1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION SUIT NO.133 OF 1977 The Maharashtra Small Scale Industries Development Corporation Ltd. ..Plaintiffs Vs. M/s.M.Surda Corporation and Ors. ..Defendants Mr.Rajesh Shah a/w Mr.C.D.Patel i/b Sunkersett and Vaidya for the plaintiffs Mr.Uday Bobde i/b Mehta Girdharlal for defendant no.1 Mr.Mehul Shah i/b Bharat Joshi for defendant nos.3a and b CORAM : S.U.KAMDAR, J CORAM : S.U.KAMDAR, J CORAM : S.U.KAMDAR, J DATED : 4TH APRIL, 2006 DATED : 4TH APRIL, 2006 DATED : 4TH APRIL, 2006 ORAL JUDGMENT: 1. The present suit is filed by the plaintiffs for the recovery of sum of Rs.1,01,750/- with further interest @ 12% p.a. on the principal amount of Rs.75,000/- @ from the date of the suit till judgment and further interest thereafter till payment at the discretion of the court. Some of the material facts of the present case are as 2 under: 2. The plaintiffs is a company which is wholly owned by the Government of Maharashtra and is interalia carrying on business in Bombay and supporting the Small Scale Industries. Defendant no.1 is a firm. Defendant nos.2, 3 and 4 are the partners of the said defendant no.1. Defendant no.3 expired on 14.9.89 and his legal heirs are brought on record. Sometime in or about December 1968 a collaboration agreement was entered into between the plaintiffs and the defendants and under the said agreement it was decided that both the plaintiffs and defendants will undertake a transaction of exporting the commodities to various foreign parties. It is the case of the plaintiffs that the original defendant has the knowledge, experience and know-how for procuring, processing, marketing and exporting the various commodities and accordingly both the parties entered into the aforesaid collaboration agreement. Sometime in or about December 1968, under the terms and conditions of the collaboration agreement it was provided that the plaintiffs will pay finance in respect of the 3 purchase of goods to various units and adjust the same alongwith interest on the sale proceeds being received from the foreign exporters. 3. Pursuant to the said contract of collaboration, various export contracts were procured by the defendants and were executed. In so far as the present suit is concerned, the same is a subject matter of one particular transaction i.e. a transaction which was entered into on 31.1.69 between the plaintiffs and one INTERANATIO PRODUCTEN B.V. of 100 Metric Tons of Indian H.P.S. Groundnut Kernels. The said contract was entered into by and between the plaintiffs and the said foreign purchaser on 31.1.69. Under the said contract, it was agreed that the plaintiffs will supply 100 Metric Tons of Indian H.P.S.Groundnut to the said foreign party and the defendants would make necessary arrangement for the supply and export of the said goods. In respect of the said contract, the correspondence was exchanged by and between the plaintiffs and the defendants and the plaintiffs made various advances to the processing units for procuring raw material as per the 4 direction of the defendants. It is the case of the plaintiffs that ultimately 49.950 Metric Tons of the goods were arranged for the purpose of supply by the defendants. It is the defendant who has identified the units for the supply of the said goods and the plaintiffs made payments to the said units for procuring the said 49.950 MT of the goods. According to the collaboration agreement and according to the export contract entered into between the foreign supplier the defendants effected delivery of the said goods to the foreign buyer. However, in respect of the balance material out of 100 MT i.e. for the raw material of 50.150 MT, the defendants did not procure the goods from the market nor made any arrangement for effecting the supply thereof to the foreign party. However, the said foreign purchaser raised a dispute with regard to the quality of the goods and also claimed damages for failure to supply the balance quantity out of 100 MT to the foreign supplier under the said contract dt.31.1.69. 4. The said contract dt.31.1.69 contained an arbitration clause for resolving the disputes 5 between the parties to the Arbitration.. Accordingly, on 31.1.69 foreign purchaser invoked arbitration and appointed J.W.Merchant as their Arbitrator and on behalf of the plaintiffs one Mr.H.M.Bostelman was appointed as an Arbitrator. Thereafter, arbitrators have made their award dt.17.10.69 and 3.11.69. The said two awards pertains to (i) for supply of inferior quality of goods and (ii) for non-supply of the material and thus committed breach of the said contract. In so far as inferior quality of supply is concerned, the Arbitrator after giving the allowance of 47 sterling pounds per mt on the delivery of inferior quality of the goods passed an award for 2347.65 sterling pounds together with 35 pounds as cost in respect of non supply of goods. The Arbitrator has awarded damages of 900 pounds together with cost of 33.65 pounds. Thereafter the said awards were filed in the High Court of Justice in England, Queens Bench Division and the said award has been made a rule of court and the leave was granted to enforce the same by order dt.4.7.73. 