1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. Suit No.1813 of 1980 The Cotton Corporation of India Ltd. ... Plaintiffs Versus Chakolas Spinning and Weaving Mills Ltd. ... Defendants Mr.Rajesh Shah with Mr.U. Mahajan i/by M/s.Divekar & Co. for Plaintiffs. Mr.Pradeep Sancheti with Mr.Sandeep Shreekumar i/by M/s.Mulla & Mulla for Defendants. ------ CORAM : SMT.ROSHAN DALVI, J. Dated : 15 th December 2008 JUDGMENT : 1. The Plaintiffs are the canalizing agents of the Government of India for import and supply of foreign cotton to several Indian Textile Mills. The Defendants carry on business of a textile mill. 2. Pursuant to the circular issued by the Plaintiffs in respect of availability of cotton from various countries which would be shipped to India, the Defendants registered their offer to purchase cotton from Mexico, Guatemala, Nicaragua and Brazil. The Plaintiffs issued their permission/quota letter for 2 specified bales of cotton to the Defendants. The parties entered into a contract bearing No.G-444 in respect of the shipment import and supply of the cotton from the aforesaid 4 countries specified therein. The parties similarly entered into another contract in respect of further offer of the Defendants for certain cotton from Turkey, of which specified bales were permitted under the Plaintiffs' Contract No.G- 511. Both the contracts are identical. They are marked Exhibits D and H in evidence. The rights and obligations of the parties under those two written contracts would have to be considered upon interpretation of the contracts admittedly executed by the parties. 3. The goods under the said contract arrived at the Port of Cochin except in respect of 1 shipment which arrived at the Port of Mumbai instead. The Defendants were informed by the Plaintiffs to retire their documents and clear the consignment. The arrival of the shipment is admitted by the Defendants. The goods were not cleared. 4. It is contended by the Plaintiffs that despite correspondence through letters and telegrams in that behalf, the Defendants failed to clear the goods, due to which the Plaintiffs incurred demurrage charges and thereafter were constrained to themselves to clear the goods and store the goods until they 3 were sold to another party. The Plaintiffs accordingly incurred carrying charges in respect of the storage. The Plaintiffs sold the goods at the price which could be obtained upon a private treaty after a tender in that behalf as the sale by auction did not yield any offer. 5. The Defendants contend that 2 of the shipments arrived late and in view of delay in the shipments they incurred a loss in their business and were not bound to take delivery of any of the shipments. 6. Each party has accordingly alleged breach of the contract by the other. Whereas the Defendants have not sued the Plaintiffs on the breach, if any, committed by the Plaintiffs, the Plaintiffs have sued the Defendants for damages for the loss suffered by the Plaintiffs upon a breach by failure to take delivery of the consignments that arrived in respect of the contract material. 7. Based upon the respective pleadings of the parties which sets out essentially the breaches of one another and the right to claim damages, if any, by the Plaintiffs Justice A.B.Palkar, as he then was, framed the following issues on 11.4.2000 which are answered as follows:- 4 ISSUES (1)Whether the Plaintiffs prove that the Defendants committed breach of the Contract by not taking delivery of the cotton under the two contracts. .. .. Yes (2)Whether the Defendants prove that the Plaintiffs committed breach of the contract by causing delay in delivery of the suit cotton. And if so, whether the Defendants are entitled to cancel the contract and not to take delivery of the suit cotton. .. .. No (3)Whether the Defendants prove that the Plaintiffs have not taken steps to mitigate the loss and thereby the Defendants stood discharged of any loss caused to the Plaintiffs. .. .. .. .. Partly Yes. Partly No (as per reasons) . (4) Whether the Plaintiffs prove that the Plaintiffs suffered loss of Rs.25,62,471.41 or for any other amount and that the Plaintiffs are entitled to interest thereon as claimed in the Suit. .. .. .. Yes – as per reasons . (5) What reliefs ? .. .. As per final order. 8. The parties have essentially led evidence of one of their respective officers. Though the Plaintiffs have led evidence of PW2 and 3 in respect of certain corrections and in deposing how certain documents cannot be produced, that evidence has proved to be immaterial and need not be considered. 