Holding

The Supreme Court held that the admission of delivery of goods and receipt of cheques creates a presumption of a contract between the parties, shifting the burden to the defendant to disprove privity, and the defendant's failure to produce its account books gave rise to a presumption against it, thereby restoring the trial court decree.

Summary

K.M. Patel sued the firm of Mohamad Hussain for the price of 225 bags of tobacco that he had delivered to the firm, alleging that the firm had placed an order with him and later issued four cheques which were dishonoured. The defendant denied any contract, claiming the goods were ordered from another firm (R.K. Patel) and that the cheques were issued on its behalf for a different transaction. The trial court found a contract existed based on the delivery and cheques, but the Gujarat High Court reversed that decision, holding the plaintiff had not proved privity and that the defendant’s failure to produce its account books was not fatal. The Supreme Court held that delivery of goods and receipt of cheques creates a presumption of a contract, shifting the burden to the defendant to disprove privity, and that the defendant’s refusal to produce its books amounted to a presumption against it. Consequently, the Supreme Court restored the trial court decree in favour of the plaintiff.

Issues considered

Whether a contract of sale and privity of contract existed between the plaintiff and the defendant despite the absence of a written agreement.
Who bears the burden of proof to establish the existence of privity of contract in such circumstances.
Whether the defendant's failure to produce its own account books and those of R.K. Patel constitutes a presumption against it.
Whether the plaintiff's evidence of delivery and cheques is sufficient to infer a contract.

Subjects

privity of contractcontract of saleburden of proofbest evidence rulepresumptionaccount bookschequessupply of goods

Judgment

22

.A KUSHALBHAI MAHOJIBHAI PATEL
v.
A FIRM OF MOHMADHUSSAIN RAHIMBUX
March 11, 1980
B [S. MURTAZA FAZAL ALI AND A. D. KOSHAL, JJ.]

Prlvity of Contract-Supply made by appellant Plaintiff to respondent de}eti·
dant of 268 Bengali Maunds of Tobacco and accepted by the larrer-Pour
cheques issued by the latter covering th£ value bumped-No document was
executed to evidence the contract-Whether suit for recovery of n1oney is main·
tainable, for want of privity of contract ?-Onus of proof is on the defendant
in such cases by producing best evidence like Books of Accounts.

In the money suit filed by the appellant-plaintiff to recover the value of
tobacoo, sold to respondent-defendant after the four cheques covering the· value
of tobacco and issued by latter bumpe<l, the defendant took a plea of non-
existence of privity of contract and while admitting both the receipt of the
tobacco from and issuance of cheques to plaintiff, explained the tobacco bad
been supplied to defendant by the plaintiff at the instaru:e of another Firm
R. K. Patel with whom the defendant had placed the order for the supply
of the tobacco and, that the four cheques were issued in favour of plainlllf
at the instance of Firm ''R. K. Patel", in respect of another tr<tnsaction for
the supply by that Firm of 900 bags of tobacco, which transaction later
failed .
.E
The Trial Court decreed the suit after rejecting the evidence and plead·
ings of the defendant In appeal the High Court reversed the judgment and
set a')idc decree of the trial Court.

Allowing the appeal by certificate, the Court

HEW : Supply of the goods by the plaintiff to the defendant and the
F issuance of. cheques by the latter ill favour of the former shifted the onus of I
_l;,.
proof on the point of privity of contract to the defendant. The fact that the
goods had been sent to the defendant by the plaintiff and had been receivro
by the former was admitted on all hands and was sufficient to raise a pre-
sumption, till the contrary wa& proved, that an order had been placed for
the supply of the goods with the plaintiff by the defendant firm. The plaintiff
could thus bank on the said fact for the purpose of discharging t!ji> initial ,
' -G onus Which lay on him to prove> the privity of contract between the parties ./

and it \Vas for the defendant to rebut the presumption which the fact
raised. [27 G-H, 28 Al

