INDEMNITY

 Gajanan Moreshwar v. Moreshwar Madan, A.I.R. 1942 Bom, 302.

rule
 Shanti Swarup v. Munshi Singh, AIR 1967 SC 1315. Implied
indemnity

GUARANTEE

 Bank of Bihar v. Damodar Prasad, (1969) 1 SCR 620. Firsdt 1

then 2
 Anirudhan v. Thomco’s Bank, AIR 1963 SC 746. Benefit for surety
 Amrit Lal v. State Bank of Travancore, AIR 1968 SC 1432
discharge bank lost the goods
 Subramania Chettiar v. Narayanswami, AIR 1951 Mad 48 goes
down equally.
 Hindustan Steel Work Corp. v. Tarapore & Co., (1996) 5 SCC 34
bank garuntee

BAILMENT

 State of Gujarat v. Memon, AIR 1967 SC 1885 customs. case

 Kaliaperumal Pillai v. Visalakshmi, AIR 1938 Mad 32 gold case
 R D Saxena v. Balram Prasad Sharma, (2000) 7 SCC 264
advocate case

PLEDGE

 Lallan Prasad v. Rahmat Ali, AIR 1967 SC 1322 did the pledge
ripen or not

AGENCY

1
  Lakshminarayan Ram Gopal v. Gov’t of Hyderabad, AIR 1954 SC
364
 Harshad Shah v. LIC, (1997) 5 SCC 64
 Kelly v. Cooper, [1993] AC 205
 State Bank of India v. Shyama Devi, AIR 1978 SC 1263

SALE OF GOODS

 Kone Elevator India Pvt. Ltd. v. State of Tamil Nadu and Ors.,
(2014) 7 SCC 1
 TV Sunderam Iyengar v. State of Madras, AIR 1974 SC 424
 CST v Husenali Adamnji & Co., AIR 1959 SC 887
 Mahabir Commercial Co. Ltd. v. CIT West Bengal, AIR 1973 SC
430
 P.S.N.S. Ambalavana Chettiar v. Express Newspapers Ltd., AIR
1968 SC 741

NEGOTIABLE INSTRUMENTS

 Laxmi Dyechem v. State of Gujarat, (2013) 1 CompLJ 137 (SC

2
 INDEMNITY

 Gajanan Moreshwar v. Moreshwar Madan, A.I.R. 1942 Bom, 302

 Shanti Swarup v. Munshi Singh, AIR 1967 SC 1315

GUARANTEE

 BANK OF BIHAR V. DAMODAR PRASAD, (1969) 1 SCR 620

FACTS:

Plaintiff: Bank of Bihar limited (Creditor)

Defendant 1: Damodar Prashad (Principal debtor)
Defendant 2: Parasnath Sinha (Surety)

Debt Amount: Rs. 11,723.56 (principal) and Rs. 2,769.37 (interest)

Plaintiff bank made demands for repayment of debt, the defendants

failed to repay the amount. Hence the suit.

ISSUE: The main question that was raised before the court was that
can creditor sue the surety without exhausting remedies against the
principal debtor?

Trial Court: Plaintiff bank shall be at liberty to enforce its dues in

question against defendant No. 2 only after having exhausted its
3
remedies against defendant No. 1

High Court: Dismissed the appeal of the plaintiff without going into the
merit of the case.

Supreme Court: The direction must be set aside. In the absence of

some special equity the surety has no right to restrain execution against
him until the creditor has exhausted his remedies against the principal.

The liability of the Surety is coextensive with that of Principal Debtor,

unless it is otherwise provided by the contract.

SECTION 127 OF ICA - Anything done, or any promise made for the
benefit of the principal debtor may be a sufficient consideration to the
surety for giving the guarantee

SECTION-140 OF ICA- RIGHT OF SURETY ON PAYMENT OR

PERFORMANCE (RIGHT OF SUBROGATION) Where a
guaranteed debt has become due or default of the principal debtor to
perform a guaranteed duty has taken place the surety upon payment or
performance of all that he is liable for is invested with all right which the
creditor had against the principal debtor.

SECTION 128 OF INDIAN CONTRACT ACT, 1872- The liability of

the Surety is Coextensive with that of Principal Debtor, unless it is
otherwise provided by the contract

Co-extensive nature of Surety- This case was explained in Section 128

of the Indian contract Act,1872 where it was explained that “if the
principal debtor makes a default i.e. he fails to perform his obligation the
creditor can sue either the principal debtor or surety or both of them.

Extent of Co-extensiveness of Surety

4
The principle of co-extensiveness is not an unchanging rule. The precise
extent of the liability of the surety will always be governed by the
provisions of guarantee on their true construction of the document, and
the parties remain free to provide for limitations of the liabilities of the
surety without detracting from the nature of the contract as guarantee.

For example, the surety guarantees only the future transactions, and not
the past indebtedness. Furthermore, the court has not always regarded
itself as bound to treat the surety as co - extensively liable with the
principal, and there are circumstances where the surety will remain
liable notwithstanding the fact that the principal is not, or is no longer,
liable for the principal obligation.

In Vyasya Bank Limited v. Deputy Director, D.G.F.T “If the liability of

the guarantor mainly flows from the terms and condition of the
guarantee bond, he/she should not make liable to pay other than
something mentioned in the guarantee bond”

Surety as a trusteeship The nature of the guarantor is as similar to that

of trustee because guarantor has to take care of the amount of money till
it will be repaid to the Creditor and Surety has come across liability of
the creditor when there is default from Principal debtor-“It is within the
knowledge of the guarantor that the money is being advanced on the
strength of the confidence reposed in the guarantor and in such cases, the
position of the guarantor is very near to that of a trustee”

In passing the judgment, the SC heavily relied on surety’s liability being

co-extensive with the principal debtor and principal of subrogation.
Court found that it is the duty of the surety to pay the decretal amount.
On such payment he will be subrogated to the rights of the creditor
under s. 140 of the Indian Contract Act and he may then recover the
amount from the principal. The very object of the guarantee is defeated
if the creditor is asked to postpone his remedies against the surety.

