1 SUIT NO.1312-1980 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION SUIT NO. 1312 OF 1980 The Cotton Corporation of India Ltd. having their registered office at Air India Building, 12 the floor, Nariman Point, Bombay-400 021. .. Plaintiffs Versus Madura Coats Private Ltd. having their registered office at New jail Road, Madurai 625 001 (South India) and also carrying on business at 15, Rajmahal 84, Veer Nariman Road, Bombay-400 020. .. Defendants Mr. H.J. Thakker, Sr. Counsel with Mr. R.C. Shah & Mr. Mahajan i/b. Divekar & Co. for the Plaintiffs Mr. B.R. Zaiwalla with Mr. Kotwal i/b. Mr. P. Rajmachikar for the Defendants CORAM : S.R. SATHE,J. DATED : 30/04/2007 ORAL JUDGEMENT :- 1. The Cotton Corporation of India, a Government of India undertaking has filed this suit against the company registered under the Company's Act for recovery of the amount of Rs. 2,61,26,182.37/- as damages 2 SUIT NO.1312-1980 towards the loss suffered by the Plaintiffs as a result of the breach of the contract committed by the defendants. 2. The Plaintiffs' case in brief is that by circular dated 21/02/1977 All Indian Textile Mills, were informed that limited quantities of variety of imported cotton mentioned in the circular would be available for allocation and the interested mills should register their demands within specific period. In pursuance of the same, the Defendants by their telegram dated 14/3/77 offered to purchase 10,000 bales each of Brazilian and Mexican Cotton. However, the Textile Commissioner alloted to the Defendants only 805 bales of Mexican Cotton and 9000 bales of Brazilian Cotton. The said offer was accepted by the Defendants by their telegram dated 25/3/77. Prior to issue of above mentioned circular, Plaintiffs had entered into two contracts with the foreign supplier Viz. SANBRA of Brazil for purchase and import of large quantity of cotton of Grade colour and staple equal to type “Spisk” with an option to a supplier to deliver part or all equivalent out of Paraguayan growths. Plaintiffs sent 3 SUIT NO.1312-1980 to the Defendants a contract bearing number G/389 dated 18/3/77 in duplicate duly signed by the Plaintiffs to enable the Defendants to return one copy duly signed by the Defendants. Accordingly, Defendants on 25/3/77 returned one copy duly signed by them. Thus, Plaintiffs agreed to import and deliver to the Defendants 805 bales of Mexican Cotton at the rate of Rs.5050/- per candy, May-June Shipment and 9000 bales of Brazilian Cotton at the rate of Rs.4975/- per candy, June-July shipment, alongwith some other stipulations. The Defendants also furnished requisite bank guarantee as asked by the Plaintiffs. 3. By the contract Number G/389, it was agreed that the contract entered into by the Plaintiffs with the foreign suppliers shall be an integral part of the said contract between Plaintiffs and the Defendants. It was also agreed that the price of the said goods shall be paid by the Defendants to Plaintiffs against tender of documents such as Bill of Lading, Insurance Policy, Invoice etc. The Defendants also agreed that they shall pay the carrying charges at the rate of 2 ½ % per 30 days from the date of arrival of the steamer, if 4 SUIT NO.1312-1980 the Defendants fail to make payment and take delivery of goods on arrival. The Defendants also agreed to pay interest on the unpaid purchase price at the rate of 20% per annum on monthly rest basis. 4. Three consignments 648, 1000, and 6966 bales of type Spisk were shipped by the foreign supplier per S.S. Jalamayur and S.S. Jagdesh for Madras Port and the Defendants were informed by the Plaintiffs by their letters dated 15/7/77 and 2/8/77 to arrange to take delivery of the said goods and make payment for the same. The Defendants by their letter dated 12/8/77 informed that so far as 805 bales of Mexican Cotton contracted to be purchased, they would take delivery of 700 actual bales imported. So far as Brazilian cotton bales were concerned, the same were not from Brazil and were from Paragua as they would not take delivery of the same as a Paragua Cotton was not contracted and the same was not suitable for their requirements. 5. On 11/8/77 there was a meeting between Mr.V. Munikrishan,Deputy Manager of Plaintiffs and Mr.R.C. Doraiswami of the Defendants and it was pointed out by 5 SUIT NO.1312-1980 the Plaintiffs that the import contract entered into by Plaintiffs was an integral part of the contract with the Defendants and as such Defendants were bound to take delivery of Paraguayan Cotton. The Defendants, however, by their letter dated 01/09/77 returned the Bills of exchange drawn on them for the price of the said cotton bales for cancellation. The Plaintiffs issued letter dated 3/9/77 and called upon the Defendants to make the payment. As the goods arrived at Madras Port, Plaintiffs were constrained to take delivery and store the same in Plaintiffs' godown.Even thereafter, Plaintiffs issued letter dated 20/3/78 to Defendants and called upon them to take delivery and informed that failing which they would be held responsible for all the loss that would be suffered by the Plaintiffs. The Defendants replied by their letter dated 2/5/78 and contended that Plaintiffs committed breach of the contract by importing cotton other than the cotton contracted and Defendants were not bound to take delivery of such cotton. 