MANU/SC/0056/1962

Equivalent Citation: AIR1962SC 1314, 1963(65)BOMLR267, 1963MhLJ457, [1962]Supp3SC R549

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 417 of 1957
Decided On: 05.03.1962
Appellants:Sir Chunilal V. Mehta and Sons, Ltd.
Vs.
Respondent:The Century Spinning and Manufacturing Co., Ltd.
Hon'ble Judges/Coram:
B.P. Sinha, C.J., J.C. Shah, J.L. Kapur, J.R. Mudholkar and M. Hidayatullah, JJ.
Case Note:
Commercial - compensation - Article 133 (1) of Constitution of India and
Sections 73 and 74 of Indian Contract Act, 1872 - issue regarding payment
of damages for breach of contract - High Court awarded compensation at
rate of Rs. 6000 per month for unexpired period - appellant contended that
as per agreement liability to pay damages amounts to large sum than
payable under clause 14 - clause 14 of agreement did not expressly or by
necessary implication keep alive right to claim damages under general law -
under general law right to claim damages excluded by providing
compensation in express terms - decree of High Court affirmed.

(ii) Question of law - Section 110 of Code of Civil Procedure, 1908 -

whether in appeal before Supreme Court a substantial question of law
involved - proper test for determining question of law is to see whether it is
of general public importance or it directly affect rights of parties and if so
whether it is either an open question not finally decided by Court - applying
said test Court held that question of law was involved in appeal therefore
appeal maintainable.
JUDGMENT
J.R. Mudholkar, J.
1 . This is an appeal by special leave against the Judgment of the High Court of
Bombay in an appeal from the judgment of a single Judge of that Court. The claim in
appeal before the High Court was for about 26 lakhs of rupees. Being aggrieved by
the decision of the High Court, the appellant applied for a certificate under Art.
133(1)(a) of the Constitution. The judgment of the High Court in appeal was in
affirmance of the judgment of the learned single Judge dismissing the appellant's suit
for damages and therefore, it was necessary for the appellant to establish that a
substantial question of law was involved in the appeal. On behalf of the appellant it
was contended that the question raised concerned the interpretation to be placed on
certain clauses of the managing agency agreement upon which their claim in the suit
was founded and that as the interpretation placed by the appeal court on those
clauses was erroneous and thus deprived them of the claim to a substantial amount
the matter deserved to be certified by the High Court under Art. 133(1)(a) of the
Constitution. The learned Judges dismissed the application without a judgment
apparently following their previous decision in Kaikhushroo Pirojsha Ghaira v. C.P.
Syndicate Ltd. (1948) L. Bom. L.R. 744. The appellants, therefore, moved this Court

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under Art. 136 of the Constitution for grant of special leave which was granted. In
the application for special leave the appellant had raised a specific contention to the
effect that the view taken by the High Court with regard to the application for
certificate under Art. 133(1)(a) of the Constitution was wrong, that the appellant was
entitled to appeal to this Court as a matter of right and that while considering that
appeal this question should also be decided. The appellant pointed out that the view
taken by the Bombay High Court on the point as to what is a substantial question of
law runs contrary to the decision of the Privy Council in Raghunath Prasad Singh v.
Deputy Commissioner of Partabgarh (1927) 54 I.A. 126 and the decision of some
High Courts in India and that therefore, it is desirable that this Court should
pronounce upon the question in this appeal and set the matter at rest. We think that
it is eminently desirable that the point should be considered in this appeal.
2. It is not disputed before us that the question raised by the appellant in the appeal
is one of law because what the appellant is challenging is the interpretation placed
upon certain clauses of the managing agency agreement which are the foundation of
the claim in suit.
Indeed it is well settled that the construction of a document of title or of a document
which is the foundation of the rights of parties necessarily raises a question of law.
3. The next question is whether the interpretation of a document of the kind referred
to above raises a substantial question of law. For, Art. 133(1) provides that where
the judgment, decree or final order appealed from affirms the decision of the court
immediately below in any case other than a case referred to in sub-clause (c) an
appeal shall lie to this Court if the High Court certifies that the appeal involves some
substantial question of law. To the same effect are the provisions of s. 110 of the
Code of Civil Procedure. In the old Judicial Commissioner's Court of Oudh the view
was taken that a substantial question of law meant a question of general importance.
Following that view its successor, the Chief Court of Oudh, refused to grant a
certificate to one Raghunath Prasad Singh whose appeal it had dismissed. The
appellant, therefore, moved the Privy Council for special leave on the ground that the
appeal raised a substantial question of law. The Privy Council granted special leave to
the appellant and while granting it made the following observation in their judgment
:
"Admittedly here the decision of the Court affirmed the decision of the Court
immediately below, and, therefore, the whole question turns upon whether
there is a substantial question of law. There seems to have been some doubt,
at any rate in the old Court of Oudh, to which the present Court succeeded,
as to whether a substantial question of law meant a question of general
importance. Their Lordships think it is quite clear and indeed it was conceded
by Mr. De Gruyther that that is not the meaning, but that "substantial
question of law" is a substantial question of law as between the parties in the
case involved."
4. Then their Lordships observed that as the case had occupied the High Court for a
very long time and on which a very elaborate judgment was delivered the appeal on
its face raised as between the parties a substantial question of law. This case is
reported in Raghunath Prashad Singh v. Deputy Commissioner of Partabgarh (1927)
54 I.A. 126. What is a substantial question of law as between the parties would
certainly depend upon the facts and circumstances of every case. Thus for instance, if
a question of law had been settled by the highest court of the country the question of
law however important or difficult it may have been regarded in the past and
however much it may affect any of the parties would cease to be a substantial