5
 The court was of the opinion that a creditor is not bound to exhaust his
remedy against the principal debtor before suing the surety and that
when a decree is obtained against a surety, it may be enforced in the
same manner as a decree for any other debt.

 Anirudhan v. Thomco’s Bank, AIR 1963 SC 746

FACTS:
Plaintiff: Thomco's Bank Ltd., Trivandrum (Creditor)
Defendant 1: V. Sankaran (Principal debtor)
Defendant 2: N. S. Anirudhan (Surety/appellant)

Debt Amount: Rs. 11,723.56 (principal) and Rs. 2,769.37 (interest)

The suit was against Principal Debtor on a promissory note executed by

him in favor of the Bank

Facts: A blank form of guarantee was given by the Bank to PD. The PD
got the guarantee form filled by the Surety, stating the maximum amount
guaranteed to be Rs. 25,000/-.

PD submitted the guarantee letter to Bank, Bank rejected the letter

because of the limit amount and asked him to get a new letter with
maximum amount to be Rs. 20,000/-

PD instead of approaching the Surety altered the amount in the letter

from Rs. 25,000/- to Rs. 20,000/- and gave it to the Bank.

The case was instituted by the Bank against the PD and the surety for the
guarantee contract of Rs. 20,000/-

Surety pleaded that the document was altered without his knowledge or
consent, he was said to be discharged from his liability.

6
Issues: Whether document i.e., contract of guarantee is void due to
alteration made and does it discharge the surety of his liability?

Section.133 of Indian Contract Act,1872: Discharge of surety by

variance in terms of contract - Any variance, made without the surety’s
consent, in the terms of the contract between the principal debtor and the
creditor, discharges the surety as to transactions subsequent to the
variance.

Section. 87 of the Negotiable Instruments Act: “Effect of material

alteration —Any material alteration of a negotiable instrument renders
the same void as against any one who is a party thereto at the time of
making such alteration and does not consent thereto, unless it was made
in order to carry out the common intention of the original parties;
Alteration by endorsee —And any such alteration, if made by an
endorsee, discharges his endorser from all liability to him in respect of
the consideration thereof. The provisions of this section are subject to
those of sections 20, 49, 86 and 125.

Trial Court: The amount guaranteed had originally been mentioned in

the letter as Rs. 25,000/- and this had been altered without the consent of
the appellant to Rs. 20,000/-. The Trial Court held it to be a material
alteration.

High Court: The High Court partially agreed with the trial court that the
letter of guarantee originally mentioned Rs. 25,000/- and this figure was
later altered to Rs. 20,000/- without the consent of the appellant. It added
the probably the alteration had been made by the principal debtor. It
however held that the appellant had mentioned Rs. 25,000/- in the place
of Rs. 20,000/- in the letter probably by a mistake and that the alteration
had been made in order to carry out the common intention of PD, surety
and the Bank that the appellant will act as surety for the PD.

7
 Supreme Court: The focus of the case is whether the alteration relieves
the surety of his liability towards the PD. The contention is whether such
alteration is in any way detrimental to the surety as the reduced/altered
sum already included in the amount of guarantee originally furnished
i.e., if the amount stood at Rs. 25000/- the appellant would have had to
cover the amount of Rs. 20000/- while paying off the debt of Rs.
25000/-. Thus, a reduction of an amount already consented to be paid
would not require a distinct consent and such consent can be taken as
implied.

Majority View: The alteration made by Sankaran in the letter of

guarantee cannot be considered as a material one.

Minority View: The alteration to Rs. 20,000/- and any change of figure
is to be a material alteration resulting in the avoidance of the contract,
even though the alteration might have been advantageous to him, the
Surety.

Howsoever innocent the PD might be or howsoever innocent the

alteration might have been it is material the non-accepting surety -
cannot be held liable on the obligation in the altered form because he
never made or consented to such an obligation and he cannot be held
liable on the obligation in the original form because the obligation was
never assented to by the Bank.

 Amrit Lal v. State Bank of Travancore, AIR 1968 SC 1432

Plaintiff: Travancore Bank (Creditor)
Defendant: Partnership Firm (Principal debtor)
Appellant: Amrit Lal (Surety/appellant)
For cash credit account to the extent of Rs.1,00,000

8
 Facts: Clause 9 of the agreement provided that the borrowers shall be
responsible for the quantity and quality of goods pledged. The
appellant, executed a letter of guarantee in favour of the Bank
guaranteeing the liability of the borrowers in respect of the account
upto a limit Rs.100,000.

Under cl. 5 of the letter of guarantee, the appellant agreed that the Bank
may enforce and recover upon the guarantee the full amount guaranteed
notwithstanding any other security the Bank may hold. The weekly
statement showed that the stock pledge was valued at about Rs. 99,991
but when the quantity of the goods actually in stock was verified there
was a shortage of goods to the value of Rs. 35,690.

PD were granted one month's time to make up the deficit, and in spite
of the time being extended, the deficit was never made up. Following
the PD’s failure to pay, the bank filed a suit against them and the
surety. After adjusting the money realized on the sale of the goods
pledged and other adjustments, a sum of Rs. 40,933.58 was found due
to the Bank from the PDs.

The appellant then contended that there had been a (1) variation in the
terms of the contract w.r.t the value of the limit from 1,00,000 to
50,000 to 1,00,000 between the principal debtor and creditor; the only

9
 evidence supporting this was certain entries in the pages of accounts of
the Bank mentioning the “limit” as 50,000 INR. The appellant further
contended that he was not aware of such a variation and thus, sought
discharge under Section 133 of the Indian Contract Act. (2) It was
further contended by the appellant that by giving time to the
respondents to make up the deficit, the bank absolved him of all
liability. (3) Finally, it was contended by the appellant that since a
portion of the security was parted with without the consent of the
surety, the liability of the appellant was discharged to the extent of the
value of the security so lost.

