Trojan and Co. Ltd. v. Rm. N.N. Nagappa Chettiar
Supreme Court of India, 20 March 1953, 2 judges, 1953 AIR 235; 1953 SCR 780
Where shares are bought under a fraud, damages are the difference between the price paid and the real value of the shares on the date of purchase; a court cannot grant relief on a case not pleaded.
Facts
The respondent, a young speculator, was a constituent of the appellant stock-broking firm. On 5 April 1937 its partner, after learning by telephone that a sharp fall in Indian Iron shares was likely because the Calcutta Stock Exchange might close, sold him shares at Rs. 77 and Rs. 77-4-0 without disclosing that the partner owned them or that a slump was expected. The Exchange resolved on 6 April to close on 8 and 9 April, and prices collapsed. The respondent sold 3,000 of the shares on 20 and 22 April at Rs. 42-8-0 to Rs. 47-4-0. A finding of fraud against the firm had become final in earlier proceedings. In his suit the Madras High Court measured damages by the difference between the purchase price and the resale prices, and also decreed a sum credited for Associated Cement shares on a ground not pleaded.
Questions before the Court
- What is the measure of damages where a person is induced by fraud to buy shares?
- Could the plaintiff be given a decree on the ground of failure of consideration, which he had not pleaded?
- Is interest payable on damages for fraud, and for the period when a decree stood satisfied?
What the Court held
- Damages for fraud give reparation for the natural and direct consequences of the wrong. Absent special circumstances, the measure is not the loss ultimately sustained but the difference between the price paid and the real value of what was received, that is, what the buyer would have got by reselling forthwith in a fair market.
- Ordinarily the market rate on the date of the fraud is the real value. Where the market is vitiated or in panic because of the very fact concealed, real value is fixed from all the circumstances. Resale prices on different dates could not show value on 5 April; the Court fixed it at Rs. 46, awarding Rs. 31 a share.
- A decision cannot rest on grounds outside the pleadings; it is the case pleaded that must be found. Without an amendment the court could not grant relief for the Associated Cement shares on failure of consideration, and that decree was set aside.
- Money obtained or retained by fraud can be recovered with interest, so interest from 5 April 1937 was rightly allowed. No future interest was payable for the period when the defendants had paid the decretal amount to the Official Assignee. The appeal was allowed in part.
Why it matters
The judgment states the measure of damages for deceit in the sale of shares: the difference between the price paid and the real value of the shares at the date of the transaction, with the market rate as the usual guide unless the market is itself distorted by the concealed fact. It also restates the rule that a court cannot decide a case on grounds outside the pleadings.
In the Court's words
Copied from the official judgment; each passage links to its page.
“Now the rule is well settled that damages due either for breach of contract or for tort are damages which, so far as money can compensate, will give the injured party reparation for the wrongful act and for all the natural and direct consequences of the wrongful act. Difficulty however arises in measuring the amount of this money compensation. A general principle cannot be laid down for measuring it, and every case must to some extent depend upon its own circumstance.”
“Ordinarily the market rate of the shares on the date when the fraud wag practised would represent their real price in the absence of any other circumstance. If, however, the market was vitiated or was in a state of flux or panic in consequence of the very fact that was fraudulently concealed,”
“It is well settled that the decision of a case cannot be based on grounds outside the pleadings of the parties and it is the case pleaded that has to be found. Without an amendment of the plaint the court was not entitled to grant the relief not asked for and no prayer was ever made to amend the plaint so as to incorporate in it an alternative case.”
Case and bench
- Parties
- Trojan & Co. Ltd. v. Rm. N. N. Nagappa Chettiar
- Case
- Civil Appeal No. 139 of 1962 (as printed in the file)
- Decided
- 20 March 1953
- Bench
- Mahajan, Mehr Chand, Das, Sudhi Ranjan
- Opinions
- The judgment of the Court was delivered by Mahajan, J. No separate opinion appears in the file.
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