'

-

:t'

S.C.R. SUPREME COURT REPORTS 979

say that an apportionment under section 26 (2) would

be meaningless, though, if the testator's estate was

sufficiently solvent,

it would have no practical

significance.

DAS J.-I agree with the Chief Justice.

Appeal dismissed.

Agent for the appellant: R. S. Narula.

Agent for the respondent: P. A.Mehta.

PANNALAL JANKIDAS

v.

MOHANLAL AND ANOTHER.

(SHRr'HARILAL KANIA C.J ., PATANJALI SASTRI

and DAs JJ.]

Contract-Damages-Remoteness of damage-Agent neglecting

ta inwre goads against fire-Goads destroyed by explosian-Liabi·

lity al agent-Bombay Explosion (Compensation) Ordinance, 1944,

ss. 14, 18-0rdinance granting compensation for damage by explo­

sion-Loss by explosioii not covered by policy-Loss of compensation

undu Ordinance by failure to insttre-Whetlwr direct or remote

damage-Claim by principal against agent, whet/wr barred by Ordin·

ance-Indian Contract Aot, 1872, s. 212.

The plaintiffs who were commission agents purchased piece­

goods according to defendant's instructions and storsd a portion

of

the goods in

a godown in Bombay pending receipt of a permit

from the Government authorities for consigning the same to the

defendants. Before the goods could be despatched,a big explosion

occurred

in the Bombay Harbour

and the goods stored were des­

troyed either by the fire or the explosion. A few months later the

Governor-General promulgated the Born bay Explosion (Compensa·

tion) Ordinance, 1944, which provided, inter alia, (i) that the Govern­

ment shall pay a compensation of 50 per cent. of the damage caused

in respeet of uninsured goods, and the entire damage in reepect

of insured goods; and (ii) that no person 8hall have or be deemed

ever

to have bad, otherwise than under the Ordinance

any right

whether in contract or in tort or otherwise to any compensation

for damage

to or loss of property arising out of the explosion and

no suit or other legal proceeding for any such compensation or damage shall be maintaiDable in any civil court. The plaintiffs

received GO per cent. of the value of the destroyed goods as \hey

!950

Etttcutors of

the Estaf4 of

J. K. Dubt:uh

••

Commissioner of

Income-ta:t,

Bombay City.

Patanjali

Saatri J.

1950

Dae. 21.

,

•

1960

Pannalal

Jankida!

v

Mohanlal and

Another.

'

980 SUPREME COURT REPORTS [1950]

were not insured, and, alleging that as agents they bad the right

to be indemnifiod by the defendants, sued the latter

1

or recovery

of the remaining 50 per cent. of the value of the goods. The

defendants pleaded, and it was found as a fact, that they bad in­

structed the plaintiffs, and the latter bad agreed, to insure the

goods but had omitted to do so, and they claimed that inasmuch

as they would have been entitled to receive the full value of the

goods as compensation

under the Ordinance if the plaintiffs bad

insured, they were entitled to set off or counter claim the value

of the goods

as damages caused to them by the neglect or breach

of

duty of the plaintiffs.

Held per KANIA

C.J. and DAS J. (PATANJALI SASTRI J.

dissenting).-(i) As full compensation under the Ordinance was

payable on proof of the existence of a fire insurance policy irres­

pective of the terms of the policy, and the non-recovery of half

the value

of the goods from the Government under the Ordinance

was due to the absence of

a fire insurance policy, the loss to the

defendants arose directly from the neglect or breach of duty of

the plaintiffs to insure the goods as they had been instructed and

agreed to do; intervention of the Ordinance did npt break the

chain of causation or make the loss remote 6r indirect; the Ordin·

ance did not create any new liability but only quantified the

damages; and the fact that it did not exist at the time of the ex­

plosion and could not have been in the contemplation of the

parties was irrelevant for deciding the question of liaibility;

{ii) the plea of the defendants was not barred by the Ordin­

na.nce inasmuch a.a their cause of action against the plaintiffs

was misconduct of the lg,tter in the business of their agency, and

this cause of action was completed by the averment that there

was a duty or a.greement to insure, that there was failure to per·

form that duty and that the failure bad caused damage to the

defendants, and the quantum of the damages was not a part of

the ca.use of action.

Per PATANJALI SAoTR( J.-(i: The defendants' inability to

recover the full value of the goods from the Government under

the Ordinance did not arise directly and naturally in the usual

course

of things from the plaintiffs' failure to insure, but from

indepenaent and disconnected events,

namely1 the Government's

scheme

for compensation, embodied in the

Ordinance, the agree.

went with the insurance companies regarding contribution and

the consequent discrimination made by the Government between

insured

and uninsured good's. The

Ordinance did not. displace

the ordinary rules

of law as to remoteness of damage or amend

or abrogate any terms in the fire insurance policies

and it was

further difficult to see bow by virtue of an Ordinance passed

some months after the explosion, the right to damages could be­

come enlarged. The broad principle of restitutio in integrum upon

which the assessment of the quantum. of damages is based can­

not be carried to its utmost logical results but must be qualified

by the rule of remoteness.

•

,

-

S.C.R. SUPREME COURT REPORTS 981

(ii) The bar under the Ordin1'nce was not based upon the 1950

nature of the cause of action but upon the damage or Joss being

1

' due to or in any way arising out of " the explosion and the Pan.natal

claim of the defendants was clearly barred. In any event the lankidaa

defendants cannot be allowed to claim that the loss of the goods v.

was explosion damage so as to bring the case under g. 14 and at Mohanlal and

the same time contend that the loss was not due to or did not in Another.

any way arise out of the explosion in order to avoid the bar

under s. 18.

In re an Arbitration between Polemis and Another an~ Furness

Withy d! Co. Ltd. [1921] 3 K.B. 560, Weld-Blundell v. Stephen•

[1920] A.O. 983, Monarch Steamship Co-Ltd. v. Karlshamns

Oljefabriker [1949] A.O. 196. Hadley v. Baxendale (9 Ex. 341),

Livingstone y. Rawyards Coal Co. (1880) 5 App. Oas. 25, British

Westinyhouse Electric and Manufacturing Co. Ltd· v. Underwood

Electric Railways Co., London [1912] A.Q. 673, Liesbosch (owners)

v. Edison (owners) [1933] A.O. 449, Smith Hogg ct Co. Ltd. v.

Black Sea and Baltic General Insurance Co, Ltd. [1940] A.O. 997,

Standard Oil Co. of New York y. Olan Line Steamers Ltd. [1924]

A.O. 100 referred to.

APPELLATE JURISDICTION: Civil Appeal No. 71 of

1949. "

Appeal from a judgment and decree of the High

Court of Judicature at Bombay dated 11th April,

1947, (Sir Leonard Stone C.J. and Chagla J.) in

Appeal

No.

39 of 1946 reversing the judgment and

decree

of Bhagwati J., dated 27th March, 1946, in Civil Suit No. 1373 of 1944 of the said High Court in

its Original Jurisdiction.

Rang Behari Lal (Rajeswar Nath Nigam, with him)

for the a pp ell an ts.

M.

C. Setalvad (Ram Ditta Mal and B. Sen, with

him) for the respondents.

1950. December 21. The Court delivered judgment

as

follows:-

KANIA

C.J.-This is an appeal from a judgment of

the High Court at Bombay. Although the record is

heavy and many points were argued in the trial court

and in the court

of appeal at Bombay, the important

point argued before us

is only

one,

The appellants (plaintiffs) are a firm of commission

agents in

Bombay. The respondents (defendants)

Kania C. J.

