1 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED:14.06.2011 CORAM: THE HONOURABLE MR.JUSTICE T. MATHIVANAN C.S.No.392 of 1998 Bhagwandas Metals Ltd., ... Plaintiff Vs. 1.M/s.Raghavendra Agencies 2.L.S.Dwarakanath ... Defendants Prayer: Suit is filed under Order IV Rule 1 of O.S.Rules read with Order VII Rule 1 of Civil Procedure Code for recovery of money to the tune of Rs.61,48,000/- with interest at 24% per annum from the date of plaint till the date of payment. For Plaintiff : Mr.S.Raghavan For Defendants : Mr.K.Manoj Menon for Mr.V.Nataraj J U D G M E N T The factual matrix of the case of the parties to the suit may be summarized in short as follows: The suit is filed by the plaintiff for recovery of money to the tune of Rs.61,48,000/- with interest at 24% per annum from the defendants towards damages for the breach of contractual obligations on the part of the defendants. https://hcservices.ecourts.gov.in/hcservices/ 2 Case of the plaintiff: 2. The plaintiff is engaged in the manufacture and sale of Iron and Steel rolled products, namely C.T.D.Bars, M.S.Rounds, Angles and Channels and it has a re-rolling Mill at Manali. The plaintiff has planned an expansion programme by increasing the installed capacity of the existing re-rolling mill at Manali from 21000 T.P.A. to 36000 T.P.A. and for this purpose it has proposed to set up a new mini steel plant of 38400 T.P.A. capacity for the manufacturing of ingots, which is raw material for the re- rolling mill. 3. Ex.P1 is the project profile for the new expansion programme and in accordance with Ex.P1 the capital outlay was estimated at Rs.532/- lakhs. As per the project appraisal report, the public issue (Ex.P2 is the Prospectus of Public Issue) and the capital expenditure programme was expected to be completed by June 1995 end. The plant and machinery required for commencing production with special reference to induction, furnace and oil circuit breakers/capacitors were to be procured by March/April 1995 as the commercial production of ingots was to start by April 1995, with one furnace and the second furnace to be operational from July 1995 as borne out in the prospectus. 4. One of the basic essential equipment required for its proposed mini steel plant is 11 K.V.A. Bulk Oil Circuit https://hcservices.ecourts.gov.in/hcservices/ 3 Breaker (hereinafter be referred to as BOCB). 5. The first defendant, who is an authorized dealer of BOCB, manufactured by M/s.Crompton Greaves Ltd., who is the leading manufacturer of the said equipment, by letter dated 12.01.1995 (Ex.P3) offered to supply the BOCB specifying the price of various components required. The plaintiff had informed the defendants that the equipment was needed by the first week of April 1995. 6. On receipt of the offer (Ex.P3) from the defendants, the plaintiff had placed its purchase order dated 13.01.1995 (Ex.P4) at Chennai with the defendants for the supply of BOCB at Chennai at the price of Rs.5,03,350/. Along with the purchase order, the plaintiff paid an advance of Rs.1,00,000/- vide Cheque No.222142 dated 13.01.1995 agreeing to pay the balance at the time of delivery. 7. The defendants vide its letter dated 24.01.1995 (Ex.P6) while confirming the purchase order of the plaintiff acknowledged the receipt of the advance of Rs.1,00,000/- vide receipt dated 17.01.1995 (Ex.P5). The defendants had also informed the plaintiff that the order was placed by it on M/s.Crompton Greaves Limited for the supply of BOCB to the plaintiff and that the machinery would be delivered by the end of March or first week of April 1995. The defendants vide its letter dated https://hcservices.ecourts.gov.in/hcservices/ 4 24.01.1995 (Ex.P6) had unequivocally accepted the terms and conditions of supply of BOCB as stipulated in the purchase order. 8. Whileso, the plaintiff had received a letter dated 25.03.1995 (Ex.P7) from the defendant informing that one of the main component used in the BOCB namely “Relays” manufactured by M/s.English Electric Company of India (who is a leading manufacturer of the said item) was not readily available either in the market or with Crompton Greaves Limited and therefore requested the plaintiff to consent for substitution of the same with “Easun Reyrolls Relays” for the reliable performance of which the defendants agreed to stand guarantee. In view of the urgency and to avoid any delay in the supply of BOCB, the plaintiff vide its letter dated 06.04.1995 (Ex.P8) had agreed for the substitution as sought for by the defendants. 9. Despite the plaintiff's repeated requests and reminders, the defendants had failed to arrange for the supply of BOCB in time. The plaintiff had received a letter dated 11.07.1995 (Ex.P9) from the defendants enclosing two proforma invoices both dated 11.07.1995 one for Rs.3,46,382/- and the other one for Rs.2,82,048/- totaling Rs.6,28,430/- (proforma invoices Exs.P10 and P11) requesting for the payment of the amount immediately to enable the defendants to arrange for the supply of the https://hcservices.ecourts.gov.in/hcservices/ 5 machinery. 