1. Facts of the Case
- Mohan Lal, a diamond merchant, delivers a consignment of diamonds to Neel Kamal on a sale or return basis.
- Neel Kamal, in turn, delivers these diamonds to Om Prakash also on a sale or return basis.
- During the transit or while in possession of Om Prakash, the diamonds are stolen or taken away by an unknown person.
- Mohan Lal seeks to claim the price of the diamonds from Neel Kamal. The question arises whether Neel Kamal is liable to pay Mohan Lal in this scenario.
2. Issues in the Case
- Whether Mohan Lal can hold Neel Kamal liable for the loss of diamonds even though the transaction was on a sale or return basis.
- Determining risk allocation under the Sale of Goods Act, 1930 in a multi-stage sale or return transaction.
- Whether Neel Kamal bore the risk of the goods while in transit to Om Prakash.
- Applicability of Sections 26–27 and 32 of the Sale of Goods Act, 1930 relating to transfer of property and risk.
3. Legal Principles Covered
a) Sale or Return Contract
- Definition: A contract where goods are delivered to the buyer, who may either purchase them or return them to the seller.
- Reference: Section 6(3) of the Sale of Goods Act, 1930 — “Where goods are delivered on approval or on sale or return, the property therein passes to the buyer when he signifies his approval or does any other act adopting the transaction.”
- Implication: Until approval or adoption, the property and risk may not pass to the buyer.
b) Transfer of Property and Risk
- Section 26–27, Sale of Goods Act, 1930: Risk follows ownership unless agreed otherwise.
- In a sale or return, risk generally remains with the seller until the buyer accepts the goods.
- Case Law: Satyabrata Ghose v. Mugneeram Bangur & Co. AIR 1954 SC 44 – Risk of loss remains with the party in possession unless property has passed.
c) Delivery to a Sub-Buyer
- Delivery of goods by Neel Kamal to Om Prakash on sale or return basis does not transfer risk to Om Prakash until he accepts the goods.
- Mohan Lal may still claim the price from Neel Kamal because Neel Kamal had not yet paid for the diamonds and the risk of loss had not passed to him.
d) Principle of “Buyer Cannot Get Better Title than Seller”
- Neel Kamal cannot claim that Om Prakash’s loss absolves him from liability because the title of Mohan Lal never passed completely to Neel Kamal until acceptance.
- Section 27 & 32 of Sale of Goods Act support the seller’s right to recover price if goods are lost before property passes.
4. Possible Judgement
Likely Outcome:
- Mohan Lal can file a case against Neel Kamal for the price of the diamonds.
- Since the sale was on a sale or return basis, the property in the diamonds had not passed to Neel Kamal at the time of loss.
- The court may hold Neel Kamal liable to pay Mohan Lal the price, as he received the diamonds but failed to take responsibility for them.
- Neel Kamal may seek indemnity from Om Prakash depending on their agreement, but Mohan Lal’s right to claim from Neel Kamal is preserved.
Legal Reasoning:
- Risk of loss remains with the party in possession until the property passes.
- Sale or return contracts do not absolve the intermediary (Neel Kamal) from paying the original seller (Mohan Lal) if goods are lost before acceptance.
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