(ii) Tue books of account maintained by the defendant being the best T
evidence available in proof of the stand of the defendant firm that no order
had been placed by it with the plaintiff the failure of the defendant to
place on record those books is a clincher. Non production of these books
by the defendant raises a presumption against it that if such evidence had been
produced, the same would have gone against the case propounded by it, more
K. M. PATEL v. FIRM OF MOHAMAD l!USS~IN (Koshal, J.) 23

1 ••o when the defendant fail• to bring witnesses to the transactions set up, by it A
foto witness-box and examine them. l28 A-C, 29 A-El

CVllL APPELLATE JURISDICTION : Civil Appeal No. 1376 of 1970.
From the Judgment and Decree dated 29th/30th October, 1969
of the Gujarat High Court in Appeal No. 795/61.
B
D. V. Patel, T. U. Mehta and M. V. Goswami for the Appellant.
Dr. W. S. Barlingay and A. G. Ratnaparkhi for the Respondent.
The Judgment of the Court was delivered by
-} KosHAL, J -This appeal by certificate granted by the High Court
·of Gujarat under sub-clause (a) of clause (I) of Article 133 of the Consti- c
1ution of India is directed against its judgment dated the 29th/30th
October, 1969, accepting a first appeal preferred by the defendant firm
10 it and dismissing the plaintiff's suit which had been decreed by the
>trial court.
2. The said suit was filed on the 24th November, 1958, in the D
·court of the Civil Judge, Senior Division, Nadiad, by one K. M. Patel
for the recovery of Rs. 38,718/- from the defendant firm on account of
·the price of 225 bags of tobacco weighing 268 Bengali matmds at the
irate of Rs. 112/- per such maund and interest thereon. The case set
·<>Ut in the plaint was that the tobacco in question had been purchased
1>y the defendant firm on the 28th of November, 1955, that the same
was despatched to the defendant firm by train from Anklav railway
station on the !st of December, 1955, on which date a bill for Rs.
30,523/- covering the price of the goods and incidental expenses was
·sent to the defendant firm, that the goods were received by the defen-
·<lant firm who failed to pay for the same, that ultimately the defendant
firm gave to the plaintiff four cheques, each for Rs. 5,000/- drawn on a
·banking company of Santa but that all of them were dishonoured on '
presentation. In addition to the said amount of Rs 30,523/-, the
plaintiff claimed Rs. 8,195/- on account of interest at the rate of 9 per
·c:ent per annum for the period preceding the suit. He further prayed
,for award of future interest and costs.
\ G
3. The defendant firm denied the plaintiff's claim in toto. It
.. averred in the written statement that no goods had been received by it
· from the plaintiff and that it had given no cheques to him. According
•to the defendant firm the goods in question had been purchased by it
from a firm carrying on business in the name and style of 'R. 1K. Patel'
.at'Jabalpur, which had told the defendant firm that the goods would e
.be sen to it by the plaintiff. In relation to the four cheques the defen-
·dant firm stated that on the 29th November, 1957, it had enteren into

:~
24 SUPREME COURT REPORTS [1980] 3 S ..C.R.