10. The plaintiff had also received another letter dated 14.07.1995 (Ex.P12) from the defendants asking to release the payment immediately for dispatch of the machinery. Such a demand by the defendants, coupled with the delay in supply, was contrary to and also in breach of the agreed terms and conditions of the purchase order governing the supply, when as per the purchase order, payment had to be made only at the time of delivery. 11. Subsequent to the discussions made with the defendants, the plaintiff had agreed that the defendant would draw a Hundi for a sum of Rs.5,28,403.40 be in the invoice amount, less Rs.1,00,000/- advance already paid on 45 days credit. Accordingly hundi papers were duly accepted by the plaintiff and its Bankers at Madras and delivered to the Madras representatives of the defendants. 12. The machinery was delivered at Madras to the plaintiff on 16.08.1995 after a delay of more than four months beyond the agreed date of supply as per the purchase order dated 13.01.1995. 13. The BOCB was commissioned by the end of August 1995 and the production in the mini steel plant of the plaintiff was commenced immediately. Despite the guarantee and promise made by the defendants, the BOCB had developed major snags, and hence it was not able to be put into https://hcservices.ecourts.gov.in/hcservices/ 6 effective operation. As such production of the plaintiff came to a grinding halt in the second week of September 1995. This fact was informed to the defendants by the plaintiff through its letter dated 13.09.1995 (Ex.P20). 14. After receiving the information, the defendants had sent a Service Engineer from Crompton Greaves Limited and after rectifying the said defect he had given a report dated 12.09.1995 (Ex.P9) on behalf of the defendants. 15. Due to undue delay caused by the defendants in delivering the BOCB there was in turn delay in commissioning the new expansion programme, which included the setting up of a mini steel plant and thus the entire expansion programme suffered a serious set back, not only in terms of delay in commissioning the new project, but it had also seriously affected the projected profitability figures and resulted not only in monitory loss to it, but also resulted in loss of reputation of the plaintiff in the market. 16. The plaintiff had therefore written a letter to the defendants on 01.10.1995 (Ex.P23) bringing to its notice about the loss of profits to the tune of Rs.51,48,000/- apart from suffering loss of reputation in the market and that the defendants had committed breach of the terms of the contract and is therefore liable to make good the loss of profit of Rs.51,48,000/- as well as damage on the ground https://hcservices.ecourts.gov.in/hcservices/ 7 of mental agony, stress and strain harassment and loss of market reputation amounting to Rs.10,00,000/- totaling in on Rs.61,48,000/- and called upon the defendants to pay the same within seven days from the date of receipt of that letter. After receiving the same, the defendants had sent a reply on 20.10.1995 (Ex.P25) repudiating the claim made by the plaintiff, setting up a false claim that all the deliveries were subject to force majeure clause, which was never a part of the terms and conditions of the purchase order of the plaintiff dated 13.01.1995. 17. Then the plaintiff had issued a legal notice dated 07.12.1995 (Ex.P25) setting out in detail its claim and called upon the defendants to pay a sum of Rs.61,48,000/-. The defendant had also sent a reply dated 25.12.1995 (Ex.P27) through its Advocate with false allegations and frivolous claim to the tune of Rs.38,28,421.41. 18. The plaintiff is therefore entitled to recover a sum of Rs.61,48,000/- as demanded through its legal notice dated 07.12.1995 (Ex.P5) with interest thereon at 24% per annum from the date of plaint. Case of the Defendants: 19. Based on the discussions with the plaintiff, the first defendant had furnished a quotation dated 12.01.1995 to the plaintiff for the supply of BOCB on the following terms and conditions: https://hcservices.ecourts.gov.in/hcservices/ 8 PRICE BASIS: The price, quoted is on ex-works, Nasik basis and exclusive of Freight, Insurance charges, sales tax, excise duty, octroi etc., which would be charged as applicable at the time of dispatch. Prevailing rate of excise duty is 20% and CST 4% against “C” form. Any fresh imposition of statutory levies would be extra to plaintiff's account. The quoted prices are firm during the validity of the offer. DELIVERY: The panels shall be delivered within five months from the date of receipt of technically and commercially clear purchase order or receipt of advance or drawing approval, whichever is later subject to force-majeure conditions. Make of brought out items shall be of defendants choice to enable them to maintain delivery schedule. PAYMENT TERMS: 30% value of the order as advance and balance against Proforma Invoice before dispatch. VALIDITY: Unless previously withdrawn, offer is valid https://hcservices.ecourts.gov.in/hcservices/ 9 for the acceptance of the plaintiff for the period of 30 days from the date of this quotation viz. from 12.01.1995. GUARANTEE: The equipment is guaranteed for 18 months from the date of dispatch or 12 months from the date of commissioning whichever is earlier, against manufacturing defects. 