1962 (3) TMI 77 - SC - Indian Laws

Supreme Court Affirms High Court Decree on Managing Agency Agreement Interpretation

SIR CHUNILAL Versus MEHTA AND SONS, LTD. Versus THE CENTURY SPINNING AND MANUFACTURING CO., LTD.

The Supreme Court affirmed the High Court's decree, dismissing the appeal with costs. The court held that the managing agency agreement's Clause 14 ... Whether the question of construction to be Placed upon a decree was a substantial question of law? Held that:- 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. Applying the 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. 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 ₹ 6,000 p.m. Apparently, they thought it desirable to emphasise the point that the amount of ₹ 6,000 p.m. was regarded by' them as reasonable and intended that it should not be reduced by the court in its discretion. When the remuneration and salary were equated in el. 12 nothing else was meant but ₹ 6,000/-and when the word salary was used in el. 14 we have no doubt that only that amount was meant and no other. It may be that under el. 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 ₹ 6,000/-and could be characterized properly as additional remuneration and not fixed or normal remuneration which alone was apparently in the minds of the parties when they drew up el. 14. In our opinion, therefore, the High Court was right in the construction placed by it upon the clause. Appeal dismissed. Issues Involved:1. Interpretation of clauses in the managing agency agreement.2. Substantial question of law under Article 133(1)(a) of the Constitution.3. Entitlement to compensation or liquidated damages for wrongful termination of the managing agency agreement.Detailed Analysis:1. Interpretation of Clauses in the Managing Agency Agreement:The core issue in this case revolves around the interpretation of Clause 14 in the managing agency agreement. The appellant argued that Clause 14 entitled them to compensation based on the total estimated remuneration under Clause 10, which included 10% of the company's profits subject to a minimum of Rs. 6,000 per month. Alternatively, they contended that Clause 14 did not exhaust their right to compensation and that they should also be entitled to damages based on contingent remuneration.The court, however, found that Clause 14 was clear in specifying the compensation amount as the aggregate of the monthly salary of not less than Rs. 6,000 for the unexpired portion of the term. The court emphasized that when parties name a sum of money as liquidated damages, they exclude the right to claim an unascertained sum of money as damages. The words 'not less than' in Clause 14 were intended to emphasize that the compensation should not be less than Rs. 6,000 per month, but did not bring in Clause 10's provisions for additional remuneration based on profits.The court also rejected the alternative argument, stating that Clause 14, by providing for compensation in express terms, excluded the right to claim damages under general law. Therefore, the appellant's claim for additional compensation based on 10% of the profits was not upheld.2. Substantial Question of Law under Article 133(1)(a) of the Constitution:The appellant challenged the High Court's refusal to grant a certificate under Article 133(1)(a) of the Constitution, arguing that the interpretation of the managing agency agreement raised a substantial question of law. The court examined the criteria for determining what constitutes a substantial question of law. It referred to the Privy Council's decision in Raghunath Prasad Singh v. Deputy Commissioner of Partabgarh, which clarified that a substantial question of law is one that affects the rights of the parties involved and is not necessarily of general public importance.The court concluded that the interpretation of the managing agency agreement indeed raised a substantial question of law, as it directly affected the rights of the parties and was neither simple nor free from doubt. Therefore, the High Court was in error in refusing to grant the certificate.3. Entitlement to Compensation or Liquidated Damages for Wrongful Termination:The appellant's managing agency agreement was wrongfully terminated by the respondent company, and the only issue before the trial judge was the quantum of damages. The trial judge awarded a sum of Rs. 2,34,000, calculating the amount at Rs. 6,000 per month for the unexpired period of the agreement. The appellant contended that they were entitled to compensation based on the total estimated remuneration, including 10% of the company's profits.The court, however, upheld the interpretation that the compensation was limited to Rs. 6,000 per month as specified in Clause 14. It reasoned that the parties had provided for the precise amount of damages in the agreement, and there was no basis for claiming additional compensation based on profits. The court also noted that Clause 14 excluded the right to claim damages under general law, and therefore, the appellant's alternative argument was without substance.Conclusion:The Supreme Court affirmed the High Court's decree and dismissed the appeal with costs, concluding that the interpretation of Clause 14 was correct and that the appellant was not entitled to additional compensation based on the company's profits. The court also clarified the criteria for determining a substantial question of law under Article 133(1)(a) of the Constitution.