Rule:
Section 133: any variance, made without the surety’s consent, in the
terms of the contract between the principal debtor and the creditor,
discharges the surety as to transactions subsequent to the variance. The
issue of the variation made in the terms of the contract between the
principal-debtor and the creditor in this case was dealt with under
Section 133.
Section 135: a contract between the creditor and the principal debtor,
by which the creditor makes a composition with, or promises to give
time to, or not sue the principal debtor, discharges the surety, unless the
surety assents to such contract.
Section 140: where a guaranteed debt has become due, or default of the

10
 principal debtor to perform a guaranteed duty has taken place, the
surety, upon payment or performance of all that he is liable for, is
invested with all the rights which the creditor had against the principal
debtor.
Section 141: a surety is entitled to the benefit of every security which
the creditor has against the principal debtor at the time when the
contract of suretyship is entered into, whether the surety knows of the
existence of such security or not; and, if the creditor loses or without
the consent of the surety, parts, with such security, the surety is
discharged to the extent of the value of the security.

Held: w.r.t the variance in amount it was held that the entries in the
books of accounts could have been private instructions to the cashier to
not allow cash advances greater than 50,000 INR. Such an instruction
cannot be deemed to be legally binding on the other respondents. It was
in this line concluded that the provisions of Section 133 of the Indian
Contract Act could not be attracted in the present case.
W.r.t shortfall of goods, the Bank demanded the PD to make up the
difference right away; within one month. Court ruled that the act of
giving time to the borrowers could not be considered a “promise to give
time” under Section 135 of the Indian Contract Act. The Court placed
reliance on a clause in the agreement between the bank and PD which
stipulated that the borrowers would be liable for the quantity and

11
 quality of the goods pledged and for the correctness of statements and
returns furnished to the bank. The act of the Bank in giving time for
repayment was not same as to the giving of time to a principal debtor
for payment of the debt within the meaning of Section 135.
What really constitutes a promise to give time within the meaning of s.
135 of the Act is the extension of the period at which, the principal
debtor was by the original contract obliged to pay the creditor, by
substituting a new and valid contract between them, or, whenever the
taking of a new security from the principal debtor operates as giving
time. Therefore, the act of the Bank in giving time to the principal
debtor to make up the quantity of goods pledged is not tantamount to
giving of time to the principal debtor for making payment of the
money, within the meaning of the section.
Under s.140 of the Contract Act the surety is, on payment of the
amount due by the principal debtor, entitled to subrogation. Under s.
141 of the Act the surety has a right to the securities held by the
creditor at the date when he became surety. Therefore, if the creditor
has lost or parted with the security without the consent of the surety,
the latter is by the express provision contained in s.141, discharged to
the extent of the value of the security lost or parted with.
In the present case, the shortage of goods of the value of Rs. 35,690
was brought about by the negligence of the Bank and to that extent
there must be deemed to be a loss by the Bank of the security which the

12
 Bank had at the time when the contract of surety was entered.
Therefore, the principle of the section applies, and the surety was
discharged of his liability to the Bank to the extent of Rs. 35.690.

 Subramania Chettiar v. Narayanswami, AIR 1951 Mad 48

Plaintiff: Creditor: 2 Plaintiffs (Plaintiff 1: Deceased)

Defendant: 5 Defendants (Defendant 3 is surety)
Debt Amount: Rs. 6746 (principal amount) + interest

FACTS:
Creditor filed a suit against the 5 defendants to recover the principal
amount and interest. A letter of guarantee was signed by surety.

An act: Madras Agriculturists’ Relief Act was passed which reduced the
liability of the people belonging to the agriculturist community against
the creditor.

Section 7 of the Act states that all those debts which are payable before
the commencement of the Act shall be reduced or scaled down in
accordance with the provision of the Act.

Though the reduction in the liability of the principal debtor was allowed
by the creditor the same wasn’t allowed to the surety.

The surety argued that though non-agriculturists, they were entitled to a

debt reduction under the Madras Agriculturists' Relief Act

Surety’s argument was that he was entitled to a reduction in the total

amount, since in his letter of guarantee which he renewed it was stated
that he would be liable for the amount due under the promissory note
and since the liability of the principal debtor under the promissory note
is reduced, his liability should also be reduced and if not provided it
13
would be a gross injustice with him.

Subordinate Court: Allowed the reduction in the liability of the surety

on the ground it is co-extensive to that of the principal debtor

High Court: The creditor goes in appeal

Issue Raised: Is the surety's obligation reduced where the principal

debtor's liability is reduced as a result of a statute?

Sections:

Sec 128 of ICA - The liability of the surety is co-extensive with that of
the principal debtor unless it is otherwise provided by the contract.
Sec 134 of ICA - The surety is discharged by any contract between the
creditor and the principal debtor, by which the principal debtor is
released, or by any act or omission of the creditor, the legal consequence
of which is the discharge of the principal debtor.

Reasoning and Holding:

The Court held that while it is definitely true that only agriculturist
debtors are entitled to the relief offered by the Act.

It is a well-established legal principle that the surety's obligation is only

incidental and secondary. That can only imply that his liability is the
same as or less than that of the principal debtor, so if the debt payable by
the debtor is discharged in part, the surety's liability also is pro tanto
reduced.

Sec 128 does not confine its applicability or its operation only to the
liability reduced by the acts or omissions of the parties. Regardless of
how the principal debtor's obligation is reduced, the benefit must also go
to the surety, otherwise, the release of the debtor would be illusionary

14
 because as soon the surety pays the debt he would turn back to the
principal debtor for his money since his liability is secondary, not
primary.