1950

Pannalal

Jankidas

v.

Mohanlal and

Another.

-Kan.ia 0. J.

982 SUPREME COURT REPORTS [1950]

were their constituents. Accounts between the

parties in respect of their dealings were made up and

settled up to the 30th of October, 1943. Piecegoods

and yarn continued to be purchased

and consigned by

the plaintiffs to the defendants' joint family firm

thereafter.

One bale of piecegoods was purchased and

despatched in November, 1943. In January, 1944,

restrictions were imposed against

the consignment of

piecegoods and/or

yarn outside Bombay by rail

with­

out obtaining the necessary previous permit from the

Textile Commissioner at Bombay. On or about the

6th February, 1944, Mohanlal of the defendants' joint

family firm came

to Bombay and the plaintiffs

pur­

chased on their behalf 278 bales of piecegoods. Ninety.

four

out of those were despatched according to the

defendants' instructions. The plaintiffs, according to

the defendants' instructions, applied for and obtained

permit to consign several more bales.

On the permits

being issued they were despatched

on 14th February,

1944, to destinations given

by the defendants.

, On the

10th April, 1944, the plaintiffs, after obtaining the

necessary permits, despatched more· bales as directed

by the defendants. The dispute between the parties

relates to

the remaining 92 bales which were stored

in godown No. 424, Baroda Street, Argyle Road,

Bombay, pending the receipt of permit

for consigning

the same.

On the 14th April, 1944, there occurred a big explo­

sion in the Bombay harbour which destroyed several

immovable properties

and godowns with

moveable pro­

perty covering a large area near the port. Fires were

caused

by the explosion and they also caused

considera­

ble destruction of moveable and immoveable properties.

These 92 bales purchased

by the plaintiffs on account

of the defendants were also destroyed either by the

fire or the explosion. The plaintiffs filed a suit to

recover the price of these 92 bales from the defendants

on the ground of the agent's right to indemnity. The

defendants contended

that the plaintiffs were their

pucca adatiyas, that the property in the goods did not

pass to them

and that they were not liable for the price

.• z;.

S.C.R. SUPREME COURT REPORTS 983

till delivery of the goods was given to them. In the

alternative, in para. 4

of their written statement, they

pleaded

that when Mohanlal of the defendants' firm

was in Bombay and the plaintiffs stated

that the goods

could not be railed until permits were

obtained;lt was

agreed between the plaintiffs and the defendants

that

the defendants were to pay annas four per bale per

month to

the plaintiffs for insurance charges and the

goods were

th us to remain insured till despatched

according to their instructions.

In paragraph 21 of

their written statement, they contended that if their

plea

that the plaintiffs

\'.ere pucca adatiyas was not

accepted and the plaintiffs were held to be their

commission agents, the plaintiffs were guilty of

negligence

and misconduct in the business of agency,

as

in spite of specific instructions and agreement they

had failed to insure the goods. They contended

that

owing to this negligence and misconduct the plaintiffs

were not entitled to

the indemnity claimed. In the

alternative they contended

that the plaintiffs were

liable

to make good the loss caused to the defendants

· by their failure to insure the said bales. They con·

tended that they were entitled to set off this loss

against the claim for the price. They also counter­

claimed the same amount if their set-off was not

allowed. On these pleadings the parties went to a

hearing. Issue 10 covered the defendants' plea about

the plaintiffs' negligence and misconduct in not insur­

ing the 92 bales and the counter-claim arising there­

from.·

Numerous witnesses were called before the trial

court

and the learned judge after considering their

demeanour and hearing their evidence came to the

conclusion that the plaintiffs' witnesses were unreliable, ex~ept when they we:e co.rroborated by documentary

evidence.

He also drsbeheved the defendants'

evi­

dence. He held that the agreement to insure the goods

was not proved

and passed a decree in favour of the

plaintiffs.

On appeal, differing from the view of the

trial court, the appeal court held that instructions

were (liven by Mohanlal to insure the goods and that

1950

Pannalal

Jankida3

v.

Mohanlal and

Another.

Kania C J.

•

•

1950

Pannalal

Jankidas

v.

Mohanlal a1ul

Another.

Kania C. J,

984 SUPREME COURT REPORTS [1950)

the agreement was proved. In thus differing from the

trial court's decision, they accepted the well-recognised

principle ·.to give full weight to the trial judge's o bser.

vations about the witness. They however found

that on

the

doeuments the view of the learned trial judge was

not correct.

In doing so, they principally relied on state.

ments of account sent by the plaintiffs to

the

defend­

ants in respect of bales purchased in February. 1944,

and despatched

by them out of the lot of 278 bales

previously

and where the plaintiffs had charged the

defendants insurance premia

at the rates mentioned in

the defendants'

written statement. They rejected the

plaintiffs' explanation,

wliich was accepted by the

trial judge,

that these entries were foolishly made out

of cupidity by the plaintiffs.

After a brief discussion in which this point was

haltingly urged before us,

the learned counsel for the

plaintiffs did not very properly dispute this conclusion

of

the .appeal court. In our opinion, the finding of the

appeal court, having regard to the documents, was

correct.

That left for decision the important question of

damages 'to which the respondents were entitled.

Before the appellate court in Bombay, it was conceded

by the respondents' counsel that the insurance which

was to be effected

by the appellants under the agree­

ment was on the usual terms of fire insurance policies

prevalent in

Bombay.

Clause 7 of that form of

policy,

inter alia, provided as follows :-" Unless otherwise express! y stated in the policy,

this insurance does

not cover ......

(h) any loss or damage occasioned by or through or

in consequence of explosion but loss or damage by

explosion of gas used for illuminating or domestic

purposes in a building in which gas is not generated

and which does not form part of any gaswork will be

deemed to be lost

by fire within the meaning of this

policy."

-

The appellants urged that granting that they were

in default and had committed a breach

of duty in not

-•

·~

•

S.C.R. SUPREME COURT REPORTS 985

insuring the goods according to the instructions or the

agreement, the respondents could not recover anything

from them due to damage arising from the explosion,

because the policy of

fire insurance, if taken out, would

not have given to the respondents the money claimed

by them. For this purpose they relied on a statement

n Mayne

on Damages, (11th Ed.) at page 592, as

follows:-

" Therefore if an agent is ordered to procure a policy

of insurance for his principal and neglects to do it, and

yet the policy,

if procured, would not have entitled the

principal,

in the events which have happened, to

recover the loss or damage, the agent

may avail

himself of

that as a complete

defence."

In the present case, after the explosion considerable

discussion about the liability of the insurance com­

panies under

their policies of fire insurance and the

liability of Government

for alleged negligence in

unloading high explosives from a ship on the docks

appears

to have taken place.

On the 1st of July, 1944,

the Governor-General promulgated the Bombay Explo­

sion (Compensation) Ordinance,

1944. The preamble

to

that

Ordinance runs as follows :-

"Whereas an emergency has arisen which makes it

necessary to provide

for and regulate the payment of

compensation for.

..... damage to property due to, or

arising out

of, the explosions and fires which occurred

in the Bombay Docks on the 14th April, 1944, to

restrict litigation in connection with

the said

explosions and fires and to make certain other

pro­

visions in connection therewith."