A a transaction for the purchase of 900 bags of tobacco from firm R •. K ..
Patel, that these goods had also to be supplied from the plaintifl'~s
warehouse and that it was at the instance of one Chhotabhai belonging
to firm R. K. Patel that the four cheques were issued by the defendant
firm in the name of the plaintiff and given to Chhotabhai, although the
agreement for the· purchase of 900 bags of tobacco was ultimately
B cancelled.
4. On the pleadings of the parties the main question which arose
for determination was whether a privity of contract existed between
them in relation to the sale and purchase of the goods in dispute in
regard to which no document was admittedly executed. ---f-
c 5. At the trial the plaintiff examined only one witness besides
himself. He deposed that the transaction was entered into at his
business premises in Joshi Kurva by Khudabux, a munim of the dei
fondant firm, with himself in the presence of Indravadan Muljibha~,
P.W. 2 who supported that stand. The plaintiff also banked on docu-
D ments showing that he had obtained permission of the Central Excise
authorities for the transfer of 225 bags of tobacco from hjs_
godown to the defendant firm at Mahiyar where the defendant firm
carried on its business, that the goods were actually received by tl\e
defendant firm on the 17th of December, 1955, and that they were
stored by the defendant firm in its warehouse. The plaintiff produce()
E his cash book which contained an entry (exhibit 54) indicating that .an
amount of Rs. 30,523/- was debited on the !st December, 1955, to the
account of the defendant firm on account of the price of 225 bags of"
tobacco at the rate of Rs. Il2/- per Bengali maund and incidental
expenses. The ledger entry (exhibit 55) conforms to the cash boo_k
entry.
On the other hand, Abdul Halim Haji Rahimbux, one of the
partners of the defendant firm appeared as its sole witness who denied
that any contract had been entered into by it with the plaintiff for the
supply of the disputed tobacco through Khudabux or Otherwise.
According to the witness Khudabux was not an employee of the defen~
G dant firm at the relevant time although it was admitted that he had ,
,,
acted as a [munim for the defendant firm earlier to and also some time
after November,' 1955. The witness produced some documents pur-
porting to evidence a transaction of purchase of 225 bags of tobacco ~y
the defendant firm from firm R. K. Patel. These documents consisted I•
mainly of three letters and a bill. Letter exhibit 124 bears the d&t~
H 19th November, 1955, and is signed by Chhotabhai. It informs the
defendant firm that 225 bags of tobacco had been purchased by the
.
writer and' that the.same would be booked to t"e defendant firm within,
K. M. PATEL V. FIRM OF MOHAMAD HUSSAIN (Koshal, J.) 25

a period of eight days. Another letter (exhibit 125) is dated the 17th A
of December, 1955. This is also signed by Chhotabhai and states that
the tobacco had already been despatched to the defendant firm. Bil
exhibit 126 is dated 4th of January, 1956 and states the price of225 bags
of tobacco as Rs. 30,361-14-0. The only other letter worth mention
is exhibit 119. It is dated the 13th September, 1958 and states that
accounts had been settled between firm R. K. Patel and the defendant B
firm so that firm R. K. Patel owed a sum of Rs. 340-2-0 to the defendant
firm. The letter specifically mentions that the disputed transaction
formed part of the settlement of accounts.

6. In the above state of the evidence the trial court accepted the
plea of the plaintiff that an order for the supply of the disputed tobacco C
was placed by the defendant firm with the plaintiff as alleged by the
latter. The plaintiff was further held entitled to interest but at the
reduced rate of 6 per cent per annum. The learned Civil Judge there-
fore granted to the plaintiffja decree for the recovery of Rs. 35,986 ·33
with proportionate costs of the suit and also directed that the plaintiff
would receive interest at the said rate from the date of the suit till the D
date of realisation of the decretal amount.

7. The High Court did not believe the word of the plaintiff that an
order had been placed with him by Khudabux acting on behalf of the
defendant firm. In doing so the High Court gave reasons which may
be summarised as under : E

(i) The plaint did not mention that the defendant firm had placed
the order in question through Khudabux acting as its agent.
(ii) Although the order was of considerable magnitude and the
only transaction of its kind to be entered into between the parties )t
was not authenticated by Khudabux in writing.
F

(iii) The plaintiff would not have remained silent for two years in
regard to the money due to him.
(iv) The evidence does not disclose any other occasion on which
\. Khudabux may have acted as the agent of the defendant firm.
G
(v) Bill exhibit 56 and entries in the plaintiff's account books
(exhibits 54 and 55) do not mention the name of Khudabux.
i (vi) No letter from· the defendant firm to the plaintiff acknow-
ledging the receipt of the goods at Mahiyar has been placed on the
record.
H
(vii) No notice of dishonour of the chqeues was sent by the plain-
tiff to the defendant firm.
3-189SCl/80
26 SUPREME COURT REPORTS_ (1980] 3 s.c.11.