9. All the documents relating to the contract being essentially the correspondence that were entered into by and between 5 the parties in respect of the shipment and the delivery of the consignment which was required to be taken are admitted documents. They are relied upon by both the parties in their respective Affidavits of documents. The Plaintiffs' documents have been marked Exhibits alphabetically. Certain documents other than those relied upon by the Plaintiffs produced by the Defendants have been marked Exhibits numerically. 10. The essential contention of breach alleged by both the parties shall have to be determined upon interpretation of the documents relating to the suit contracts relied upon by both the parties. It would be material to consider which party committed breach of the suit contracts. If the Plaintiffs committed breach of the suit contracts by delay in delivery entitling the Defendants to cancel the contract and not to take delivery the entire action of the Plaintiffs would fail and other issues would not be required to be decided. If it is seen that there is no breach committed by the Plaintiffs, it would have to be seen whether any breach was committed by the Defendants in not taking delivery of the consignment under the suit contracts and its consequences. 11. It may be mentioned that the fact that the goods arrived and the Defendants were asked to take delivery but failed to 6 take delivery is admitted. The Defendants have justified why they would not take delivery of the suit consignments. For such justification the written documents between the parties alone would have to be considered and interpreted. Any oral evidence inconsistent with such documentary evidence would stand excluded under the elementary principle of exclusion of oral by documentary evidence contained in Section 91 of the Indian Evidence Act. 12. If breach of the contract by not taking delivery of the consignment is seen on the part of the Defendants, then further aspect with regard to the entitlement of the Plaintiffs to claim damages for the loss suffered by the Plaintiffs on account of the breach would have to be considered. In that event the mitigation of damages, if any, by the Plaintiffs would further have to be considered. 13. To that end, the Plaintiffs have sought to resell the consignment under the contract to a third party. The Plaintiffs have issued a tender/tenders for sale of the goods by public auction. Since the Plaintiffs failed to have any offers in respect of the articles to be auctioned, the Plaintiffs sold the consignments under the suit contracts by private treaty. P.W.1, a retired officer of the Plaintiffs, who was serving with the Plaintiffs at the time of the suit contract and 7 resale, has led evidence of the resale. He has produced copies of 4 invoices in respect of the consignments under the contract as well as other consignments containing the goods of the contract description to show the sales effected. 14. The Plaintiffs have produced documents in respect of the charges incurred by the Plaintiffs for demurrage etc. Such documents carry a presumption of correctness for considering their admissibility under the Commercial Documents Evidence Act and are accordingly not disputed by the Defendants. 15. The Plaintiffs have also relied upon other private documents of their Clearing Agents to prove the further expenses incurred by them, but which documents have not been taken on record as they have not been proved by direct or secondary evidence. The Plaintiffs have fairly given up their claim in that regard. 16. The Plaintiffs have claimed interest as well as carrying charges as per the contract between the parties. 17. Upon giving credit for the amounts received by the Plaintiffs on the resale, the Plaintiffs have calculated the loss incurred by them initially as per the Particulars of Claim, Exhibit- A to 8 the Plaint. It would have to be seen whether the Plaintiffs are entitled to be reimbursed the loss claimed by them as damages upon resale of the consignments not accepted by the Defendants under the suit contracts. 18. Issue No.1 : Pursuant to the Circular dated 21.2.1971, Exhibit- A in evidence, issued by the Plaintiffs showing the various types of cotton available for allocation to the Textile Mills, the Defendants registered their requirements in respect of 4 types of cotton under their letter dated 7.3.1977, Exhibit- B in evidence. The Defendants specified the time of delivery; they required the cotton for May, June, July and August shipment. The Defendants also specified the quantity required by them; they required 500 bales of each of the 4 varieties specified in their aforesaid letters. They further specified that they were to avail of credit facilities offered by the Plaintiffs and they would arrange to secure the required guarantee upon the Plaintiffs confirming the grant of credit. The Defendants applied for 500 bales each of Mexican, Guatemala, Nicaraguan and Brazilian cotton. The Textile Commissioner, by his letter dated 18.3.1977, Exhibit- C in evidence, granted to the Defendants 85 bales of Mexican cotton, 50 bales of Guatemala cotton, 500 bales of Central American cotton, 500 bales of Nicaraguan cotton and 500 bales of Brazilian cotton. These were to be imported by the 9 Plaintiffs and were available for immediate contracting and shipment not later than 30.6.1977. 