The other relevant provisions may be also noticed

at this stage. Uninsured property was defined to mean

property which was not covered whether wholly or

partially

by any policy of fire, marine or miscellaneous

msurance at the time of the explosion. After providing

for the procedure according to which compensation

may be claimed

and dealt with by the

Claims Com­

mittee to be set up under the Ordinance and an appeal

and review from their decision, section

14 provided as

follows;-

.126

1950

Pannalal

Jank1das

v.

Mohanlal and

Another.

Kania C J.

1950

Pannalal

Jankidas

v.

lllohanlal and

Another.

Kania 0. J.

986 SUPREME COURT REPORTS [1950]

14. " Subject to the provisions of this Ordinance,

there shall be paid

by the

Central Government com­

pensation for explosion damage to property being

(a) damage caused

by fire to property insured

whether wholly

or partially at the time of the explosion

against fire under a policy (other

than a

lJO!icy of

marine insurance) covering fire risk, or damage cause<;]

by blast without fire intervening to property insured

whether wholly or partially

at the time of the explosion

under a policy (other

than a policy of marine insurance)

covering fire

and explosion risks, of an amount equal

to

the proved loss, or

(b) damage caused by blast without fire inter­

vening to property insured whether wholly or partially

at the time of the explosion against fire under a policy­

(other than a policy of marine insurance) covering fire

risk

but not explosion risk, of an amount equal to

87

l per centum of the proved loss, to the holder of the

policy of insurance covering the damaged property, or

if he is deceased, to his legal representatives.

Section 15 provided for contribution by the insurers

towards the payment of amounts to be paid under

the Ordinance. Section 18 of the Ordinance runs as

follows:~

18. (1) Nothing in this Ordinance shall prevent the

recovery of compensation for death or personal injury

under the Workmen's Compensation Act, 1923 (VIII

of 1923), or under any policy of life insurance or

against personal accident or under any other contract

or scheme providing for the payment of compensation

for

death or personal injury, or for damage to pro­

perty under any policy of marine or miscellaneous

insurance.

(2)

Save as provided in sub-section (1). no person

shall have,

or be deemed ever to have had, otherwise

than under this Ordinance any right whether in contract

or in tort or otherwise to any compensation or damages

for

any death, personal injury or damage to or loss of

any property, rights or interests, due to or in any way

arising out of

the explosion ; and no suit or other

..

S.C.R. SUPREME COURT l{EPORTS 987

legal proceedings for any such compensation or

damages shall, save as aforesaid, be maintainable in

any Court against the Crown or the Trustees of the

Port of Bombay or the Municipal Corporation of the

City of Bombay or against any servants or agents of

the Crown or of the said Trustees or Municipal Corpo­

ration or againt any other person whomsoever; and

no act or omission which caused or contributed to the

explosion shall be deemed to have been done or

omitted to be done otherwise than lawfully.

(3) No suit, prosecution or other legal proceeding

whatsoever shall lie against any person for anything

in good faith done or ordered

to be done in combating

or mitigating the effects of the explosion, or for any.

thing in good faith done or intended to be done in

pursuance of this Ordinance or any rules or orders

made

thereunder."

It is common ground that in respect of uninsured

merchandise fifty per cent. compensation was to be

paid under the Ordinance. The appellants have

recovered

that amount and have now agreed to

give·

credit of the same to the respondents. The dispute

is in respect of the remaining fifty per cent. It is

not disputed

that if the goods had been insured, under

section

14 of the Ordinance, full compensation would

have been recovered

by the appellants and become

payable to the respondents.

The appellants' contention

is two-fold. Firstly,

that if they had insured the goods the ordinary fire

insurance policy would not have covered the risk

and

therefore although they had committed a breach of the

agreement or been negligent in their

duty as agents,

they were not liable to pay anything more to the

res­

pondents. In the alternative it was argued on their

be?alf that the interventi~n of Government in passing

this Ordinance could not increase or add to the liabi­

lity of the appellants for the breach of contract or

breach

of duty and therefore they were not liable

to

pay the compensation which would have been

receivable

by the respondents if the goods had been

1950

Pannalal

Jankida8

v,

Mohanlal and

Another,

Katiif'l 0, J,

1950

Paanalal

Jankidaa

v.

Mohanlal and

Another.

Kania C. J.

988 SUPREME COURT REPORTS [1950]

insured. The second contention is that the counter­

claim of the respondents is barred under section 18 (2)

of the Ordinance. In the Indian Contract Act, sections

211 and 212 provide for the consequences of an agent

acting otherwise

than according to his duty towards

the principal.

Under section 211 when an agent con­

ducts the business of the principal otherwise than

according to the directions given by the principal, if

any loss be sustained he must make it good to his

principal

and if any profit accrues he must account for

it.

In Smith v. Lascetles(1), it was held that if an agent

was

instructed to insure goods and neglected to do so

he was liabie to the principal for

their value in the

event

of their being lost. Section 2 J 2 of the Indian

Contract Act provides as follows :-

" An agent is always bound to act with reasonable

diligence

and use such skill as he possesses ; to make

compensation to his principal in respect of the direct

consequences.of his own neglect, want

of skill or

mis­

conduct, but not in respect of loss or damage which

are indirectly

or remotely caused by such neglect,

want of skill or misconduct."

These sections make

it clear that in case of the agent's

negligence he is liable

to make good the damage

directly arising from his neglect

but not indirectly or

remotely caused

by such neglect or misconduct. The

question therefore is whether

in the present case the

claim of

the respondents based on the neglect or

mis­

conduct can be stated to be a direct consequence of

such neglect

or misconduct or is only indirectly or

remotely caused by such neglect.

Two positions can

be visualized as ans1ng from the

appellants' neglect in this case. The appellants could

be

treated either as insurers themselves or can be con.

sidered as having agreed to cause

the goods insured by

a recognised insurance company on the usual fire

insurance policy terms.

In Ticket v. Short('), the Lord

Chancellor shortly stated the proposition of law in

these

terms :-

" The rule of equity is, that if an order

(1) (1788) 2 T.R. 187. (2) 2 Vei. Sen. 289. -

·-

•.

S.C.R. SUPREME COURT REPORTS 989

is sent by a principal to a factor to make an insurance; 1950

and he charges his principal, as if it was made; if he

Pannalal

never in fact has made that insurance, he is considered Jankidas

as the insurer himself." If therefore, as in the present v.

case, the appellants were given instructions to insure Mohanlal and

the goods and they charged the respondents as if they Another.

had insured the goods, the law would throw upon Kania o. J,

them the liability of an insurer as if they stood in the

position of insurers, i.e., the Court will then be entitled

in

equity to proceed on the footing as if an insurance

had been effected by the appellants and the goods

stood covered under a fire insurance policy.

Whatever

consequences follow from that position must be

·

accepted and enforced in a court of equity against the

appellants. Proceeding on

that line of reasoning under

section

14 of the Ordinance the only thing which is

required to be considered is whether the goods were

covered

by a fire insurance policy. The terms of the

policy are immaterial. If, therefore, the appellants are

considered as having

insured the goods and are pre-

cluded from saying

that the goods were not covered

by a fire insurance policy, the loss arising from the

fact that the goods were not so covered

is a Jirect

consequence

of their neglect and they must make it

good. That will make them liable to pay

what was

claimed

by the respondents.

If, however, it is considered that they were not

them­

selves insurers but that they had agreed only to keep

the goods insured under a policy of insurance of a

recognised insurance company on the usual fire insur­

ance policy terms, the question is whether the damages

claimed

by the respondents directly flow from their

neglect

of duty in not being able to produce such a fire

insurance policy.

