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Official Citation: 1949 PLD 305
Court / Jurisdiction: PRIVY-COUNCIL
Parties: THE BANK OF INDIA LTD. vs JAMSETJI A. H. CHINOY AND MESSRS. CHINOY & Co.Honorable Justice Lord Macdermott
This judicial decision was delivered by the PRIVY-COUNCIL. The matter involves proceedings between THE BANK OF INDIA LTD. and JAMSETJI A. H. CHINOY AND MESSRS. CHINOY & Co.Honorable Justice Lord Macdermott, officially reported as 1949 PLD 305. The court reviewed applicable Pakistani statutes, procedural requirements, and governing case-law authorities. The full text below contains the complete facts, arguments, and legal reasoning rendered by the honorable bench.
P L D 1949 Privy Council 305
P L D 1949 Privy Council 305
Present : Lord Greene, Lord MacDermott and Sir Madhavan Nair
THE BANK OF INDIA LTD. and others-Appellants
Versus
JAMSETJI A. H. CHINOY AND MESSRS. CHINOY & Co.-Respondents
(and two other appeals)
Privy Council Appeal No. 4 of 1948, decided on 19th December 1949, from Bombay.
(a) Practice-Privy Council -Findings of fact of trial judge-May be reviewed by Appellate Court if based on theory or assumptions not offering direct support for such findings.
Their Lordships are not unmindful of the great weight to be attached to the findings of fact of a Judge of first instance who sees and hears the witnesses and is in a position to assess their credibility from his own observation For this reason they would be reluctant to differ from the learned Judge in this instance if his conclusion on the issue under consideration had turned on the impression made by Jamsetji in the witness-box. That, however, was not the case. It is plain that the learned Judge based his finding-and his opinion of Jamsetji-on a theory of conspiracy derived from the documents and a series of inferences and assumptions founded on a variety of facts and circumstances which, in themselves, offer no direct or positive support for the conclusion reached. The right of the Appellate Court to review this inferential process cannot be denied.
(b) Pleading-Fraud -Must be pleaded in plain and unequivocal manner-Cannot be implied from vague and ambiguous terms.
The rules in India as to pleading fraud do not differ in any material respect from the English rules on the same subject. Fraud must be pleaded in a plain and unequivocal manner and cannot be set up by way of implication from the terms of a statement vague and ambiguous.
(c) Contract-Agreement to purchase shares in company-Defence of India Act, 1939, Rule 93 (2) of Rules made under-Prohibition against "acquiring" shares without permission of Reserve Bank of India-Agreement to purchase does not amount to "acquiring" such shares-Contract not void for illegality.
The question turned on whether the agreement for sale of shares, which was, admittedly, made without the permission of the Reserve Bank of India, contravened Rule 93 of the Rules made under the Defence of India Act, 1932, either when read alone or in conjunction with Rule 121. The material parts of these Rules are as follows :
"Rule 93 (1). For the purposes of this rule (1) the expression "securities" includes shares
(2) No person shall, except with the permission of the Reserve Bank of India or in the performance of a contract made before the 3rd September 1939, acquire any securities from a person not resident in India or Burma.
Rule 121. Any person who does any act preparatory to a contravention of any of the provisions of these rules shall be deemed to have contravened that provision"
For the defendants it was contended that to agree to purchase was to "acquire" within the meaning of Rule 93 (2). Both Courts in India were of opinion that this submission was ill-founded and their Lordships agree with that view. It was conceded that in India a contract for the sale of shares does not, of itself and in the ordinary course of events, create an equitable interest in the purchaser, and that no question arose as to the acquisition of such an interest. In the opinion of the Board the natural meaning of the expression "acquire any securities" in relation to a sale of shares points to the completion of the contract, in the sense of the acquisition by the purchaser of the documents necessary to procure his registration, rather than to the contract itself. There is nothing in the context to point away from this construction. On the contrary, the words "or in the performance of a contract" appear to recognise the distinction on which this interpretation is based. Once this conclusion has been reached little need be said of rule 121.
The contract was not void for illegality.
(d) Specific Relief Act (I of 1877), S. 27 (2)-Contract for sale of shares-Damages not adequate remedy if there is limited market for company's shares.
(e) Contract-Whether party willing and ready to perform his par.:-Proof-Production of money or vouching f or a scheme for financing transaction.
