: 1 : IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION SUIT NO.1534 OF 1979 The Cotton Corporation of India Ltd., having its registered office at Air India Building, 12th Floor, Nariman Point, Bombay – 400 021. ...Plaintiffs Versus Gitanjali Mills Limited, having its registered office at Srigomathipuram Shankarankovil, Tirunelveli District, Tamil Nadu. ...Defendants ...... Mr.U.M.Mahajan i/b Divekar & Co. for Plaintiffs. Mr.G.Vishwanath for Defendants. ...... CORAM : A.M.KHANWILKAR, J. DATED : NOVEMBER 25, 2009. JUDGMENT : 1. By this Suit, the Plaintiffs pray for order and decree against the Defendants directing them to pay sum of Rs.97,764.84 with further interest on Rs.86,432.56 at 17% per annum till Judgment and thereafter, at the rate of 6% per annum till payment and cost of the Suit. : 2 : 2. The Plaintiffs assert that they are Company registered under the Companies Act, 1956 and is a Government of India Undertaking. The Plaintiffs acted as a canalizing agent for the import of foreign cotton into India and for supply thereof to Indian Mills and acted as an agent of different Indian Mills for the purpose of import and supply of foreign cotton. It is the case of the Plaintiffs that the Defendants are Company registered under the Companies Act and own a Textile Mill in Tirunelveli District, Tamil Nadu. The Plaintiffs and the Defendants on or about 29th March 1977 entered into a contract bearing No.G/557 whereby the Plaintiffs agreed to import and supply to the Defendants and the Defendants agreed to buy 50 bales of Orleans/Texas Cotton at the price of Rs.4,550/- per candy c.i.f. Bombay-Cochin/Bhavnagar and on the other terms and conditions mentioned therein. It was also agreed that the goods under the import license were to be delivered at Madras. It is stated that as per the said contract, the Defendants were obliged to furnish a Bank Guarantee for a sum of Rs.30,000/- (Rupees Thirty Thousand) and also to obtain a subsidiary import license. The Defendants by letter dated 4th April 1977 informed the Plaintiffs that they had inspected the samples at the Plaintiff's Coimbatore Office and they had selected "ROSA" type cotton. The Defendants also informed the Plaintiffs that they have received actual user's : 3 : quota letter No.Global/II/CC/88/382/A of 28th March 1977 for 50 bales of Orleans/Texas from the Textile Commissioner. The Defendants by their letter dated 10th April 1977 returned the original copy of the contract duly signed to the Plaintiffs and also informed that they were arranging to obtain the subsidiary import license as well as bank guarantee for Rs.30,000/-. By letter dated 2nd June 1977, the Plaintiffs informed the Defendants that they had obtained subsidiary license for import of the said 50 bales to Madras Port and steps were being taken to ship the goods. The Plaintiffs further informed that the foreign shippers instead of shipping the said bales to Madras, shipped them to Bombay. By another letter dated 1st July 1977, the Plaintiffs informed the Defendants that 44 bales of Orleans/Texas Cotton were shipped per S.S.Jalatarang by the foreign shippers from Galvester to Bombay and the Defendants were advised to state the mode of payment and clearing arrangement. By telegram dated 8th August 1977, the Defendants were once again called upon to instruct their clearing agent at Bombay to take delivery of the goods. The Plaintiffs by another telegram dated 16th August 1977, once again informed the Defendants that 44 bales of American Cotton had arrived in Bombay on 17th July 1977, but the Defendants had failed to name the clearing agent and to take delivery thereof. In response, the Defendants by letter dated 9th September 1977, : 4 : stated that by their letter dated 16th August 1977, they had requested the Plaintiffs to ship the goods from Bombay to Madras. The Defendants also recorded that on 7th September 1977, there was a meeting between the Plaintiff's representative and the Defendants representative in Bombay when the Plaintiffs' representative assured that the said 44 bales would be shipped to Madras and documents would be presented through Union Bank of India at Seithur. The Plaintiffs by their letter dated 15th September 1977, however, asserted that the Defendants representative in the meeting held on 7th September 1977, had agreed to accept the shipment from Bombay and advised the Plaintiffs to dispatch the goods to Madras by rail. Moreover, the