1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION SUIT NO. 1116 OF 1980 The Cotton Corporation of India ) Ltd., a Company incorporated under the ) Companies Act, 1956, having their ) registered office at Air India Building, ) 12th Floor, Nariman Point, Bombay-400021.) ... Plaintiff Vs Soundararaja Mills Private Ltd., a ) Company incorporated under the ) Companies Act having their registered ) office at Soundararaja Mills Road, ) Dindigul – 634006. ) ... Defendant Mr. Rishab Shah with Mr. U.M. Mahajan and Ms. Samita Karnik i/b Divekar & Co. for the Plaintiff. Mr. David Gomes with Mr. Suraj Dessai Almeida for the Defendant. CORAM: S.J. VAZIFDAR, J . DATED : 4TH/7TH DECEMBER, 2009. ORAL JUDGMENT. : 1. The suit is filed to recover a sum of Rs.29,72,496.49 together with interest thereon at the rate of 20% per annum from the date of the suit till judgment and thereafter at the rate of 6% per annum till payment. 2 2. The main business of the Plaintiff, a Government of India undertaking, is to act as a channelising agent for the import and supply of foreign cotton to Indian textile mills. The Defendant is an actual user of cotton, including foreign cotton for the use of its manufacturing activities. The Plaintiff’s case : 3. The Plaintiff issued a Circular dated 18th February, 1977 to all textile mills informing them that limited quantities of certain varieties of import cotton was available for allocation at the rates indicated therein including Sudan Acala Grades I and II. The users desirous of importing cotton were requested to approach the Plaintiff for registering their demand. The allocation was to be communicated depending on the basis of the supplies available. The mills were also requested to send their application for a subsidiary import licence alongwith other documents within ten days after confirmation of booking alongwith licence fees. 3 4. Pursuant to the above Circular, the Defendant’s agent M/s. Kantilal Shantilal Brothers, by a letter dated 23rd February, 1977, booked, inter alia, 4000 bales of Sudan Acala Grade-I cotton. 5. By a letter dated 8th March, 1977, the Textile Commissioner, Government of India, on the Defendant’s application for allotment of the said cotton, however, sanctioned only 993 bales. Clauses 3, 4, 6, 7 and 9 of the said letter read as under: “CLAUSE 3: The above cotton is available for immediate contracting and shipment not later than 30.6.1977. No extension in shipment date will be allowed. CLAUSE 4: A bulk import license will be issued by the Joint Chief Controller of Imports & Exports, Bombay in name of the Cotton Corporation of India Ltd., Bombay who will import this cotton and a subsidiary licence will be issued by the Joint Chief Controller of Imports & Exports, Bombay against the main licences at the request of the Cotton Corporation of India as per its Public Notice No. CCI/PN/70(3) dated 12th November, 1970 as amended from time to time. CLAUSE 6: Applications for sub-licences should be submitted to the Cotton Corporation of India Ltd., (CCI), Bombay. 4 CLAUSE 7: It is clarified that the cotton now allotted to you is for bonafide consumption in your mills. Sale, loan or other types of transfer will not be permitted, except in accordance with instructions that may be issued by Government from time to time. It may be clearly noted that any sale, loan or transfer of the above cotton or any portion thereof without prior authorisation by the Textile Commissioner, will render both the seller and the receiver mills /persons liable for appropriate action as provided under the relevant Regulations. CLAUSE 9: Acceptance or otherwise of the quotas should be intimated to the Cotton Corporation of India and to this Office telegraphically within fifteen days of the issue of this quota letter. It is necessary to note that the reference to this letter includes Trade Notice Nos.6/1977 dated 14th January, 1977, and 130/76 dated 6th October, 1976. 6. A contract in writing dated 7th March, 1977 was entered into between the parties. The same stated at the outset: “AGREEMENT MADE AT BOMBAY ....”