In order to prove himself ready and willing a purchaser has not necessarily to produce the money or to vouch a concluded scheme for financing the transaction,
(f) Company--Shares-Sale---Dividend subsequent to date of contract of sale-Right of buyer.
As between a buyer and seller of shares, the buyer is entitled to all dividends declared after the date of the contract for sale, unless otherwise arranged. [p. 318]F
This statement is applicable to India.
(g) Equity-Price unpaid by buyer-Vendor entitled in equity to interest for period for which price remained unpaid.
If the first plaintiff succeeds in his claim that the contract should be specifically performed not only as to the shares but also as to the fruit they have borne while the price remained unpaid, he cannot claim to retain a fair measure of the profit earned or the expense saved by reason of the price being unpaid without denying the vendors a correlative equity and ignoring the quality and character of the relief which he has sought.
JUDGMENT
LORD MACDERMOTT.-These three consolidated appeals are from a decree, dated the 22nd September 1947, of the High Court at Bombay (acting in its appellate jurisdiction) which reversed a decree, dated the 7th January 1947, of the same Court (acting in its original civil jurisdiction) whereby a suit (No. 1086 of 1942) brought by the above named Jamsetji A. H. Chinoy and Messrs. Chinoy & Co. (respondents in the first and second appeals and appellants in the third) was dismissed.
This suit was instituted on the 24th August 1942, against the above named Edulji F. E. Dinshaw and Baclhubai F. E. Dinshaw (hereinafter referred to as "the Dinshaws") as sole defendants. The plaint alleged that the Dinshaws held between them 1,200 A and 1,200 B shares in an Indian Company named F. E. Dinshaw Ltd. and had contracted on the 8th July 1942, through their agent Shapoorji Pallonji Mistry (hereinafter called "Shapoorji") to sell these shares to the plaintiff Jamsetji A. H. Chinoy at the price of Rs. 3,000 per collective share i.e., per 1 A and I B share. The plaint stated that the second plaintiffs, the firm of Chinoy & Co., claimed no interest in the contract and had been joined for greater caution and to avoid the contention that the contract had been made by the Dinshaws with them. The principal claim was for specific performance of the contract, but further relief, alternative or ancillary in nature, was also sought.
Subsequent to the filing of the plaint the Dinshaws transferred the shares in question in various parcels to a number of persons. These transfers were completed by the 9th September 1942, and on the 22nd October 1942, the transferees-some 75 in number-were made additional defendants and the plaint was amended. Of the amendments then made it will, for present purposes, suffice to say that the claim as amended sought (a) an order for specific performance against the additional defendants as well as the Dinshaws and (b) an order for the payment of Rs, 2,94,000 to the first plaintiff, being the amount of a dividend declared by the company on the 24th September 1942, in respect of the said shares for the year ending 31st March 1942.
Of the additional defendants so joined, four appear to have been struck off the record subsequently and one, Sir Cowasji Jehangir, defendant No. 77, did not appear and took no part in the proceedings. The remainder may be taken as in the main identical with the appellants in the first appeal. They will be referred to as the additional appellants." The appellants in the second appeal are the Dinshaws and, as already stated, the plaintiffs, Jamsetji A H. Chinoy and Chinoy & Co., are the appellants in the third appeal. It was common ground that Jamsetji had no interest in Chinoy & Co., which was a firm of stock brokers carried on by three of his grand-nephews in partnership. It was also common ground that the Dinshaws left India in 1941 and were resident in the United States of America and not in India at the beginning of 1942 and all material times thereafter.
In the Court of first instance the learned trial Judge (Tendolker, J.) held that Shapoorji had authority from both the Dinshaws to enter into the contract alleged but that no such contract had been made. He therefore dismissed the suit. On appeal to the High Court in its appellate jurisdiction this decision was reversed. The Court (Chagla A. C. J. and Bhagwati, J.) held that Shapoorji was duly authorised to enter into the contract and that in fact it had been made. As well as challenging Shapoorji's authority and the making of the contract the defendants had also raised certain other defences which need not now be stated in detail, but which included contentions to the effect that the contract was invalid or unenforceable by reason of failure to obtain the permission of the Reserve Bank of India as required by the Rules made under the Defence of India Act, 1939, particularly Rules 92 A (2) (b) and 93 (2) thereof, and, further, that the first plaintiff, Jamsetji A. H. Chinoy, was not at any material time ready and willing to perform his obligations under the contract and was not entitled to relief by way of specific per formance, The Appellate Court over-ruled these contentions and by its decree of the 22nd September 1947, ordered the defendants, other than defendant No. 77 (the said Sir Cowasji Jehangir), to perform the said contract specifically as respects 1,185 A and 1,195 B shares and to pay the first plaintiff the amount of the said dividend, declared as aforesaid by the company on the 24th September 1942, on these 1,185 A and 1,195 B shares. The decree directed the defendants (other than No. 77) to execute the necessary transfers and hand them over with the relevant share certificates to the first plaintiff against payment of the price on or before the 27th October 1947, and it declared the first plaintiff entitled to take credit for the said dividend against the price. The decree, having declared that the contract was "binding on the defendants other than the seventy-seventh defendant" made no order against him.