19. The parties however entered into a written Contract No.G- 444 on 18 th March 1977 for supply of 50 bales Guatemala cotton, 85 bales of Mexican cotton, 500 bales of Nicaraguan cotton and 500 bales of Brazilian cotton. Central American and Nicaraguan cotton has not been supplied and the parties are not at dispute with regard to that aspect. The other three types of cottons were to be shipped in May, June and July 1977, respectively. As per the modification of the contract made by the Defendants, the shipments were to be made in “approximately equal quantities ” in the aforesaid months. The Defendants have not pressed the said mode of shipment except for requesting approximately equal quantities. 20. The parties entered into a further Contract No.G-511, Exhibit- H on 28 th March 1977 for 58 bales of Turkish cotton, which was to be shipped in April/May 1977. The specific requirement for the time of shipment set out in the contract was “If possible in April 1977, otherwise in May 1977. ” 21. The Defendants have contended that the goods arrived late and hence they are not bound to accept the delivery. It may 10 be mentioned that the contract specifies the months of shipment and not the dates of arrival. It is an admitted position between the parties that the date of the shipment of Turkish cotton was 1.6.1977. Contract No.511 shows that shipment was to be made if possible in April 1977, and otherwise in May 1977. It was made on 1.6.1977, a day after the shipment period expired. Brazilian cotton was shipped on 12.8.1977. Under Contract G-444 the months of shipment of Brazilian cotton was June/ J uly 1977. It was, therefore, shipped 12 days later than the period of shipment specified in the contract. 22. Guatemala cotton and the Mexican cotton were admittedly shipped during the period of shipment specified in the contract. The parties have no dispute with regard to the time of shipment or arrival of those consignments and none are shown to Court. 23. It is contended on behalf of the Defendants that the Turkish cotton arrived on 26.7.1977 and Brazilian cotton arrived on 21.9.1977. It is contended that, therefore, the shipment was long delayed. Time, which is ordinarily of the essence in the contract for sale of the movable goods, was important to the Defendants and was of essence of this contract and the 11 Defendants were not obliged to take delivery of any of the goods after the contract period. 24. Time is presumed to be essence of contract for movables because in a contract for sale of movable goods there are various other inter- connecting contracts – the Defendants would have to process the cotton, manufacture material and sell it to a third party. The Defendants would have such contracts already entered into and because of delay of one contract the others would be delayed exposing the Defendants to needlessly defend claims for damages in various actions in law. It is upon such a scenario for contracts of movable properties that time which is ordinarily taken to be of essence or even presumed to be of essence, can be shown to be otherwise, expressly or impliedly. 25. The time of shipment is specifically mentioned in the suit contracts, though the fact that time is of essence is not mentioned. It would have to be seen whether time was indeed of essence in the suit contracts or whether the clause relating to the period of shipment denoting time for the performance of the contract, indicated and specified otherwise. 26. The circular of the Plaintiffs, Exhibit- A and the quota 12 letter/permission of the Textile Commissioner, Exhibit- C, show initially the availability of certain varieties of cotton which would be imported in shipments specified in certain months. The registration of the Defendants for the cotton bales required by them under their letter dated 7.3.1977 shows that they would require the cotton bales specified by them for May, June, July and August shipments at the rate of 500 bales each in every shipment. Hence, the Defendants wanted to put up the time- limit for the performance of the contract within a 4-month period. They would require 500 bales each month beginning May 1977. They required similar quantities of cotton each month, including the last installment of cotton in August 1977. It need hardly be mentioned that the Defendants would be required to make payment at the time of shipment. Hence, the requirement for payment would be to the extent of the price of 500 bales each month. The Defendants' letter specifying the time of shipment in the aforesaid 4 months further specified the requirement of credit facilities to be offered by the Plaintiffs. A reading of the first offer of the Defendants, therefore, shows that they required the consignment of cotton over a period of 4 months when they would take delivery and make payment. 