1 LC SUIT-237-78 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION LONG CAUSE SUIT NO.237 OF 1978 M/s. Indian Lightgauge Metal Products Pvt. Ltd., a company registered under the Companies Act, 1956 having its registered office at Bhagwan Mansion, Cinema Road, Dhobi Talao, Bombay-1 .. Plaintiffs Versus TATA SSL Ltd., a company registered under the Companies Act, 1956 having its registered office at 17 Cooperage Road, Bombay-39 .. Defendants Mr. Kamal Bulchandani with Ms. G. D'souza i/b. K.R. Shriram for Plaintiffs Mr. Chirag Balsara with Mr. N. Engineer and Mr. D.A. Mohta i/b. Desai & Diwanji for Defendants 2 LC SUIT-237-78 CORAM : S.R. SATHE,J. DATED : 11/04/2007 ORAL JUDGEMENT :- 1. Plaintiffs have filed this suit against the defendants for the recovery of the amount of Rs. 17,65,500/- together with interest at the rate of 12% per annum from the date of filing of the suit till realization of the amount in accordance with the particulars of the claim at Exh-M to the plaint, being the amount payable by the defendants as compensation to the Plaintiffs as per clause-3 of the agreement executed between Plaintiffs and defendants on 10/01/1972. 2. The Plaintiff's case in brief is that they have specialized in the process of manufacturing cable armour, flat wires by sizing suitable mild steel wires in their factory, situated at Ghatkopar, Mumbai and for necessary equipment and technical knowhow for the same. The defendants manufacture and supply cable armour flat wire in normal size of 3.99 mm x .72 mm. The defendants were desirous of using the capacity in the Plaintiff's factory for rolling mild steel wires of the defendants 3 LC SUIT-237-78 to cable armour flat wires, by defendants supplying the raw materials to the Plaintiffs, Plaintiffs accomplishing the job of flattening the said wires and the defendants paying for the job work at a fixed rate. 3. After negotiations Plaintiffs and defendants entered into an agreement on 10/01/1972. The main terms and conditions of the said agreement are as under :- “ (a) that the agreement shall remain in force from 1st April, 1972 for a period of 5 years. (b) that the Defendants would deliver raw materials to the Plaintiffs as per the specifications contained in Annexure 'A' to the said agreement. (c) the Defendants would deliver monthly a minimum quantity of 150 M.T. or 2/3rd of the total quantity of the raw materials rolled in the Plaintiffs' Flattening Mill whichever is less. It is further agreed that if there is any shortfall in the delivery of the raw materials by the Defendants to the Plaintiffs the 4 LC SUIT-237-78 Defendants would compensate at the rate of Rs. 550/- per metric tonne of the short fall. (d) The Plaintiffs had agreed to deliver the finished products as per the Annexure 'B' of the said contract. (e) that the Plaintiffs would be paid at the rate of Rs. 550/- per metric tonne. (f) that the Plaintiffs would pay Rs. 550/- per metric tonne to the Defendants for any shortfall in delivery. (g) lastly that the Plaintiffs would not undertake or accept materials for flattening cable armour flat wires on their own account and sell it to any other person other than the Defendants. A copy of the said agreement is hereto annexed and marked as Exhibit'A'.” 4. By letter dated 15/03/1972, defendants agreed that they would sent a report of their production in their flattening mill and the said report shall be accepted as final and binding by the Plaintiffs. It was 5 LC SUIT-237-78 further agreed that if there was any deficit in the supply of raw materials, the defendants have right to cover up the deficit in the next quarter and if excess quantity is supplied it would be adjusting it in succeeding quarter at the option of the defendants. 5. As supply of raw materials by defendants was not regular a meeting was held between Plaintiff and defendant's representative on 27/03/1973. Both of them agreed to condone the delay till that time. It was further agreed that in April-1973 defendants would supply 100 metric tonnes of wire and in May-1973, 125 metric tonnes to Plaintiffs for flattening whereafter the agreed ratio of 2:3 would be strictly maintained. They also agreed that the short fall till February-1973 which was to the extent of 160 metric tonnes would be made up in 6 to 8 months from June-1973 in addition to the agreed 2:3 ratio. The defendants also sent letter dated 07/04/1973 and confirmed the short fall of 160.80 metric tonnes as on February-1973. The Plaintiffs by their letter dated 29/06/1973 informed the defendants that they had not taken into consideration 13.392 metric tonnes being the quantity of round wire rejected 6 LC SUIT-237-78 by the Plaintiffs. So, short fall was to the extent of 176.193 metric tonnes. Plaintiffs fond that defendants were not supplying the statement of production as agreed. So, they called upon the defendants to do so. 6. By their letter dated 20/01/1976 Plaintiffs informed the defendants that till August-1975 the deficit in supply of wires was to the tune of 360 metric tonnes. The defendants assured that from September-1975 onwards they would supply regularly minimum quantity of 50 tonnes of wires towards deficit. However, the defendants failed to keep the said assurance. 