IN THE HIGH COURT OF GUJARAT AT AHMEDABAD CIVIL SUITS No 3 of 1980 For Approval and Signature: Hon'ble MR.JUSTICE K.M.MEHTA ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- ASEA BROWN BOVERI LTD. Versus O.L. OF POLYSTEELS LTD. -------------------------------------------------------------- Appearance: MR GN SHAH for Petitioner OFFICIAL LIQUIDATOR for Respondent No. 1 MR JT TRIVEDI for Respondent No. 2 -------------------------------------------------------------- CORAM : MR.JUSTICE K.M.MEHTA Date of decision: 13/2/2001 C.A.V. JUDGEMENT 1. ASEA Brown Boveri Ltd. - plaintiffs had originally filed Special Civil Suit No. 106 of 1975 before the learned Civil Judge (S.D.), Bhavnagar, somewhere on 15.11.1975. In that suit the plaintiff prayed that M/s. Polysteels (India) Limited, defendant No. 1 hand over possession to the plaintiffs of the materials and components as detailed in annexure-A to the plaint. 2. The facts giving rise to this petition are as under:- 2.1 The plaintiffs are company incorporated under the Companies Act, 1913 carrying on business, inter alia, as manufacturers and sellers of furnace and other eingineering goods. M/s. Polysteels (India) Limited, defendant No. 1, are company incorporated under the Companies Act, 1956, carrying on business, inter alia, as mild and special steel manufacturers. Plaintiffs averred in the suit that a contract was entered into between the plaintiffs and the defendants as contained in the letter dated 15-11-1973 Ex. 33 addressed by the plaintiffs to the defendant and agreed to by the defendant through their Managing Director signing and returning to the plaintiffs a copy thereof at the foot of the said contract. Besides the main terms mentioned in the said letter, general terms and conditions were printed on the reverse of the plaintiffs' letter dated 15-11-1973 which is at Exh. 33 on page 32. The clause pertaining to the terms of the payment as contained in the said contract reads as under:- "Terms of payment : - 10% of the contract price payable as advance on or before 15.4.1974 and balance 90% of the contract price plus taxes, incidental and many other applicable charges will be paid by you by 90 days Bills of Exchange from the date of despatch under Bills Market Scheme. The payment will however be covered subsequently by IDBI Bills re-discounting Scheme for which you have to furnish a letter of undertaking from your Banker as per draft enclosed. After realisation of all our payments from IDBI, we shall refund the amount received from you through the Bills Market Scheme. Refund will be made for the actual amount received by us and no interest charges will be applicable on the same. 2.2 Clause 15 of the General Terms and Conditions reads as under: "Proprietary rights - The goods supplied by us shall remain our property until full payment has been made." 2.3 The plaintiffs further averred that as per the terms and conditions of payment, the defendant was to make payment of advance of 10% on or before 15.4.1974 and the balance of 90% of the contract price plus taxes and incidentals by Bills drawn under the Bills Market Scheme for which the defendant was to furnish a Letter of Undertaking from their Bankers as per draft enclosed therewith. The said payment was to be subsequently covered by IDBI Bills Rediscounting Scheme. It was stipulated that after realisation of all the payments from the IDBI, the plaintiffs were to refund the amount received from the defendant through the Bills Market Scheme without interest. The said clause also provided that in case the defendant was not able to honour any of the commitments, including initial payment and opening of Letter of Credit/honouring of documents sent through Bank, all the payments received till then were liable to be forfeited by the plaintiffs and the plaintiffs also reserved therein the right to treat the order as cancelled in such an event after adjusting the payments received and forfeited as above. It was further averred that the defendant addressed a letter dated 25.11.1973 (Exh. 34 page 80) to the plaintiffs by which, the defendant wanted the terms of payment to be altered as to make payment of entire 100% of the contract price under the IDBI Scheme and not to pay 10% advance as provided in the terms of payment as contained in the plaintiff's letter dated 15.11.1973. The plaintiff however by their letter dated 12.12.1973 Exh. 35 did not agree to the said alteration suggested by the defendant and the plaintiffs insisted that 10% of the contract price be paid by the defendant on or before 15.4.1974 which amount would be refunded to the defendant after realisation of the entire payment under the IDBI Scheme. 