Chunilal Mehta and Sons Ltd vs Century Spinning Co Ltd 1962 case dealt with whether the High Court was justified in denying a certificate of fitness to appeal to the Supreme Court under Article 133(1)(a) of the Constitution.
An appeal before the Supreme Court through Special Leave Petition under Article 136 of the Constitution. Leave was granted.
Facts of Chunnilal Mehta Case:
- The appellants were appointed managing agents of the respondents for 21 years. Under clause 10 of the agreement, it entitled the appellants to remuneration equal to 10% of the gross profits of the respondents subject to a minimum of Rs. 6,000 per month.
- Clause 14 provided that if the agreement was terminated otherwise under the provisions thereof, it would entitle the appellants to liquidated damages of not less than Rs. 6,000 per month for the unexpired portion of the agreement. The respondent wrongfully terminated the agreement before the expiry of the stipulated period.
- The appellants filed a suit for recovery of damages for breach of contract based on 10% of the gross profits of the respondents, claiming around 50 lacs rupees.
- But the trial judge granted a decree for only Rs. 2,34,000, calculating the amount at Rs. 6,000 per month as per clause 14 of the agreement. He did not agree to the contention of the plaintiff that it entitled them to 10% of the gross profits under cl. 10 of the agreement.
- In an appeal to the HC, the appellant amended the appeal and claimed around 28 lacs rupees. The appeal was dismissed by the High Court and the decree of the trial court was affirmed.
- The appellants applied to the High Court for a certificate of fitness for appeal to the Supreme Court under Article 133 (1) (a) of the Constitution but the HC declined to grant the same because the question involved in the case related to interpreting the agreement was a Legal Issue it was not a substantial Legal Issue as required by Art. 133 (1) of the Constitution.
The appellant approached the Supreme Court through SLP. Leave was granted.
Legal Issue:
Whether the High Court was justified in denying a certificate of fitness to appeal to the Supreme Court under Article 133(1)(a) of the Constitution?
Decision of the Supreme Court:
- Held, that the case involved a substantial Legal Issue and it entitled the appellants to the certificate of fitness to appeal as of right.
- The following are principles of a substantial question of law (SQOL):
- A SQOL is one that is of public importance or which directly and substantially affects the rights of the parties and which has not been finally settled by the Supreme Court, the Privy Council, or the Federal Court or which is not free from difficulty or which calls for a discussion of alternative views.
- If it directly and substantially affects the rights of the parties, it need not be a question of general importance. It should be an open question, not finally settled by this Court or there is a doubt about the principle of law involved or calls for a discussion of alternative views.
- If the question is ALREADY well settled or its general principles are well settled and only its application remains or the plea raised is palpably absurd, then it is NOT a SQOL, howsoever difficult it may be or howsoever large its effect.
- The question involved in the present case as to the construction of the agreement was not only one of the law but it was neither simple nor free from doubt and was a substantial Legal Issue within the meaning of Art. 133(1).
- Court further that upon a proper construction of cl. 14 of the agreement, the appellants were entitled to damages at the rate of Rs. 6,000 per month only. The words “not less than Rs. 6,000” in clause 14 could not be construed as meaning 10% of the gross profits as provided in cl. 10. When in cl. 14 the parties named a sum of money to be paid as liquidated damages, it excluded the right to claim an unascertained sum as damages.
- Judgment of HC affirmed. Appeal dismissed with costs.
Important paragraphs from the Judgment:
- It is not disputed before us that the question raised by the appellant in the appeal is one of law because which the appellant is challenging, is the interpretation placed upon certain clauses of the managing agency agreement which are the foundation of the claim in suit. Indeed, it is well settled that the construction of a document of title or of a document that is the foundation of the rights of parties raises a Legal Issue.
- The next question is whether the interpretation of a document of the kind referred to above raises a substantial Legal Issue. For, Article 133(1) provides that where the judgment, decree, or final order appealed from affirms the decision of the court immediately below other than a case referred to in sub-clause (c) an appeal shall lie to this Court if the High Court certifies that the appeal involves some substantial Legal Issue.
- The Privy Council has held in the case of Raghunath Prasad Singh [AIR 1927 PC 110]: “Admittedly, the whole question turns upon whether there is a substantial Legal Issue. There seems to have been some doubt whether a substantial Legal Issue meant a question of general importance. Their Lordships think it is quite clear that is not the meaning, but that “substantial Legal Issue” is a substantial Legal Issue as between the parties in the ease involved.”
- What is a substantial Legal Issue between the parties would certainly depend upon the facts and circumstances of every case? Thus, for instance, if a Legal Issue had been settled by the highest court of the country, the Legal Issue however important or difficult it may have been regarded in the past and however much it may affect any of the parties would cease to be a substantial Legal Issue. Nor again, would a Legal Issue which is palpably absurd be a substantial Legal Issue between the parties.
- In Rimmalapudi Subba Rao v. Noony Veeraju, the Madras High Court held that when a Legal Issue is fairly arguable, where there is room for difference of opinion on it or where the Court thought it necessary to deal with that question at some length and discuss alternative view, then the question would be a substantial Legal Issue. On the other hand, if the question was practically covered by the decision of the highest court or if the general principles to be applied in determining the question are well settled and the only question was of applying those principles to the particular fact of the case, it would not be a substantial Legal Issue.
- We agree with the view taken by the Madras High Court. The proper test for determining whether a Legal Issue raised in the case is substantial would be whether it is of public importance or whether it directly and substantially affects the rights of the parties and if so whether it is 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 a discussion of alternative views.
- If the question is settled by the highest Court or the general principles to be applied in determining the question are well settled and there is a mere question of applying those principles or that the plea raised is palpably absurd the question would not be a substantial Legal Issue.
- Applying the tests, it would be clear that the question involved in this appeal, the construction of the Managing Agency agreement, is not only one of law but also it is neither simple nor free from doubt.
- In the circumstances, we have no hesitation in saying that the High Court was in error in refusing to grant the appellant a certificate that the appeal involves a substantial Legal Issue. It has to be borne in mind that upon the success or the failure of the contention of the parties; they stand to succeed or fail regarding their claim for nearly 26 lakhs of rupees.
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