As specified under sec 140 of the Contract Act, the surety, on the
dischargement of the debt which the creditor holds against the principal
debtor, gains or receives right of subrogation, now if the principal debtor
is only liable for the reduced amount under the Madras Relief Act and
the creditor cannot claim the whole indebtedness, in such circumstances,
even the surety could not recover the aforementioned amount from the
principal debtor and that would be very arbitrary and unjust to the surety
and would cause him an inappropriate loss.
Therefore, the true intention of the Madras Agriculturists' Relief Act is
to extinguish the portion of the debt affected by the scaling down and
not merely to bar the remedy. It was meant to prevent the surety from
suffering an injustice.

DECISION: The surety’s obligation will stand discharged to that of the

principal debtor’s liability under the Act. The effect of any statutory
reduction on the rights and duties of the principal debtor will have a pro
tanto effect on surety as well unless they contract to contrary.

 Hindustan Steel Work Corp. v. Tarapore & Co., (1996) 5 SCC 34

Petitioner/Creditor: Hindustan Steel Construction Ltd. (HSCL)
Defendant / PD: Tarapore & Co.
Bank Guarantees from Bank of India:14

FACTS:
Hindustan Steel Construction Ltd. (HSCL) contractually hired Tarapore
& Co. for a construction project for Rs. 19,21,36,804.

The construction was not completed in time and the contractors asked

15
for an extension, despite extension the work was still incomplete
resulting in conflict. The matter was referred to arbitration, where
workload was decreased, and parties contractually agreed that the job
cost would be reduced to Rs. 4.5 Crore. The contractor failed again to
complete the job and HSCL withdrew from the deal.

During that period the Bank of India provided a sum of 14 guarantees in

favour of HSCL to provide the contractor with working funds on the
project.

These bank guarantees were made to indemnify HSCL against any kind
of damage or loss caused by the contractor by breach of Contract. It was
stated by the bank while giving the guarantees that HSCL is the sole
Judge as to decide whether there was a breach of the contract.

Issues Raised
Was the judgement of the High Court to prevent the Appellant from
implementing the Bank Guarantees correct?[2]

Rule
That the correct position of law is to fulfil Bank commitments without
any interference from the judiciary, and that the tribunals are supposed
to intervene only in extraordinary circumstances of fraud or irreversible
injustice.

Analysis:
The decision in this matter overturned the previous ruling and order.
During the remaining appeals no stay was granted. The court cannot
intervene in the disagreement; it can only intervene in instances of fraud
and irreversible wrongdoing by enforcing the Bank Guarantee,
16
according to the ruling. The High Court erred in intruding and issuing an
injunction against the appellant since the case of fraud was not proved
and did not contribute to the court’s involvement. The respondent, on the
other hand, attempted to make it a matter of unusual circumstances or
particular equities in terms of who broke the contract. The appropriate
law is that banks ought to be free from interbank involvement; only in
the event of fraud or irreversible injustice, which can be accomplished
with the encashment of the bank guarantee, can the judiciary intervene.
Thus , the tribunal discarded it, ruling that the bank guarantee could not
be encashed until and unless the conflict was resolved first with the
arbitrators.[4]
In the matter of U.P. Co-operative Federation Limited. v. Singh
Consultants and Engineers (P) Ltd.,[5] the right legal stance concerning
the implementation of the Bank Guarantee granted by the Bank is
undisputed. It is also stated that the individual who receives the bank
guarantee does not have the right to an injunction. It is known that this is
the rule by which several economic transactions are held and it would
result in an interruption of business flow. In such instances the court
would be required to interfere in cases involving fraud that would
detrimentally affect the actual transaction of the Bank Guarantee and
make the financial institution aware of such fraudulent activities. In this
transactions the Beneficiaries must have executed such deception, but
there were none. A bank guarantee also gives the Beneficiaries the right
to cash the full sum or a portion of it, regardless of whether or not there
is a conflict over the person whom the guarantee was given.[6]
Conclusion

17
International commerce thrives on bank guarantees. Until there is a
particular allegation of deception and exceptional equities, courts should
typically urge on the bank guarantee’s implementation and enable it to
be executed. Apart from such unusual circumstances, if courts meddle
with the mechanism of irreversible commitments undertaken by banks,
confidence in international trade will be irrevocably harmed. The
necessity for bank guarantees stems mostly from the uncertainty and
lack of faith in the major debtor’s capacity to fulfil the obligation. Bank
guarantees refer to the surety bank’s supplementary liabilities, which is
intended to ensure that the principal debtor does not defraud the creditor
and to assure the beneficiaries that the contractual risks he is taking will
be fulfilled. It ensures that the contract’s payments or execution is not
jeopardised. Bank guarantees, as business tools, become even more
significant in situations of financial uncertainty.

BAILMENT

 State of Gujarat v. Memon, AIR 1967 SC 1885

FACTS:
Two trucks of Haji Memon were seized by the police officials of Gujarat
State. The trucks were under the government authority from 1947 to
1951. After the hearing of court Haji Memon appealed for return of said
vehicles but later he was informed that they had been disposed of under
an order of magistrate passed under S.523 of code of criminal procedure
(CrPC), the trucks were destructed due to corrosion and environmental
changes, machinery of vehicles, tyres and even some wheels were
pilfered away leaving only the skeleton of vehicle remained.

18
Haji Memon filed a case against authority for compensation of
destruction to the trucks. He claimed that it was bailee’s duty to take
care of good, the defendant said that it was their duty to seize the truck
and they didn’t come under the contract. So, there is no contract of
bailment.

Both the trial court and the high court found that the said vehicles were
seized by the government authority. In was alleged that the State
Government was guilty of negligence.

Later on, the court ruled that one should not legally bound to perform
the contract of bailment. If you are taking bailer’s good then its bailee’s
responsibility to take care of good. No matter the bailee will be the
government authority or ordinary man, same rule shall be followed.

CONTENTIONS:

Respondent: They appealed as seizure might be lawful and the seized

vehicle (trucks) were under the authority of government for the said time
until the decision was taken. So, it was authority’s duty to take
reasonable care of the good (seized trucks) as a bailee.

Appellant: There was no bailment or such bailment be inferred as a 148

of the contract acts requires that a bailment can arise only under a
contract between the parties.