20. The first defendant after receiving the purchase order dated 13.01.1995 had consequently placed an order dated 18.01.1995 with its Principal, M/s.Crompton Greaves Limited for the supply of the said BOCBs. The first defendant had also written a letter to the plaintiff on 24.01.1995 stating that they would try to advance the delivery of the said BOCBs by the end of March/First week of April. There was no irrevocable commitment by the first defendant to an earlier date of delivery than as stipulated in its quotation dated 12.01.1995. 21. The first defendant was informed by its Principal that “Relays”, manufactured by English Electrical Company Limited, a critical component in the manufacture of the said BOCBs was unavailable either with itself or in the market. The first defendant vide its letter dated 25.03.1995 had inturn informed the plaintiff of the https://hcservices.ecourts.gov.in/hcservices/ 10 situation and suggested an equally effective substitute manufactured by M/s.Easun Reyrolle Limited and further also stood guarantee for the effective performance of the substitute. The plaintiff had agreed for the use of the substitute without any reservation vide its letter dated 06.04.1995. The purchase order dated 13.01.1995 included personal visits to its Principal's factory at Nasik. 22. By the diligent efforts of the defendants the said BOCBs were made ready for dispatch and the first defendant vide its letter and Proforma Invoice No.1125, dated 11.07.1995 had informed the plaintiff of the same with the request to make payment of the balance consideration to enable the first defendant to deliver the material at door- delivery basis. But, the plaintiff had insisted that the said BOCBs should be first dispatched and the dispatch particulars furnished to it. This was contrary to the contractual obligations between the plaintiff and the first defendant. 23. It was after a great deal of persuasion, the first defendants' Principal M/s.Crompton Greaves Limited had dispatched the materials on 23.07.1995 through one of their approved transporters and the dispatch particulars were also furnished to the plaintiff vide letter dated 24.07.1995 to arrange for transit insurance. Even after getting all dispatch particulars, the plaintiff had https://hcservices.ecourts.gov.in/hcservices/ 11 insisted upon the handing-over of the documents rather than releasing of payment as per the contractual obligations. Further the first defendant had agreed for the transaction to be negotiated by a Hundi on 11.08.1995, co-accepted by the plaintiffs Bankers, with all chargers towards Hundi Papers, interest charges, discounting and all other incidental charges being borne out by the first defendant. By the conduct of the plaintiff, the first defendant had to incur a financial loss amounting approximately to Rs.12,000/-. The plaintiff did not raise any objections or demur when the said BOCBs were delivered or when the Hundi, for the entire contract consideration less the advance of Rs.1,00,000/- received from the plaintiff was discounted on 11.08.1995. The plaintiff had therefore accepted the delivery of the said BOCBs and made the payment unconditionally and without any reservation. 24. That on 13.09.1995, the plaintiff had written a letter to the first defendant mentioning about some vague problem with the said BOCBs and in pursuant to the letter of the first defendant to its Principal, M/s.Crompton Greaves Limited's office at Chennai, a Service Engineer was deputed to visit the plaintiff's site on 11 and 12th September, 1995 and he had found that the said BOCBs were fully operational. The plaintiff, despite the first defendant's communications, had not till date furnished the https://hcservices.ecourts.gov.in/hcservices/ 12 exact nature of the problem if any. 25. It would be relevant to note here that the plaintiff has preferred the suit after more than two years since its legal notice dated 07.12.1995. No details have been given in the plaint as to how the plaintiff has arrived at a sum of Rs.51,48,000/- for the loss of profits. Nowhere has the plaintiff quantified the loss of profit. 