7. As per the agreement, Plaintiffs were to receive Rs.550/- per metric tonnes for conversion of the round wire into flattening wire. Plaintiffs were entitled to claim from the defendants Rs.550/- per metric tonne during the contract period every month in respect of the short fall in supply of raw materials of the minimum quantity. As per the agreement Plaintiffs were not entitled to take contract from any other company. So, taking into consideration the deficit 7 LC SUIT-237-78 supply till August-1975 which was to the tune of 360 metric tonnes as well as the non supply of raw materials at the rate of 150 metric tonnes from September-1975 to March-1977, plaintiff's Advocate issued letter dated 19/02/1977 and called upon the defendants to pay Rs. 550 per metric tonnes for 3210 metric tonnes amounting to Rs.17,65,500/- within 8 days from the receipt of the letter. They also informed the defendants that on defendant's failure to pay the amount they will be required to pay interest at the rate of 18% per annum on the said amount. 8. Inspite of the receipt of the letter, defendants neither paid the amount nor replied the notice. Hence, Plaintiffs filed present suit on 13/02/1978. 9. The defendants filed their written statement and opposed the suit claim on several grounds. They admitted about the execution of agreement dated 10/01/1972 as well as subsequent agreement dated 15/03/1972. According to them, Plaintiffs were aware that the flatten wire required by the defendants were 8 LC SUIT-237-78 for the purpose of eventual use in the manufacture of cable by the customers of the defendants. It was therefore a condition of the agreement that the flatten wires would answer the requirement of the defendants and their customers. The defendants also admitted that meeting took place between Plaintiffs and the defendant's representative on 27/03/1973 but contended that in the said meeting defendant's representative Dr. Kashyap had pointed out to the Plaintiffs that the quality of the wire flatten by the Plaintiff was not in accordance with the specifications mentioned in the agreement and that the defendants would reserve their rights to claim damages or expenses incurred by the defendants on account of the said defective quality of the work done by the Plaintiff. According to defendants the Plaintiff's representative promised to improve the quality. 10. The defendants further contended that the alleged rejection of 13.392 metric tonnes raw materials made by the Plaintiff was wrongful. The defendants had carried out their obligations as per the agreement. The Plaintiffs failed to improve the quality of the flatten 9 LC SUIT-237-78 wire supplied to the defendants. According to them, each of the consignment sent by the Plaintiffs was tested and it was found that there were several defects in the flatten wires. The said flatten wires were oversized and some times undersized as compared with the specifications. This was so inspite of the fact that defendants gave allowance for permissible process loss in respect of the said flatten wire. The defendants in fact sent various representatives to Plaintiffs pointing out the said defects. According to them, in the meeting dated 02/04/1974 both parties had waived their alleged rights against each other and it was agreed that none of the parties to the agreement would claim anything from other in respect of the alleged short fall or defects mentioned therein. 11. It is the contention of the defendants that as the Plaintiffs failed and neglected to flatten the wire as per specifications, defendants were not bound to supply raw materials as agreed and they were in fact discharged from their duties. The defendants admitted that they received Plaintiff's letter dated 28/11/1976 but denied that there was a deficit in the supply of 10 LC SUIT-237-78 wire to the tune of 360 metric tonnes. According to them, it was agreed between them to abandon the agreement dated 10/01/1972 and that none of the parties would claim any damages from others in respect of alleged norms supplied or defective quality. Thus, according to them, both parties by their conduct abandon agreement and as such Plaintiffs are not entitled to claim anything from the defendants. The defendants also denied the Plaintiff's allegation that they could not take any other contract and as a result of the same they suffered loss and were entitled to receive amount of Rs. 550/- per tonne for shortage of 3210 metric tonnes. 