said representative also agreed that the charges for clearing and freight up to Madras would have to be paid by the Defendants. The Defendants by their letter dated 25th October 1977, disputed their liability to pay freight from Bombay to Madras and further stated that they have learnt that many Mills who had obtained Orleans Cotton had complained that the cotton was absolutely unspinnable. The Defendants, therefore, stated that the Plaintiffs failed to fulfill their obligation under the contract and they reserved their right to cancel the order and to withdraw the Bank Guarantee. In response to the abovesaid letter sent by the Defendants, the Plaintiffs agreed to pay the freight charges between Bombay and Madras and therefore called upon : 5 : the Defendants to inform the mode of payment to enable to dispatch the cotton to the Mills' premises. This letter records that the difference of rate between Mill's premises and Bombay and Madras would be payable by the Defendants. In reply, the Defendants by their letter dated 5th November 1977, once again raised the issue of poor quality of cotton imported and stated that they would wait till the result of the inspection by the representative of the foreign sellers and the settlement with the foreign shippers. The Plaintiffs by their letter dated 15th November 1977, however, informed the Defendants that in case, the Defendants found the quality of cotton inferior, they could refer the matter to Arbitration of East India Cotton Association, Bombay as provided in the contract. The Plaintiffs also informed the Defendants they they had already cleared the cotton from the docks and they were also going in for quality arbitration with E.I.C.A. The Plaintiffs nevertheless requested Defendants to take delivery of the said goods against payment. The Plaintiffs states that thereafter, further correspondence ensued between the Plaintiffs and the Defendants and the Defendants on one pretext or the other, failed and neglected to show their readiness and willingness to take delivery of the cotton. Resultantly, the Plaintiffs by their Advocate's letter dated 12th January 1978, informed the Defendants that they were deliberately avoiding to honour the contract : 6 : inspite of the willingness shown by the Plaintiffs to transmit the goods to Madras. The Plaintiffs thereafter called upon Defendants to take delivery of the said 44 bales of cotton shipped against payment of the price thereof and to pay carrying charges and other incidental charges, failing which, Plaintiffs would be forced to sell the said cotton to any other Mill and that the Defendants shall be liable for the damages that would be suffered by the Plaintiffs. The Defendants by their letter dated 30th January 1978, however, once again raised several untenable false contentions. Amongst others, the other Mills had complained about the quality of cotton imported and that quality allowances under arbitration would not be sufficient compensation and requested the Plaintiffs to take necessary action against the foreign suppliers. By a subsequent letter dated 25th July 1978, the Defendants stated that the cotton was offered to be purchased by them at c.i.f. Madras and that the Plaintiffs have failed to fulfill their contractual obligation. For which reason, the Defendants were unable to take delivery of the cotton at Bombay and pay the carrying charges. The Defendants, however, offered to accept the goods at c.i.f. price Madras, provided, the cotton was dispatched to the Defendants' Mills at the cost of the Plaintiffs. The Defendants denied to pay carrying charges. It is stated that ultimately the Plaintiffs by their Advocate's letter dated 16th August 1978, once again, : 7 : called upon the Defendants to take delivery of the said cotton against full payment of the price thereof, failing which, the goods would be sold at the cost and risk of the Defendants under intimation to the Defendants. Inspite of this notice, the Defendants failed to take delivery of the said goods or to make payment thereof. Therefore, the Plaintiffs sold the said 44 bales of cotton to National Textile Corporation (NM) Ltd. (hereinafter referred to as `NTC (NM) Ltd.’), on or about 19th September 1978, at the price of Rs. 3,225/- per candy. It is stated that the total price of the said 44 bales including the clearing charges, demurrage, interest and carrying charges, amounting to Rs.1,77,827.93, whereas, from the