Our attention has been drawn to an

instructive judgment which makes the distinction

between direct

and remote damages clear. In In Re An

Arbitration between Polemis

& another and Furness

Withy & Co. Ltd. (1) there is a discussion on this point

in the judgment of

Banks L.J. He drew attention to

the observations of Lord Sumner in

Weld-Blundell v.

Ill [1921) 3 K.B. 560.

/

/

1950

Pannalal

Jankidas

v.

Mohanlal. and

Another.

Kania C. J.

990 SUPREME COURT REPORTS [1950]

Stephens (

1

), who observed as follows:-" What are

natural, probable and necessary consequences ? Every­

thing that happens, happens in the order of nature and

is therefore natural. Nothing that happens by the

free choice of a thinking man is necessary except in

the sense of pre-destination. To speak of probable

consequences is to throw everything upon the jury. It

is tautologous to speak of effective cause or to say that

damages too remote from the cause are irrecoverable,

for an effective cause is simply

that which causes, and

in law, what is ineffective or too remote is not a cause

at all. I still venture to think that direct cause is the · best expression .................. What a defendant ought

to have anticipated as a reasonable man is material

when the question is whether

or not he was guilty of

· negligence, that is, of want of due care according to

the circumstances, This however goes to culpability,

not to compensation." Banks L.J., after noticing

the above observations,

stated as

follows:-" Under

these circumstances I consider that it is immaterial

that the causing of the spark by the falling of the

plank could not have been reasonably anticipated.

The appellants' junior counsel sought to

draw a

dis­

tinction between the anticipation of the extent of

damage 'resulting from a negligent act, and the anti­

cipatie>n of the type of damage resulting from such

an act.. .......... I do not think that the distinction can

be admitted. Given the breach of

duty which

consti­

tutes the negligence, and given the damage as a direct

result of

that negligence, the anticipations of the person

whose negligent act has produced

the damage appear

to me to be

irrelevant,"

The question of what is remoteness of damages in a

case of negligence has been reviewed in detail in a recent

decision of

the Honse of Lords in Monarch Steamship

Co. Ltd. v. Karlshamns Oljefabriker('). In that case

the question arose in respect of damages due to

the

late delivery of goods shipped for a port in Sweden,

but which ship, owing to its unseaworthiness, was

delayed in its voyage

and owing to the outbreak of war

(11 [\920] A.O. 98.3-981. 12) fl 949] A.O. 196,

S.C.R. SUPREME COURT l{EPOl{TS 991

under orders of the British Admiralty, was directed

not to proceed to the Swedish port but ordered to dis­

charge the cargo

at

Gla>gow. The assignees of the bills

of lading from the shippers had to forward th~ goods in

neutral ships chartered for the purpose to the Swedish

·port. A war risks clause in the charte1'party exonera­

ted the owners

of the vessel in the event of compliance

with any orders given

by the government of the

nation under whose

flag the ship sailed, as to des­

tination delivery or otherwise. The holders of the

bills

of lading claimed the re-transport charges

from Glasgow to

the

Swedish port. It was con­

tended that these damages were too remote. The

House of Lords rejected the contention.

In the

speech

of Lord Wright most of the relevant authorities

have been reviewed and the

ratio decidendi has been

set out.

In Hadley v. Baxendale (') Alderson B.,

giving the judgment of the

Court, thought that the

proper rule in such a case consisted

of two alternatives.

He

said:

"Where two parties have made a contract

which

one of them has broken the damages which the

other

party ought to receive in respect of such breach

of contract should be such as may fairly and reason­

ably be considered either. arising naturally, i.e.,

according to the usual course of things, from such

breach of contract itself,

or such as may reasonably

be supposed to have been in

the contemplation of both

parties at the time they made the contract, as the

probable result of the breach of

it." In the opinion of

Lord \Vright this in truth gives effect to the broad

general rule of the law of damages

that a party injured

by the other

party's breach of contract

"is entitled to

such money compensation as will

put him in the posi­

tion in which he would have been

but for the

breach."

This rule was stated by Lord Blackburn in Livingstone

v. Rawyards Coal Co. (

2

)

as follows

:-"Where any

injury is to be compensated by damages, in settling

the sum of money to be given for reparation

of damages

you should as nearly as possible get

at that sum of

money which will put the party who has been injured,

(1) 9

Ex, 341, i~I (1880) 5 App. O•a. 25, 39,

!950

P(J.nttalal

Jankidas

v.

Mohanlal and

Another.

Kania 0. J.

1950

Paiinalal

Ja1kidas

v.

Mokattlal and

Another.

Kania 0. J.

992 SUPREME COURT REPORTS [1950)

or who has suffered, in the same position as he would

have been in if he

had not sustained the wrong for which

he is now getting his compensation or

reparation."

The rule stated by Alderson B. has consistently been

accepted as co~rect ; the only difficulty has been in

applying it. The distinction drawn is between damages

arising

naturally (which means in the normal course

of things) and cases where there were special and ex­

traordinary circumstances beyond the reasonable pre­

vision of

the parties. The distinction between these

types is usually described in English Law as

that

between general and special damages; the latter are

such

that if they are not communicated it would not

be fair or reasonable to hold the defendant responsible

for losses which he could not be

taken to contemplate

as likely to result from his breach

of contract. Viscount

Haldane L.

C. in The British Westinghouse Electric &

Manufacturing Co. Ltd. v. The Underground Ele~ic

Railways Co. of London ('),on the question of damages

said

:-In some of the cases there are expressions as

to

the principles governing the measure of general

damages which

at first sight seem difficult to harmonize.

The apparent discrepancies are, however, mainly

due

to the varying nature of the particular questions

submitted for decision. The

quantum of damage is a

question of fact,

and the only guidance the law can

give is to lay down general principles which afford

at

times but scanty assistance in dealing with particular

cases. The Judges who give guidance to juries in

these cases have necessarily to look

at their special

character,

and to mould, for the purposes of different

kinds of claim,

the expression of the general principles

which

apply to them and this is apt to give rise to an

appearance of

ambiguity ... It was necessary to balance

loss

and gain and no simple solution was

possible."

The House of Lords in Liesbosch (Owners) v. Edison

(Owners) (') has stated at page 463 that it is im.

possible to lay down any universal formula. The

dominant rule

of law is the principle of restitutio in inte~runi and subsidiary rules can only be justified if

\1) [1912] A,C. 678, 689. (21 (1933] A.O. H9,

•

S.C.R. SUPREME COURT REPORTS 993

they give effect to that rule. (The italics are mine). In

Smith, Hogg & Co. Ltd. v. Black Sea & Baltic General

Insurance Co. Ltd. (

1

), the loss of a vessel occurred

through the negligence of

the master operating

on conditions of unseaworthiness existing since

the commencement

of the voyage. The loss was

held

to be caused by the breach of the

warranty of seaworthiness and recoverable

accord­

ingly. There was an exception of negligence. At

page 1005 in the judgment of that case it is stated

"no distinction could be drawn between cases where

the negligent conduct

of the master is a

cause and cases

where

any other cause, such as perils of the sea, is a

co.operating cause. A negligent act is as much a

co.operating cause if it is a cause

at all, as an act which

is

not negligent."

. \Vhat was then being emphasized

was that a voluntary act (negligent or not) of a human

agent is not generally an independent or new cause for

this purpose which breaks the chain of causation, as it

is called, so as to exclude from consideration the causal

effect of

the unseaworthiness. In that case it was

held

that the unseaworthiness created in the vessel

instability which, combined with negligence of

the

master, caused the Joss. No new law was laid down in

that case.