ISSUES: Whether the state is liable to compensate or not?

JUDGEMENT: It was held that “there being thus a legal obligation to

preserve the property intact and also the obligation to take reasonable
care of it so as to enable the Government to return it in same condition in
which it was seized (let apart the natural depreciation), the position of
the State Government until the order became final was that of bailee.”
19
“Bailment is dealt with by the Contract Act only in cases where it arises
from a contract but it is not correct to say that there cannot be a bailment
without an enforceable contract.”

There can, therefore, be bailment and the relationship of a bailee in

respect of specific property without there being an enforceable contract.

Similarly, State was also obliged by the law as bailee to take reasonable
care of trucks. Therefore, state would be liable to the value of the trucks.

Bailment come under the Indian Contract Act ,1872 and the essentials
element for the valid contract are lawful consideration and legally
bound parties. In the general bailment, bailor pass over the good to the
bailee which we can consider as an orally bounded contract of bailment
but in the Haji Memon case, the good was seized by the government
authority and they didn’t perform any legal formalities which is
required to bound two parties legally in a contract. But as we know, the
said good (vehicles) were under the government authority, authority
could be considered as a bailee. So, it was bailee’s duty to take care of
the good. Therefore, compensation was given to Hazi Memon.

By same logic, a finder of good can also be considered as a bailee in

certain circumstances. Just as a finder of property has to return it when
its owner is found and demand to return it. So, the State Government
was bound to return the said vehicle once it found that the seizure and
confiscation were not sustainable. There being thus a legal obligation to
preserve the property and to take care the reasonable care of the
property.

20
  Kaliaperumal Pillai v. Visalakshmi, AIR 1938 Mad 32

FACTS:
A lady employed a goldsmith for the purpose of melting old jewels and
making new ones. Every evening, she used to receive the half-made
jewelry from the goldsmith and put them in a locked box. She used to
left the locked box in the goldsmith’s room and keep the key of the
locked box herself. One night, the jewels were stolen. The lady sued the
goldsmith holding him liable as bailee.

ISSUE
Was there any delivery as per Section 149 in order to constitute
bailment?

JUDGEMENT:
Mere leaving of a locked box in another person’s room, when the key of
the box is not handed over to him does not amount to delivery within the
meaning of section 149.
Without legal possession, there cannot be any bailment.

It was held that “Any bailment that could be gathered from the facts
must be taken to have come to an end as soon as the plaintiff was put in
the possession of the melted gold. Delivery is necessary to constitute
bailment. The mere leaving of the box in the defendant’s house, when
the plaintiff herself took away the key, cannot certainly amount to
delivery within the meaning of the provision in section 149.”

Therefore, the goldsmith was not held liable as any bailment, in this
case, came to an end when the lady received jewellery from the
goldsmith every evening. Leaving the locked box in the premises of the
defendant was not enough to constitute delivery under section 149,
especially since the lady kept the keys with herself.
Without legal possession, there cannot be any bailment and there was no

21
duty of the goldsmith to take care of the jewels.

 R D Saxena v. Balram Prasad Sharma, (2000) 7 SCC

264

FACTS:
RD Saxena was appointed as a legal advisor to the Madhya Pradesh
State Co-operative Bank Ltd. Subsequently, the bank terminated the
retainership; and requested him to return his files related to the bank.
Instead of returning the files, he informed the bank that only after dues
amounting to rupees 97,100/- were paid will he return the files.

Bank filed a complaint before the State Bar Council professional

misconduct. RD Saxena contended that he had a lien over the casefiles.

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

Arguments
Arguments by the RD Saxena:
 Section 171 of the Contract Act, 1872 clearly states that; “Bankers,
factors, wharfingers, attorneys of a High Court and policy-brokers
may, in the absence of a contract to the contrary, retain as security
for a general balance of the account, any goods bailed to them; but
no other persons have a right to retain, as a security for such
balance, goods bailed to them unless there is an express contract to
that effect”; and hence he can have a lien on litigants paper.

22
Arguments by the Bank:
(1) After the termination of engagement with the client, an advocate
cannot retain the files and can have no lien over it.

Judgment:
Section 148 of the Contract Act defines the bailment which states that; if
the goods are transferred from one person to another for some purpose;
and after completion of the purpose the goods have to be returned to; or
otherwise disposed of according to the directions of the person
delivering them then such transfer can be termed as a bailment.
But in this case, the goods are not bailed to the appellant/advocate as
there was no delivery of the goods; because the advocate owned paper
on his account.

The term ‘goods’ has to be understood in the sense of the Goods and
Sales Act, 1930 wherein section 2(7) states “every kind of movable
property ....” Thus the goods which fall in the purview of section 171
should have marketability i.e. they should be saleable.
The case files in the present case are neither saleable nor can be
converted into money; hence section 171 is of no merit.

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

In thPunishment will be altered to reprimanding the appellant. However,
if any person commits this type of professional misconduct in the future;
then Bar Council will determine respective punishment; and the lesser
punishment imposed in this case should not be taken under the ambit of
precedent.
Held: no lien over case files.

PLEDGE

 Lallan Prasad v. Rahmat Ali, AIR 1967 SC 1322

FACTS:
23
The appellant advanced Rs. 20,000 to the first respondent against a
promissory note. The respondent executed an agreement whereby he
agreed to pledge certain goods (aeroscrapes) as security for the debt.
Promised to deliver them to the appellant, and to keep them in the
appellant’s custody. The appellant filed a suit on the promissory note
claiming that the respondent failed to deliver the goods, that the
agreement therefore did not result into a pledge, and that consequently,
he was entitled to recover the amount advanced by him. That the goods
were delivered to the appellant, and that he was it pledgee thereof.

ISSUE:
Whether the first respondent pledged certain quantity of aero scraps
purchased by him from military authorities and delivered possession
thereof to the appellant?

Whether the appellant was entitled to any relief when his case was that
the first respondent never delivered to him the said goods and the said
agreement never ripened into a pledge?

