A) ABSTRACT / HEADNOTE 

The Supreme Court in Pannalal Jankidas v. Mohanlal and Another ([1950] SCR 979) addressed a critical question in contract law concerning the remoteness of damages, and the scope of an agent’s liability to his principal when failing to insure goods later destroyed in an unforeseen explosion. The dispute emerged after a devastating explosion at Bombay Harbour in 1944 destroyed goods the plaintiffs held on behalf of the defendants. The plaintiffs, commission agents, had agreed to insure the goods but failed to do so. After the explosion, the Bombay Explosion (Compensation) Ordinance, 1944 was promulgated, offering full compensation for insured goods and partial compensation for uninsured ones. The defendants sought to recover the remaining 50% value of the goods, alleging negligence. The Supreme Court, by majority, held that the plaintiffs were liable for the direct loss caused by their failure to insure, even though the explosion and the ordinance occurred later. It emphasized that the intervention of law (the Ordinance) did not break the chain of causation. A dissenting opinion by Patanjali Sastri J. held that the loss was too remote, arising from independent events. This case clarified the application of Section 212 of the Indian Contract Act, 1872 and the doctrine of remoteness of damage, significantly shaping Indian jurisprudence on agency and contractual liability.

Keywords: Remoteness of damages, breach of duty, fire insurance, Bombay Explosion Ordinance, agent’s liability

B) CASE DETAILS

i) Judgement Cause Title:
Pannalal Jankidas v. Mohanlal and Another

ii) Case Number:
Civil Appeal No. 71 of 1949

iii) Judgement Date:
21st December 1950

iv) Court:
Supreme Court of India

v) Quorum:
Chief Justice Harilal Kania, Justice Patanjali Sastri, and Justice Das

vi) Author:
Chief Justice Harilal Kania (majority opinion); Justice Patanjali Sastri (dissenting)

vii) Citation:
[1950] SCR 979

viii) Legal Provisions Involved:

• Section 212, Indian Contract Act, 1872

• Bombay Explosion (Compensation) Ordinance, 1944, Sections 14, 18

ix) Judgments overruled by the Case (if any):
None specifically overruled

x) Case is Related to which Law Subjects:
Contract Law, Agency Law, Insurance Law, Tort Law, Damages Law

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The appeal stemmed from a unique intersection of agency law, contract breach, and statutory intervention through a war-time ordinance. The plaintiff, a commission agent, undertook to insure goods stored in a Bombay godown on behalf of the defendant. Due to the explosion on 14 April 1944, the stored goods were destroyed. The Bombay Explosion (Compensation) Ordinance, 1944 later provided compensation parameters based on whether the goods were insured or not. As the agent had failed to insure the goods, the principal received only partial compensation. The legal conundrum was whether the agent’s failure to insure could give rise to liability for the lost compensation under a statute that didn’t exist at the time of the breach. The High Court had reversed the trial court’s dismissal of the claim, ruling that an agreement to insure had existed and had been breached. This Supreme Court ruling solidified legal understanding of direct vs. remote damages, especially where statutory schemes come into effect after a contractual breach, and clarified the obligations of commission agents under Section 212 of the Contract Act.

D) FACTS OF THE CASE

The appellants were commission agents based in Bombay and acted on behalf of the defendants, a joint Hindu family firm. In February 1944, the appellants purchased 278 bales of piece-goods on the defendants’ instructions. A portion of the consignment was dispatched with requisite government permits. Ninety-two bales, however, remained in storage at a godown in Bombay pending permits.

On 14 April 1944, a catastrophic explosion occurred at Bombay Harbour, which destroyed large swathes of property, including the godown and the goods stored therein. The goods were neither delivered nor insured. It was alleged that the plaintiffs had agreed with the defendants to insure the goods, and were paid a premium accordingly.

In July 1944, the Government promulgated the Bombay Explosion (Compensation) Ordinance, 1944, under which insured goods were compensated at 100% value and uninsured goods at only 50%. The plaintiffs recovered the 50% compensation and sued for indemnity under their agency. The defendants counterclaimed, arguing that had the plaintiffs fulfilled their duty to insure, the full value would have been recovered.