Similarly in The Standard Oil Co. of New

York v. Clan Line Steamers Ltd.('), the vessel capsized

because the master not being instructed by his owners

as

to

the peculiarities of a turret ship, so handled her

that she capsized. ·That loss was immediately due to

perils of

the sea which overwhelmed her when she

capsized, liability for which was excepted,

but the

dominant cause was her unseaworthiness in that her

master, though otherwise efficient,

was inefficient in

not being aware of the special danger. In general, all

the authorities are in agreement in this respect and

embody the same rule. The shipowner, of course, under

the familiar general rule, is debarred by his breach of

duty from relying on the specific exception. Though

he would not be liable for

the consequences caused by

the specific excepted peril or the accident alone if he

\l! \.\940) A,C. 907, (2) (192!11 A.O. !CO.

127

19~0

Panna.lal

Jankidas

v.

Mo1ranlal and

Another.

Kania c. J.

19!0

P,inn1lal

Jank'idas

••

Mohanlal an:l

AKothe,..

Kania O. I.

994 SUPREME COURT REPORTS (1950)

were not in default, though the unseaworthiness existing

at the commencement of the voyage might not be

operative or known until the time when the accident

occurs,

yet then the breach of the warranty operates

directly as a cause and, indeed, a dominant cause.

Causation in law does not depend on remoteness or

immediacy in time." These obsrrvations meet the

appellants' contention about

the Government

Ordin­

ance intervening to fix the damages. They show that

such intervention does not break the chain of causation,

nor does

it make the loss, i.e., damages, remote.

The

statement of law in Mayne on Damages quoted

above, only reproduces

the principle of law stated

by Lord Blackburn in Livingstone v. Rawyards

Coal

Company(').

Bearing in mind this state of the law it appears clear

that in the present case it was the duty of the appel­

lants to insure the goods, as they had agreed to do.

Once misconduct is admitted or proved, the fact that

the Ordinance did not exist and could not have been in

the contemplation of the parties is irrelevant for

deciding

the question of liability. The liability was

incurred

by reason of the breach of their duty and the

appellants made tbemselves liable to

ray damages.

The measure of damages was

the loss

suffered by the

respondents on account of the goods not being insur,:d.

The next point to be decided is what difference the

promulgation

of the

Ordinance makes in the liability

of the appellants. The relevant provisions are noted

above. The scheme of the Ordinance clearly is, as

stated in the preamble, to provide for and regulate the

payment of compensation and to prevent litigation,

amongst

other things. It is thus a comprehensive

legislation which replaces

the rights of parties either

under

the

p'.)licy of insurance against insurance crim.

panies, or on the ground of negligence against Govern­

ment

by the owners of the goods, as also claims by

insurance companies against Government. The validity

of this legislation is not challenged.

Section 18 gives

it a retrospective effect. Therefore the Ordinance only

ill 118801 5 App. Cas. 25.

S.C.R. SUPREME COURT REPORTS 995

substitutes a new basis for assessing compensation for 19~0

the ordinary basis for assessing unliquidated damages.

Pannaltil

The compensation under the Ordinance is payable on lankida•

proof of the existence of a fire insurance policy irre- v.

spective of the terms of the policy. The non recovery Mohan/al a•d

of half the amount of the respondents' claim from the Another.

Government under the Ordinance because of the absence

of a

fire insurance policy, thus directly arises from the

Kania

0

· J.

neglect of the appellants to insure the goods, as they

had been instructed to do or agreed to do and which in

fact they represented that they had done. In our

opinion, these are not indirect or remote damages.

The contention that under the policy

of insurance

the assured could not have recovered anything for loss

caused by the

fire due to explosion cannot be accepted.

Firstly, this contention

of the assured's inability

to

receive any compensation because of clause 7 of the

form of common policy was not raised in the trial court.

No issue was raised in respect thereof and no arguments

in support or against

it were heard. It was suggested

for the first time, as appears from the judgment of

Chagla J., in the court of appeal. The assumption

that because of clause 7 of the policy no insurance

company would have paid the

Joss cannot be assumed

to be necessarily and unquestionably sound and

in

view of

tbe terms of the Ordinance not capable of

being determined. There appears no reason under the

circumstances to proceed as

if an ad verse decision on

the

interpretation of the policy had been given against

the respondents and to hold the appellants free from

liability for not recovering half the value of the goods

which could have been recovered

if the goods had been

insured (irrespective of the terms on which the policy

stood) as agreed to be done by them. I

do not think

when the relations between the parties are of a princi.

pal

and an agent and the agent is found to have

com­

mitted a breach of his duty, it is correct to take a

narrow view of the situation. The agent chose to

gamble in not insuring the goods

and desired to charge

the agreed premia, on the footing that the goods were

covered

by insurance. If so, he must take the

19~0

Pa.11.ti-ilal

Jankidas

v.

;oha>ilal and

An.other,

Kania 0. J.

996 SUPREME COURT REPORTS (1950)

consequences of his default. The argument that their

liability as an agent who had agreed to insure should

be ascertained as on

the date of the

explo5ion is no

answer to the claim of the respondents. The position

would be this. Assuming

that the appellants had

insured the goods on the terms of the usual fire

insurance policy,

the respondents could ask them

either to assign the policy to the respondents or to

file a

suit against the insurance company contending

that the fire, and not the explosion, was the cause of

the loss

and was covered

by the policy of insurance.

Before

the

Court could decide the rights of the parties,

the Ordinance promulgated by the Governor-General

prevented

the decision of the dispute, but the Govern­

ment undertook to

pay the loss on the footing that the

policy covered the risk. The misconduct gave rise to

the liability to

make good the damage and to put the

respondents in the same position in which they would

have been if

their goods had beeen insured.

On behalf of the appellants it was urged that because

of

the Government intervention in issuing the

Ordin­

ance they were sought to be made liable under a new

liability. Their liability has been

and exists on the

basis

that a fire insurance policy existed, as they were

instructed to insure

the

goods and which they repre­

sented they had done. The liability arises not because

of the Ordinance but because of the breach of their

duty in failing to insure, which has taken place apart

from the Ordinance and which is not affected by the

Ordinance. The utmost that they could urge is that

the extent of their liability arising from their miscon­

duct was not anticipated

by them when they agreed to

perform their

duty. That however is no defence in law

if

the damages directly flow from the breach of duty.

The

Ordinance only quantifies the damages instead of

leaving the unliquidated damages to be assessed in

the

usual way. The

Ordinance Jays down the yard.

stick for fixing the damages under different circum­

stances, which cover all alternative situations,

and the

liability for failure to insure must now be

me~sured

by the new basis. It does not create any new liability.

S.C.R. SUPREME COURT REPORTS 997

The appellants' contention on this point therefore must

be rejected.

The only other point urged before us was based

on the construction of sect ion

J 8 of the Ordinance.

It was argued on behalf of the appellants that

apart from what could be recovered under clause

(!) of section 18, the Ordinance extinguished all

right, whether in contract

or tort or otherwise,

to any compensation or damage for

loss of any property

due to, or in any way arising out of, the explosion and

provided

that no suit or other legal proceedings for

any such compensation or damages shall, save as

aforesaid, be maintainable in any court against the

Crown or against any other person whatsoever. It was

urged that in establishing their claim, the respondents

must plead the right to recover the amount due to

explosion

and that was barred under section 18 (2).