6. According to Plaintiffs goods imported viz. Paragua Cotton was not different in quality and type 6 SUIT NO.1312-1980 from Brazilian Cotton. According to the Plaintiffs, clause No.26 of the contract between Plaintiffs and Defendants had no application and the Defendants were not entitled to cancel the contract on the ground that cotton imported was Paraguayan instead of Brazilian. The Defendants were entitled to cancel contract if quality or type of cotton would have been different. According to Plaintiffs, Defendants failed to take recourse to quality arbitration under clause 27 of the standard cotton through Plaintiffs. According to Plaintiffs, the Paraguayan cotton which was imported was sold by the Plaintiffs by private sale in different lots. However, in that transaction, they received amount less than the price of the said imported cotton and thus, sustained loss as shown in Ex.A attached to the plaint. Besides that, the Defendants were also liable to pay carrying charges and interest. So, after taking into consideration all these dues Plaintiffs filed the present suit for recovery of the amount of Rs.2,61,26,182.37/-against the Defendants. 7. The Defendants filed their written statement and admitted that they had received circular dated 7 SUIT NO.1312-1980 21/2/77 from the Plaintiffs. As they were interested in importing cotton of Mexican and Brazilian varieties, they sent telex dated 5/3/77 and requested the Plaintiffs to book 10000 bales of Brazilian Cotton and 10000 bales of Mexican Cotton at the rates mentioned in the said circular and thereafter they received allotment letter dated 18/3/77 from the plaintiffs. It is the contention of the Defendants that they were not aware about the contract entered into by the Plaintiffs with foreign supplier prior to the said circular dated 21/2/77. The Defendants also admitted that they returned the contract bearing number G/389 dated 18/3/77 duly signed by them. However, according to them, while returning the said contract, they had specifically asked the Plaintiffs to provide copy of the import contract referred in clause 3 of the contract between Plaintiffs and Defendants. The Defendants contended that the said contract between Plaintiffs and foreign supplier was an integral part of the contract between Plaintiffs and Defendants. The Plaintiffs also did not inform them about the terms and conditions of the said contract. On the contrary, Plaintiffs neglected to supply copy asked by the 8 SUIT NO.1312-1980 Defendants. 8. Defendants admitted that they received two shipping advises dated 15/7/77 and 2/8/77. However, the variety of the cotton mentioned therein was Brazilian (Paraguayan). When Defendants asked for the details of the bales, they were informed that 6966 bales of Paraguayan Cotton were shipped. According to Defendants, their representative Mr.Doraiswamy met Mr.Munikrishnan of the Plaintiffs and told that the cotton offered by the Plaintiffs was not the contracted cotton. Munikrishnan confirmed that Brazilian Cotton was offered but the shipper had an option to ship Brazilian or Paraguayan and as such the Defendants should accept the same. The Defendants, therefore, contended that the goods sent by the Plaintiffs were not of contracted variety and as such they were not bound to take delivery of the same. Hence, the Defendants issued letter dated 10/9/77 through their advocate to Plaintiffs and informed them that they committed breach of the contract and hence, Defendants rejected the goods and canceled the contract. The Defendants also contended that Plaintiffs supplied 9 SUIT NO.1312-1980 totally different cotton than contracted and as such they were justified in rejecting the delivery. The Defendants specifically denied Plaintiffs' allegation that they committed breach of the agreement. They also contended the term of the contract between Plaintiffs and their supplier permitting the supplier to change the variety of cotton from Brazilian to Paraguayan or any other type can not be binding on the Defendants. They further contended that at the relevant time, Plaintiffs have entered into several contracts with several suppliers for supply of the Brazilian Cotton but the provision of interchangeability with other variety of cotton was not contained in any of the contract. 9. The Defendants also contended that Brazilian cotton was in fact available with the Plaintiffs at all material times for supply to the Defendants in fulfillment of the contract number G/389 and this is seen from the letter of the Plaintiffs dated 20/3/78. 