The core dispute centered on whether this non-recovery of additional compensation was a direct consequence of the plaintiffs’ breach, and whether the Ordinance provided a new basis of liability or merely quantified existing damages.

E) LEGAL ISSUES RAISED

i) Whether the plaintiff-agent’s failure to insure the goods constituted a breach of duty under Section 212 of the Indian Contract Act, 1872.

ii) Whether the loss of additional compensation under the Bombay Explosion (Compensation) Ordinance, 1944 was a direct or remote consequence of the breach.

iii) Whether the Ordinance itself barred the defendants’ counterclaim under Section 18(2).

iv) Whether the Ordinance created a new right or merely quantified damages for existing contractual breaches.

F) PETITIONER/ APPELLANT’S ARGUMENTS

i) The counsels for Petitioner / Appellant submitted that:

The plaintiffs argued they had no liability for the destruction of goods since the explosion was an unforeseeable event and the goods would not have been covered by the usual fire insurance policy, which typically excluded explosion risks.

They contended that even if the goods had been insured, compensation wouldn’t have been granted under standard fire insurance clauses. Hence, the defendants’ inability to recover full value from the government did not flow directly from their omission.

They relied on Mayne on Damages which states: “If a policy, even if taken, would not have covered the damage suffered, the agent is not liable.” Thus, even if there was an agreement to insure, the actual loss was too remote.

They also cited Section 18(2) of the Ordinance, which bars any claims for compensation arising out of the explosion except as allowed under the Ordinance itself.

The Ordinance’s retrospective application, they claimed, could not enlarge liability for earlier acts that had no direct causation link to the loss sustained.

G) RESPONDENT’S ARGUMENTS

i) The counsels for Respondent submitted that:

The respondents claimed the plaintiffs agreed to insure the goods and collected a fixed premium per bale, creating a binding contractual duty to insure.

They argued that the failure to insure was the direct and proximate cause of their inability to recover full compensation under the Ordinance, as insured goods were compensated at 100%, unlike uninsured ones.

They urged the Court to treat the agent as an insurer under equitable doctrine. The principle laid down in Ticket v. Short (2 Ves. Sen. 289) and Smith v. Lascelles (1788) 2 T.R. 187 supported that an agent who charges as if insurance was done should be treated as the insurer himself.

They also referred to Section 212 of the Indian Contract Act, which obliges the agent to compensate the principal for direct consequences of his breach.

They stressed that the intervention of the Ordinance did not break causation. Instead, it merely provided a mechanism for quantifying loss. The Ordinance did not create any new right, and therefore, their cause of action remained contractual and unaffected by Section 18.

H) RELATED LEGAL PROVISIONS

i) Section 212 – Indian Contract Act, 1872
This section mandates that “An agent is bound to act with reasonable diligence and to use such skill as he possesses and to make compensation to his principal in respect of the direct consequences of his own neglect, want of skill or misconduct”. This case revolves around whether the failure to insure, a clear dereliction of agency duty, caused direct damages or only remote ones. The majority applied this section to hold the agent liable, interpreting the statutory terms “direct consequences” broadly.

ii) Section 18 – Bombay Explosion (Compensation) Ordinance, 1944
Sub-section (2) barred any claim “in contract or tort or otherwise… for any damage to or loss of property… arising out of the explosion”, except through the Ordinance. The Court had to determine whether the respondents’ claim, being indirectly linked to the explosion, was barred. The majority ruled that the cause of action arose from breach of contract—not explosion damage—and was therefore not barred by this section.

iii) Section 14 – Bombay Explosion (Compensation) Ordinance, 1944
This section laid the framework for compensation, differentiating insured and uninsured goods. Insured property was fully compensated, while uninsured property received only 50%. The Court determined that this differentiation became essential to assess the loss from the agent’s failure to insure.

iv) Section 73 – Indian Contract Act, 1872
Although not the primary section, its principle of compensating losses arising “naturally in the usual course of things” guided the Court’s analysis on whether the damage was too remote.