2.4 The plaintiffs further contended that in view of the aforesaid correspondence, a firm contract was arrived at between the plaintiffs and the defendant under which the plaintiffs were to deliver Arc Furnace Type SSKD 340, as detailed in the plaintiffs' letter dated 15.11.1973, on the terms that the defendant should pay 10% of the contract price on or before 15.4.1974 which would be refunded to the defendant when 100% of the value of the goods was paid under the IDBI Scheme and under which the property in the said Arc Furnace or any of its components was not to pass to the defendant till payment of the full price to the plaintiffs. It was further averred that in view of this contract, the property in Arc Furnace and its various components was to continue to remain in the plaintiffs custody and was not to pass to the defendant until all the material specifications were supplied and were paid for in full. It was further averred that in the suit that the entire basis of the contract was that the property in the goods was to pass to the defendant on the defendant making the requisite financial arrangements for payment so as to enable the plaintiffs to raise bills of exchange on them and on the plaintiffs being paid the price in full of the said Arc Furnace. It was further averred that unless and until there was a complete delivery so as to constitute Arc Furnace Type SSKD-340 with all the material specifications and components, it did not constitute an Arc Furnace as contemplated by the contract which could be put by the defendant to use and unless the required financial arrangements were made and the price was paid in its entirety, the property in the goods was not intended to pass from the plaintiffs to the defendant. 2.5 The plaintiffs further averred that the defendant had failed to make payment of 10% contract price as contemplated by the plaintiffs' letter dated 12.12.1973. However, on the faith and confidence that the defendant would be able to complete the financial arrangements by the time all the materials and components so as to constitute the Arc Furnace Type SSKD-340 were despatched and unloaded at the site of the defendant, the plaintiffs started for their own exigencies, transporting such of the components and materials as were ready with them to the site of the defendant's factory at Bhavnagar. It was further averred that by 30.8.1974, the material and components as specified in Annexure-A to the plaint were despatched by the plaintiffs to the defendant' factory at Bhavnagar. However, the said materials and components did not constitute the entirety of the materials as specified in Annexure-C to the plaintiffs' letter dated 15.11.1975 ( Suit Contract). It was further averred that the said material and components as mentioned in Annexure-A to the plaint despatched by the plaintiffs to the defendant's factory site at Bhavnagar did not constitute Arc Furnace Type SSKD-340 as contracted between the parties. It was further averred that the property in such materials and components remained with them and did not pass to the defendant who held such materials and components for and on behalf of and as trustees for the plaintiffs. The plaintiffs further averred that the defendant could not make the necessary financial arrangements and the defendant addressed a letter dated 2.10.1974 Exh. 36 (page 84-86) to the plaintiff wherein the defendant has stated as under: "It was our very clear understanding that the despatches would start only after finalisation of the technical as well as financial formalities. As you were very eager to deliver the machine pending the formalities and that too without our confirmation, we do not know what to do with the components and the machineries dispatched to us, and as such, we would request you to kindly let us know whether you want us to keep this on your account with us. Please note that we will not be held responsible for any loss or damage that might occur and however, assure you that the same would be kept with us, till we hear from you, in safe custody. Here, we also would like to inform you that the freight charges, that we have paid, would be recovered from you and kindly let us know upto what period we have to hold the materials on your behalf, but please note that the same would be at your risk and consequences." 2.6 It was further averred that as the defendant having failed to pay the price in its entirety, the property in the goods was not intended to and did not in fact or law pass from the plaintiffs to the defendant. 