27. Since the cotton was in short supply and the extent of the 13 supply was to be allowed by the Government, the Textile Commissioner granted to the Defendants lesser quantities of certain cotton than what they applied for. Those consignments were available for immediate contracting and shipment. Shipment was to be not later than 30.6.1977. The quota letter/permission showed that no extension of date would be allowed. Hence, the Government required the Defendants not to spread over the contract period as much as the Defendants would have wanted or desired. This would apply specially in respect of the August shipments. 28. Ultimately, the parties entered into the written contract and the terms of that contract would govern the parties. The original contract, Exhibit- D in evidence, shows the relevant blanks being filled upon a typewriter specifying the months of shipment. The original contract No.G-444 has been sent to the Defendants. The original contract has been produced by the Defendants in their Affidavit of documents. Copy of the contract containing carbon copy of the typewritten portion which is also signed in original by both the parties is produced by the Plaintiffs. That has been marked Exhibit- D in evidence. The original contract produced by the Defendants is marked Exhibit D-1 in evidence so as to read the two documents together. 14 29. The typewritten portion at the bottom of the first page of the contract showing the bales actually to be delivered to the Defendants under the contract sets out the period of the shipment. The period is between May and July. The Defendants have put added specifications in black pen in the duplicate copy of the contract, Exhibit- D in evidence. [That portion has been typewritten in the original contract produced by the Defendants marked Exhibit D-1 in evidence.] The added portion against the months of shipment in case of shipment of Guatemala , Mexican as well as Brazilian cotton shows “approximately equal quantities ”. This addition is made by the Defendants with the same ball pen with which the contract is signed by their representative. Hence, a reading of the entire clause relating to the time of shipment shows the Defendants' desire to obtain only part of the consignment of each variety of cotton at one time. Half consignment is, therefore, neither wanted nor expected by the Defendants in first month of the period of shipment. 30. It is contended by Mr.Sancheti on behalf of the Defendants that the quota letter/permission of the Textile Commissioner, Exhibit- C, is issued under the Essential Commodities Act, 1955 for cotton which is an essential commodity under Section2(a) thereof. The permission is 15 granted for import contracting and shipment not later than 30.6.1977. The permission shows that no extension would be allowed. He, therefore, contends that this is a specified obligation making the time of the shipment of the essence in addition to the presumption under the Sale of Goods Act. The permission/quota letter dated 18.3.1977 which is a cyclostyled letter, would have to be read along with the initial letter of the Plaintiffs themselves dated 21.2.1977, Exhibit- A, showing the availability of cotton for allocation during the specified months of shipment and the later contract specified the periods of shipment extending upto 2 months. It is argued on behalf of the Defendants that such extension would be void. The provisions of the Essential Commodities Act do not show this aspect, though it shows that contravention of any order made under the Essential Commodities Act would be punishable under Section 7 thereof. The fact that the Plaintiffs, who are the canalising agents of the Government in respect of cotton itself, have shown the period of shipment in their initial letter as well as in the later contract, the specific time of contracting and shipment mentioned in the Textile Commissioner's order, Exhibit- C, would be taken to be modified in terms of the contracts, Exhibits D & H, by which alone the parties are governed, provided that it is to the extent of the quantity granted. 