5. In pursuance of the said award, the said 6 foreign party commenced the recovery proceedings against the plaintiffs herein and issued notice u.s.434 of the Companies Act 1 of 1956 calling upon the plaintiffs to make payment failing which winding up proceedings were threatened by the plaintiff company. Thereafter recording of evidence took place between the plaintiffs and the defendants and under settlement arrived at by and between the parties, on 24.1.74 the plaintiffs paid Rs.70,000/- in full and final settlement of the claim. On 25.1.74 the plaintiffs paid further amount of Rs.5000 as there was certain error in respect of settlement recorded between the parties. Accordingly, the plaintiffs have made payment to the said foreign party of Rs.75,000/- towards the claim under the two arbitration awards passed against the plaintiffs in respect of the said contract dt.31.1.69. Subsequently, thereto, the plaintiffs demanded the said amount from the defendants herein and on failure of the defendants to pay so, the plaintiffs has filed the present suit for the recovery of said amount. 6. This suit has been defended by the 7 defendants by filing a written statement, originally which was filed by all the defendants and thereafter defendant nos.3(a) and 3(b) have filed a written statement as legal heirs of deceased defendant no.3. In the written statement which has been filed by the defendants, it has been interalia contended that the suit claim is barred by the law of limitation and / or that under Order 2 Rule 2 of the Civil Procedure Code the present suit is barred for non obtaining leave thereof. On merits, the collaboration agreement entered into in December 1968 has been admitted. However, it has been contended that it is the plaintiffs who failed to carry out obligation as contemplated under clause 8 and 10 of the said collaboration agreement and thus, committed breach thereof. It is therefore, contended that the defendants are not liable to make payment of any amount whatsoever. In so far as Order 2 Rule 2 of the Civil Procedure Code is concerned, it has been contended that a suit was filed being suit no.136 of 1972 which was referred to the Arbitration of Mr.J.I.Mehta Advocate who has dismissed both the claim and counter claim and thus the present suit is barred 8 by virtue of the provisions of Order 2 Rule 2 of the Civil Procedure Code. However, it is an admitted position that the said proceedings pertained to totally different transaction of various other different commodities though under the said collaboration agreement. 7. In para 4 of the written statement, there is a mention that the goods which are supplied by the plaintiffs to foreign party were supplied by the units introduced by the defendants but it is contended that it is the duty of the plaintiffs and not the defendants to see that the goods exported are of the contract description and quality. It has been further contended that it is the plaintiffs who has committed the breach and not the defendants herein. It has been contended that the goods were not of proper quality and the balance quantity of goods could not be supplied because the plaintiffs failed to obtain proper extension in respect of the delivery schedule for the purpose of effecting delivery of the said goods. It has been contended that the liability under the said export transaction is of plaintiffs and not of defendants. 9 It is further, contended that any loss suffered by the plaintiffs by virtue of breach of any terms and conditions of the said collaboration agreement should be borne by the plaintiffs alone and the same cannot be claimed from the defendants herein. 8. It has been contended by defendant nos.3(a) and 3(b) that the suit is pre-mature suit. It has been further submitted by defendant nos.3(a) and (b) that liability to pay the damages is of the plaintiffs and not of the defendants herein. On the aforesaid pleadings, the learned Judge has framed the issues by an order dt.27.7.00 which are as under: 1. Whether the plaintiffs prove that the agreement or contract for export of 100 tonnes of ground Nut kernels to Rotterdam International Producten in N.V. was the out come of the collaboration agreement Exhibit A executed between the plaintiffs and defendants? 