2.6(a) It was further averred that the defendant by their letter dated 2.10.1974 clearly stated that the materials and components which were despatched by the plaintiffs till then would be lying in their safe custody on the plaintiffs' account and at the plaintiffs' risk and consequences. 2.7 The plaintiffs went on insisting upon the defendant to complete the financial arrangements so as to enable the plaintiffs to raise the bills and recover the price, whereupon the property in the transported materials and components would pass in favour of the defendant and also to enable the plaintiffs to despatch further materials as per the contract so as to constitute delivery of the contracted Arc Furnace Type SSK 340. 2.8 It was further stated that the defendant' financial position was sinking and the defendant could not make the requisite financial arrangements and the plaintiffs therefore by their Attorney's Notices dated 24.9.1973 Exh. 98 page 171 and 11.10.1974 Exh. 100 page 175 recorded that in view of the defendant' failure to make financial arrangements the contract was cancelled and demanded back possession of the materials and components transported to the defendant' factory at Bhavnagar and lying in the defendant custody on the plaintiffs' account and at the plaintiffs' risk and consequences as mentioned by the defendant in their letter dated 2.10.1974. The plaintiffs' representative went to the factory of the defendant on 30.9.1975 for the specific purpose of taking back possession of the materials and components transported by the plaintiffs to the defendant and lying in the factory premises of the defendant at Bhavnagar, but the plaintiffs' representative was refused by the Commercial Manager of the defendant as he had no authority to deliver the goods to the plaintiffs. The defendant addressed a letter dated 3.10.1975 Exh. 99 (page 174). Thereafter, a letter dated 11.10.1975 was addressed to defendant No. 1 by the plaintiffs which is at Exh. 100 page 175 and stated that they are treating the contract as cancelled. Defendant No. 1 also addressed a letter dated 22.10.1975 to the plaintiffs in which they stated that they were the owners of the goods and the plaintiffs have no claim over the goods. 3. In view of the same the plaintiffs filed the present suit for decree directing the possession of the specific goods and materials as detailed in Annexure-A to the plaint. As indicated earlier the said suit was filed before Bhavnagar Court on 15.11.1975. The plaintiffs also by a separate application prayed for appointment of an interim receiver to give delivery of these goods and materials to the plaintiffs and in the meanwhile for interim relief as prayed for therein. 3.1 The learned Civil Judge (Senior Division), Bhavnagar, had issued a notice on 15.11.1975 to defendant No. 1 regarding application of the plaintiffs for the appointment of the receiver and injunction. It may be noted that defendant No. 2 Bank of India was not impleaded as party by the plaintiff originally. 3.2 Defendant No. 2 had through their advocate filed a purshish in the said suit on or about 20.12.1975 before the learned Civil Judge (S.D.) at Bhavnagar (page No. 89-A) stating that defendant No. 2 was a secured creditor and will file an application or written statement opposing the application of the plaintiffs. No written statement, as stated in the purshis, was however filed by defendant No. 2, before the court at Bhavnagar. 4. It appears that the defendant No. 1 Company's financial position was not good. Therefore, Company petition No. 31 of 1975 was filed before this court and in that this court passed order dated 9.12.1975 appointing provisional liquidator and thereafter in Company matter the present plaintiff filed an application being Company Application No. 73 of 1976 before this court. This court (coram: D.A. Desai, J as he then was) by his order dated 6.5.1977 was pleased to order as follows: "(b) The Official Liquidator attached to the High Court of Gujarat as prvisional/official liquidator of respondent Company is directed to deliver to the applicant the components of electric arc furnace, the particulars of which components are set out in Annexure-A to the affidavit dated 21.6.1976. (c) The applicant shall give an undertaking to the court to the effect that in the event of the applicant not succeeding in Suit No. 106 of 1975 filed by them against the respondent Company in the court of Civil Judge (Senior Division) at Bhavnagar on 15th November, 1975, the applicant shall pay to the Bank of India as secured creditor, the market value of the said components of electric arc furnace as valued by the aforesaid