I) JUDGEMENT

a. RATIO DECIDENDI

i) Per Kania C.J. and Das J. (Majority):
The plaintiffs’ failure to insure, though preceding the explosion and the Ordinance, led directly to the loss of 50% compensation under the Ordinance. The Ordinance merely provided a quantification mechanism for the damage. Its retrospective application did not break the chain of causation.

The Court emphasized the doctrine of restitutio in integrum, holding that the principal must be placed in the same position as if the agent had performed his duty. Since the existence of a fire insurance policy alone (regardless of its terms) entitled one to full compensation, the breach directly caused a measurable financial injury. Hence, the loss was not remote under Section 212 of the Contract Act.

b. OBITER DICTA 

i) The Court observed that even if the plaintiffs had argued that standard fire policies excluded explosion, this would be irrelevant, since the Ordinance compensated on proof of insurance, regardless of the scope of coverage.

Another important obiter noted that agents, once proven negligent, cannot evade liability on the basis that statutory remedies (here, the Ordinance) were not foreseeable.

c. GUIDELINES 

The Court laid down essential legal guidelines regarding agency and compensation:

1. Failure to insure as agreed is a breach attracting liability under Section 212 even if the loss was magnified by subsequent statutory schemes.

2. An agent who charges premium and represents insurance as completed is equated to an insurer in equity, as seen in Ticket v. Short (2 Ves. Sen. 289).

3. Statutory schemes of compensation like the Ordinance do not sever causation between breach and loss if the loss is directly tied to the agent’s omission.

4. The test of remoteness under Indian law is based on directness, not foreseeability, aligning with Hadley v. Baxendale (9 Ex. 341) and Polemis v. Furness, Withy & Co. ([1921] 3 K.B. 560).

5. Section 18 of the Ordinance does not bar counterclaims based on independent contractual breaches, even if the breach relates to goods destroyed by the explosion.

J) CONCLUSION & COMMENTS

This landmark ruling affirmed that breach of agency obligations can attract full liability, even where intervening legislation partially shapes the extent of loss. The Court rightly adopted a direct consequences test, rejecting the defendant-agent’s defence that the Ordinance, being unforeseeable, broke the causal chain. It placed the onus squarely on the agent who had undertaken the duty and collected premiums, yet failed to procure insurance.

The judgment supports the principle that an agent cannot escape liability merely because a statutory scheme intervenes. The ruling promotes accountability in commercial agency relationships and clarifies that compensation mechanisms—statutory or otherwise—cannot shield negligent parties from liability.

Justice Patanjali Sastri’s dissent, though well-reasoned, takes a stricter view of remoteness, suggesting that the Ordinance’s introduction broke the causal link. However, the majority opinion better aligns with commercial practicality and equitable doctrines, especially in the context of agency law.

This case is widely regarded as authoritative in Indian law on the remoteness of damages, statutory causation, and agency liability. It has been subsequently cited in multiple Supreme Court and High Court decisions, reinforcing the agent’s fiduciary obligation to safeguard the principal’s interest at all stages—including risk coverage.

K) REFERENCES

a. Important Cases Referred

1. Hadley v. Baxendale, 9 Ex. 341

2. In re Polemis and Furness, Withy & Co., [1921] 3 K.B. 560

3. Weld-Blundell v. Stephens, [1920] A.C. 956

4. Livingstone v. Rawyards Coal Co., (1880) 5 App. Cas. 25

5. British Westinghouse Electric Co. v. Underground Electric Railways, [1912] A.C. 673

6. Liesbosch v. Edison, [1933] A.C. 449

7. Smith, Hogg & Co. Ltd. v. Black Sea and Baltic Insurance Co., [1940] A.C. 997

8. Standard Oil Co. of New York v. Clan Line Steamers Ltd., [1924] A.C. 100

9. Ticket v. Short, 2 Ves. Sen. 289

10. Smith v. Lascelles, (1788) 2 T.R. 187

b. Important Statutes Referred

1. Section 212 – Indian Contract Act, 1872
   Link to Indian Kanoon

2. Section 18 – Bombay Explosion (Compensation) Ordinance, 1944

3. Section 14 – Bombay Explosion (Compensation) Ordinance, 1944

4. Section 73 – Indian Contract Act, 1872
   Link to Indian Kanoon