A (viii) The plaintiff would not have sent the goods without de.
mantling advance payment or earnest money.
(ix) Khudabux has not been produced by the plaintiff in the wit·
ness box. Plaintiff's own munim Ashabhai who is said to have been
present at the time of the alleged agreement also does not figure as a
B witness.
(x) The testimony of Indravadan does not inspire confidence.

The High Court then took up for examination the evidence pro-
duced by the defendant firm and accepted letters exhibits 119, 124 and

c
125 as also bill exhibit 126 at their face value. In this connection the
High Court remarked that it was difficult for it to imagine that the de-.
-·+
fondant firm could have manufactured the letter-heads of firm R. K.
Patel. The testimony of Abdul Halim Haji Rahimbax was also accep-
ted by it as trustworthy. It was urged before the High Court on
behalf of the plaintiff that the failure of the defendant firm to produce
its own account books and th 1se of firm R. K. Patel, as well as Chhota-
D bhai, was fatal to its case. The argument was rejected with the obser-
vation that it was for the plaintiff to have the said account books pro-
duced and to examine Chhotabhai as a witness. It noted the admissions
made by the defendant firm's own witness to the effect that Khudabux
had been in its employment both before and after the transacti<:m in
dispute but remarked that there was nothing to indicate that Khudabux
E
was in the employment of the defendant firm on the crucial date, i.e.,
the 28th of November, 1955, or that he had authority from the defen-
dant firm to place the disputed order. It refused to believe that the
railway receipt and the bill for the price of the goods (exhibit 56) along
with the covering letter (exhibit 57) were sent by the plaintiff to the
F defendant firm at Mahiyar. It examined the account books of the
plaintiff and rejected them as unreliable mainly on the grounds that the
cash book was maintained in fortnightly instalments and not on a daily
basis and that the four cheques above mentioned were made the subject
matter of entries therein long after their issuance. The story of the
cheques having been given to the plaintiff by the defendant firm in part
G payment of his dues was also discredited. In this connection it was
observed :
· " .... It is difficult for us to believe that if the plaintiff
was suffering any damage at the instance of the defendant i
on account of the dishonour of these cheques, he'would have
B really remained content as if with trusting his destiny
and trusting the defendant ..... if the plaintiff had obtained
these cheques after making several attempts to recover
K. M. PATEL v. FIRM OF MOHAMAD HUSSAIN (Koshal, J.) 27

the amount due to him, as he states in his deposition, Ju A
would have taken immediate action. against the defendant
after the dishonour of the cheques .... ".
y
The' High Conrt further remarked :
" ...... The cheques must have reached the plaintiff not
,directly from the defendant but through some other route
8 .
and it is clear that he must have complain('d of their dis-
honour to the person from whom they arrived in his hands.
His silence after the cheques were dishonoured also indicates
in the same direction. Absence of any correspondence
with the plaintiff throughout a period of more than two
years also indicates in the same direction ...• ". c
Two main contentions were pointedly raised before the High Court:
'(!) that the supply of the goods by the plaintiff to the defendant firm
and the issuance of cheques by the latter in favour of the former shifted
the onus of proof on the point of privity of contract to the defendant
firm, and, (2) that the failure of the defendant firm to produce"the bes D
evidence which was available to it in the form of its own and firm R. K.
Patel's account Books should have been treated as a .clincher.

The first contention was turned down with the remark that the
plaintiff could not be deemed to have <lischarged the initial onus which
was on him to prove privily of contract because he had failed to put E
Khudabux in the witness-box. The second was repelled for the reason
that the defendant firm could not "be deemed to have withheld any
,document when there was no notice given by the plaintiff to it for pro·
,duction thereof.