independent valuer. (d) The applicant shall before taking delivery of the said components of electric arc furnace, furnish a Bank guarantee, preferably of a Nationalised Bank, in favour of the Bank of India to the extent of the market value of the said components of electric arc furnace as valued by the aforesaid independent valuer so that in the event of the applicant failing to make payment of the market value of the components to the Bank of India, when the applicant not succeeding in the aforesaid suit filed in the Court of Civil Judge (Senior Division) at Bhavnagar, the said guarantee shall immediately become enforceable and the Bank of India will become entitled to recover from the guarantor Bank the amount of the present market value of the components of electric arc furnace. The applicant to keep such Bank guarantee alive and binding till the decision of the said Suit." 4.1 Pursuant to the aforesaid order ultimately the applicant furnished necessary bank guarantee before this court and ultimately received goods. Copies of the said bank guarantee which were dated 8.1.1982 and 12.1.1982 have also been placed before this court. 4.2 In view of the aforesaid proceedings the Hon'ble Court had transferred Suit No. 106 of 1975 for trial before the High Court and it has been renumbered as Civil Suit No. 3 of 1980. Defendant No. 2 had filed an application in the High Court on 15.3.1982 stating that it should be made a party defendant to the said suit. The Court by its order dated 15.3.1982 had directed that defendant No. 2 should be added as party and accordingly the title of the plaint was amended on 15.3.1982. 4.2(a) Defendant No. 1 the official Liquidator on behalf of Polysteel Ltd., did not file written statement. 4.2(b) Defendant No. 2 filed its written statement in O.J. Suit No. 3 of 1980 on 3.5.1982 at Exh. 38. Defendant No. 2 stated that Arc Furnace was to be sold on credit and the property in the said Arc Furnace was to pass on the delivery of the material and components at the plaintiffs' or their sub-suppliers' Works in different parts of the country. It was further submitted that the general terms and conditions printed on the overleaf of the letter dated 15.11.1973 were not part of the terms of the contract and they cannot govern or regulate the contractual relationship inter se between the parties. It was stated that clause 15 of the general terms and conditions was not agreed upon inter se between the parties and it cannot govern the relationship. It was stated that on the principle of construction of documents, to the extent the general terms and conditions run counter to the specific terms agreed upon, they must give way to the specific terms agreed upon between the parties. It was further submitted that defendant No. 2 denied that the property in the said arc Furnace or any of its components was not to pass to the defendant No.1 till payment of the full price to the plaintiff as alleged. It also denied that the property in Arc Furnace and its components was to continue to remain in the plaintiffs and was not to pass to defendant No. 1 until all material specifications were supplied and were paid for in full. It is also denied that the property in the goods was not intended to pass from the plaintiff to defendant No. 1 until all the components and materials as per the specifications were supplied, they were assembled and installed at the factory premises of defendant No. 1. Defendant No. 2 further submitted that the plaintiffs have voluntarily without waiting for the finalisation of the financial arrangements guaranteeing payment under IDBI rediscounting Scheme had despatched the components specified in Annexure-A. 4.3 Defendant No. 2 has relied on reply given by defendant No. 1 on October 22, 1975 to plaintiffs attorney which has been produced at Exh. 101 at page 176 in which it has been stated that the goods have been passed on to defendant No. 1 and it was the holder of the goods and that the contention that the goods were lying with defendant No. 1 on account of plaintiffs. It was stated that once the goods are sold and delivered and the property in the goods had passed, the seller is only entitled to receive the price. It was stated in case of failure on the part of the buyer to pay the price, the seller can file a suit and in case of insolvency lodge its claim in winding up or in insolvency. It was admitted that due to order of the Company Court goods have been taken by the plaintiffs. However, that fact will not alter the mutual rights and obligations and the respective rights and obligations will be determined on the basis of the