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question of law. Nor again, would a question of law which is palpably absurd be a
substantial question of law as between the parties. The Bombay High Court, however,
in their earlier decision already adverted to have not properly appreciated the test
laid down by the Privy Council for ascertaining what is a substantial question of law.
Apparently the judgment of the Privy Council was brought to their notice though they
do not make a direct reference to it, they have observed as follows :
"The only guidance that we have had from the Privy Council is that
substantial question is not necessarily a question which is of public
importance. It must be a substantial question of law as between the parties
in the case involved. But here again it must not be forgotten that what is
contemplated is not a question of law alone; it must be a substantial
question. One can define it negatively. For instance, if there is a well
established principle of law and that principle is applied to a given set of
facts, that would certainly not be a substantial question of law. Where the
question of law is not well settled or where there is some doubt as to the
principle of law involved, it certainly would raise a substantial question of
law which would require a final adjudication by the highest Court."
5 . One of the points which the learned judges of the Bombay High Court had to
consider in this case was whether the question of construction to be placed upon a
decree was a substantial question of law. The learned Judges said in their judgment
that the decree was undoubtedly of a complicated character but even so they refused
to grant a certificate under s. 110 of the Code of Civil Procedure for appeal to the
Federal Court because the construction which the Court was called upon to place on
the decree did not raise substantial question of law. They have observed that even
though a decree may be of a complicated character what the Court has to do is to
look at its various provisions and draw its inference therefrom. Thus according to the
learned Judges merely because the inference to be drawn is from a complicated
decree no substantial question of law would arise. Apparently in coming to this
conclusion they omitted to attach sufficient weight to the view of the Privy Council
that a question of law is "a substantial question of law" when it affects the rights of
the parties to the proceeding. Further the learned Judges seem to have taken the
view that there should be a doubt in the mind of the Court as to the principle of law
involved and unless there is such doubt in its mind the question of law decided by it
cannot be said to be "a substantial question of law" so as to entitle a party to that
certificate under s. 110 of the Code of Civil Procedure. It is true that they have not
said in so many words that such a doubt must be entertained by the Court itself but
that is what we understand their judgment to mean and in particular the last sentence
in the portion of their judgment which we have quoted above.
6. As against the view taken by the Bombay High Court there are two decisions of the
High Courts in India to which reference was made before us. One is Dinkarrao v.
Rattansey I.L.R. (1949) Nag. 224. In that case applying the Privy Council's decision
the High Court held that a question of law is substantial as between the parties if the
decision turns one way or another on the particular view taken of the law. If the view
taken does not affect the decision then it cannot be substantial as between the
parties; but it would be otherwise if it did, even though the question may be wholly
unimportant to others. It was argued before the High Court on the basis of certain
decisions that no question of law can be substantial within the meaning of s. 110 of
the Code of Civil Procedure unless the legal principles applied in the case are not well
defined or unless there can be some reasonable divergence of opinion about the
correctness of the view taken and unless the case involves a point of law such as
would call for fresh definition and enunciation. Adverting to those cases Bose C.J.,
(as he then was) who delivered the judgment of the Court observed as follows :