In our opinion, this contention is unsound. The

ap­

pellants have filed this suit to recover the price of the

goods on the ground of indemnity. The respondents'

answer

is that the appellants are not entitled to the

indemnity because they are guilty of a breach of

duty

in the business of the agency. They contend that they

would be liable to pay for the goods only

if the

appel­

lants give them the goods or deliver the same according

to their instructions. They counterclaim

that if the

appellants are unable

to give them the goods, they must

pay them the value thereof. The appellants plead by

way of defence to the counterclaim

that the goods

were destroyed without any neglect on their

part by

fire caused by the explosion and therefore they were

not liable. The respondents' rejoinder is

that they

had asked the appellants to insure the goods and if the

appellants had not failed

in their duty they would have

reimbursed the respondents. The appellants then plead

that even if they had insured the goods the respondents

could not have recovered anything from the insurance

companies.

It is in reply to this contention that the

respondents say that the appellants' liability to

recover money from the insurance company on the

terms

of

the usual fire insurance policy is irrelevant

1950

Panna1al

Jankidaa

v.

Afohanlal and

Another.

Kania C. J.

19M

Pa11nalal

Jankidas

v.

Mohatilal and

Another.

Kania C. J.

Pata,,,jali

Sa.striJ.

998 SUPREME COURT REPORTS [1950]

because they could have recovered the money if they

had insured in fact, irrespective of the terms of the

policy, under the Ordinance. The respondents are not

thus claiming to recover money from the appellants

otherwise

than under section 18 (1) of the Ordinance.

Their cause of action is the misconduct

of the agent in

the business of agency

and is quite different. It is not

for compensation arising from explosion.

It was argued that damages formed part of the

cause of action of the respondents in framing

the

counterclaim and therefore section 18 (2) stood in the

way

of the respondents. The contention is unsound

because

the cause of action is completed by the aver.

ment that there was a duty or agreement to insure,

that there was a failure to perform that duty, that loss

had occasioned to the respondents because of the

failure to perform the duty and the appellants were

therefore liable for

the breach of the duty. The

quantum of damages is not a part of the cause of action.

It is a matter to be ascertained by the court according

to well

laid down principles of law.

The result is

that the appeal fails and is dismissed

with costs.

PATANJALI

SASTRI J.-I regret I am unable to agree

with the judgment just delivered by my Lord which I

have

had an opportunity of reading. As the facts of

the case have been fully stated in that judgment it is

unnecessary to re-state them here.

The main question arising for determination is what

damages are the appellants liable to

pay to the

res­

pondents for their failure to insure the respondents'

goods which were destroyed by fire caused by the big

explosions which occurred in the Bombay Docks on

14th April, 1944? The goods

had been purchased by

the appellants in Bombay as the commission agents of

the respondents and were left in their godowns pend.

ing

their despatch to the respondents' place of

busi­

ness. It was found by the appellate bench of the

Court below that the appellants had agreed to keep

the goods insured against fire while in their custody

..

..,

S.C.R. SUPREME COURT REPORTS 999

and had debited the respondents in their books with

the insurance charges. A suggestion was made in the

course

of the arguments before us that the appellants

agreed

to be the insurers themselves, but the findings

of the appellate bench leave no room for doubt that

all that the appellants agreed to do was to procure a

policy of fire insurance in the ordinary or common

form

and subject to the conditions usually stipulated

in

that form of policy. This is also made clear by the

concession of the respondents' counsel in the court

below

that

"he was only relying on the agreement to

the

extent that the insurance was to be effected

against

fire on an ordinary fire insurance policy". It

is common ground that one of the general conditions

in

that form of policy is that

"it does not cover" among

others

any loss or damage occasioned by or through or

in consequence

of

explosion". Relying on that con­

dition,

it was contended for the appellants that even

if they

had effected an insurance on the goods accord­

ing to the agreement, the loss of the goods

by fire

caused

by the explosion would have been an excluded

loss for which no damages could have been claimed

from the insurer and that, therefore, the respondents

would not be entitled to recover from the appellants

anything more

than nominal damages for failure to

insure. This contention must, in my opinion, prevail.

As pointed

out by Mr. Mayne in his Treatise on

Damages (p.

591, 11th Edition)

"When the agent can

show

that under no circumstances could any benefit to

the principal have followed from obedience to his

orders, and therefore

that disobedience to them has

produced

no real injury, the action will fail. There

fore, if an agent is ordered to procure a pol icy

of

insurance for his principal, and neglects to do it, and

yet the policy, if procured, would not have entitled

the principal, in the events which have happened, to

recover the loss or damage,

the agent may avail him­

self of

that as a complete

defence."

A complication, however, is introduced by an

Ordinance promulgated by the Governor·General

known as the Bombay Explosion (Compensation)

1950

Pannalal

Jankidal

v,

Mohanlal and

Another.

Jlatan.;'ati

Sastrl J.

1950

Pannalal

Jank,das

v.

Mohan.la! and

Anolhar.

Patanjalt

Sastri J,

1000 SUPREME COURT REPORTS [1950]

Ordinance (No. 32

of 1944) which came into force on

1st

July, 1944. The preamble states

"Whereas an

emergency has arisen which makes

it necessary to

provide for and regulate the payment of compensation

for

......... damage to property due to, or arising out of,

the explosions and fires which occurred in the Bombay

Docks on 14th April, 1944, to restrict litigation in

con­

nection with the said explosions ...... ". By section 2

"the explosion" is defined as meaning "the explosions

which occurred in the Bombay Docks on 14th April,

1944, and the fires which ensued therefrom." An "ex­

plosion damage" is defined as "damage which occurred,

whether accidentally

er not, as the direct result of

the explosion ...

" "Uninsured property" means "pro­

perty which was not covered whether wholly or parti­

ally by any policy of fire, marine or miscellaneous

insurance

at the time of the

explosion." Section 14.

so far as

it is material here, provides that

"there shall

be

paid by the

Central Government compensation for ex­

plosion damage to property, being damage cau,ed by fire

to property insured whether wholly or partially at the

time of the explosion against fire under a policy cover­

ing fire risk ... of an amount equal to the proved loss."

Section 15 provides for contribution to Government by

insurance companies. Section 16 provides for compen.

sation for such damage to uninsured

property on a

certain scale mentioned in

that section. Section

ltl(2)

enacts, subject to certain exceptions not material here,

"no person shall have, or be deemed ever to have had,

otherwise

than under this Ordinance any right,

whether

in contract or in tort or otherwise to any compensation

or damages for

any ... or damages to or loss of any pro­

perty, rights or interests. due 1o or in any way arising

out of the explosion; and no suit or other legal

proceed­

ings for any such compensation or damages shall, save

as aforesaid. be maintainable in

any court against the Crown ... or against any servants or agents of the Crown

.... or against any other person whomsoever; and no act

or omission which caused or contributed to the explo­

sion shall be deemed to have been done or omitted to

be done otherwise than lawfully."

..

...

