased the shares. He asserted that the defendants had concealed from him the likelihood that the shares would decline in value. The plaintiff further stated that, although the defendants advised him to sell, no purchasers were forthcoming, and despite his eagerness to liquidate, he could not accomplish the sale before the 20th and the 22nd. He explained that he approached Trojan & Co., the defendants’ firm, for assistance in selling the shares, but the firm was unable to sell more than two thousand shares.

After considering the totality of the material, the Court was satisfied that the market rates prevailing on the 5th, 6th and 7th had been distorted by the Calcutta Stock Exchange’s decision to keep the market closed on the 8th and 9th. The market did not achieve a settled price until around the 17th or 18th, and the rates prevailing at that time could be regarded as the true market price. Accordingly, the Court held that Rs 46 per share represented the genuine value of the shares when they entered the plaintiff’s possession, and that the plaintiff had received Rs 46 for each share in lieu of the purchase price of either Rs 77 or Rs 77-4-0. The plaintiff was also entitled to recover the commission he would have paid on the sale. The difference between the purchase price and the realized price constituted the damage suffered by the plaintiff. Consequently, the Court modified the order of Clark J. and the appellate Bench of the High Court, estimating the plaintiff’s loss at Rs 93,000—that is, Rs 31 per share on the three thousand shares. The second question before the High Court and this Court concerned the Associated Cement shares, as previously indicated.

The plaintiff’s account showed a credit of Rs 6,762-8-0 arising from the purchase of shares in Associated Cement. He asserted that this transaction had been carried out without his authority and in breach of his instructions. Alternatively, he claimed compensation on the ground that consideration had failed because the sum credited in the promissory-note account had disappeared following the failure of the suit concerning the promissory note. At the hearing before Bell J., counsel abandoned the contention that the purchase was unauthorised, and the same position was taken before Clark J. During the plaintiff’s cross-examination, it emerged that he had either directed the defendants to acquire the shares or, at the very least, had ratified the purchase that the defendants had made on his behalf.

The appellate Bench of the High Court argued that because the plaintiff had pleaded one case, produced evidence in support of that case, and later been compelled to admit in the witness box that the true circumstances were different, he had thereby relinquished his entitlement to relief concerning these shares. The High Court rejected that argument, holding that although a claim for damages with respect to a particular transaction might fail, such a failure did not bar the Court from directing the defendants to pay the plaintiff the money actually due for that transaction. The High Court also held that the plaintiff’s claim for the amount of Rs 6,762-8-0 was within the prescribed limitation period. This Court is unable to uphold the High Court’s view. It is a settled principle that a decision must be based solely on the pleadings as filed; the case pleaded is the only basis for a finding. Because the plaintiff’s plaint had not been amended to include an alternative claim based on failure of consideration, the Court was not empowered to grant relief that had not been sought. No request was ever made to amend the plaint to incorporate such an alternative basis. The allegations supporting the plaintiff’s claim in respect of these shares were clear, unambiguous, and emphatic. Neither the original plaint nor any amendment ever suggested that the plaintiff was alternatively entitled to the sum on the ground of failure of consideration. Consequently, there are no valid grounds for entertaining the plaintiff’s claim on that basis. In disagreement with the lower courts, this Court holds that the decree granting the plaintiff Rs 6,762-8-0 in respect of the Associated Cement shares was erroneously awarded. Once accounts have been settled, they may be reopened only upon the presence of proper allegations.

