1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL JURISDICTION SUIT NO. 4329 OF 1996 K.T. Steel Industries Pvt. Ltd. .... Plaintiff. V/s. Islamic Republic of Iran & Anr. .... Defendants. ....... Mr. Gautam K. Bharat i/b. Thakordas & Madgaovkar for the Plaintiff. Mr. Hemant Prabhulkar i/b. Juris Consultus for Defendant 2. ........ CORAM : DR. D.Y. CHANDRACHUD, J. 16TH JANUARY 2008. P.C. :- In 1969, the First Defendant which is the Islamic Republic of Iran floated a global tender for the purchase of Railway wagons. At the relevant time, the Government of India had canalized the export of Railway wagons through the State Trading Corporation which is impleaded as Second Defendant. The Plaintiff submitted a bid, upon 2 the acceptance of which the First Defendant entered into a purchase contract dated 16th March 1970 for the purchase of 492 Railway wagons. The purchase price of 492 Railway wagons was fixed at U.S. $ 5,584,2000. The original contract was entered into between the First and the Second Defendants. Thereafter, a financial agreement was entered into on 12th August 1970. The Second Defendant assigned the benefit of the contract to the Plaintiff by a back to back contract executed at Mumbai on 21st November 1970. The terms of payment envisaged that the First Defendant was to pay 5% of the price as advance through a letter of credit; another 5% against shipment and the balance representing 90% over a period of 9 and half years together with interest under a deferred payment scheme. All payments were to be made to the Plaintiff through its bankers at Mumbai. 32 Promissory Notes were deposited by the First Defendant in order to cover the 32 installments and the bankers of the Plaintiff were appointed as a trustee bank with authority to fill up the due dates on the Promissory Notes, for the purposes of collection from the First Defendants' bankers in the U.S. The contract price per wagon was fixed at U.S. $11,350 which 3 was to be inclusive of freight of U.S. $ 780 per wagon. According to the Plaintiff, a tri-partite agreement for the provision of finance was entered into by the Plaintiff with Punjab National Bank and I.D.B.I on 20th June 1973. In 1972, there was a hike in the international prices of oil which resulted in an increase in freight charges for the shipment of the Railway wagons, under the contract between the Plaintiff and the First Defendant. In 1973, 306 wagons were exported for which, according to the Plaintiff, additional freight charges had to be incurred. The First Defendant did not reimburse the additional freight charges to the Plaintiff. After negotiations, in August 1976, the contract was amended by Addendum No. 1 dated 18th August 1976. Under the provisions thereof, the First Defendant agreed to pay to the Plaintiff freight charges based on the rates as certified by the officially recognized bodies of Shipping Companies, namely the West Coast of India or West Asia (Gulf Conference) or South Shipping Lines (Iran Lines). The First Defendant agreed to pay the freight charges on the particular date of shipment of 306 wagons which were already shipped and for the 4 balance 186 wagons after deducting an amount of U.S. $ 780 per wagon. After the contract was thus modified, the Plaintiff resumed manufacture and submitted its bills alongwith sight drafts payable at Mumbai for additional freight charges. Eleven certificates were obtained from the West Coast of India/West Asia (Gulf) Conference in respect of 306 wagons which were shipped in 1973. Eleven sight drafts and invoices in respect of 306 wagons shipped in 1973 have been produced in evidence. In the same manner, in respect of 94 wagons which were exported in 1977, the Plaintiff obtained four certificates for the additional freight charges. The claim of the Plaintiff arises due to the alleged failure of the First Defendant to pay the freight charges as agreed for the shipment of 306 wagons in 1973 and 94 wagons shipped in 1977. According to the Plaintiff, the First Defendant had, by its letter dated 22nd February 1978 promised to pay the difference. The validity of the letter of credit was extended by the First Defendant upto 31st March 1979. On 5 12th May 1980, the Plaintiff informed the First Defendant that 34 wagons were lying ready and the balance were at various stages of manufacture and sought an early payment of freight bills. The First Defendant addressed a telex dated 24th December 1981 acknowledging receipt of 400 wagons and asked for the remaining balance of 92 wagons. By a communication dated 25th December 1981, the Plaintiff agreed to comply with its obligations provided the First Defendant discharged its obligation under the altered contract. The last payment under the contract was made by the First Defendant, on 13th December 1985, under Promissory Note No.13-B of Annexure 1-A of the contract. The suit has been instituted on 6th September 1996. The First Defendant against whom a decree has been sought has been served with the writ of summons. The First Defendant has not entered appearance. The Plaintiff had applied for permission of the Central Government under Section 86 of the Code of Civil Procedure, 6 1908 on 28th December 1986. This permission was received on 21st March 1996. The suit was instituted on 6th September 1996. In computing the period of limitation, the Plaintiff is by virtue of the provisions of Section 15 (2) of the Limitation Act, 1963 entitled to the exclusion of the time required for obtaining the consent or sanction of the Central Government. With the exclusion of the aforesaid period, the suit has been instituted within a period of three years from the receipt of the last payment. The suit is accordingly within limitation. No decree is sought against the Second Defendant. The claim of the Plaintiff in the Suit is for the recovery of an amount of U.S.$ 73,145,007 as per the particulars of claim at Exhibit `W' and U.S.$ 3,799,912 as per particulars of the claim at Exhibit `X'. The particulars of claim at Exhibit `W' include additional freight payable on 306 wagons in the amount of U.S. $ 1,387,727 and additional freight payable on 94 wagons in the amount of U.S. $ 1,696,722. Interest has been claimed thereon compounded at the rate of 18% quarterly. At Exhibit `X' the particulars of claim are in respect of 7 the damages claimed by the Plaintiff. The Plaintiff has claimed damages of U.S.$ 484,840 being the balance due and payable on 92 wagons of which delivery was not taken by the Defendant and which were reduced to scrap value. Interest has been claimed thereon at 18% per annum compounded quarterly. The Plaintiff has relied upon an affidavit in lieu of the examination in chief of its Director and a compilation of all the documents which has been placed on record. The claim of the Plaintiff, as noted above, is for the payment of unpaid freight charges and for damages caused on account of the failure of the First Defendant to take delivery of the remaining 94 wagons. The claim of the Plaintiff has not been controverted since the First Defendant has not appeared in response to the service of the writ of summons. There has been no cross examination of the witness of the Plaintiff. The claim of the Plaintiff has been duly proved on the basis of 8 the examination in chief of the Plaintiff's witness and the documentary evidence produced on record. The suit shall accordingly stand decreed as against the First Defendant in the amount of (i) U.S. $ 1,387,727.83 being the additional freight payment on 304 wagons; (ii) U.S. $ 1,696,722.78, being the additional freight payment on 94 wagons; and (iii) U.S. $ 484,840 towards damages. In so far as the claim for freight is concerned, the Plaintiff would be entitled to interest from the respective due dates of the respective invoices mentioned in Exhibit `V' to the plaint until the date of the suit at the rate of 9% per annum and at the same rate from the date of the suit until payment or realization. The Plaintiff would be entitled to interest on the damages awarded, at the rate of 9% per annum from the date of the suit until payment or realization. The Plaintiff would be entitled to the costs of the suit. No relief is claimed against the Second Defendant. ----- 9