RULE:
Section 176 of the Indian Contract Act, 1872, deals with the rights of a
Pawnee and provides that in case of default by the pawnor the Pawnee
has (1) the right to sue upon the debt and to retain the goods as collateral
security, and (2) the right to-sell the goods after reasonable notice of the
intended sale to the pawner. So long, however, as the sale does not take
place, the pawner is entitled to redeem the goods on payment of the
debit.

JUDGMENT:
The appellant would not be entitled to a decree on the promissory note
and also retain the goods found to have been delivered to him and to be
in his Custody. As long as the sale of pledged goods does not take
place, the pawner is entitled to redeem the goods on payment of the
debit.

24
AGENCY

 Lakshminarayan Ram Gopal v. Gov’t of Hyderabad, AIR 1954 SC

364

 Harshad Shah v. LIC, (1997) 5 SCC 64

A bought four insurance policies, each worth Rs. 25,000/- through a

general agent, B, of LIC. The premium to these policies, which fell due
and B failed to deposit the same. LIC Agent obtained cheques towards
premium of all the policies on 6th June, 1987 from the holder. The
premium was deposited by the agent with LIC on 10th of August, and
the holder of the policies passed away on 9th August, due to a fatal
accident. A’s widow submitted claim LIC, where she was told that the
policy repudiated b/c of non-payment of the premium even in the grace
period.

A complaint was filed in the State Consumer Disputes Redressal

Commission (SCDRC) for of Rs. 4,32,000. It was argued since the
premium was paid to an agent of LIC, it can be inferred reasonably that
the premium was in fact paid to LIC itself. LIC, however, countered that
premium collected by a general agent cannot be said to have been
received by LIC.

The Commission observed that the practice of agents collecting

premium from policy-holders directly despite departmental instructions
not to, shows the negligent attitude of LIC towards its customers.
Further, this practice had been going on for a long period of time with
the knowledge of the LIC administration who did not actively pursue
steps to keep a check on the activities of its agents.

An appeal was filed with the National Commission (NC) by both sets of

25
parties. The Commission dismissed the appeal of the claimants and held
that the agent was not acting in his capacity of an agent of LIC when he
collected the premium amounts from the policy holder.

Case was then appealed to Supreme Court.

Issue:
Whether the payment of premium made by the policy holder to a general
agent can be inferred as a payment made to LIC and discharge the
liability of the policy holder.

Clause 4 of Life Insurance Corporation of India (Agents) Regulations,

1972 expressly rejects the notion that the regulations confer authority
upon an agent to collect any money on behalf of the Corporation.
Further, Clause 3 lists out various functions that an agent is entrusted
with in relation to existing policy-holders, such as: (i) advising and
offering necessary expertise to a policy holder to effect nomination or
assignment of the policy; (ii) endeavouring to ensure that the premium
of the policy is remitted to the Corporation within the period of grace;
(iii) endeavour to prevent the lapsing of any policy; (iv) rendering
assistance to claimants in filling up claim forms and complying with
requirements. In none of these functions is it specified that an agent is
required to collect premium amount from policy holders on behalf of the
Corporation.

LIC also placed on record a condition enclosed in the appointment letter

of the general agent which mandates that the agent is “…not authorised
to collect money, accept risks or bind the Corporation in any way other
than to collect deposit towards first premium…” Thus, on the basis of
the above provisions, LIC submitted that it had, in no way whatsoever,
authorised the agent to collect premium money on its behalf.

The claimants argued that the practice of general agents of the

Corporation had been continuing for a long period of time. As a large
number of policy holders resided at places where they did not have easy
26
access to LIC offices and hence could not directly deposit their
premiums, the practice of agents collecting the premiums and depositing
it with LIC had been prevailing as a measure of convenience. It was
submitted that the restrictions imposed upon agents in the letters of
appointments and other regulations must be disregarded as agents
receive their commission on the amount of premium collected which
shows that they do have the authority to collect the premium on behalf
of the Corporation.

The very fact that LIC knew the fact that its agents were acting in this
manner and yet did not take any disciplinary action against them shows
its negligent attitude towards the policy-holders and proves that LIC,
through its conduct, induced the appearance of authority in the minds of
the policy holders.

Held:
The Supreme Court ruled that the doctrine of apparent authority as
provided under Section 237 cannot be applied in this case as LIC had
provided for this very situation in its Regulations. It accepted the
submission of LIC that mere issuance of receipt of the premium amount
is not enough to induce the policy holder into believing that the general
agent was functioning within his authority.

Conclusion
After considering the arguments of both the sides which have been
elucidated above, the Supreme Court dismissed the appeal, stating that
no ground had been made out for interfering with the decision of the
National Commission. However, taking a humanitarian view of the
tragedy faced by the claimants, the Court ordered LIC to refund the
entire premium amount on the four policies to the claimants, along with
interest on this amount at 15%. LIC was also directed to pay costs of Rs.
10,000 to the claimants in lieu of the fact that their claim had originally
succeeded before the State Commission and the appeals involved a
substantial question of law which had to be interpreted by the Supreme
Court.
27
  Kelly v. Cooper, [1993] AC 205
Facts:
Kelly listed his property for sale with Cooper Associates, a real estate
agency. The property was sold and Cooper Associates claimed its
commission. Kelly submitted that Cooper Associates breached its
contractual and fiduciary duty by withholding a material fact – that both
properties were purchased by same person; the information which might
have resulted in negotiating higher price. Kelly sued Cooper Associates
for damages. Cooper Associates counterclaimed for the commission.

ISSUE:
Whether or not an estate agent is liable to disclose information to
Principal , that comes to his knowledge from his dealings with another
seller/principal?

Held:
In the case of estate agents, it is their business to act for numerous
principals, several of whom might be competing and whose interests
would conflict. Despite this conflict of interest, estate agents must be
free to act for several competing principals, otherwise they will be
unable to perform their function. Therefore, a term was to be implied in
the contract with such an agent that he was entitled to act for other
principal’s selling similar properties and to keep confidential
information obtained from each principal.