S.C.R. SUPREME COURT REPORTS 1001

It is admitted that the appellants recovered from the

Central Government under section 16 nearly one-half

of the value

of the goods destroyed by fire while in

their custody as compensation

for the loss of the res­

pondents' goods and have given credit to

the

respondents in their accounts for the amount thus

received. The dispute

now relates to the respondents'

claim to the balance of

the value of the goods as

damages for the appellants' failure to keep them

insured according to the agreement between the parties

as the full value

of the goods could have been obtained

from the Government under section

14 without regard

to any excepted risk

if only they bad been insured

against fire.The scheme of the Ordinance appears to be

that the Government, instead of having probably to

fight out numerous law suits for compensation

for loss

or damage to property based upon alleged negligence

of their officers in having allowed the explosion to take

place, undertook to pay an amount equal to the

"proved

loss" in cases of loss or cfamage to goods which had

been insured against

fire,

etc. and smaller amounts for

loss or damage to uninsured goods, putting an end,

at

the same time, to all rights to compensation or damages

arising out of the explosion, and barring all suits or

legal proceedings for the same. On the basis of these provisions it was contended

on behalf of the respondents that the appellants, by

reason of their failure to keep the goods insured,

were liable under the law to place the respondents,

who

had suffered the loss, in the same position as if the

appellants had performed their agreement or carried

out the instructions

of the respondents. Learned

coun·

sel for the respondents based the claim on the neglect

of duty on the part

of the appellants as commission

agents in carrying out the instructions of their princi­

pals, and relied on the provisions of section 212

of the

Indian

Contract Act, which provides, inter alia, that

an agent is bound "to make compensation to his

principal

in respect of the direct consequence of his

own neglect, want of skill or misconduct,

but not in res­

pect

of

loss or damage which are indirectly or remotely

!2@

1950

Paanalal

Ja11kidas

v,

Mohanlal and

Another,

Patanjali

Bastri J,

1950

Pannalal

Jankida&

v.

!tlohanlal anti

Another.

Patat'l.jal1

Sastri

J.

1002 SUPREME COURT REPORTS [1950)

caused by such neglect, want of skill or miscon­

duct." On the other hand, it was urged on behalf of

the appellants

that the question had to be determined

on the basis of a breach of contract for the consequences

of which provision

is made in section 73 of the Indian

Contract Act. That section says that "when a contract

has been broken,

the party who suffers by such breach

is

entitled to receive, from the party who has

broken

the contract, compensation for any loss or

damage caused to him thereby, which

naturally arose

in

the usual course of things from such breach, or which

the parties knew, when they

made the contract, to be

likely to result from the breach

of it.

Such compensation

is not

to be given for any remote or indirect loss or

damage sustained by reason of the

breach." I <lo not

think that it makes much difference, so far as the

assessment of general damages is concerned, whether

the default of

the appellants is treated as a breach of

contract between two contracting parties or a neglect of

duty by agents in failing to carry out the instructions

of their principal. Although the Indian

Contract Act

makes separate provisions for the consequences in each

case,

the rule laid down as to measure of damages is the

same, namely, the party in breach must make compen­

sation in respect

of the direct consequences flowing

from the breach

and not in respect of loss or damage

indirectly or remotely caused, which is also the rule in

English common law. The rule is

based on the broad

principle of restitutio in integrum, that is to say,

that the party who has suffered the loss should be

placed in

the same position, as far as compensation in

money can do

it, as if the party in breach had

per­

formed his contract or fulfilled his duty. That principle

was once carried to its

utmost logical, if grotesque,

result as in an old English case to which Willes

J.

referred in British

Columbia Saw.Mill Co. v. N ettte­

ship(1) : "Where a man goir.g to be married to an

heiress, his horse having cast a shoe on the journey,

employed a blacksmith who

did the work so unskilfully

that the horse was lamed, and the rider not having

111 L. R, 3 C.P. 4,9, 6:6. ..

·'

..

S.C.R. SUPREME COURT REPORTS 1003

arrived in time the lady married another ; and the

blacksmith was held liable

for the loss of the

marriage."

And the learned Judge warned " We should inevitably

fall into a similar absurdity unless

we applied the rules

of commonsense to restrict the extent of liability for

the breach

of a contract of this

sort." The common·

sense point of view was thus put by Lord Wright in

Liesbosch, Dredger v. Edison S. S. (Owners) (

1

) : "The

Jaw cannot take account of everything that follows a

wrongful

act; it regards some subsequent matters as

outside the scope

of its selection because 'it were

infinite for the law

to judge the cause of causes,' or

consequence

of consequences. Thus the loss of a ship

by collision due to the other vessel's sole fault

may

force the shipowner into bankruptcy and that again

may involve his family in suffering, loss of education or

opportunities in life,

but no such Joss could be recovered

from the wrongdoer.

In the varied web of affairs the

law must abstract some consequences as relevant, not

perhaps on grounds

of pure logic but simply for

practical

reasons." These considerations have led· the

courts to evolve the qualifying rules

of remoteness

subject to which alone the broad principle

of restitutio

in integrum now finds its application.

Applying these principles to the facts

of the present

case, what

is the position? The respondents lost their

goods

by fires arising out of the explosion presumably

due to the negligent conduct

of the Government's

officers or servants at the docks. Even if the appellants

had taken out a

fire insurance policy in ordinary form

it would not have covered the loss, for fire due tc

explosion would be an excepted peril.

So, the appellants'

failure keep the goods insured produced

no direct

consequence

for which damages could in law be claimed.

It is true enough to say that if the appellants had

taken out a

fire policy covering the goods, the

respondents could have obtained the full value of the

goods from the Government.

But did the respondents'

inability to recover such full value from the

Govern­

ment arise directly or naturally in the usual course

ii I [1933] A.C. 449.

1960

Pannalal

Janhtdas

v.

Moha.nlal tnid

Another.

Pata,~iali

Sastri J.

1950

Pannalal

Jankidaa

••

Mohanlal and Another.

Patan.jali

Sa~tri J,

1004 SUPREME COURT REPORTS [1950]

of things out of the appellants' failure to insure?

I

think not, since independent and disconnected

events had

to occur to produce the result, viz., the

Government's scheme of compensation embodied in the

Ordinance, the agreement with the Insurance Com­

panies regarding their contribution, and the consequent

distinction made between insured

and uninsured pro­

perty in providing compensation for their loss.

Suppose the fire was caused

by an explosion due to

the negligence of a private individual. The respond­

ents would have

their remedy by suing him for

damages.

But if he was insolvent, could the

respond­

ents' inability to recover damages from him be.a direct

and

natural consequence of the appellants' failure to

insure? Surely not, for even if the appellants had in­

sured the goods according to

their agreement with the

respondents,

the latter would be in no better position.

Here,

the Government, presumably being satisfied, or

at any rate apprehending, that the explosion was due

to

the negligence of their servants, got the

Ordinance

passed providing for payment of compensation by the

Government on the

terms stated therein and at the

same time putting an end to all rights to recover

com­

pensation save as provided in the Ordinance and

barring all smts and other proceedings for that pur­

pose. As any claim to compensation against the

Government

must be based upon the negligence of

their servants,

the Government took no note of excepted

risks in insurance policies and undertook

liability to

pay full compensation in case of all insured property,

doubtless because, under

an arrangement with certain

Insurance

Companies the Government obtained a pro­

portionate contribution as

provided for in section 15,

though on the hypothesis of their servants' negligence

their liability in law would be the same in respect of

insured and uninsured property. If the

Ordinance

had provided for partial compensation in both cases,

as

it would probably have done if the Insurance

Companies

had not agreed to come into the scheme

with their contributions, the respondents could have

no claim to recover

the balance from the appellants,

..

S.C.R. SUPREME COURT REPORTS 1005

notwithstanding that the supposed direct causal con­

nection between the appellants' default

and the

respondents' loss would still be there. The

truth is

there was no such connection and it was because of

the provisions of the

Ordinance which made a distinc­

tion between insured

and uninsured property in the

matter

of compensation for explosion damage, and

barred rights and remedies under the general law in

relation thereto,

that the respondents were unable to

recover the balance

of the value of their goods des.

troyed by

fire. But such inability cannot be regarded

as flowing naturally or directly from the appellants'

default.