2. Does the defendants prove that while entering into a transaction for export of 400 tones of ground nut kernels as per para 4 of the plaint the plaintiffs did not adhere to the terms and conditions of Exhibit A and that therefore the defendants are not liable for the transaction to the plaintiffs in any manner 10 whatsoever? 3. Whether the defendants prove that the goods supplied to international producten N.V. were in accordance with the contract with the buyer as alleged in para 4 of the written statement? 4. Whether the defendants prove that the buyers International Producten Rottendam had agreed to extend the shipment period for non-shipped quantity of the goods as alleged in para 4 of the written statement? 5. If answer to Issue No.5 is in the affirmative whether the defendants prove that the buyers International Producten were not entitled to anything in respect of non-shipment of balance goods as alleged in para 4 of the written statement? 6. (A) Whether the plaintiffs prove that award is bound upon the defendants? (B) Whether the defendants prove that the award is not legal and valid and therefore, non bound upon them? 7. Whether the defendants prove that the plaintiffs defended the arbitration proceedings and the decree following therefrom without collaboration of defendants and in gross negligence as alleged in para 5 of the written statement? 8. Whether the defendants prove that the payments by plaintiffs to M/s.Malvi Ranchoddas and Co. was wrong and invalid as alleged in para 5 of the written statement? 9. Whether the defendants prove that the payment was made to international producten B.V. whereas the content was with International Producten N.V. as alleged in para 5 of the written statement? 11 10. Whether the defendants are liable to pay plaintiffs Rs.75000/- as claimed by the plaintiffs? 11. Whether the claim of the plaintiffs is barred by law of limitation as stated in para 11 of written statement? 12. Whether the suit is barred under Order 2 Rule 2 of the C.P.C. as alleged in para 12 of the written statement? 13. What order and decree? 9. Thereafter the evidence was recorded in the matter. Plaintiffs have tendered the compilation of documents which is marked at Ex.1 to E.85. Defendants have also tendered the documents which are marked at Ex.D1 to D.21. The documents which are produced by the parties are the collaboration agreement of December 1968, the contract dt. 31.1.69 and the correspondence which has been taken place between the parties including the correspondence with the brokers and the units who are the supplier of the material under the said contract. Both the plaintiffs and defendants have laid the oral evidence and has examined one witness each. Though oral evidence is not much relevant in the case and the case turns on most of the 12 documentary evidence, but in a nutshell the case of the parties before the court is in respect of breach committed by the plaintiffs or the defendants of the said collaboration agreement of December 1968. Relevant oral and documentary evidence are analysed while dealing with each of the said issues. 10. In so far as issue no.1 is concerned, there is no dispute that the contract dt.31.1.69 between the plaintiffs and Internation-Production N.V. was entered into under the collaboration agreement executed by and between the plaintiffs and defendants in December 1968. In view of the fact that on this issue there is no dispute between the parties, the said issue does not require to be analysed further and I answer the same in affirmative. 11. In so far as issue no.2 is concerned, there are serious disputes between the parties. It is the case of the defendants that the plaintiffs have committed breach of the collaboration agreement entered into between the parties in December 1968 13 by virtue of its conduct which is not a business like manner and thus the loss suffered by the plaintiffs is an outcome of plaintiffs’ own breaches and therefore the defendants are not liable. 