IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA. OSA No. 12 of 2002 and Cross Objections No.15 of 2002. Reserved on: 26.4.2011. Decided on: _ .7.2011. __________________________________________________________ 1. OSA No. 12 of 2002: H.P. Horticulture Produce Marketing & Processing Corporation Ltd. … Appellant. Versus M/s Azeet International (Pvt.) Ltd.. … Respondent. ___________________________________________________________ 2. Cross Objections No. 15 of 2002: H.P. Horticulture Produce Marketing & Processing Corporation Ltd. … Non-Cross Objector/Appellant/defendant. Versus M/s Azeet International (Pvt.) Ltd.. … Cross Objector/Respondent/plaintiff. __________________________________________________________ Coram: Hon’ble Mr. Justice R.B. Misra, Judge. Hon’ble Mr. Justice V.K. Sharma, Judge. Whether approved for reporting?1 Yes. For the appellant : Mr. Shrawan Dogra, Advocate for the appellant and Non-cross-objector. For the respondent : Mr. K.D. Sood and Mr. Mukul Sood, Advocates for the respondent and cross-objector. ___________________________________________________________ Justice V.K. Sharma, Judge. The present Original Side Appeal and Cross Objections have arisen out of the judgment and decree dated 9.4.2002 rendered by a learned Single Judge of this Court, in Civil Suit No. 110 of 1992, M/s Ajeet International versus H.P. Horticulture Produce Marketing & Processing Corporation Ltd., whereby the suit for recovery of Rs. 12,62,165.30 filed by the respondent herein in OSA No. 12 of 2002 as plaintiff against the appellant herein in the said OSA being the defendant, was partly decreed in the sum of Rs. 3,33,774.10 in the following terms vide para 34 of the impugned judgment dated 9.4.2002:- “In view of the findings given above, a decree for Rs. 3,33,774.10 with simple interest at the rate of 12% per annum on Rs. 25,000/- w.e.f. 1.3.1990 and on the remainder w.e.f. on expiry of 15th day from the date of 1 Whether reporters of the local papers may be allowed to see the judgment? Yes. 2 the last supply(s) of the cartons comparable in value to the remainder till the realisation of the decretal amount is passed in favour of the plaintiff and against the defendant. It is further ordered that the defendant shall also be liable to pay proportionate cost of the suit calculated on the decretal amount.” 2. Whereas, the appellant-defendant has prayed that the appeal may be allowed and the impugned judgment and decree dated 9.4.2002 quashed and set aside and the suit of the plaintiff dismissed with costs throughout, according to the respondent- plaintiff its claim ought to have been decreed in toto. However, cross objections have been restricted to Rs. 3,14,252 besides pendente lite and future interest. 3. For the sake of convenience the parties shall be referred to hereinafter according to their status in the suit, that is, plaintiff and defendant. 4. Factual matrix of the case as emerges out of the pleadings on behalf of the parties as also noticed by the learned Single Judge is as follows. 5. The suit was filed by the plaintiff on the averments that it is a Company incorporated under the Companies Act having its registered office in Lower Jakhu Road, Shimla. It is engaged in the manufacture and sale of corrugated fibre board (CFB) and boxes for packing horticultural produce and industrial goods and also registered with the Director of Industries, Himachal Pradesh, Shimla. Shri Arun Jain being its Managing Director is authorised to sue on its behalf. The defendant is a Public Limited Company incorporated under the Companies Act having its registered office at Nigam Vihar, Shimla. Vide tender notice dated 28.1.1989, defendants asked the plaintiff to quote rates for supply of CFB cartons and the plaintiff tendered the offer alongwith earnest money deposit of Rs. 1.25 lacs, though, as per the policy decision of the State Government, plaintiff was not required to make such deposit. 3 The validity of the tender was admitted by a High Power Committee and the plaintiff Company was invited for negotiations. As per the decision taken by the High Power Committee, an order for 1 lac cartons was placed with the plaintiff subject to the conditions that a team of the defendant shall inspect the cartons before despatch by drawing four sets of samples on random basis out of the lots offered for despatch. One set of samples would be utilized by the team for post (sic spot) testing, another for test in a laboratory of repute at the cost of supplier, third would be retained by the supplier (plaintiff) and fourth by HPMC (defendant) for reference and record. The payment to the extent of 90% was agreed to be released on receipt of goods at the destination, subject to favourable test report from the testing team and 10% payment was to be released after receipt of a favourable report from the testing institution. Freight was to be paid by the plaintiff for transportation at destination in good condition, accompanied with S.T. Form 26. The inspection team drew the requisite samples, tested the same, issued clear test reports and took delivery of the material after physically counting the supplies. 