The lower courts examined the plaintiff’s request for interest on the amount that had been adjudged due to him from 5 April 1937 until the suit was filed. The plaintiff argued that interest could not be awarded on damages because doing so would amount to granting damages on damages, a position that he said conflicted with established precedent and principle. The learned judge, however, granted interest on the basis of several English decisions that state an agent who improperly receives or handles his principal’s money, or who refuses to remit it on demand, is liable to pay interest from the moment he receives or deals with the money or from the time of the demand. The Court considered that it is well settled in equity that interest may be awarded where money has been obtained or retained by fraud. Article 423 of Volume 1 of Halsbury’s Laws of England records that an agent must also pay interest in every case of fraud, as well as on all bribes and secret profits received during his agency. The Privy Council, in Johnson v. Rex [1904] A.C. 817, expressed that there can be no doubt that money obtained by fraud and retained by fraud may be recovered with interest, whether the proceeding is in a court of equity, a court of law, or a court possessing both equitable and legal jurisdiction. The appellate court affirmed the learned judge’s view on this point. Counsel for the appellant contended that the cited authorities dealt with situations where an agent retained some of his principal’s money, whereas the present claim was solely for damages. That contention was rejected as unfounded. By reason of a fraudulent concealment, the plaintiff had paid the defendants a cash sum of Rs 60,000 that he would not otherwise have parted with, and he also lost the amount that stood to his credit with the defendants. Consequently the agents possessed a large sum of the plaintiff’s money that they could not have acquired but for the fraud they perpetrated. The Court found no merit in the appellant’s argument and dismissed it. The only remaining issue concerned future interest. It was undisputed that the plaintiff was entitled to future interest at six per cent on the amount found due, but it was argued that interest should not accrue for the one-year-and-six-months period during which the decree was satisfied. The facts indicated that on 9 March 1943 a decree for

In this case the Court recorded that a decree for the sum of Rs. 51,805-1-0, carrying interest at six per cent, was passed in favour of the plaintiff on 9 March 1943. Subsequently, on 11 May 1943, the defendants paid an amount of Rs. 71,000, which was due under that decree, to the Official Assignee. The Official Assignee retained the money and later returned it to the defendants on 12 September 1944 after the decree had been set aside. During this interval the plaintiff’s adjudication was annulled, and the plaintiff was restored to the record on 16 March 1944.

The parties argued about whether the plaintiff was entitled to future interest for the period during which the money remained with the Official Assignee. The plaintiff contended that, because the money was held by the Official Assignee and the decree was deemed satisfied, no future interest should accrue for that one-year-and-six-months period. The High Court had rejected that contention, holding that the payment made to the Official Assignee was accompanied by a prayer that the sum should not be distributed to the creditors of the insolvent estate while an appeal was pending. Accordingly, the High Court had allowed interest for that period, reasoning that the money was not distributable among the insolvent’s creditors.

The Court, however, found that view untenable. It observed that the defendants, as judgment-debtors, had fully performed their obligation by paying the decretal amount to the Official Assignee, thereby satisfying the decree. The Court clarified that the Official Assignee, who was the decree-holder, could not impose a condition on the money that he received. If the Official Assignee had refused to take the money from the defendants, the plaintiff could justifiably claim future interest on that amount. But because the Official Assignee accepted the payment and retained it, the Court concluded that nothing was owed by the defendants to the plaintiff during that period, regardless of whether the plaintiff or his predecessor in interest could use the funds. The Court therefore held that the plaintiff was not entitled to future interest at the stipulated rate for the period from 9 March 1943 to 12 September 1944.

As a result, the appeal was allowed to the extent indicated. The decree of the High Court was modified: the plaintiff was awarded damages of Rs. 93,000 on the 3,000 Indian Iron shares. The decree for Rs. 6,762-8-0 was set aside, as was the decree for Rs. 9,100 previously set aside by the High Court. In computing future interest, the plaintiff would not receive interest for the one-year-and-six-months interval. Consequently, the original decree of Rs. 61,787 was reduced to Rs. 42,175. The plaintiff was ordered to receive interest at six per cent per annum from 5 April 1937 until payment or realization, except for the excluded period, and to be awarded proportionate costs throughout.

In this case, the Court recorded that the appeal was permitted in part, indicating that the appellate relief was granted only to the extent that the Court found appropriate and that certain other claims or aspects of the appeal were not granted. The order further identified the individuals who appeared on behalf of the parties. The Court noted that the person acting as the agent for the appellant was Ganpat Rai. Likewise, the Court indicated that the individual designated as the agent for the respondent was M. S. K. Sastri. By specifying these agents, the Court clarified the representation of each side for the purposes of the proceedings and the order.