12. The defendants also contended that clause-7 of the agreement dated 10/01/1972 is in the nature of penalty and does not contain genuine pre-estimate of any loss on account of any breach of the agreement and as such it is unenforcible. The Plaintiffs denied to run and utilize their equipments for flattening the wires for their own customers and Plaintiff's equipments were not lying idle on account of alleged breach by the defendants. So, according to defendants, 11 LC SUIT-237-78 Plaintiffs are not entitled to recover any amount from them. 13. Without prejudice to the above contentions defendants submitted that Plaintiffs failed and neglected to mitigate the alleged loss or damages arising out of the alleged breach and as such the Plaintiffs are precluded from claiming any damages. Thus, according to defendants Plaintiffs did not suffer any damage. They also contended that Plaintiff's suit is barred by law of limitation. Hence on all these grounds, the defendants prayed for the dismissal of the suit. 14. On the above pleadings following issues are framed. I have given my findings as mentioned against the same. ISSUES FINDINGS 1. Whether or not defendants prove that the Plaintiffs were made aware of the nature/scope/purpose for which the wires were required and if so, does that amount to a condition of the contract ? Defendants have proved that plaintiffs were aware. 12 LC SUIT-237-78 2. Whether the defendants prove that finished products returned by the Plaintiffs were not as per specifications agreed ? It is not proved that all the goods were defective. At times in few lots there were some defects. 3. Do defendants prove the agreement to waive the rights by the parties as stated in letter dated 27/03/1973? Not proved 4. Do Plaintiffs prove that defendants committed breach of the agreement dated 10/01/1972 by not supplying 3210 metric tonnes of the raw materials as alleged in paragraph-5 of the plaint ? Yes 5. Do Plaintiffs prove the quantum of damages of Rs. 17,65,500/-? Loss caused to Plaintiff was in respect of 66 MT per month from Nov-75 to Mar-77. Plaintiffs are entitled to get Rs. 3.08,550/-. 6. What decree or order ? As stated in final order R E A S O N S 15. In order to prove the suit claim Plaintiffs examined their director Ram Gopal Vaid. As against this, on behalf of defendants, they examined M.M.Khilnani, General Manager, Materials of the 13 LC SUIT-237-78 defendant's company. Both the parties produced several documents reference to which will be made in further discussion as and when necessary. ISSUE NO.1 16. It is not in dispute that as per the agreement dated 10/01/1972, the defendants were to provide raw materials to the Plaintiffs and Plaintiffs were to carry out the work regarding flattening of mild steel wires and provide the same to the defendants. Admittedly, subsequent to the agreement dated 10/01/1972 there was another agreement entered into between parties on 15/03/1972. Accordingly, in pursuance of those agreements, business transaction started between Plaintiffs and defendants and Plaintiffs used to supply the goods after carrying out the necessary processing on the raw materials supplied by the defendants. It is the contention of the defendants that there used to be defects in the finished products supplied by the Plaintiffs. Plaintiffs were in fact aware about the nature and purpose for which the wires were required by the 14 LC SUIT-237-78 defendants. Even then the flattening wires supplied by the Plaintiff were not serving the purpose for which the defendants had taken the same. Though, it is tried to be shown that Plaintiffs were in fact not aware of the nature/ scope/ purpose for which the wires were required, if we carefully see the evidence on record then it is clear that the Plaintiffs were in fact aware of the nature/scope and purpose for which wires were required by the defendants. If we peruse clauses-5 and 6 of the agreement dated 10/01/1972 (Exh-P2) we find that therein specifications of the product that was to be provided by Plaintiff are mentioned. The same are as under:- “ 5) The Contractor undertakes to deliver cable armour flats of the sizes mentioned herein below in uniform quantities through each month. 