26. The alleged delay on the part of the first defendant is not correct and that the first defendant had in its offer letter dated 12.01.1995 clearly stated that the said BOCBs would be supplied within five months from the date of receipt of a clear Order subject to Force Majeure conditions. The non-availability of the “Relays” is a Force Majure condition beyond the control of the defendants. Assuming, without admitting, that there had been any delay as alleged on the defendants' part, the same is covered by the said Force Majure condition stipulated in the defendant's quotation dated 12.01.1995. The plaintiff had also agreed for use of the substitute vide letter dated 06.04.1995 without any reservation. Therefore, the allegations of delay is wholly incorrect and without any basis. 27. The defendants are not at all liable for loss of profits to the tune of Rs.51,48,000/- or for any sum towards loss of reputation or breach of contract or damages https://hcservices.ecourts.gov.in/hcservices/ 13 on the ground of mental agony, stress, strain etc., to the tune of Rs.10,00,000/-. The claim for loss of profit is wholly untenable and not legally valid. It is also to be noted here that no part of the cause of action arose at Madras within the jurisdiction of this Court. 28. No part of cause of action arose at Madras within the jurisdiction of this Court and hence the suit is liable to be dismissed on the grounds of lack of territorial jurisdiction. 9. Based on the pleadings of the parties to the suit, this Court has formulated the following issues for the better adjudication of the suit: 1. Have defendants committed breach of the purchase order dated 13.01.1995 (Plaint Doc.No.4)? 2. Whether the machinery (BOCB) supplied by defendants to plaintiff were defective? 3. Whether the plaintiff suffered damage as set out in the plaint? 4. Whether the non-availability of the “Relays” was a force majeure as contended by defendants in the written statement? 5. Whether the defendants delivered the machinery to the plaintiff within the https://hcservices.ecourts.gov.in/hcservices/ 14 contracted period? 6. Whether no part of the cause of action for the suit arose at Madras? 7. Whether this Court has no jurisdiction to entertain the suit? 8. To what reliefs parties are entitled? 30. In order to establish their respective cases both the plaintiff and defendants went on trail. One Mr.G.P.Agarwal, Chairman and Managing Director of the plaintiff Company was examined as P.W.1 and during the course of his examination Exs.P1 to P39 were marked. On the other hand, Exs.D1 to D3 alone were marked on behalf of the defendants during the course of the cross-examination of PW1 and no oral evidence was adduced on their side. Regarding territorial jurisdiction: 31. It is significant to note here that the defendants have contended that no part of cause of action for the suit arose at Madras and that this Court has no territorial jurisdiction to entertain the suit and on that ground the suit is liable to be dismissed. On the basis of this contention, this Court has formulated Issue Nos.6 and 7 relating to territorial jurisdiction and they can be clubbed together and taken up as prime issues and be settled in common. https://hcservices.ecourts.gov.in/hcservices/ 15 Issue Nos.6 and 7: 32. Mr.S.Raghavan, learned counsel for the plaintiff, while advancing his arguments, has submitted that prior to the placing of purchase order under Ex.P4, the plaintiff had discussed with the defendants at Madras for the supply of machinery. In pursuant to the discussions, the first defendant had furnished an offer under Ex.P3, dated 12.01.1995 and on 13.01.1995 the plaintiff had also placed its purchase order under Ex.P4 with the defendants at Madras for the supply of BOCBs. 33. The learned counsel has also submitted that the plaintiff had also paid Rs.1,00,000/- towards advance and thereafter several correspondence were taken place between the plaintiff and the defendants between January 1995 and July 1995 and consequently the machinery viz.BOCBs was delivered at Madras by the defendants to the plaintiff on 16.08.1995. In this connection, he would maintain further that since part of the cause of actions were arisen within the jurisdiction of this Court, the suit was very well maintainable as this Court was having territorial jurisdiction to entertain the suit. 34. On the other hand, Mr.K.Manoj Menon, learned counsel appearing for Mr.V.Nataraj, learned counsel, who is on record for the defendants would submit that the first defendant had sent it's quotation to the plaintiff on https://hcservices.ecourts.gov.in/hcservices/ 16 12.01.1995 from Bangalore and that the plaintiff's purchase order dated 13.01.1995 (Ex.P4) was received by the first defendant at Bangalore and that the Hundi was also discounted at Bangalore and under this circumstance this Court did not have territorial jurisdiction to entertain the suit as no part of cause of action was arisen at Madras within the jurisdiction of this Court. 