. The recitals to this agreement, inter alia, state that the Defendant had placed an indent with the Plaintiff for the purchase of 993 bales of cotton and had appointed the Plaintiff as it’s agent to import the said quantity of cotton on it’s behalf which the 5 Plaintiff had agreed to do on behalf of the Defendant. The recitals further record that the Plaintiff had entered into an agreement with a foreign supplier for the purchase of the goods to enable the Plaintiff to supply the same to the mills in India and that the Plaintiff intended to appropriate a part of the goods under the agreement with the foreign suppliers towards the quantity to be supplied to the Defendant under the said agreement. Clauses 3, 5, 6, 12, 15, 16, 17, 18, 25, 28 and 29 of the agreement read as under: “CLAUSE 3: The said Contract or agreement entered into by the Corporation with the Foreign Suppliers (hereinafter referred to as ‘Import Contract’) shall form an integral part of this agreement and this agreement shall always be treated as subject to the terms and conditions of the said import contract. CLAUSE 5: If the Mills fail to pay the price as aforesaid the Corporation will be entitled to clear and take delivery of the said goods at the cost and risk of the Mills. CLAUSE 6: If the Mills fail to take delivery of the said goods as aforesaid, the Corporation will be entitled to sell the goods to any other party by private sale or auctions and any loss suffered by the Corporation will be on account of the Mills and they will be liable to pay the same on demand to the 6 Corporation. CLAUSE 12: Shipment: June Shipment will be made from the foreign ports subject to the following:- (a) The Corporation will not be responsible for any consequences arising from delay in effecting shipment by the shippers. However, the mills have to take delivery in pursuance of their Indent placed with the Corporation as and when such indented cotton arrives. (b) In case of delayed shipments occasioned either at the instance of the mills or due to non-compliance by mills of the formalities required to be completed, or delay occasioned by the shippers for any reason, inclusive of force majeure the mills will be responsible to pay carrying charges as stipulated by the Shippers, besides being liable fully for any loss or damages whatsoever incurred by this shipper on account of failure or neglect on the part of the mills. CLAUSE 15: Notwithstanding anything to the contrary contained in this contract the property and risk in the goods shall pass to the mills on shipment and the sale is complete thereon. Policies of insurance will be on behalf of the said mills. CLAUSE 16: The shipment of cotton forming the subject matter of this contract is subject to any cause beyond the Corporation or shipper’s control (inclusive of force majeure) and is also subject to availability of vessel. 7 CLAUSE 17: If for any reason whatsoever the said mills fail to take delivery of shipping documents or delivery order of the Shipping Company immediately on presentation and fail to effect payment, all charges and expenses including insurance, demurrages incurred as a consequence of such defaults, taxes Central or State (including Sales/Purchase tax, if applicable} as well as interest charges at 20% per annum on monthly rest basis will be borne by the Mills. If the receipt of documents from the foreign suppliers is delayed, the Corporation will not be responsible for any consequences arising therefrom including payment of demurrage and for additional duties etc. CLAUSE 18: The number of bales mentioned on the face hereof is expressed in terms of quota bales for the sake of convenience only. Actual bales to be shipped may be in larger or smaller weight. CLAUSE 25: If for any reason the Foreign Supplier fails to carry out the Import Contract and as a result thereof the Corporation is not able to supply and sell the said goods to the Mills, the Corporation will not be liable to pay damage to the mills and this agreement shall be deemed to be cancelled without any consequences. CLAUSE 28: Subject to clause (25) above, the mills will not be entitled to cancel or revoke the agreement once made for any reason whatsoever and if they do so, the mills shall be liable to pay damage to the Cotton Corporation of India Ltd. CLAUSE 29: No cotton after shipment shall be liable to rejection.” 8 7. It is necessary here to refer to the Plaintiff’s contract with the foreign supplier viz. Sudan Cotton Company. The contract was for a larger quantity out of which the Plaintiff was to supply goods to the extent of the quota allotted to the Defendant. Clause 3 of the agreement dated 7th March, 1977 expressly incorporated by reference, the Plaintiff’s contract with the foreign supplier. It is necessary to note here clause 9A of the Plaintiff’s agreement with the foreign supplier which provides: “This contract cannot be cancelled as a consequence of any contestation whatsoever.” Clause 9B provided that the Plaintiff and the foreign supplier undertook to have any differences settled by mutual agreement or, in case of need, by arbitration as provided therein. Clause 10 of the agreement relied upon by the Defendant reads as under: “CLAUSE 10: FORCE MAJEURE: If the seller can furnish sufficient proofs that he could not execute this contract because purchase or sale of the relative cotton was prevented by unforeseen stoppages in communications, by strike, lock-outs, riots, quarantine, or by other circumstances of “force majeure”, or if Buyer cannot take delivery of the cotton as a result of such unforeseen circumstances, and should the two contracting 9 parties fail to come to an agreement, then the matter shall be referred to arbitration and the Arbitrators shall take these facts into consideration in giving their decision.” 