12. In so far as issue no.2 is concerned, the learned counsel appearing for the defendants submitted that there are defaults on the part of the defendants of various breaches. He has drawn my attention to clause 10 of the collaboration agreement. The said clause 10 of the collaboration agreement reads as under: "10. Notwithstanding anything contained in these presents or elsewhere it is agreed by and between the parties that all export shall be made in the name of the Corporation. The only duty and function of the Corporation under the arrangement contemplated under these presents shall be that of making the advance to the Units on the terms referred to above and promptly in a business like manner attending to correspondence enquiries etc. it being agreed that all other duties, functions and obligations in connection with the procurement, proceeding of raw materials for export of the scheduled commodities shall be discharged and performed by the said firm at its own expense and costs in all respects. The cost and expenses 14 incurred by the said firm have been agreed to be taken into account for determining the price at which the scheduled commodities are to be exported on the basis of actually supported vouchers or other evidences." 13. It is the case of the defendants that by virtue of aforesaid clause wherein it is interalia provided that the plaintiff corporation is required to act promptly in a business like manner in attending to correspondence and enquiry, however, the plaintiffs have failed to act accordingly and thus the loss has been suffered by them. It has been contended by the learned counsel for the defendants that the plaintiffs have not acted in business like manner under the collaboration agreement on three grounds. 14. Firstly, it has been contended that the action on the part of the plaintiffs in making delay in payment to the various units for the supply of goods has resulted in delay in delivery of the goods and thus, the plaintiffs have committed breach of clause 10 of the terms and conditions of the collaboration agreement. 15 15. Secondly, it has been submitted that even in entering into the correspondence for the purpose of grant of extension of time for delivery schedule also, the plaintiffs have not been prompt and quick in obtaining the extension from the foreign supplier for effecting delivery of the goods and thus, the plaintiffs have committed breach of the said clause 10 of the collaboration agreement and therefore, defendant is not liable for any claim or damages. 16. Thirdly, the ground set up by the defendants that there is a breach by the plaintiffs of the terms and conditions of the collaboration agreement by not defending the arbitration proceedings initiated by the foreign party. Furthermore, by making payment under the award, the plaintiffs have committed breach of the terms and conditions of the said collaboration agreement. 17. The next defence advanced by the learned counsel for the defendants is that while making payment under the award they have not obtained 16 permission from Reserve Bank of India and therefore, payment is illegal and thus, also defendants are not liable to make payment of the said amount. It has also been contended that the plaintiffs have also committed breach of the collaboration agreement by making payment to the company which is different then the company with whom the suit transaction is entered into. 18. On the aforesaid grounds it has been contended that there is a breach committed by the plaintiffs of the said contract and thus, the plaintiffs are not entitled to any claim of the said damages from the defendants. Now I shall continue each of the aforesaid grounds on the basis of evidence on record both oral and documentary. The learned counsel for the defendants has contended that there has been a delay in making payment by the plaintiffs to the units identified for the supply of the said commodities. In support of the said contention, it has been brought to my notice that letter dt.7.4.69 addressed by the units indicate that the goods were ready for delivery and request was made for making payment. The said 17 letter was addressed to the plaintiffs by one Badheka Brothers. By letter dt.8.4.69, the plaintiffs were asked by the defendants to make payment to the Badheka Brothers in respect of the purchase of goods of 7500 kilos of groundnut kernels for an amount of Rs.15,500. On 12.4.69 the plaintiffs forwarded a cheque of Rs.15500 in favour of Badheka Brothers in respect of the said claim. It is the case of the plaintiffs that similarly in case of another supplier Jamnadas Bhimji and Co. a letter was addressed on 24.4.69 seeking payment of Rs.34750 for the supply of groundnut kernels and the payment was made by the plaintiffs by letter dt.26.4.69 being Ex.13 and 14 on record. The learned counsel for the defendants has contended that the payment after 2 days of request in case of Jamnadas Bhimji and Co. and 4 days in case of Badheka Brothers amounts to delay in making payment and consequently amounts to the plaintiffs not acting in a business like manner and thus the plaintiffs have committed breach of the said contract. 