6. In pursuance of clause (p) of the supply order, repeat orders were issued by the defendant on 2.6.1989 and 24.6.1989 for 1.15 lac cartons and 2 lac cartons, respectively and the specifications given in the supply order dated 15.5.1989, 2.6.1989 and 24.6.1989 were modified by the defendant vide letters dated 27.6.1989, 17.6.1989 and 25.8.1989 and sent despatch instructions for 1.20 lacs of cartons vide letters dated 6.1.1990, 2.1.1990 and 30.6.1990. The plaintiff, in all, supplied 4,15,066 cartons including 1806 cartons supplied for testing, valued at Rs. 69,54,355.50 on different dates against different bills. Against the said supplies, the defendant paid Rs. 62,30,312.75 to the plaintiff through cheques on different dates. Apart from the payments by cheques, a sum of Rs. 1,97,000/- was adjusted being freight paid 4 by the defendant as per the terms and conditions of the supply order. The defendant having received all the cartons and recovered the full payment by further sale, have failed to pay the remaining legitimate amount to the plaintiff despite repeated reminders and notices, that too, when the samples had met the specified parameters of testing. It is further claimed that the defendant failed to implement the payment schedules and terms, therefore, debit notes for interest were raised by the plaintiff @ 24% per annum which was paid by the plaintiff as a result of overdraft facility to ANZ Grindlays Bank. The defendant is financially hopelessly crippled, commercially insolvent and is unable to run and pay the dues of its creditors. The plaintiff filed Company Petition No. 4 of 1999 for winding up the plaintiff Company, which is pending in this Court, wherein this Court has directed the defendant to deposit or pay Rs. 1 lac to the plaintiff. The defendant admitted liability to pay Rs. 1,80,239.10 to the plaintiff and deposited the amount in the High Court, but opposed the release thereof to the plaintiff. However, this Court directed release of the amount to the plaintiff which was received by it thereafter. After adjustment of the aforesaid payments received by the plaintiff, a sum of Rs. 12,62,165.30 is payable by the defendant on account of the balance of cost of supplies, balance of earnest money deposit, interest and warehousing charges. It is also claimed that the defendant has now come forward with a plea that 1.20 lacs cartons were substandard which is wholly incorrect and the plaintiff is entitled to recover the aforesaid amount alongwith interest as claimed. 7. The suit was contested by the defendant on the averments that as against supply order of 4.15 lac cartons during 1989-90, the plaintiff supplied 3,16,957 cartons upto the end of January 1990. The plaintiff held out that it had got 90,000 cartons available with it which were left over from the previous year and 5 offered to supply them at the previous year’s rates and the plaintiff supplied 95,958 cartons against that offer. Thus the plaintiff supplied only 4,12,915 cartons in all. The cartons sent for testing were to be supplied by the plaintiff as per the terms and conditions and price thereof could not be claimed. Five lots of cartons comprising 1,20,000 cartons failed in Cobb test conducted by the Indian Institute of Packaging which were sent by the inspection team at the time of pre despatch inspection. Therefore, the defendant is entitled to recover the cost of 1.20 lac defective cartons being below specifications. However, following the prevalent practice, the defendant withheld 10% of the cost of the sub standard cartons amounting to Rs. 2,01,000/-. The claim of the plaintiff for freight has been denied as the supply was to be made by the plaintiff at the station as agreed, therefore, the amount on this count has legitimately been deducted. While admitting the reports by the local inspecting team, it has been claimed that the local inspection was subject to ultimate success of the sample sent to the Indian Institute of Packaging (in short IIP), New Delhi. The alleged failure of the defendant regarding payments has been denied and it has been claimed that the payments were withheld for just and legitimate reasons. The allegation that the financial position of the defendant is hopelessly crippled and it is commercially insolvent and unable to run and pay the dues have been denied. The facts regarding institution of a company petition, orders of this court regarding deposit of a sum of Rs. 1 lac and the defendant having deposited a sum of Rs. 1,80,239.10 have not been disputed. 8. In replication, the plaintiff refuted the stand taken by the defendant in the written statement and the averments set up in the plaint were re-affirmed. 9. On the above pleadings, the following issues were settled:- 6 1. Whether the plaintiff supplied 4,15,666 cartons of the value of Rs. 69,52,355.50 to the defendant, as alleged? …OPP. 2. What were the terms, on which the plaintiffs supplied the cartons to the defendants? …OPP. 3. To what amount the plaintiff is entitled to recover from the defendants and on what account? ...OPP. 4. Whether the plaintiff is entitled to recover interest on the balance amount of the cartons and on the balance amount of earnest money deposited? If so, at what rate and from which date? …OPP. 5. Whether the plaintiff is entitled to recover warehousing charges for 90,000 cartons, as alleged? …OPP. 6. Whether the withholding of the amount of Rs. 2,01,000.00 by the defendants from out of the amount payable to the plaintiff is legal and justified? …OPD. 7. Relief. 