8. There was an appendix to the agreement, clause 2 whereof reads as under : “2) CARRYING CHARGES: For cotton paid for and remained unshipped by 30.6.1977, storage and insurance fees will be calculated at the rate of ½% (half percent) per month prorata as from 1st July, 1977 until actual date of shipment.” 9. The Defendant, by a letter dated 16th March, 1977, informed the Plaintiff about the receipt of the letter dated 8th March, 1977, from the Textile Commissioner allotting the said 993 bales and stated that it would like to purchase the cotton from the Plaintiff. The Defendant called upon the Plaintiff to send the contract for the same. The Plaintiff, by it’s telegram dated 28th March, 1977, called upon the Defendant to furnish the Bank Guarantee and the licence application for the same. 10. It may be noted here that according to the Defendant it had addressed a letter to the Plaintiff dated 25th March, 1977, containing 10 certain conditions, which I will refer to later, and enclosing therein various documents including a signed copy of the said contract dated 7th March, 1977. I would deal with the defence based on this letter at the appropriate stage. Suffice it to state that according to the Defendant, by this letter it had insisted upon the delivery of the said goods to be under ten bills of lading of which nine were to cover hundred bales each and the tenth bill of lading was to be for ninety- three bales aggregating to the contractual quantity of 993 bales. As noted earlier, under the contract dated 7th March, 1977, shipment was stated to be in June. It is common ground that the year, though not mentioned in the contract, was 1977. Admittedly, the goods were shipped from Sudan only around mid-August 1977 and arrived at the Port of Cochin towards the end of October, 1977. One of the main issues is whether this delay entitled the Defendant to repudiate the agreement. The Defendant’s contention in this regard is on the premise that time was of the essence of the contract. 11. I have noted earlier that the letter of the Textile Commissioner dated 8th March, 1977, allotting the quota to the Defendant stipulated that the shipment was not to be later than 30th June, 1977. I have also 11 noted that the contract dated 7th March, 1977 also stipulated shipment to be in June 1977. A Trade Notice, being Trade Notice No.59/1977 was issued on 22nd June, 1977 under the Import Trade Control informing the trade and industry that the last date for shipment in case of Global cotton which included the said cotton against the release mentioned therein which included the said Trade Notice No.130/76 dated 6th October, 1976 and No.6/77 dated 14th January, 1977, referred to in the Textile Commissioner’s letter dated 8th March, 1977, had been extended further upto 30th September, 1977 with one month grace period. The Trade Notice provided that the licences already issued under the said Trade Notice Nos.130/76 and 6/77 were automatically treated as valid upto 30th September, 1977. This Trade Notice was not referred to in the Plaint, but was produced during the cross-examination of the Plaintiff’s witness. It was marked in evidence as Exhibit P-16, by consent. 12. The Defendant, by a letter dated 11th July, 1977, addressed to the Plaintiff expressed regret at not having received any communication regarding the shipment of the said goods. The Defendant stated that if 12 the shipment had not been made in June, 1977 and if the bills of lading had not been made out in the manner set out in the said letter dated 25th March, 1977, it would not lift the bales. It must be noted at this stage that this letter did not refer to the contents of the letter dated 25th March, 1977, including regarding the alleged requirement about the consignment being delivered under ten different bills of lading, as stated earlier. So, One of the question, therefore, which arises is whether the repudiation contained in this letter was justified or not. 13. The Plaintiff, by a letter dated 24th August, 1977, informed the Defendant that the said goods had been shipped from Sudan and requested the Defendant to advise the mode of payment and the clearing arrangements. 14. The Defendant, by a letter dated 10th September, 1977, replied to the said letter inviting the Plaintiff’s attention to it’s said letter dated 11th July, 1977. 