outcome of the suit. 4.4 When the matter was placed for hearing before the Court (Coram: A.M. Ahmadi, J as he was then) on 16.8.1983, this Court was pleased to pass the following order:- "The documents at 5 Nos. 2 to 6 of Exhibit 4 to be exhibited as there is no objection from the opposite parties. Mr. G.N. Shah for the plaintiff states that he does not propose to lead any oral evidence on behalf of the plaintiffs. Mr. B.R. Shah for defendant No. 2 also states that he does not propose to lead any oral evidence in the matter but after inspection of documents from the official Liquidator, he may rely on such documents as he considers relevant to the subject matter which will be produced before the next date. Mr. Patel for the Official Liquidator also states that he does not propose to lead any oral evidence in the matter. S.O. to 30th August, 1983." 4.5 Thereafter on 30.8.1983, the following issues were framed: (at Ex. 38) 1. Whether the plaintiffs prove that the property, namely, the components of the Arc Furnace did not pass to the first defendant for non-fulfilment of the contract terms? 2. Whether the general terms and conditions printed overleaf the letter dated 15th November 1973 form part of the contract governing the relationship between the parties? 3. Whether the components delivered by the plaintiffs to the first defendant constituted an arc furnace for which the contract was executed? 4. Whether it is open to second defendant to contend that the said property passed to the first defendant in view of the first defendant's letter dated 2nd October, 1974? 5. Whether the second defendant proves that the plaintiffs had waived or forgone the rights conferred upon them under the contract by voluntarily delivering components of the arc furnace to the first defendant? 6. To what relief or reliefs are the plaintiffs entitled? 4.6 Bank of India, defendant No. 2 has filed an application dated 26.9.1983 and filed certain documents in this behalf Exh. 39 in which it has been stated that the plaintiff has made available a file of the correspondence exchanged between the parties in respect of the suit transaction. The copies of the documents produced along with a separate list from the said file are material for determining the matters at issue between the parties. The same may kindly be taken on record. It appears that the list of documents as mentioned along with the documents has been duly signed by the advocate for the defendant on 26.9.1983. All these correspondences were shown to me in this behalf. 4.6(a) The hearing of the aforesaid matter started in June 2000. Shri G.N. Shah, learned Sr. counsel along with Ms. Minoo Shah, learned advocate, appeared on behalf of the plaintiffs. 4.7 It was submitted that the plaintiffs had entered into an agreement Exh. 33 (pages 32-79) with defendant No. 1 for the manufacture of erection and supply of one complete electric arc furnace subject to the general terms and conditions. The plaintiffs relied on condition No. 15 of the general terms which provided that the goods supplied by us (plaintiffs) shall remain our property until full payment has been made. The plaintiffs therefore contended that the present suit is not for the recovery of the price / value of the parts or the components of electric arc furnace delivered to defendant No. 1. 4.8 It was submitted that in course of time certain components of electric arc furnace were delivered to defendant No. 1 by the plaintiffs. Defendant No. 1 had written a letter dated 2.10.1974 Exh. 36 (pages 84-86) stating that the components were despatched before defendant No. 1 could finalise financial arrangements and therefore the same were lying in the custody of defendant No. 1 Polysteels. It was further stated that Defendant No. 1 would not be responsible for any loss or damage may cause to the components. The same would have to be borne by the plaintiffs. Defendant No. 1 agreed to keep the same in safe custody (account of the plaintiffs). Defendant No. 1 claimed refund of freight charges paid by it. The components were held by defendant No. 1 at the risk and costs of the plaintiffs. 4.9 It was further submitted that the plaintiffs were the owners of the components. Defendant No. 1 since 1974 was merely a custodian or a trustee of the components for the benefit of the plaintiffs. Consequently defendant No. 2 on behalf of defendant No. 1 cannot now contend after the lapse of 26 years that defendant No. 1 was the owner of the goods and therefore defendant No. 1 is now represented by the Official Liquidator. Further defendant No. 1 has not filed any written statement contesting the