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 "In the first case cited, it was also held that a misapplication of principles of
law does not raise any substantial question of law so as to attract the
operation of s. 110. .......
There can be no doubt that that is a view which has been held by various
High Courts in India, but the decision cited omit to consider two decisions of
their Lordships of the Privy Council on this very point which, in our opinion,
very largely modify the views taken in the cases cited and which of course it
is impossible for us to ignore." (p. 226)
7. Referring to the Privy Council case the learned Chief Justice observed as follows :
"In the Lucknow case the only question was whether the defendant there
obtained an absolute interest or a limited interest under a will. That again
was a question which was of no interest to anyone outside the parties to the
suit. Nevertheless, their Lordships considered in both cases that the
questions were substantial questions of law because they were substantial as
between the parties. We can only consider this to mean that a question of
law is substantial as between the parties if the decision turns one way or
another on the particular view taken of the law. If it does not affect the
decision then it cannot be substantial as between the parties. But if it
substantially affects the decision then it is substantial as between the parties
though it may be wholly unimportant to others." (p. 228)
8 . It may be that in the case before it, the Nagpur High Court was justified in
granting certificate because of the points involved was the construction of a deed of
compromise and the High Court had interpreted that deed differently from the court
below. But it seems to us that some of the observations of Bose C.J., are a little too
wide. We are prepared to assume that the learned Chief Justice did not intend to say
that where a question of law raised is palpably absurd it would still be regarded as a
substantial question of law merely because it affects the decision of the case one way
or the other. But at the same time his observation that the view taken in the cases
cited before him requires to be modified in the light of the Privy Council decision
would imply that a question of law is deemed to be a substantial question of law
even though the legal principles applicable to the case are well defined and there can
be no reasonable divergence of opinion about the correctness of the view taken by
the High Court. If we have understood the learned Chief Justice right, we think that
he has gone further than was warranted by the decision of the Privy Council in
Raghunath Prasad Singh's case (1927) 54 I.A. 126.
9 . The other case relied upon was Rimmalapudi Subba Rao v. Noony Veeraju I.L.R.
1952 Mad. 264.. In that case the test of the kind suggested by Bose C.J., was
rejected on the ground that logically it would lead to the position that even a
palpably absurd plea raised by a party would involve a substantial question of law
because the decision on the merits of the case would be directly affected by it. What
was, however, said was that when a question of law is fairly arguable, where there is
room for difference of opinion on it or where the Court thought it necessary to deal
with that question at some length and discuss alternative view, then the question
would be a substantial question of law. On the other hand if the question was
practically covered by the decision of the highest court or if the general principles to
be applied in determining the question are well settled and the only question was of
applying those principles to the particular fact of the case it would not be a
substantial question of law.
10. We are in general agreement with the view taken by the Madras High Court and