13 15. The Defendant, by a further letter dated 7th October, 1977, contended that time was of the essence of the contract; that as the goods had not been shipped in June, it would not lift the bales and reiterated the stand taken in the letter dated 11th July, 1977 and that the bank guarantee had also been revoked. The Defendant stated that the Plaintiff had committed a breach of the contract. The Defendant, however, stated that it was prepared to consider the performance of the contract provided the Plaintiff was willing to give it financial accommodation. Admittedly, the Plaintiff did not agree to give the Defendant the financial accommodation. The Defendant expressly stated that in view of the same, it was repudiating the contract contending that it was not bound in law to perform the same. The Defendant reserved it’s right to sue for damages for the alleged breach of the contract. 16. The letters dated 11th July, 1977, 10th September, 1977 and 7th October, 1977 were all addressed to the Plaintiff at Bombay. The Plaintiff, by it’s letter dated 24th October, 1977, informed the Defendant that the contracts were made with the foreign suppliers on FOB basis and as per the directives of the Government, Ministry of 14 Transport & Shipping, it had to arrange Indian flag vessels and that the shipment took place according to the availability of vessels to save foreign exchange. The Plaintiff stated that all the consequences for the delay in payment and taking delivery would be to the Defendant’s account. 17-A. In keeping with the stand taken in the correspondence the Defendant refused to clear the said goods and to take delivery thereof when they arrived at the Port of Cochin despite the Plaintiff’s requests to do so by it’s letters dated 19th November, 1977 and 16th February, 1978. The Plaintiff stated that in the event of the Defendant’s failure to take delivery of the goods, it would sell the said goods and hold the Defendant responsible for the loss. The Defendant, however, by it’s letter dated 2nd March, 1978 and 3rd March, 1978, repudiated it’s liability. 17-B. The Plaintiff thereafter sold the said goods in various lots and realised a sum of Rs.24,47,081.47. The contract price for the 1027 bales together with the clearing charges, demurrage, carrying charges and interest is computed at Rs.50,08,861.46. The Plaintiff has claimed 15 the difference which amounts to Rs.25,61,259.25 and interest thereon. 18. By an amendment, the Plaintiff introduced paragraphs 5A to 5P. Each of the paragraphs refers to the sale by the Plaintiff of various quantities of the said consignment together with details thereof, including as regards the name of the purchaser, the rate, the total amount realised, the clearing charges, demurrage charges, carrying charges. The Plaintiff has also specified the extent of the loss suffered in respect of the sale of each consignment. The Plaintiff applied for and obtained leave under Clause 12 of the Letters Patent on 10th July, 1980. 19. Paragraph 7 of the Plaint reads thus: “7. The said contract was signed by the Plaintiffs in Bombay and it was received in Bombay, duly signed by the Defendants at Dindigul, in Tamil Nadu. A material part of the cause of action has arisen in Bombay. However delivery of the goods was to be made at Cochin against payment at Cochin and that part of cause of action arisen outside Bombay. The contract also provides that Civil Courts in Bombay alone will have jurisdiction to entertain any suit in respect thereof. However the Defendants are carrying on business outside Bombay. The Plaintiffs therefore submit that with leave granted under Clause XII of the Letters Patent this Hon’ble Court will have jurisdiction to entertain and try the suit.” 16 The Defendant’s case : 20. According to the Defendant, on 31st March, 1977, it made an application for import of the said cotton as an actual user. The Defendant also referred to the alleged letter dated 25th March, 1977. This letter was neither produced nor proved otherwise in evidence. The Defendant averred in the Written Statement that it had enclosed the duplicate copy of the contract duly countersigned with the said letter alongwith a guarantee issued by the Syndicate Bank, the import licence application in Form “C” in triplicate for the said goods and the quota letter dated 8th March, 1977 issued by the Textile Commissioner. It is averred that the Defendant had written in the letter that the shippers should effect shipment of 993 bales under cover of ten bills of lading i.e. nine bills of lading for hundred bales each and one bill of lading for ninety-three bales. The Defendant has also averred that it mentioned in the said letter that if the shippers were not agreeable to prepare and present the shipping documents in the said pattern, they were not to be considered liable for the consequences mentioned in clauses 17 and 20 of the contract dated 7th March, 1977. Based on this alleged letter, it is contended that the contract was arrived at on 25th 17 March, 1977 and was subject to the conditions stipulated in the said letter dated 25th March, 1977. According to the Defendant, the shipment having been effected after June, 1977, and not in the pattern demanded in the alleged letter dated 25th March, 1977, the Defendant rightly repudiated it’s obligation to take delivery of the said goods. 