10. As the Plaintiffs amended their plaint and gave details about damages, the Defendants filed their 10 SUIT NO.1312-1980 supplementary written statement and contended that they were all along ready and willing to accept the delivery of the cotton which was contracted in contract G/389, but as the Brazilian Cotton was not offered as contracted, they refused to take delivery. Without prejudice to their contention in this behalf, the Defendants contended that Plaintiffs did not take adequate steps to mitigate the loss that they may have suffered after re-sale of the cotton imported by them. If at all Plaintiffs are entitled to damages, it should be based on the difference if any between contract price and the market price of the cotton contracted as on the date of the alleged breach. But the Plaintiffs have not formulated their claim on such basis and as such they are not entitled to get amount as claimed. 11. The Defendants submitted that the re-sale contract which Plaintiffs allegedly entered into with various companies indicate that the said contracts were not in respect of the Paraguayan Cotton but it was for “Paraguayan Raw Cotton equal to type Rover”. Thus, from this also it is clear that cotton bales imported by the Plaintiffs were not cotton contracted for by the 11 SUIT NO.1312-1980 Defendants and were not of type 'Spisk'. So on that count also Plaintiffs are not entitled to get any damages as alleged. Besides this, the Defendants contended that though they had informed the Plaintiffs about the cancellation of the contract, the Plaintiffs took steps for re-sale of the cotton in question after a period of about two years from the alleged date of breach of contract and thus, the Plaintiffs failed to make effort to mitigate damages or minimize loss and hence, on that count also Plaintiffs' claim is liable to be dismissed. 12. The Defendants denied the Plaintiffs' case that they were entitled to charge interest as claimed. According to Defendants, there was no such stipulation regarding interest in their contract and in any event, there was no stipulation regarding compounding of interest monthly. Hence, on all these grounds, the Defendants contended that they are not liable to pay any amount to Plaintiffs and the suit be dismissed with costs. 13. On the above pleadings this Court 12 SUIT NO.1312-1980 (CORAM:A.B.PALKAR,J.) has framed the following issues. I have given my findings as mentioned against the same. POINTS FINDINGS 1. Whether the Plaintiff proves that the defendants committed breach of the contract by wrongfully cancelling the contract and not taking delivery of the suit cottons ? NO 2. Whether the defendants prove that the defendants were justified in cancelling the contract as the goods imported by the Plaintiff was not of contract quality and type ? YES 3. Whether the Plaintiff proves that the Plaintiff suffered loss of Rs. 2,73,50,781.40/- on account of the breach of contract committed by the defendant and are also entitled to interest thereon as claimed in the suit? DOES NOT ARISE 4. What reliefs ? PLAINTIFFS ARE NOT ENTITLED TO GET ANY RELIEF 14. In order to prove the suit claim Plaintiffs adduced evidence of two witnesses namely V. 13 SUIT NO.1312-1980 Munikrishnan who was working as General Manager of the Plaintiffs at the relevant time and witness Anilkumar Jain, Accountant. As against this, defendants examined Mr. A.S. Bamrah who was then working as vice president, materials. Both the parties have produced several documents reference to which will be made in further discussion and and when necessary. 15. It is not in dispute that in the year 1976-77 Plaintiffs were working as canalising agent for import of foreign cotton of various varieties and types. Various textile mills in India used to place their requirement of foreign cotton with the Plaintiffs. Accordingly, on 21/02/1977 Plaintiff issued one circular whereby all the textile mills including the defendants were informed that limited quantities of 7 different varieties of imported cotton mentioned in the said circular are available for allocation at the rate indicated against each variety. It was also made clear that the said rates do not include letter of credit, bank charges and CCI service charges and mills have to arrange for clearance on arrival of the steamer. Mills desirous of importing the cotton mentioned in the 14 SUIT NO.1312-1980 circular were asked to register their demands with Plaintiffs. It was also mentioned that the allocation would be communicated to the intending mills on the basis of supply available. In pursuance of the said circular, the defendants sent telex on 14/03/1977 to Plaintiffs and registered their demands of 10000 bales of Brazilian cotton and 10000 bales of Mexican cotton. On 18/03/1977, the Plaintiffs informed the defendants that 805 bales of Mexican Cotton and 9000 bales of Brazilian Cotton are allotted