6) The Contractor expressly agrees and undertakes to deliver the finished products as per specification given in Annexure 'B'. It is agreed that the process loss due to flattening will not exceed 3% which will be borne by the Principals, whatever material 15 LC SUIT-237-78 may become reclaimable will be returned by the contractor to the principal. “ 17. Besides this, if we see the annexture-B of the said agreement dated 10/01/1972 we find that it sets out specifically the width, thickness and radius of the cable armour flat wire which was required to be processed by the Plaintiff. Not only that, but a digram was also annexed to the agreement. Plaintiff's witness Vaid has also clearly admitted that Plaintiffs were aware about the requirement and specifications of the defendants and that the said flattening wire was required by the defendants for being used in the cable industries. Thus, by no stretch of imagination, it can be said that the Plaintiffs were not aware about the nature/ scope/ purpose for which wires were required by the defendants, as it was clearly mentioned in the agreement itself and there was also provision whereby it was stated that process loss should not be more than 3%. So, it must be held that the said specifications/nature and scope were part of the conditions of the contract between Plaintiffs and 16 LC SUIT-237-78 Defendants. Hence I have answered issue No.1 accordingly. ISSUE NO.2 18. In order to show that Plaintiffs have not suffered any loss or damage and on the contrary the defendants had in fact suffered loss and inconvenience the Defendants have taken the contention that the finished products supplied by the Plaintiffs were not as per the specifications agreed. However, it must be stated that the defendants have not adduced cogent and convincing evidence to show that goods supplied by the Plaintiffs were not as per the specifications. It does appear that at some point of time the defendants had made complaint to Plaintiffs that the goods supplied by them are defective. Even if we see the minutes of the meeting that took place between parties on 02/04/1974 therein it is mentioned :- “ M/s. Special Steel Limited (Defendants) have been complaining from time to time about the welding and other defects and Indian Lightgauge Metal (Plaintiffs) will pay more attention to see that these are 17 LC SUIT-237-78 eliminated or minimized as much as possible.” Admittedly, these minutes are signed by Plaintiffs and defendants. So, it can be said that at times Plaintiffs have also accepted that the goods supplied by them were not perfect and there were some deficiencies. Besides this, defendants have produced on record 4 statements wherein also there is reference about the defects noticed in the good supplied by the Plaintiff. In the said statement, there is specific column showing the total number of coils rejected. Admittedly, this statement was received by the Plaintiff. Plaintiff's witness has admitted such fact. From this statement also it does appear that at times there used to be defective supply from Plaintiff's side and it was noticed by the defendants also. However, attempt has been made on the part of the defendants to show that percentage of defects or deficiency was quite large and even more than 30%. If we carefully peruse the total material supplied by the Plaintiffs to defendants during the period when the business transactions were going on between the parties, we find that the said percentage was not at all very high as contended by defendants. At the same time, it was also not less than 18 LC SUIT-237-78 3 % which was in fact permissible as per the contract between parties. So, merely because in some lots some items were found defective one can not jump to the conclusion that all the goods supplied by the Plaintiffs were defective. What is more to be noted is even according to defendants very rarely they have returned the goods supplied by Plaintiffs to them by saying that there are defects in the goods and as such delivery can not be accepted. Incidently, it must be noted that Plaintiff's witness has also admitted that there were some defects in the goods and the same were mentioned in the report. However, such stray admission of the Plaintiff's witness is not sufficient to jump to the conclusion that all the goods or the major portion of the goods supplied by the Plaintiffs to defendants were defective. Hence I have answered issue No.2 accordingly. ISSUE NO.3 19. It is the contention of the defendants that by letter dated 27/03/1973 parties agreed to waive the rights. However we find that document dated 27/03/1973 19 LC SUIT-237-78 is neither agreement nor letter but it is shown as minutes of the meetings. It is mentioned therein :- “ It was agreed between parties that there have been problems both with supplies in expected ratio as well as quality and rejection. The parties have agreed to condone the discrepancy and it is agreed that in April- 1973, Special Steel Limited will give 100 MT of wires and in May-1973, 125 MT wires etc.” So, there is nothing in this document by which it can be said that parties agreed to waive the