21. The Defendant has also referred in the Written Statement to the correspondence between itself and Syndicate Bank. The same, however, was neither produced nor proved otherwise in evidence. 22. The Defendant has also referred to a letter dated 23rd September, 1977 and the contents thereof. The said letter, however, has not been produced in evidence. Nor have the contents thereof been proved even otherwise. 23. The Defendant has denied the averments in the Plaint generally, including regarding the sale by the Plaintiff of the said consignment and the details thereof averred in the Plaint. 24. The Defendant’s contends that time was of the essence of the 18 contract and that the shipment not having been made by June, 1977, the Plaintiff was in breach and that the Defendant was entitled to repudiate the contract. 25. The Defendant also referred to the admitted correspondence between the parties. The Defendant contended that it had a counter- claim in the sum of Rs,1,25,000/-. There is, in fact, no counter-claim made as admitted on behalf of the Defendant. 26. The Defendant thereafter filed an additional Written Statement denying the contents of paragraphs 5A to 5P which, as stated above, were introduced in the plaint by an amendment. 27. By an order dated 22nd March, 2001, D.K. Deshmukh, J. framed the following Issues: I S S U E S : 1. Whether this Hon’ble Court has jurisdiction to receive, try and determine this suit in view of the fact that the contract between the plaintiffs and the defendants was signed/executed 19 by the defendants at Madras and the delivery of the goods was to be made at Cochin as averred by the defendants in paragraph 10 of their defence statement ? 2. Whether the plaintiffs prove that they are entitled to enforce the Contract.? 3. Whether the plaintiffs prove that they imported 1027 bales of Sudan Cotton pursuant to the contract No.G/269 dated 7th March 1977.? 4. Whether the plaintiffs prove that the defendants have committed breach of the said contract.? 5. Whether the defendants prove that the said contract was subject to the conditions mentioned in the defendants letter dated 25-3-1977 on which date the said contract was executed.? 6. Whether the defendants prove that the plaintiffs committed breach of the contract by not importing the cotton bales within the month of June 1977.? 7. Whether the defendants prove that the plaintiffs were negligent in their duty by not stopping the shipment/import of the cotton bales inspite of having sufficient time to do so.? 20 8. Whether the plaintiffs prove that the delay in the import/shipment of the cotton bales was due to any of the contingencies mentioned in clause 12 of the said contract.? 9. Whether the Defendants prove that time was the essence ` of the contract in clause 12 thereof.? 10. Whether the Plaintiffs prove that they paid a sum of Rs. 50,08,861.46 being the alleged total invoice value of the 1027 cotton bales together with clearing charges, demurrage, carrying charges and interest or any other amount in respect of the said goods viz. 1027 cotton bales.? 11. Whether the plaintiffs prove that they sold the said 1027 cotton bales to different parties and realised only an aggregate sum of Rs.24,47,081.47 and whether the plaintiffs act reasonably and/or diligently in the matter of selling the said 1027 cotton bales.? 12. Whether the plaintiffs prove that they suffered a loss of Rs.29,72,496.49 of any other amount as alleged by them and whether the plaintiffs are entitled to recover the said amount of Rs.29,72,496.49 or any other amount, from the defendants.? 13. Whether the plaintiffs prove that they are entitled to recover interest at the rate of 20% p.a. or at any other rate from the defendants.? 21 14. What reliefs.? 28. Evidence was recorded on commission. The learned Commissioner has filed a report alongwith the documents, the affidavits in lieu of examination-in-chief of the witnesses and their cross-examination. 29. The Plaintiff examined two witnesses, one V. Muni Krishnan (PW1) and one