1953 (3) TMI 37 - SC - Indian Laws

Summary

Issues Involved:
1. Fraud by the defendants in the sale of Indian Iron shares.
2. Unauthorized transaction in Associated Cements shares.
3. Measure of damages for the fraudulent transaction.
4. Interest on damages awarded.

Detailed Analysis:

1. Fraud by the defendants in the sale of Indian Iron shares:
The plaintiff, a young man, engaged in speculative transactions through the defendant firm and others. He purchased 5,000 Indian Iron shares based on a suggestion from his stockbroker, Annamalai Chettiar, who failed to disclose that the shares belonged to him and that there was a likelihood of a market slump due to the impending closure of the Calcutta Stock Exchange. This concealment was deemed fraudulent. The plaintiff suffered significant losses when the market prices fell drastically, leading to a heavy debt and subsequent insolvency proceedings.

2. Unauthorized transaction in Associated Cements shares:
The plaintiff sold 250 shares of Associated Cements without owning them, necessitating a "cover the sales" transaction. The defendants purchased shares on the plaintiff's behalf after the commencement of insolvency, which the plaintiff claimed was unauthorized and contrary to instructions. The court found that the claim for damages based on unauthorized transactions was abandoned, and the plaintiff was not entitled to relief on this ground.

3. Measure of damages for the fraudulent transaction:
The core issue was the quantum of damages for the fraudulent sale of Indian Iron shares. The plaintiff argued for damages based on the difference between the purchase price and the eventual sale price. The court held that damages should be the difference between the purchase price and the real value of the shares at the time of the transaction. The court determined that the market was affected by the impending closure of the Stock Exchange and that the true value of the shares was Rs. 46 per share. The plaintiff was entitled to damages calculated as the difference between the purchase price (Rs. 77 per share) and the true value (Rs. 46 per share), totaling Rs. 93,000 for 3,000 shares.

4. Interest on damages awarded:
The court awarded interest on the damages from 5th April 1937 until payment or realization, excluding a period of one year and six months when the decree stood satisfied. The court held that interest is allowed in cases of money obtained or retained by fraud. The defendants had paid the decretal amount to the Official Assignee, and during this period, no future interest was payable as the decree was considered satisfied.

Conclusion:
The Supreme Court modified the High Court's decree, reducing the damages awarded to the plaintiff to Rs. 42,175, with interest at six percent per annum from 5th April 1937 until payment or realization, excluding the specified period. The plaintiff was awarded proportionate costs throughout. The appeal was allowed in part.