To this brief summary of the proceedings in India there must be added a reference to an order made by the Appellate Court on the 9th October 1947, which was only brought to the notice of their Lordships after the consolidated appeals had been at hearing for some time. This order was made on an application for a stay of execution pending the determination of the appeals to His Majesty in Council. A stay was not granted but, on the consent of the plaintiffs and the additional appellants, it was ordered, inter alia, that the additional appellants should deposit with Messrs. Kanga & Co., the plaintiffs' attorneys, blank transfers duly executed, together with the relative share certificates, in respect of 1,185 A shares and 1,195 B shares in the company, Messrs. Kanga & Co., undertaking to hold the same pending the final disposal of the appeals to His Majesty in Council ; and that upon such deposit being made the first plaintiff should pay to Messrs. Payne & Co., attorneys for the additional appellants, the price of these shares, less the amount of the dividend received by the additional appellants in respect thereof for the year ended the 31st March 1942. This order has been carried out and the position now is that the first plaintiff has made payment for the 1,185 A and1,195 B shares as directed and the additional appellants have, between them, lodged transfers and certificates for such shares with Messrs. Kanga & Co., to abide the result of the present appeals. It further appears that the first plaintiff and the additional appellants are, and have been at all material times, resident in India.
In their appeals to the Board the Dinshaws and the additional appellants made what was, for all practical purposes, a common case. They sought to have the suit dismissed on several grounds and, failing that, to have the decree of the Appellate Court amended in several respects. The plaintiffs in their appeal claimed additional relief to that granted by the Appellate Court, it being contended that the first plaintiff was entitled to specific perfor mance or damages in respect of the 5 A and 5 B shares which stood in the name of the 77th defendants, and also to payment of all dividends on the shares purchased which had been declared for the accounting periods subsequent to the 31st March 1942. A further claim to damages in addition to specific performance was abandoned at the hearing.
The oral and documentary evidence in the case has already been discussed in detail and with much care in the Courts in India, and their Lordships do not find it necessary to embark again upon any general survey of the facts. The issues have narrowed considerably during the progress of the litigation and in view of this and as the contentions of the parties are to some extent inter-related, the most convenient course will be to state and consider seriatim the several questions which remain for decision. They are as follows :
Was Shapoorji authorised by the Dinshaws to enter into the alleged contract ?
Both Courts in India answered this in the affirmative and in the face of their concurrent findings the contrary view was but faintly argued. There was ample and, indeed, cogent evidence to show that Shapoorji had the authority of both the Dinshaws to contract as alleged. The findings of the Indian Courts were, in the opinion of the Board, clearly right and must stand.
Was the contract alleged by the plaintiffs in fact made ?
On this question the Courts in India have, as already mentioned, differed, the learned trial Judge answering it in the negative and the Appellate Court taking the opposite view. The contract is pleaded in paragraph 4 of the plaint as follows :
"On the 8th of July 1942 the said Shapoorji Pallonji Mistry acting for and on behalf of the 1st and 2nd defendants and in exercise of the said authority conferred on him agreed to sell to the 1st Plaintiff and the 1st Plaintiff agreed to purchase 1,200 A and B collective shares of F. E. Dinshaw Ltd. at the price of Rs. 3,000 (three thousand) per collective share aggregating to Rs. 36,00,000. No time was specified for the performance of the said contract and the said shares were to be delivered against cash payment immediately or within a reasonable time. Hereto annexed and marked `B` collectively are copies of letters dated the 8th of July 1942 and the 9th of July 1942 exchanged between the 1st plaintiff and the said ShaPoorji Pallonji Mistry, whereby the said agreement of sale and purchase was confirmed."