8. It was in the above premises that the High Court passed the F
impugned judgment.

9. After hearing learned counsel for the parties at length we are of
,the opinion that the very approach of the High Court to the determi-
nation of the crucial question in the case, namely, that of privily of
contract between the parties, is erroneous. The fact that the goods G
\- had been sent to the defendant firm by the plaintiff and had been re-
ceived by the former was admitted on all hands and was sufficient to
pise a presumption, till the contrary was proved, that an order had
been placed fc:>r the supply of the goods with the plaintif! by the defen-
,dant firm; and it was immaterial whether the person actually placing
the order was a partner of the defer,dant firm or a person authorised by B
it. The plaintiff could thus bar,k on the said fact for the purpose of
.discharging the initial onus which lay on him to prove privity of
28 SUPREME COURT REPORTS [1980] 3 S.C.R•.

'A contract between the parties and it wa~for the defendant firm to rebut
the presumption which the fact_ raised as stated above. In rejecting the
first of the two main contentions raised before thejHigh;Cour(on behalf
of the plaintiff, therefore, the High Court fell into a serious error.[
The same is true of the second main contention which was raised
B by learned counsel for the; plaintiff and was turned down by the High·
Court. In the circumstances of the case it was the duty of the defen-
dant firm to place its books of account on record, those books being
the best evidence available in proof of the stand of the defendant firm
that no order had been placed by it with the plaintiff. The:production

c
of letters exhibits 119, 124 and 125 and bill exhibit 126[does not serve
the purpose sought to be achieved. In the absence of such production
+
they are loose documents which could have come into existence even
·after the suit was filed, if Chhotabhai chose to oblige the defendant
firm and colluded with it. And there is intrinsic evidence ava1labk
Tn letter exhibit 119 that such was the case. That letter purports tojiave
come into existeuce on the 14th of September, 1958, i.e., about threC:
D months and a half after the defendant firm had been informed of the
plaintiff's claim through a notice dated the 27th of May, 1958, and that
claim had been repudiated by the defendant firm. The contents of the:
letter are tell-tale and may be reproduced in extenso :
"To
E "Bhai Mohammad Hussain Rahim Bux of Mahiar written,
from Jabalpur by R.K. Patel of Jabalpur whose salutations.
to you be pleased to accept. Further it is learnt that [on
the date 13-9-58 the account is made by the partner of our
firm Shri Chhotabhai Patel upto the date 12-9-58 by taking
into account the balance of Rs. 75/- seventy five at the
F end of 1954-55 and balance of Rs. 340-2-0 are found due by
us. The same is agreed. The price of 225 bags of tobacco--
of Kbusbalbbai Mahijibbai Patel of Joshikuva (Anklav).
.J.._
is also included in the said account and so Rs. 340-2-0 are
found balance payable by us including the said amount
and if any dispute arises subsequently in the said account
·: G we shall be responsible in every way about the same. _,.,
"It is respectfully to be stated that this note is written_
while in sound state of mind so that it may remain as.
authority and may become useful when required. r
"C::bbotabbai Kbusbalbhai Pate)
H "Partner R. K. Patel
"Jabalpur
"Date 14-9-58.'"
·K. M. PATEL v. FIRM OF MOHAMAD HUSSAIN (Koshal, !.) 29

Had the accounts been really settled as the letter claimed, there A
is no reason at all why a copy of the settlement, which must, in the
very nature of things, have contained a statement of all the transactions
··covered by it was not furnished to the court. Such a statement must
:have been provided by firm R. K. Patel to the defendant firm who was
·entitled to scrutinize the correctness of the settlement and point out
\.-. ·any inaccuracies therein to firm R. K. Patel. Besides, we fail to under- B
. stand why the transaction disputed before us came in for special
·mention in letter exhibit 119 when no other transaction covered by the
·settlement found a place therein. The conclusion is irresistible that the
'Jetter had been procured merely to serve as evidence in rebuttal of the
. plaintiff's case and not because any settlement really took place. c
10. lf the case propounded by the defendant firm at the trial is
·correct, its account books must be containing entries to the effect that
the agreement of purchase of 225 bags of tobacco was entered into with
firm R. K. Patel and not with the plaintiff and that some time in Decem-
'ber, 1955, the account of firm R. K. Patel was credited with the amount
·of the price of the goods. Entries would further be available therein D
indicating unmistakably the periods for which Khudabux was admitted-
ly employed with the defendant firm. The non-production of those
·books by the defendant firm and the production by it of stray letters
0and a bill constitute failure on its part to produce the best evidence and