The court was able to imply into an express contract of agency a term
entitling an estate agent to act for numerous other competing principals
selling similar properties and to keep confidential information received
from each principal.

28
The effect of the implied term was to modify the normally strict
fiduciary duties owed by an agent to the principal not to put himself into
a position where his duty and interest conflicted, not to profit from his
position (for example, by earning commissions from selling properties
for rival principals) and to make disclosure of confidential information
to the principal.
Lord Browne-Wilkinson observed: ‘In a case where a principal
instructs as selling agent for his property or goods a person who to his
knowledge acts and intends to act for other principals selling property
or goods of the same description, the terms to be implied into such
agency contract must differ from those where an agent is not carrying
on such general agency business. In the case of estate agents, it is their
business to act for numerous principals: where properties are of a
similar description, there will be a conflict of interest between the
principals each of whom will be concerned to attract potential
purchasers to their property rather than that of another. Yet, despite this
conflict of interest, estate agents must be free to act for several
competing principals otherwise they will be unable to perform their
function . . The scope of the fiduciary duties owed by the [estate agent]
to the [client] (in particular the alleged duty not to put themselves in a
position where their duty and their interest conflicted) are to be defined
by the terms of the contract of agency.’

 State Bank of India v. Shyama Devi, AIR 1978 SC 1263

Facts:
Shyama Devi (SD/respondent) was a savings account holder with SBI
(the appellant). SD was introduced and encouraged to open an account
with the Bank by her friend Kapil Deo Shukla (KDS), who was an
employee of the bank. SD began depositing money into her account.
Some of the deposits into her accounts were given to KDS, under the
belief that he shall deposit them. The deposits were of amounts Rs.
1,932, Rs. 105, Rs. 4,000, Rs. 8,000, and Rs. 100, over a period of 1 year
29
as represented in the SD’s passbook. Upon suspicion by the SD’s
husband, the bank was requested to clarify the deposits into the account.
The bank claimed only a deposit of Rs. 1932 had been ratified and
accepted, while the other deposits were denied. SD filed a suit claiming
the remaining Rs. 12,205. The trial court in its judgement denied the
deposition of Rs. 4000 and Rs. 105, while finding other amounts to have
been deposited and therefore, upholding respondent’s right to claim the
same from the bank. The respondent decided to appeal the decision in
the High court of Allahabad, wherein Shyama Devi further contended
for the sums of Rs. 4000 and Rs. 105.

Issues:

Whether K.D. Shukla when accepting money from SD, was acting as an
agent of the bank? And whether his actions were in the usual course of
business?

Held:
The court explored the existence of vicarious liability within an agency
relationship. Vicarious liability is the principle of passing over an
employee’s liability to the employer in an employer-employee/agent
relationship, provided, the liability arose during the course of
employment.
The court referred to Leesh River Tea Co. Ltd. & Ors. V. British India
Steam (1966), wherein the agents stole equipment from the ship, leading
to the spoiling of goods. As held in the precedent, the employer is not
liable merely because they provided an opportunity to the agent to
commit a crime. Applying the same principle, court observed that the
Bank was not at fault or liable as they merely provided K.D. Shukla an
opportunity to commit the crime. Subsequently referring to Lloyd v.
Grace, Smith & co. (1912), and United Africa Company Ltd. V. Baka
Owoade (1954), both aforementioned precedents explore the liability of
the firm when an employee misuses their responsibility and in such
cases, the court observed that vicarious liability is applicable only
when the employee commits a fraud within the course of employment.
30
However, K.S Shukla’s embezzlement of funds was an act that was done
outside the designated responsibilities vested in him.

Section 188 of the ICA, enumerates the responsibility of the agent to act
in a manner “usually done in the course of conducting such business”,
K.D Shukla’s violation of the banking procedures which lay out the
usual course of deposition violated his responsibility as an agent when
carrying out the disputed act.

Court concurred with the bank’s argument of K.D. Shukla’s actions

being acts that were beyond his course of employment. The court also
emphasized the non-adherence to the official banking procedure. The
court held that the bank is not liable to pay damages to the respondent,
as while K.D. Shukla was an agent of the bank, his authority under the
contract of agency didn’t extend to the transactions which occurred
between Shukla and Shyama Devi, hence, the principal cannot be made
vicariously liable for acts of the agent that occur beyond his course of
employment.

The banking procedures were extremely crucial in understanding the

nature of the agency, the procedures require repeated ratification and
verification of the agent’s transactions such as deposition and
withdrawal from the principal (the bank), as highlighted in section 196,
ratification of an agent’s acts is critical in an agency agreement, and
therefore the lack of such ratification despite the requirement for the
same may exempt the principal from claiming the transaction to be
correct and thus shall be exempted from liability which arises out of
those transactions. Finally, aligning with section 238 of the ICA, K.D
Shukla was acting above and beyond the authority provided to him as an
agent of the bank. Thus, the court was just and fair in holding for the
bank as an act done beyond an agent’s guidelines shall amount to no
detrimental effect being accrued to the principal.

It was said that if a bank employee receives some cash and cheques from
his friend, in his capacity without taking any proper receipts for
31
depositing the same with the bank, the bank cannot be made liable and
the servant acted outside the course of employment.

S.238: Effect, on agreement, of misrepresentation or fraud by agent:

Misrepresentation made, or frauds committed, by agents acting in the course of
their business for their principals, have the same effect on agreements made by
such agents as if such misrepresentations or frauds had been made or committed
by the principals; but misrepresentations made, or frauds committed, by agents, in
matters which do not fall within their authority, do not affect their principals.

SALE OF GOODS

 Kone Elevator India Pvt. Ltd. v. State of Tamil Nadu and

Ors., (2014) 7 SCC 1

 TV Sunderam Iyengar v. State of Madras, AIR 1974 SC

424

Facts:
The Government called for tenders from persons who were willing to
construct bus bodies on the chassis supplied by the Government itself.