The letters referred to were proved by the first plaintiff. They are exhibits C. 1 and C. 2 and read thus :
C. 1
"East & West Building, Apollo Street, Fort.
Chinoy & Co. Share & Stock Brokers. Telephones-25748 office 22355-- 20494 residence.
Bombay, 8th July 1942.
Shapoorji Pallonji Mistry Esq. Bombay.
Dear Sir,
We confirm our conversation with you that we have agreed to purchase from you 1,200 twelve hundred A and B collective shares of F. E. Dinshaw Ltd. at the price of Rs. 3,000 (rupees three thousand) per collective share aggregating rupees thirty-six lacs. You have informed us that the shares belong to Mr. Edulji Dinshaw and Miss Bachubai Dinshaw and that you have been authorised to sell the shares on their behalf.
Please arrange for delivery of the shares against cash payment at early date.
Yours faithfully, (Sd.) JAMSHEDJI A. H. CHINOY." C. 2
"70 Medows Street,
Fort,
Bombay 9th July 1942.
Shapurji Pallonji Mistry Building Contractor, to Government and Railways. Telegraphic Address : GINFRAME Residence Tele. No. 35783 Office - No. 24634 Jamshedji A, H. Chinoy Esq.
Dear Sir,
T acknowledge receipt of your letter of the 8th instant.
I confirm my having agreed to sell to you on behalf of Mr. Edulji Dinshaw and Miss Bachubai Dinshaw their 1,200 (one thousand and two hundred) collective shares of F. E. Dinshaw Ltd. at Rs. 3,000 (three thousand) per share.
As regards delivery and payment I am cabling to Mr. Edulji Dinshaw for necessary instructions.
Yours faithfully, (Sd.) SHAPOORJI PALLONJI MISTRY."
On the date of this last letter Shapoorji sent a cable to the defendant Edulji Dinshaw which was received in New York on the 12th July 1942, and is in these terms :
"According to your cable confirmation dated fourth July sold F. E. Dinshaw Ltd. 1200 A and B collective shares of yours and Bachubai at rupees three thousand collective shares A and B AAA total value of 1200 A and B collective shares is rupees thirty six lacs AAA partys name Chinoy & Company AAA cable further for arrangements of taking delivery of shares and pay ment AAA with kindest regards to both.
Shapoorji Pallonji Mistry."
In considering the issue under discussion the learned trial Judge dwelt at some length upon the conduct of Jamsetji and Shapoorji prior to the alleged sale, the circumstances in which the letters of the 8th and 9th July 1942, saw "the light of day" and the events subsequent to the alleged agreement. He found Jamsetji an unsatisfactory witness and thought his conduct inconsistent with his being a genuine purchaser. He regretted that Shapoorji had not been called as a witness and appears to have come to the conclusion that he was out to secure the shares for himself. He commented pointedly that Jamsetji's testimony as to the sending of the letter of the 8th July and the receipt of that of the following day was not supported by any documentary or other evidence and he saw considerable significance in the circumstances that these letters had not been revealed to anyone other than the corres pondents before the 27th July 1942 ; that Shapoorji had for some time kept all news of the alleged sale from the Dinshaw's local agents ; and that he had informed the Dinshaws first that the purchasers were Chinoy & Co., and eventually, on the 24th July 1942, that they were "jamsetji A. H. Chinoy Company". The suggestion that Shapoorji might have been misled as to the proper description of the purchaser by reason of the letter dated the 8th July having been written by Jamsetji on the letter paper of Chinoy & Co., with the word "we" in the body of it, was not accepted by the learned Judge who regarded it as far-fetched and not in accord with Shapoorji's subsequent conduct, although he found as a fact that on the 23rd July 1942, Shapoorji had introduced Jamsetji to William R. Rumbold, then the holder of a power of attorney from the Dinshaws, as the purchaser and "the proprietor of Chinoy & Co." After referring to these and other points of a like nature, which it is unnecessary to detail, the learned Judge stated his conclusions on this aspect of the case in the following passage in his judgment :
"Having regard to all the matters that I have discussed above. I am not prepared to hold that Jamshedji agreed to purchase these shares or that the letters Ex. C are proved to have been exchanged on the dates which they bear.