35. No doubt, the plaintiff's company is located at Door No.61, first floor, Sembudoss Street, Chennai. The defendants' firm is located at Bangalore. The defendants have admitted in their written statement that they had discussion with the plaintiff and that the first defendant had submitted a quotation dated 12.01.1995 to the plaintiff for the supply of BOCBs. It is obvious to note here that for the supply of BOBCs, according to the plaintiff discussions between the plaintiff and the defendants took place at Madras and that the purchase order dated 13.01.1995 was also placed with the defendants at Madras for the supply of BOCBs. It is pertinent to note here that the delivery of BOCBs was effected at Madras only by the defendants to the plaintiff on 16.08.1995, which has not been denied by the defendants. 36. In Ex.P4 purchase order also, it has been stated that the personal discussion with the defendants' offecial Mr.L.S.Dwarakanath was held at Madras by the plaintiff's https://hcservices.ecourts.gov.in/hcservices/ 17 Managing Director Mr.Murali Lal Sonthalia. 37. In this regard, reference to Section 20(c) of the Code of Civil Procedure, 1908 would be more appropriate. Section 20 of the Code of Civil Procedure, 1908 reads as follows: 20.Other suits to be instituted where defendants reside or cause of action arises.- Subject to the limitations aforesaid, every suit shall be instituted in a Court within the local limits of whose jurisdiction,- (a) ...................... (b) ...................... The proviso to Clause 'c' enacts as under: (C) the cause of action, wholly or in part, arises. Clause C to Section 20 C.P.C. assumes more important. As per the proviso to Clause C to Section 20 C.P.C. suit can be instituted in a Court within the local limits of whose jurisdiction the cause of action wholly or in part arises. 38. On coming to the instant case on hand, admittedly part of the cause of actions were arisen within the local limits of the territorial jurisdiction of this Court. Hence, it cannot be heard to say that this Court does not have territorial jurisdiction to entertain the suit. https://hcservices.ecourts.gov.in/hcservices/ 18 39. In this regard reliance can very well be placed on the decision reported in M/s.Lakhpat Rai Hukum Chand vs. M/s.Chhedi Ram Rajkumar, AIR 1979 Patna 120. In this case it is held that suit for recovery of money for breach of a contract can be filed where the part of the cause of action arises within the meaning of Section 20(C) of the C.P.C. It is well settled that cause of action means every fact which it is material for the plaintiff to prove in order to obtain a judgment in his favour. It also cannot be disputed that in relation to a contract, cause of action arises at a place where the contract was made or place where the contract was to be performed or the performance thereof completed or at a place where, in performance of the contract any money to which the suit relates was expressly or impliedly payable. 40. As discussed in the opening paragraph it is unambiguously established that part of the cause of action was arisen within the territorial jurisdiction of this Court, as the discussions between the officials of the defendants and the Managing Director of the plaintiff's company was held at Madras and that the delivery of the machinery viz.BOCBs was effected at Madras. Apparently, the defendants have not chosen to put any question to PW1 with regard to the territorial jurisdiction of this Court when his chief-examination stood tested in the cross- https://hcservices.ecourts.gov.in/hcservices/ 19 examination. Hence, the question of lack of territorial jurisdiction of this Court does not arise in this case. Accordingly, Issue Nos.6 and 7 are answered in favour of the plaintiff. Issue Nos.1, 4 and 5: 41. The whole case has been revolving around the proviso to Section 55 of the Indian Contract Act, 1872. For the better adjudication of this case, it may be appropriate to extract Section 55 of the Indian Contract Act, 1872 (hereinafter it may be referred to as the Act). Section 55 of the Act reads as follows: 55. Effect of failure to perform at fixed time, in contract in which time is essential:- When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before specified times, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract. Effect of such failure when time is not essential:- https://hcservices.ecourts.gov.in/hcservices/ 20 If it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do such thing at or before the specified time; but the promisee is entitled to compensation from the promisor for any loss occasioned to him by such failure. Effect of acceptance of performance at time other than that agreed upon:- If, in case of a contract voidable on account of the promisor's failure to perform his promise at the time agreed, the promisee accepts performance of such promise at any time other