16 31. It is also contended that in the letter of the Defendants dated 18.4.1977 immediately after the contract the time was specifically made of the essence. My attention is drawn to the specific paragraph of that letter in that behalf. It is thus:- “You may please arrange to effect shipment of the 1135 bales foreign cotton (50 B/s. Guatemala, 85 bales Mexican, 500 Bales Nicaragua & 500 bales Brazilian) to Cochin Port as per shipment periods laid down in the contract.” It may be mentioned that the said paragraph repeats the shipments for the purpose of specifications as to the description of the goods, the quantity, the Port of delivery as well as the “periods” laid down in the contract. It will have to be seen whether a period of 2 months specified in the contract would show the intention of the parties to make the time of the essence. 32. So far as contract No.G-511, Exhibit- H in evidence, is concerned, it specifies the time of the contract to be “April/May shipment- buyer’s option” and further specifies that if it was possible, it would be in April 1977, otherwise it could be in May 1977. A reading of this clause relating to the time of shipment shows that the Defendants did not 17 want delivery urgently or within a specified time- frame. The Defendants were amenable to obtaining delivery within a span of 2 months. 33. The aforesaid two clauses in the aforesaid 2 contracts relating to the time of shipment does not show the last date on which the shipment is expected or required. In fact, it does not mention the date of shipment – it mentions the months of shipment. Shipments could be made within 30/31- day period at any time. The aforesaid contracts, therefore, show that though time may be presumed to be of essence in the contracts of this kind, it was specifically made not of essence in the suit contracts. The shipment on 1.6.1977 may be hours after the technical expiry of the month of May 1977. 34. Had the time been of essence and were the Defendants to be put to any loss only upon delay in the shipment, even by a single day, the Defendants would be expected to have inquired from the Plaintiffs and stated their position with regard to the consequences of late delivery immediately after the last date of shipment expired and the goods failed to arrive. The consignments under the contract are stated to have arrived on 26.7.1977 with regard to Turkish cotton and 21.9.1977 with regard to Brazilian cotton, the two 18 consignments in respect of which the Defendants have taken exception. The conduct of the Defendants upon the arrival of the consignments is, therefore, required to be seen. That conduct is reflected in the admitted correspondence between the parties by letters and telegrams. 35. The Turkish cotton was shipped on 1.6.1977. This shipment is shown to be delayed by one day. It is shipped a day after the period of shipment mentioned in contract No.G-511. The Plaintiffs issued the shipment advice to the Defendants on 9.6.1977, Exhibit- J in evidence. Mexican cotton was shipped on 12.6.1977. The Plaintiffs issued their shipment advice on 17.6.1977, Exhibit- K in evidence. There is no dispute that this shipment is delayed. The Guatemala cotton was shipped admittedly within the contract period (though the date of shipment is not provided by both the parties). The Plaintiffs issued their shipment advice on 30.6.1977, Exhibit- L in evidence, showing that it was shipped in June 1977 itself. The Brazilian cotton was shipped on 12.8.1977. The Plaintiffs issued their shipment advice on 16.8.1977, Exhibit- P in evidence. Hence the shipment was 12 days after the period of shipment mentioned in contract No.G-444. 36. The Plaintiffs issued their invoices upon the Defendants 19 under their forwarding letters soon after the shipping advice was shipped. 37. The Plaintiffs issued their invoice dated 8.7.1977, Exhibit- M, in respect of Turkish cotton under their forwarding letter dated 16.7.1977, Exhibit M-1, setting out the name of the ship and the particulars of the shipment, claiming a sum of Rs.1,72,310.37 from the Defendants. The Turkish shipment, which is stated to be delayed by one day, is stated to have arrived in India on 26.7.1977. The Defendants have not refused to accept delivery. They have not taken exception to the delivery. They have not raised any dispute before or at the time of the arrival of the shipment also. They have simplicitor failed to take delivery. 38. The Plaintiffs issued their invoice dated 9.7.1977, Exhibit- N, in respect of Guatemala cotton under their forwarding letter dated 19.7.1977, Exhibit N-1, setting out the name of the ship and the particulars of the shipment claiming a sum of Rs.1,40,311.30 from the Defendants. The Guatemala shipment is not delayed and hence there is no dispute with regard to the time of shipment. 39. Similarly the Plaintiffs issued their invoice dated 20.7.1977, Exhibit- O in respect of Mexican cotton under their 20 forwarding letter dated 1.8.1977, Exhibit O-1, setting out the name of the ship