to them. It was also mentioned in the said letter that the above cotton is available for immediate contracting and shipment not later than 30/06/1977 and as such the defendants to take necessary steps. Admittedly, thereafter, contract No.G/389 (Exh-P6) was entered into between Plaintiffs and defendants on 18/03/1977 for the above mentioned 805 Mexican Bales and 9000 Brazilian Bales. Not only that but the Plaintiffs issued letter dated 25/03/1977 (Exh-P7) to the defendants and forwarded the duly signed contract No.G/389 and also mentioned that the Plaintiffs should sent the copy of the import contract Plaintiffs have entered into with foreign supplier, because in clause-3 of the said agreement it was 15 SUIT NO.1312-1980 mentioned that the said import contract shall form an integral part of the contract between Plaintiffs and defendants. Admittedly, thereafter, copy of the said contract was at least not sent to defendants by post or through courier. It is also not in dispute that subsequently by letter dated 15/07/1977 the Plaintiffs informed the defendants that bale types spisk of Brazilian (Paraguayan) have been shipped per S.S. Jalmayur and S.S. Jagdesh. Immediately thereupon the defendants by their letter dated 12/08/1977 informed the Plaintiffs that they had specifically placed order for Brazilian cotton for specific end uses but they find that Paraguayan cotton has been shipped without any reference to them and clearance from them. Defendants also informed that Paraguayan Cotton is unsuitable to them in their requirement and as such 8614 bales of Paraguayan Cotton are not acceptable to them and Plaintiff should not send any shipping document in that behalf and defendants should be released from their obligation. It is an admitted fact that the defendants even returned the invoices received from Plaintiff and informed them to release them from the bank guarantee executed by them. Thus, the 16 SUIT NO.1312-1980 defendants did not take the delivery of 8614 Paraguayan cotton bales. 16. It is Plaintiffs' case that defendants were not justified in refusing delivery of 8614 Paraguayan cotton bales and they committed breach of the contract No.G/389 and as a result of the same, Plaintiffs were ultimately required to sell the said bales. The defendants also did not pay carrying charges etc. and thus, Plaintiffs suffered loss of Rs.2,61,26,182.37/-. As against this, it is the contention of the defendants that as the goods sent were not as per the contract and the description, they were justified in refusing the same. Thus, the main and the material point to be decided in this suit is whether the defendants were justified in refusing delivery of 8614 Paraguayan Cotton bales and cancelling the contract. ISSUE NOS. 1 AND 2 17. From the copy of the telex Exh-P4 it is very clear that the defendants had specifically demanded bales of Brazilian cotton and Mexican Cotton. In the instant case, bales of Mexican cotton which were 17 SUIT NO.1312-1980 shipped and delivery by the Plaintiffs have been accepted by the defendants and there is absolutely no dispute about the same. The dispute is only in respect of bales of Brazilian Cotton. From the document Exh-P5 it is also evident that Plaintiffs had also specifically informed the defendants that Brazilian Cotton Bales 9000 in number have been allotted to them. Subsequent contract G/389 dated 18/03/1977 Exh-P6 also clearly goes to show that the contract was for Brazilian Cotton. So one thing is certain that in none of the above mentioned documents the defendants at any point of time made any reference to Paraguayan cotton and they had placed order for Brazilian Cotton. 18. It is pertinent to note that even the Plaintiffs also admit that the defendants had placed an order for Brazilian cotton but according to them, there was no breach on Plaintiffs part when they sent bales of Brazilian (Paraguayan cotton). Initially, the stand taken by the Plaintiffs and the argument that was advanced on behalf of the Plaintiffs was to the effect that Paraguayan Cotton and Brazilian Cotton are the same. Paraguayan cotton is cotton grown in Paragua and 18 SUIT NO.1312-1980 it has the same qualities that of Brazilian cotton. So, the attempt of the Plaintiff was to show that there is no much difference in Brazilian cotton and Paraguayan cotton, perhaps Paraguayan Cotton is of a better quality, because admittedly, the rate of Paraguayan cotton is higher than the rate of Brazilian cotton. So, it is first necessary to find out whether Paraguayan cotton and Brazilian Cotton are different varieties or different types or not? While considering this question, one can safely rely on Plaintiffs' own document i.e. the circular (Exh-P3) dated 21/02/1977. In this circular, it is mentioned “All Mills are hereby informed that limited quantities of the following varieties of imported cotton available for allocation, at rates indicated against each variety: Variety Rate in Rs. Per Candy CIF Bombay/Bhavnagar/Cochin 1. .......... ............................ 