a presumption has therefore to be raised against it that if such evidence
E
had been produced, the same would have gone against the case pro-
pounded by it. The matter does not end there. The failure of the
defendant firm to bring Chhotabhai and Khudabux into the witness-
box and the fact that it made no attempt to have the account books of
1irm R. K. Patel (the entries in which account would perhaps have
·clinched the matter in dispute) must be similarly construed and a F
·presumption drawn that this evidence also would have gone against the
defendant firm.
I I. The view we have just above taken of the approach of the
High Court is sufficient to dislodge its judgment and for a restoration
of the decree passed by the trial court. We may add, however, that
\ G
.apart therefrom the impugned judgment suffers from another serious
defect and that is that the appreciation of the evidence of the parties
, is based more on conjectures than logic. We may give a few instan-
·ces. The absence of the name of Khudabux from the plaint is immate-
rial pecause pleadings are required merely to state facts and not the
evidence through which they are to be proved. The relevant fact was 8
that an agreement for the purchase of goods had been entered into by
Jhe defendant firm with the plaintiff. The manner in which that
30 SUPREME COURT REPORTS [1980] 3 S.C.R,·

A. contract came into being was a matter of evidence which need not have -~.
formed part of the plaint. Again, the circumstances that the agree-
ment of purchase was not reduced to writing, that Khudabux was not T
shown to have acted as the agent of the defendant firm on any other
occasion and that the name of Khudabux does not appear in entries
exhibits 54 and 55 do not disclose any abnormality when it is borne in
B
mind that goods were actually supplied by the plaintiff to the defen-
dant firm and were received by the latter. The other reasons given by
the High Court in disbelieving the plaintiff's word that the order for the
supply of goods had been placed with him by Khudabux are equally
untenable. Jn this connection it is to be noted that no plausible
c reason can be found for the plaintiff recording in his books the name of
the defendant firm as the purchaser ifthe goods had really been sold to·
firm R. K. Patel. We may point out that the name of the defendant
firm as the purchaser is entered in the cash book maintained by the
plaintiff and it is no reason at all for that book to be rejected as un-·
reliable that it is maintained on a fortnightly a~d not daily basis. The
D failure of the plaintiff to demand advance payment or earnest money
and to keep quiet for a long period of time are also not relevant matters
in view of the admitted fact of the supply of the goods by the plaintiff
to the defendant firm and its failnre to produce on record its own
books of account and those of firm R. K. Patel.
E 12. The four cheques issued by the defendant firm in favour of the
plaintiff furnish another very important circumstance in derogation of
the claim made by the former. The explanation furnished by its soli-
tary witness that they were issued at the instance of Chhotabhai to whom
they were delivered does not inspire confidence in us, the main reason
therefor being again the non-prcduction of the account books of the
F
two firms-a reason which makes us repel as untenable the inference
drawn by the High Court (from the plaintiff's failure to act imme-
diately after the dishonour of the cheques) that "the cheques must have·
reached the plaintiff not directly from the defendant but through some.
other ronte".
G 13. ·There is no reason whatsoever for us to believe that ifthe case- '
of the defendant firm was true the plaintiff would have made out
the story given by him in the plaint, absolved the real debtor of the
responsibility to pay and claimed his dues from some one not at all r
Hable for them. Firm R. K. Patel being the party liable to the plain-
H tiff, according to the case set np by the defendant firm, the plaintiff
could not be expected to make false entries in this account books and.
file._ a suit not against firm R. K. Patel but against the defendant firm~
K. M. PATEL v. FIRM OF MOHAMAD HUSSAIN (Koshal, l.) 31

14 For the reasons stated we have no hesitation in accepting this A
appeal, setting aside the impngned judgment and restoring the decree
passed by the trial court with a direction thRt the plaintiff will be entitled
to his costs throughout.

S.R. Appeal allowed.

I

._;___