19. On the other hand, the learned counsel for 18 the plaintiffs has contended that there is no delay in making payment to any of the supplier. He has contended that payment within 2 days of the request and 4 days of the request cannot be termed as not acting in a business like manner as contended by the defendants. It has been further contended that it cannot be expected that the plaintiffs which is a government concern should keep the money in hand and to make the cash payment as soon as request is made by any organisation or any person. Even if it is a private organisation, the time to release the payment would be obviously for atleast 2/4 days and that cannot be termed as breach of the terms and conditions of clause 10 of the said agreement. In support of the aforesaid contention, the learned counsel for the plaintiffs has further pointed out that in an evidence which has been recorded by the defendants witness, defendants also have admitted that there is no such delay in making payment and the said relevant portion of the cross examination is as under: "I do not recollect what was the share of defendant no.2 in the joint venture with regard to the suit transaction. Defendant 19 no.2 was entitled to some share in the profit of the suit transaction. The defendant no.2 was also liable to the extent of his share in losses of the joint venture. My attention is drawn to paragraph 8 of my affidavit of evidence. Q. What do you mean by plaintiff failed to carry out the agreement in general as mentioned in para no.8? A: That means the plaintiffs failed to make payment of supplies of services as well as to the respective units. I had written several letters to the plaintiffs about they had not making payment to the suppliers. I have not produced those letters in this Suit. I had furnished to the plaintiffs the list showing the names and addresses of the units and their bankers who will undertake the work of processing of the scheduled commodities within one week of the signing of the suit agreement. The plaintiffs responded to the list, partially. The plaintiffs did not respond thereupon within time frame by giving the approval. The defendant no.1 firm did write to the plaintiff about it. I have not produced those letters in this suit. My attention is drawn to the Exhibit Nos.4 and 5, 7,8,9 and 10, 13 and 12 and 14. It is correct that as per these letters the Plaintiffs had made payments promptly. My attention is drawn to letter dated 7.4.6, Exhibit 4. The Badheka Brothers had not made any complaint to us about not having received the payments as mentioned in Ex.4. My attention is drawn to the letter 12.4.69, Exhibit 7. Badheka Brothers had not complained to us about the plaintiffs having not made payments to them as mentioned in Ex.7. From the compilations filed by myself and the plaintiffs in this 20 suit, I cannot point out a single letter whereby the defendant no.1 or any of the Units had made complaint about the plaintiff having not made the payments. My attention is drawn to cl.10 of the suit agreement. It is correct that the only duty or the function of the corporation is to make advances to the units and promptly in a business like manner attend to the correspondence, enquiries etc. I have never complained to the plaintiffs about they having not complied with his condition. It is not correct to say that my allegation in para no.8 of my affidavit of evidence about plaintiffs having not carried out the agreement in general or in particular with regard to clause 8 and 10 of the agreement is false." 20. The learned counsel for the plaintiffs has thus, contended that there is no breach of clause 10 as contended by the learned counsel for the defendants. In so far as breach of the agreement alleged on the ground of payment is concerned, I have considered the rival submissions on this aspect and in my view, it is not possible to hold the plaintiffs guilty of breach of clause 10 of the terms and conditions of the collaboration agreement. I am of the view that there is no delay whatsoever in making payment by the plaintiffs to third party i.e. units identified by the defendants for supply of the said goods. The 21 request for payment has been made within 2 days in case of Jamnadas Bhimji and Co. and within 4 days in case of Badheka Brothers. When payment is made within such a short duration of request made then it cannot be termed as delay in making payment amounting to breach of the said contract. Furthermore, clause 10 or any clauses of the agreement does not prescribe any time limit within which the amount to be paid at the request made by the defendants to the said units who are supplier of the said material. In my opinion thus, in absence of any time limit prescribed for making payment under the agreement, the court must consider a reasonable time limit within