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we think that while the view taken by the Bombay High Court is rather narrow the
one taken by the former High Court of Nagpur is too wide.
The proper test for determining whether a question of law raised in the case is
substantial would, in our opinion, be whether it is of general public importance or
whether it directly and substantially affects the rights of the parties
and if so whether it is either an open question in the sense that it is not finally
settled by this Court or by the Privy Council or by the Federal Court or is not free
from difficulty or calls for discussion of alternative views. If the question is settled by
the highest Court or the general principles to be applied in determining the question
are well settled and there is a mere question of applying those principles or that the
plea raised is palpably absurd the question would not be a substantial question of
law.
11. Applying these tests it would be clear that the question involved in this appeal,
that is, the construction of the Managing Agency agreement is not only one of law but
also it is neither simple nor free from doubt. In the circumstances we have no
hesitation in saying that the High Court was in error in refusing to grant the appellant
a certificate that the appeal involves a substantial question of law. It has to be borne
in mind that upon the success or the failure of the contention of the parties, they
stand to succeed or fail with respect to their claim for nearly 26 lakhs of rupees.
12. Now as to the merits. The relevant facts may be briefly stated. Chunilal Mehta &
Co., Bombay were appointed Managing Agents of the respondent company for a term
of 21 years by an agreement dated June 15, 1933. By a resolution passed by the
respondent company in October 1945, Chunilal Mehta & Co., were permitted to
assign the benefits of the aforesaid agreement to the present appellant, Sir Chunilal
V. Mehta & Sons Ltd. On April 23, 1951, the Board of Directors of the Company
terminated the agreement of 1933 and passed a resolution removing the appellant as
Managing Agents on April 23, 1951. The appellant thereupon filed a suit on the
original side of the Bombay High Court claiming Rs. 50 lakhs by way of damages for
wrongful termination of the agreement. Eventually with the permission of the Court it
amended the plaint and claimed instead Rs. 28,26,804/-. The company admitted
before the Court that the termination of the appellants' employment was wrongful
and so the only question which the learned Judge before whom the matter went had
to decide was the quantum of damages to which the appellant was entitled. This
question depended upon the construction to be placed upon clause 14 of the
Managing Agency agreement.
13. That clause runs thus :
"In case the Firm shall be deprived of the office of Agents of the Company
for any reason or cause other than or except those reasons or causes
specified in Clause 15 of these presents the Firm shall be entitled to receive
from the Company as compensation or liquidated damages for the loss of
such appointment a sum equal to the aggregate amount of the monthly
salary of not less than Rs. 6,000/- which the Firm would have been entitled
to receive from the Company, for and during the whole of the then unexpired
portion of the said period of 21 years if the said Agency of the Firm had not
been determined."
14. In order to appreciate the arguments advanced before us it would, however, be
desirable to reproduce the two earlier clauses - cls. 10 and 12. They run thus :
1 0 . The Company shall pay to the Firm by way of remuneration for the
services to be performed by the Firm as such Agents of the Company under

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 this Agreement a monthly sum of Rs. 6,000/- provided that if at the close of
any year it shall be found that the total remuneration of the firm received in
such year shall have been less than 10 per cent of the gross profits of the
Company for such year the Company shall pay to the Firm in respect of such
year such additional sum by way of remuneration as will make the total sum
received by the Firm in and in respect of such year equal to 10 per cent of
the gross profits of the Company in that year. The first payment of such
remuneration shall be made on the first day of August 1933.
"12. The said monthly remuneration or salary shall accrue due from day to
day but shall be payable by the company to the Firm monthly, on the first
day of the month immediately succeeding the month in which it shall have
been earned."
1 5 . The learned trial judge upon the interpretation placed by him on clause 14
awarded to the appellant a sum of Rs. 2,34,000/-, calculating the amount at Rs.
6,000/- p.m. for the unexpired period of the term of the Managing Agency agreement
and also awarded interest thereon. Now according to Mr. Palkhivala for the
appellants, the interpretation placed upon clause 14 by the trial judge and the appeal
Court is erroneous in that it makes the words "not less than" in clause 14 redundant.
Learned counsel contends that on a proper construction of clause 14 the appellants
are entitled to compensation computed on the basis of the total estimated
remuneration under clause 10 for the unexpired period. Under that clause, he
contends, the appellants are entitled to 10% of the profits of the company subject to
a minimum of Rs. 6,000/- p.m. Alternatively learned counsel contends that clause 14
is not exhaustive of the appellant's right to compensation and the right to be
compensated in respect of contingent remuneration based on 10% of profits is left
untouched by that clause.
16. A perusal of clause 14 clearly shows that the parties have themselves provided
for the precise amount of damages that would be payable by the Company to the
Managing Agents if the Managing Agency agreement was terminated before the expiry
of the period for which it was made. The clause clearly states that the Managing
Agent shall receive from the Company as compensation or liquidated damages for the
loss of appointment a sum equal to the aggregate amount of the monthly salary of
not less than Rs. 6,000/- for and during the whole of the unexpired portion of the
term of Agency. Now, when parties name a sum of money to be paid as liquidated
damages they must be deemed to exclude the right to claim an unascertained sum of
money as damages. The contention of learned counsel is that the words "not less
than" appearing before "Rs. 6,000/-" in clause 14 clearly bring in clause 10 and,
therefore, entitle the appellant to claim 10% of the estimated profits for the
unexpired period by way of damages. But if we accept the interpretation, it would
mean that the parties intended to confer on the Managing Agents what is in fact a
right conferred by s. 73 of the Contract Act and the entire clause would be rendered
otiose. Again the right to claim liquidated damages is enforceable under s. 74 of the
Contract Act and where such a right is found to exist no question of ascertaining
damages really arises. Where the parties have deliberately specified the amount of
liquidated damages there can be no presumption that they, at the same time,
intended to allow the party who has suffered by the breach to give a go-by to the
sum specified and claim instead a sum of money which was not ascertained or
ascertainable at the date of the breach. Learned counsel contends that upon this view
the words "not less than" would be rendered otiose. In our opinion these words, as
rightly-pointed out by the High Court, were intended only to emphasise the fact that
compensation will be computable at an amount not less than Rs. 6,000 p.m.
Apparently, they thought it desirable to emphasise the point that the amount of Rs.