It is, however, argued that quite apart from these letters there was an oral agreement to sell. Paragraph 4 of the plaint pleads that there was such an agreement on the 8th of July. None such was deposed to by ijJamnshedji in his evidence-in-chief, but in his cross-examination by Mrs Maneksha he stated as follows :
'An oral agreement to purchase. the shares was concluded on the 7th of July 1942. It was at about 4 p.m. in the office of Shapurji. No one other than myself and Shapurji was present when the contract was concluded. His staff was in the room when we had this conversation. They were not within hearing.'
Quite apart from the fact that there is a slight discrepancy as to the date of the alleged agreement, I cannot accept or act upon that evidence because, if Jamshedji is capable of being a party to bringing into existence Ex. C, I cannot trust his word. I therefore hold that no agreement to sell between Shapurji and Jamshedji has been proved."
The Appellate Court took a different view of the evidence and held that it proved a concluded contract between Jamsetji, the first plaintiff, and Shapoorji as agent for the Dinshaws. It also held that the conclusion of the trial Judge was tantamount to a finding that Shapoorji and Jamsetji had fabricated the letters of the 8th and 9th July in fraudulent collusion and that such a finding was not open to the Judge.
In the opinion of their Lordships the Appellate Court was clearly right in these views. After a careful consideration of the entire evidence they are satisfied that the finding of the learned trial Judge can mean nothing less than that the first plaintiff had actively participated in a fraudulent conspiracy with Shapoorji in order to set up a sale which had never taken place. Nothing short of such conduct could, in the circumstances, rob the letters of the 8th and 9th July of their probative value in establishing the contract. This was not, indeed, disputed before the Board. On the contrary it was contended by counsel for the Dinshaws that Shapoorji was dishonest throughout and that Jamsetji was a party to the fraud after the 7th July, his letter of the 8th July being described as "reeking with trickery and fraud".
Their Lordships are not unmindful of the great weight to be attached to the findings of fact of a Judge of first instance who sees and hears the witnesses and is in a position to assess their credibility from his own observation. For this reason they would be reluctant to differ from the learned Judge in this instance if his conclusion on the issue under consideration had turned on the impression made by Jamsetji in the witness-box. That, however, was not the case. It is plain that the learned Judge based his A finding-and his opinion of Jamsetji-on a theory of conspiracy derived from the documents and a series of inferences and assumptions founded on a variety of facts and circumstances which, in themselves, offer no direct or positive support for the conclusion reached. The right of the Appellate Court to review this inferential process cannot be denied, nor, in the opinion of the Board, can the correctness of the view it took of that process be doubted. Despite the ingenious attempts made at their Lordships' Bar to marshall the facts so as to manifest a pattern of fraud, they, in common with the Appellate Court, find the evidence altogether insufficient to establish the grave charges of fraudulent and dishonourable conduct made against the first plaintiff. In their opinion the learned trial Judge placed a sinister meaning on much that was, at least, equally compatible with honest dealing. Shapoorji's description of the purchaser as Chinoy & Co., for example, may well have been nothing more than an innocentmistake. It was certainly a strange badge of fraud and the learned trial Judge was only able to treat it as such by assumptions as to Shapoorji's state of mind and knowledge which were entirely conjectural. Again, far too much was made of the fact that the letters of the 8th and 9th July were not shown to those acting on behalf of the Dinshaws until the 27th July. On the assumption that this reticence was deliberate it falls far short, even when taken in conjunction with all the other features of the case, of showing that either of these letters was a forgery. The letters may have been withheld, rightly or wrongly, as a matter of caution in a situation already indicating that there were com petitive interests in the field, or the fact may simply be that their importance was not appreciated as early as it might have been. The true explanation must remain a matter of speculation as Shapoorji was not called as a witness-a circumstance for which, as will appear later, the plaintiffs cannot he blamed-and specu lation is not enough to bring home a charge of fraudulent conspiracy. It also seems to their Lordships, as it did to the Appellate Court, that the learned trial Judge failed to give due weight to the cable sent by Shapoorji to the Dinshaws on the 9th July 1942, and that when it and the rest of the evidence is fairly assessed the case for conspiracy falls to the ground and the existence of the contract is established beyond all reasonable doubt.
The matter, however, does not end there. Their Lordships think it right to add that, having regard to the pleadings and the course of the trial, the learned Judge was wrong in embracing, as he un doubtedly did, an issue of fraudulent collusion. At the beginning of the trial the position stood thus. The making of the contract was denied or not admitted by all the defendants who pleaded. The written statement of the first defendant, which was adopted in all material respects by…
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