10. After the parties led evidence and were heard by the learned Single Judge, the suit was partly decree as already noticed. Issue No.1 was partly held in affirmative by holding that the plaintiff supplied 4,12,915 cartons worth Rs. 69,16,326.25 to the defendant against the supply orders and not 4,15,066 cartons as claimed in the plaint. It was held under issue No.2 that cartons were to be supplied by the plaintiff as per the terms and conditions specified in supply orders Exts. PW-4/2, PW-4/3 and PW-4/4. Under issues No. 3 & 4, the plaintiff was held entitled to recover a sum of Rs. 3,33,774.10 along with interest at the rate of 12% per annum on Rs. 25,000/- w.e.f. 1.3.1990 and on the remainder with effect from on expiry of 15th day of the date of the last supply(s) of the cartons comparable in value to the remainder till realization of the decretal amount. Issue No.5 was held in negative and the plaintiff was held not entitled to recover warehouse charges as claimed. Issue No.6 was also decided in negative and it was held that the defendant is not legally entitled to withhold the amount of Rs. 2,01,000/- because of the alleged negative reports from test laboratory i.e. IIP, 7 New Delhi. The defendant was also saddled with proportionate cost of the suit calculated on the decretal amount. 11. We have heard the learned counsel for the parties and perused the record. 12. The core issue involved in this case is with regard to the validity of reports Exts. DW3/1 to DW3/5 submitted by IIP, New Delhi according to which samples of the cartons supplied by the plaintiff to the defendant were found to be below standard pursuant to Cobb test. 13. As per identical supply orders Exts. PW4/2 to PW4/4, supply of cartons was required to be as per the following specifications mentioned therein in sub clauses (iv) and (vi) of clause (c) Performance:- “(iv) Moisture contents- Moisture contents of the board should not be less than 8% and more than 9% at the time of testing as per IS 1060 (part-I)-1966 standards. (vi) In case of water proof carton the cob value test would be performed as under:- The moisture proof capacity of box as a whole shall be tested and no moisture should penetrate through the outer ply of both the top and bottom of the telescopic carton. The cob value of internal plies when tested from (non laminated/bituminised/poly extrusion coated) side should not be more than 100 gms/sqm/30 minutes.” 14. According to the above specification moisture content was required not to be less than 8% and more than 9% at the time of testing as per IS:1060 (part-I)-1966 standards. Whereas, in reports Exts. DW3/1 and DW3/2 the moisture content being 7.67 and 7.55% did not conform to the required specifications, in the remaining reports Exts. DW3/3 to DW3/5, it was within the prescribed limits. 15. Similarly, “the Cob (sic Cobb) value of internal plies when tested from (non laminated/bituminised/poly extrusion coated) 8 side should not be more than 100 gms/sqm/30 minutes”. However, vide reports Exts. DW3/1 to DW3/5 water proofness (30 minutes Cobb test) (gm/m2) Outer of outer and Inner of inner being 83.43 and 105.99, 95.35 and 148.60, 107.70 and 148.80 and 109.40 and 146.50, respectively, did not conform to the required specifications. 16. In terms of clause 8.1 of Indian Standard, Specification for Fibreboard Boxes, PART I, Corrugated Fibreboard Boxes (First Revision), First Reprint, June 1982, Ext. DW3/1-P1 which is extracted below, a sample of CFB cartons is required to be tested within 20 days of receipt by the purchaser:- “8. SAMPLING, CONDITIONING AND TESTING 8.1 The boxes shall be sampled and tested within 20 days of their receipt by the purchaser. From each consignment of 10000 boxes or part thereof, adequate number of boxes shall be selected for testing according to 8.3: a) If the boxes are bundled, the number of bundles to be selected at random shall be equal to the number of boxes required and from each bundle so selected one box shall be selected at random for testing. b) If the boxes are not bundled the boxes shall be selected at random from the total consignment.” 17. However, the samples in this case were not tested in the laboratory within the stipulated period of twenty days and instead whereas, three samples were tested after more than two months, the remaining two samples were tested after one month of taking the samples. It being so, the possibility of deterioration in quality of the samples in the interregnum owing to seasonal effects and storage conditions could not have been totally ruled out. In such situation reports Exts. DW3/1 to DW3/5 submitted by IIP, New Delhi cannot be made the basis to come to the conclusion that the samples of CFB cartons supplied by the plaintiff were not up to the required specifications. 9 18. Except as above, rest of the findings handed out by the learned Single Judge under the impugned judgment, dated 9.4.2002, were not seriously challenged on behalf of the parties either in the appeal or in the cross-objections, which are accordingly dismissed being without any merit. (R.B. Misra) Judge. (V.K. Sharma) July _____, 2011. Judge. (cr) 10 IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA. OSA No. 12 of 2002 and Cross Objections No._15 of 2002._ Reserved on: 26.4.2011. Decided on: ___.7.2011. __________________________________________________________ 1. OSA No. 12 of 2002: H.P. Horticulture Produce Marketing & Processing Corporation Ltd. … Appellant. Versus M/s Azeet International (Pvt.) Ltd.. … Respondent. ___________________________________________________________ 2. Cross Objections No. 15 of 2002: H.P. Horticulture Produce Marketing & Processing Corporation Ltd. … Non-Cross Objector/Appellant/defendant. Versus M/s Azeet International (Pvt.) Ltd.. … Cross Objector/Respondent/plaintiff. ___________________________________________________________ Judgment for consideration, please. (V.K Sharma) Judge. I agree/do not agree. (R.B. Misra), Judge. List for pronouncement of judgment on____________. (R.B. Misra), Judge. Court Master.