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6,000 p.m. was regarded by them as reasonable and intended that it should not be
reduced by the court in its discretion.
17. Mr. Palkhivala argued that what the appellants were entitled to was remuneration
and remuneration meant nothing but salary. The two words, according to him, have
been used interchangeably in the various causes of the agreement. If, therefore,
salary in clause 14 is the same as remuneration, which according to him it is, then as
indicated in clause 10 it would mean 10% of the gross profits of the Company
subject to a minimum of Rs. 6,000/- p.m. In support of the argument that the two
words wherever used in the agreement mean one and the same thing learned counsel
relies on clause 12 which says that the monthly remuneration or salary shall accrue
due from day to day. The undoubtedly the two words clearly mean the same thing.
But from a perusal of the clause it would appear that remuneration there could mean
nothing other than Rs. 6,000/- p.m. For, that clause provides that the amount shall
accrue from day to day and be payable at the end of the month immediately
succeeding the month in which it had been earned. Now, whether a company had
made profits or not and if so what is the extent of the profits is determinable only at
the end of its accounting year. To say, therefore, that the remuneration of 10% of the
gross profits accrues from day to day and is payable every month would be to ignore
the nature of this kind of remuneration. Therefore, in our opinion, when the
remuneration and salary were equated in clause 12 nothing else was meant but Rs.
6,000/- and when the word salary was used in clause 14 we have no doubt that only
that amount was meant and no other. It may be that under clause 10 the appellant
was entitled to additional remuneration in case the profits were high upto a limit of
10% of the gross profits. That was a right to claim something over and above Rs.
6,000/- and could be characterised properly as additional remuneration and not fixed
or normal remuneration which alone was apparently in the minds of the parties when
they drew up clause 14. In our opinion, therefore, the High Court was right in the
construction placed by it upon the clause.
1 8 . Coming to the alternative argument of Mr. Palkhivala, we appreciate that the
right which the appellant had of claiming 10% of profits was a valuable right and that
but for clause 14 he would have been entitled in a suit to claim damages estimated at
10% of the gross profits. We also appreciate his argument that a party in breach
should not be allowed to gain by that breach and escape liability to pay damages
amounting to a very much larger sum than the compensation payable under clause 14
and that we should so interpret clause 14 as to keep alive that right of the appellants.
Even so, it is difficult, upon any reasonable construction of clause 14, to hold that
this right of the appellants were intended by the parties to be kept alive. If such were
the intentions of the parties clearly there was no need whatsoever of providing for
compensation in clause 14. If that clause had not been there the appellant would
indeed have been entitled to claim damages at the rate of 10% for the entire period
subject to minimum of Rs. 6,000/- p.m. On the other hand it seems to us that the
intention of the parties was that if the appellants were relieved of the duty to work as
Managing Agent and to put in their own money for carrying on the duties of
managing agents they should not be entitled to get anything more than Rs. 6,000/-
p.m. by way of compensation. Clause 14 as it stands deals with one subject only and
that is compensation. It does not expressly or by necessary implication keep alive the
right to claim damages under the general law. By providing for compensation in
express terms the right to claim damages under the general law is necessarily
excluded and, therefore, in the face of that clause it is not open to the appellant to
contend that that right is left unaffected. There is thus no substance in the alternative
contention put forward by the learned counsel.
19. Accordingly we affirm the decree of the High Court and dismiss the appeal with

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costs.
20. Appeal dismissed.

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