rights. On the contrary, subsequent to this document several transactions have taken place between the parties. Not only that but there was exchange of correspondence also. In none of the documents, the defendants had at any time averred that agreement stands waived. Hence, I have answered issue No.3 in the negative. ISSUE NOS.4,5 AND 6 20. From the averments in the plaint and the submissions made before me one thing is certain that Plaintiffs claim is based on the provisions of section 74 of the Indian Contract Act. It is not in dispute 20 LC SUIT-237-78 that in the agreement dated 10/01/1972 executed between Plaintiffs and defendants there was following stipulation :- “ 3) It is agreed that the Principal shall deliver monthly a minimum quantity either of 150 m. tonnes or for every three tonnes rolled by the Principal in their own flattening mills, two tonnes to the Contractors, whichever is less. Should, however there be any shortfall in the aforesaid allocation of raw materials to be given to the Contractors, the Principal agrees to compensate the Contractor at the rate of Rs. 550/- per tonne.” 21. It is also an admitted fact that subsequently by virtue of agreement dated 15/03/1972 some amendment was carried out in the earlier agreement whereby parties agreed as under :- “ If there be any deficit in our despatches of raw materials from the agreed minimum quantity as aforesaid, it is understood that 21 LC SUIT-237-78 we have a right to cover up the deficit in the next quarter in which such deficit has occurred. However, if any additional quantity of raw material has been delivered to you than the minimum quantity as aforesaid it is understood that we would have the right to adjust such quantities in the succeeding quarter solely at our option. To make matters further clear it is further understood that if we do not desire to adjust the additional quantity delivered in a particular quarter but deliver the minimum quantity in the next succeeding quarter or additional quantities than agreed to, it will be solely at our discretion. The penalty in clause 3 of the Agreement in respect of allocation of raw materials to you as contractors shall stand amended protanto.” 22. It is the case of the Plaintiffs that the defendants failed to supply raw materials of 150 MT per month as agreed and as such they have calculated the 22 LC SUIT-237-78 compensation on the basis of the deficit supply at the rate of Rs. 550/- per metric tonnes. The Plaintiffs have given details of the said claim in schedule-M. Thus, according to them, till August-1975 there was deficit supply of 360 MT and from September-1975 till the end of the contract i.e. March-1977. The defendants did not supply any raw material as agreed and thus, committed breach of the agreement in question. The defendants have not disputed that there was stipulations regarding the payment of Rs. 550/- per metric tonnes in respect of deficit supply and subsequently, there was some amendment in the said stipulation by virtue of agreement dated 15/03/1972. Though, the said agreement is in the form of letter. Both the parties have signed the same. So, it has been treated as an agreement. 23. The first contention of the defendants in this behalf is that there was no fault on their part in supplying the raw materials. According to them, the Plaintiffs were in fact not in a position to cope up with the process of flattening wires as contemplated. Their machinery had become old and the Plaintiffs were 23 LC SUIT-237-78 not even in a position to process all the raw materials supplied to them in particular month. As a result of the same, there always used to be some balance stock of raw materials with the Plaintiffs. The defendants had no desire and intention to go on dumping the raw materials with the Plaintiffs, particularly when, the earlier raw material supplied to Plaintiffs was not processed within time by them. According to defendants, Plaintiffs own statement goes to show that practically every month there used to be stock in balance. So, under such circumstances merely because the defendants had not supplied the raw materials to the tune of 150 MT per month, the Plaintiffs are not entitled to claim compensation by relying on the clause-3 of the agreement dated 10/01/1972. The defendant's witness M.M. Khilnani, General Manager, Material has produced in his affidavit of evidence one statement Exh-A showing the raw material supplied by defendants in each month, the raw material which was processed and finished products were delivered by the Plaintiffs and the closing balance of the raw material in particular month with the Plaintiffs. The said statement is even admitted by the Plaintiff's witness. Correctness of the 24 LC SUIT-237-78 same is not disputed. It is