TV Sunderam Iyengar’s tender was accepted. Accordingly, an

agreement between the parties was entered into, which in essence
provided for the terms and conditions on which the tender was being
accepted.

Issue:
Whether supply of bus body after constructing and fitting the same to
chassis provided by the Government is in pursuance of a sale or a works
contract?

Held:
32
A contract of sale is a contract whose main object is the transfer of the
property in, and the delivery of the possession of, a chattel as a chattel to
the buyer. Where the main object of the work undertaken by the payee
for the price is not the transfer of a chattel qua chattel, the contract is one
for work and labour.

Neither the ownership of the materials, nor the value of the skill and
labour as compared with the value of the materials, is conclusive,
although such matters may be taken into consideration in determining
the circumstances of a particular case, whether the contract is in
substance one for work and labour or one for the sale of a chattel.

It is no doubt true that the bus bodies supplied by the assessees were not
ready made and had, if necessary, to be constructed bit by bit and plank
by plank, according to specifications, but that fact would not make any
material difference. Whether an article is readymade article or is
prepared according to the customer’s specifications makes no difference
as also whether the assessee prepares it separately from the thing and
then fixes it on or does the preparation and the fixation simultaneously
in one operation.

 CST v Husenali Adamnji & Co., AIR 1959 SC 887

 Mahabir Commercial Co. Ltd. v. CIT West Bengal, AIR 1973 SC
430

 P.S.N.S. Ambalavana Chettiar v. Express Newspapers

Ltd., AIR 1968 SC 741

33
Respondent (Express Newspaper) agreed to sell to the appellant the
stock of 415 tonnes of newsprint which were lying in the respondent’s
godown. There was an unconditional contract for sale of the specific
goods in a deliverable state, & the property in goods then passed to
appellants. Later on the contract was varied and the parties agreed that
appellants would buy 300 tons of stock out of 415 tons of newsprint.
Thus a contract for sale of specific goods substituted by a contract for
sale of unascertained goods. The appellant took delivery of some stock,
but refused later to take delivery of balance & repudiated the contract.
The respondent after, giving notice to appellants resold the balance
goods to 3rd party & sought to recover by way of damages the
difference between the contract price & the resale price of the goods.

Issue: Whether the resale is not properly made until the property in the
goods passes to the original buyer?

Court observed that in this case the contract was for the sale of
unascertained goods & therefore, the property in the goods had not
passed to the buyer. The seller did not have a right to resale u/S 54(2) &
the measure of damages in this case was available under Indian Contract
Act, i.e. the difference between the contract price & the market price on
the date of breach of contract.

Court further held that unless the portion is identified & appropriated to
the contract, no property can pass to the buyer. And for the purpose of
measure damages if the sale is not properly made then the damages are
not awarded according to sale of goods but they are awarded according
to Indian Contract Act which is difference between the contract price &
the market price on the date of breach not as per the resale price under
the sales of goods act. Here in the present case no property was
unconditionally appropriated by respondent in favour of appellant with
the consent of appellant. Hence no property passed in goods to buyer
before sale. (Section 23).

34
NEGOTIABLE INSTRUMENTS

 Laxmi Dyechem v. State of Gujarat, (2013) 1 CompLJ

137 SC
Facts: The case is consequence of an appeal directed against the
orders of the Gujarat High Court quashing 40 different complaints
filed by the appellants against the respondents under Section 138.
Appellant company is a proprietorship firm engaged in the sale of
chemicals and Rs.4,91,91,035/- was outstanding against the
respondent-company. Around 117 post-dated cheques signed by the
authorised signatories of the company were issued to the appellants in
discharge of the debts as were remaining to be satisfied.
Out of the 117 cheques issued to the appellants, some were
dishonoured with an endorsement stating “mismatch of signature.”
On receiving such endorsement, the appellant, in compliance with the
statutory provisions as provided under the section, sent a notice to the
respondent company to issue fresh cheques.
The respondent company cited the “change in the mandate” to be the
reason of such dishonour and undertook to issue fresh cheques on
return of the dishonoured cheques. Nevertheless, the same remained
unpaid by the respondent company, compelling the appellants to take
legal action under Section 138\142
The High Court had taken the view that dishonour of a cheque on the
ground of mis-matched signatures (signatures not matching the
specimen signatures available with the bank or incomplete signature
or illegible signature), would not attract the penal provisions of
Section 138 of the NI Act.
The primary argument of the HC was that Section 138 is a penal
provision and therefore the provision must be construed strictly.

Issue: Whether or not the dishonour of a cheque would constitute an

offence only in one of the two contingencies envisaged under Section
138 of the NI Act?

35
 Decision: The Court answered this question in the negative
 While interpreting a penal provision the Court ought to choose a
construction that would preserve the workability and efficacy of
the statute rather than an interpretation that would render the law
sterile.
 It is the function of the courts to interpret a particular provision in
light of the new social conditions prevalent.
 The expression “amount of money... is insufficient” appearing in
Section 138 is a genus and dishonour for reasons such as “account
closed”, “payment stopped”, “referred to the drawer” are only
species.
 Similarly, reasons such as “signature mismatch”, “illegible
signature”, “image not found” are also species of the genus and
hence liable to action under Section 138 of the Act.
 The apex court held that irrespective of whatever may be the
reason, if a certain act is done or omitted to be done to prevent the
honour of a cheque, it will fall within the scope of Section 138.
 The court took into consideration situations where the dishonour of
cheque is bona fide, for example, on account of changes genuinely
made in the mandate of the authorised signatories or changes
occurring in the ordinary course of business of a company,
partnership firm or an individual. In such cases prosecution can be
initiated only after the pre-conditions in the proviso to the Section
are exhausted—i.e., notice within 30 days affording 15 days time
to make the payment.
 The impugned order of the HC was set aside and the appeal
allowed.

36