2. .......... ............................ 3. BRAZIL Rs.4975/- June/July shipment 4. .......... ............................ 5. .......... ............................ 19 SUIT NO.1312-1980 6. PARAGUA Rs.5025/- July shipment 7. .......... ............................ 19. The Plaintiffs themselves have thus shown that Brazilian Cotton and Paraguayan cotton are separate. These are different types and varieties of cotton. Even Plaintiff's witness Munikrishnan has admitted in his cross-examination that Paraguayan cotton and Brazilian Cotton are shown as different varieties in circular Exh-P3. It is not a case that if in a open market Paragua Cotton is asked the Brazilian Cotton is given or vice versa, holding that both varieties or types are same. So, I have absolutely no hesitation to hold that Brazilian Cotton and Paraguayan Cotton are distinct and different types of cotton. 20. Now, the question arises, when defendants had specifically asked for Brazilian cotton and Plaintiffs had also allotted them that cotton, can Plaintiffs say that instead of Brazilian the defendants should take delivery of Paraguayan cotton. They are trying to make out such a case by relying on their import contract (P2) order S-1508 concluded on 19/02/1977. In this 20 SUIT NO.1312-1980 contract it is mentioned : “ Commodity : South Brazilian cotton - Sellers option to deliver part/ all equivalent out of Paraguayan growths.” 21. If we see the Contract between Plaintiffs and defendants which is at Exh-P6 there are two important stipulations with regard to point in question. The same are as under : “(3) The said Contract or agreement entered into by the Corporation with the Foreign Suppliers (hereinafter referred to as 'the 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. (26) In the event of the Foreign Suppliers supplying cotton of quality and type other than the quality and type of the cotton by this agreement agreed to be imported and sold, the mills will have the option either to accept such cotton under this agreement in substitution of the cotton contracted for or to cancel this agreement. In the event of acceptance of 21 SUIT NO.1312-1980 such cotton, all other terms and conditions of this agreement will remain in force. In the latter case the agreement will be cancelled without any consequences to any of the parties hereto.” 22. It does appear that admittedly there is no specific evidence to show that the copy of the import contract mentioned in clause-3 above was supplied to the defendants. Plaintiffs' witness has stated that such copy was given to defendants' representative Bhamra. However, Bhamra has denied this. If really such copy would have been given, then, normally, Plaintiffs would have obtained signature of Bhamra for having received the copy of the import contract. But that has not happened. So, I am not inclined to hold that Plaintiffs have proved their case regarding the handing over the copy of the import contract to defendants. In my opinion, once it is admitted that defendants signed the contract and forwarded the same to the Plaintiffs then now it is in fact not open for them to contend that when they singed the contract G/389 they were not aware of the terms of Import Contract etc. Nobody had compelled them to sign the contract without first going 22 SUIT NO.1312-1980 through Import Contract or without first knowing the terms and conditions of the Import Contract. Merely because after signing the contract and forwarding it to the Plaintiffs they asked for the copy of the Import contract, it can not be said that they had entered into contract with Plaintiffs subject to Plaintiffs forwarding the copy of Import Contract immediately. So, whatever is mentioned in Clause-3 of the Contract between Plaintiffs and Defendants has to be considered as part and parcel of the said contract and it is necessary to see what is the effect of the said contract and whether ultimately, Plaintiffs can justify their action by relying on the said clause. 23. There is one important hurdle in accepting Plaintiffs' case in this behalf. Admittedly, in suit contract between Plaintiffs and Defendants (Exh-P6) there is no specific mention of the date and number of import contract referred in clause No.3 of the suit contract. It only when the defendants made efforts and compelled Plaintiffs through Court to produce alleged import contracts. The Plaintiffs placed on record the Import Contract No.S/1507 dated 15/02/1977. In this 23 SUIT NO.1312-1980 Contract, there is absolutely no mention regarding sellers option and the contract is in respect of South Brazilian Cotton. While all along attempt was made on behalf of Plaintiffs to rely on the Import Contract No.S-1508 dated 15/02/1977 wherein there is stipulation regarding sellers option. As both these contracts were entered into much prior to