It was suggested that the provisions of the

Ordi­

nance must be taken to have displaced the ordinary

rules oflaw

as to remoteness of damage, as section 18 (2)

extinguished, retrospectively from the date of the

explosion, all rights and remedies under the general

law for obtaining compensation for explosion damage

and substituted the rights therein provided. The sub­

stituted right to compensation, so far as the

Govern­

ment and insured property were concerned, was not

subject to any restrictive conditions in the policies, and

therefore, it was claimed, the measure of damages

in

this case must be

determinec1 irrespectively of the

existence

of the clause excluding

"explosion" from the

scope of the common form of policy. The argument

is,

in my opinion, more ingenious than sound. The

short answer to it

is that the

Ordinance did not pur­

port to displace or supersede any rule of law

as to

mea­

sure of damages or to amend or abrogate any terms in

insurance policies. There is nothing in the Ordinance

to indicate that the clause excepting explosion con_

tained in the fire insurance policies issued in Bombay

should be deemed to be null

and void. As already

stated, the Government, having accepted liability

for

explosion damage, were not really concerned with the

restrictive conditions in

the policies. Their liability

did not arise out of such policies.

In view of certain

Insurance

Companies having agreed to contribute acer­

tain proportion, the Government undertuok liability

1950

Pannalal

Jank1das

v.

!l'fohanlal and

Another,

Patanjali

Sastrt J,

1950

Pannaral

Jankidas

v.

Mohanlal aiid

Another.

Patanja($

Sastri

J.

t006 SUPREME COURT REPORTS (1950)

to pay full compensation for loss of insured pro.

perty regardless of the terms

of insurance, which had

no relevance to the liability which

they assumed. To

suggest, in such circumstances,

that the clause

except­

ing explosion risk in all fire policies issued in common

form in Bombay was legislatively abrogated is, in my

opinion, extravagant and far-fetched. The respondents'

goods were destroyed when the explosion occurred

on

the 14th April, 1944, and on that date they

could have recovered nothing except perhaps

nominal damages for the appellants' failure to insure

the goods as they agreed to do.

It is difficult

to see how by virtue of

the

Ordinance passed

more

than two months later, their claim against the

appellants, which the respondents themselves

are

con­

tending is not in any way affected ··by the provisions

of

the

Ordinance, could become enlarged.

The next contention raised on behalf of

the

apel­

lants before us relates to the maintainability of the

respondents' counter-claim. The contention is based

upon section 18 (2) of the Ordinance which provides

that "no suit or other ;legal proceedings for any such

compensation or damages" (i.e., compensation or

damages for any damage to or loss of

any property,

rights or interests due to or in any way arising out

of

the explosion)

"shall, save as aforesaid" (exceptions

not material here) "be maintainable in any court

against the Crown ......... or against any other person

whomsoever

......

". The learned Chief Justice in the

Court below makes no reference in his judgment to

this contention,

but

Chagla J. repelled it thus . "Now,

in my opinion, the defendants' claim does not arise

out of the explosion nor is it in any way due to the

explosion. The plaintiffs have filed the suit as agents

on an indemnity

and the defendants' answer is that

they were entitled to set off against the amounts due

to the plaintiffs, the loss incurred

by them by reason

of the fact

that the plaintiffs as the defendants' agents

did not carry out the defendants' instructions.

If the

plaintiffs' claim on the indemnity does not arise out

of the explosion equally so does the defendants' set-

-

S.C.R. SUPREME COURT REPORTS 1007

off not so arise. The defendants' cause of action is

failure by the plaintiffs to carry out their instructions

and

that cause of action has nothing whatever to do

with the

explosion". With all respect I find it difficult

to

follow this reasoning. The appellants' claim on

the indemnity

does not certainly arise out of the explo­

sion, for their case

is that they purchased the goods in

question paying the price on the respondents' instruc­

tions, and they claim to recover the price

so paid not­

withstanding the destruction of the goods by

fire for

which they say they

were in no way responsible. But

the basis of the respondents' counter-claim is quite

different. They say

that if the appellants had kept

the goods insured according to the agreement, they

(the respondents) could have recovered the full value

of the goods from the Government under section 14 of

the Ordinance, and the appellants, having failed to

do so, are liable to pay by way of damages the balance

of the value of the goods.

It is a little difficult to see

how it could be said that the respondents' claim

"does

not arise out of the explosion nor is it in any way due

to the explosion". The bar under section 18 is not

based upon the nature of the cause of action for the suit

or proceeding barred,

but upon the damage or loss of

property having been

"due to or in any way arising out

of" the explosion. Indeed, the respondents appear to

my mind to

be in a dilemma in regard to this point.

They must necessarily say, in order to have been able

to claim the full value of the goods from the

Govern­

ment if they had been insured, that the damage to .the

goods was "explosion damage to property, being

damage caused by

fire to property insured whether

wholly or partially

at the time of the explosion against

fire under a policy covering fire

"risk". For, unless

they said that,

no claim could be made against the

Government under section

14, and so the very basis of

their claim against the appellants that, but for the

appellants' neglect of duty, the respondents could have

recovered the full value of the goods from the Govern­

ment, would fail.

But if they had to say that the goods

were

lost by

explosion damage within the meaning

1950

Pannalal

Jankidas

v.

ll1ohanlal a11d

Another.

Patanjali

Sastri J.

1950

Patntalal

Jankid-:u

v,

Mohanlal and

Another,

Pata1tjali

S11stri J.

!950

Deo, 21.

1008 SUPREME COURT REPORTS [1950]

of section 14, it seems to me, they would be bringing

themselves under

the bar of section 18 (2). The

respondents cannot therefore claim

that the loss of the

goods was explosion damage within the meaning of

the

Ordinance so as to bring the case within section 14 and

at the same time contend that the loss was not "due

to or did not in any way arise ont of the explosion" in

order to a void the

bar under section 18. Both sec­

tion

14 and section

18 have in view the physical cause

for the loss or damage to property for which compen­

sation is claimed

and not the cause of action in

rela­

tion to the person against whom relief is sought. The

respondents cannot, in

my opinion, be allowed to take

up inconsistent positions in order to bring themselves

within

the one and to get out of the other.

I would therefore allow the appeal and dismiss the

counter-claim.

DAS J. agreed with the

Chief Justice.

Appeal dismissed.

Agent for the appellants: Mohan Behari Lal.

Agent for the respondents : I. N. Shroff.

COMMISSIONER OF INCOME-TAX,

WEST BENGAL

v.

CALCUTTA AGENCY LTD.

[SHRI HARILAL KANIA CJ., PATANJAL! SASTRI

and DAS JJ.]

fo·li.tn Income-tax Act (XI of 1922), ss. 10 (2) (xv), 66-Refer­

ence-Jwrisdiction of High Ooilf·t-Duty to decide case ori facts

stated by

Tribuna.l-Accepting

arauments of CO'ltnsel as proved fa.cts

and basing decision on them, impropriety of-Business expenditnre­

Payments to avoid disclosure of misfeasance of director.~-Burden of

prcof.

The jurisdiction of the High Court in the matter of income­

tax references is an advisory jurisdiction and under the Inco:ne­

tax Act the decision

of the Appellate Tribunal on

facts is final

unless it can be successfully assailed on the ground tha~ there was

,_