sale of the said goods, the Plaintiffs could realise only Rs.91,395.37 and thus suffered a loss of Rs. 86,432.56. The Plaintiffs assert that in addition, the Defendants are also liable to pay interest at the rate of 17% per annum from 10th October 1978. This position was made known to the Defendants by the Plaintiffs' Advocates letter dated 22nd February 1979, calling upon the Defendants to pay amount of Rs.86,432.56 and interest thereon. However, the Defendants failed to do so. In the above background, in Para 6 of the Plaint, it is stated that the Defendants are liable to pay to the Plaintiffs an amount of Rs. 86,432.56 and interest i.e. total amount of Rs.97,764.84 as per the particulars of claim annexed to the Plaint (Exhibit C). Further, the : 8 : Defendants are liable to pay further interest at the rate of 17% per annum on Rs.86,432.56 from the date of the Suit till payment. In Para 7 of the Plaint, Plaintiffs have referred to the relevant clauses of the contract to assert that the Defendants were obliged to take delivery of the cotton even if it was offered at Bombay instead of Port of Madras. It is the case of the Plaintiffs that even if the goods were not of the contracted quality, the Defendants as per the contract, could not have refused to take delivery of the goods and that their only remedy was to refer the question of quality to arbitration and to get whatever quality allowance that would be allowed by the E.I.C.A. In substance, the grievance of the Plaintiffs is that although the Plaintiffs have discharged their obligation as per the contract, the Defendants failed to take delivery of the goods by citing specious grounds which were untenable. As a result, the Plaintiffs had no option but to sell the said goods to realise the cost thereof already paid by the Plaintiffs for and on behalf of the Defendants. Further, the Plaintiffs suffered loss which the Defendants were obliged to make good and also pay interest to the Plaintiffs. Accordingly, the present Suit has been filed for recovery of amount of Rs.97,764.84 with further interest on Rs.86,432.56 at 17% per annum till Judgment and thereafter at the rate of 6% per annum till payment. : 9 : 3. The Defendants entered appearance in the present Suit and filed on record their written statement on 29th October 1996, though the same was purportedly ready on 25th February 1982. According to the Defendants, the Plaintiffs are Governmental Agency and at any rate, an exclusive agency for the import and supply of foreign cotton to different Cotton Spinning Mills in India. It is stated that the contract entered between the Plaintiffs and the Defendants on 29th March 1977 bearing No.G/557 was hit by the provisions of Section 27 of the Indian Contract Act, as the same was not one of general commercial acceptance. It is stated that the terms and conditions on which the import and supply of cotton was to be effected under the contract are unreasonable and one-sided and left the Defendants and Mills in India in general with no choice of bargain of import of foreign cotton. The Defendants have asserted that the said contract dated 29th March 1977 was void. The Defendants then contend that the covenants in the said contract dated 29th March 1977 amounted to an implied guarantee on the part of the Plaintiffs that they will supply under the contract cotton of the description contracted by the Defendants and of good quality. It is the specific case of the Defendants that the cotton imported by the Plaintiffs was admittedly not of the description contracted under the contract and not of good quality. It is then stated that the Federation of the Cotton Mills also : 10 : expressed its opinion as to whether the imported material under the contract could be termed as cotton. On this basis, the Defendants asserted that the Plaintiffs committed breach of the implied guarantee and therefore, the contract was not binding on the Defendants and the same was void. The Defendants then proceeded to give para-wise reply to the Plaint. The Defendants denied that the Plaintiffs acted as agents of different Mills in the matter of import and supply of the foreign cotton in the normal sense of intending agents. Significantly, the Defendants admitted the contents of Para 2 of the Plaint while craving leave to refer to the true meaning and legal effect of the contract between the parties. The Defendants then admit that they selected "ROSA" type of Orleans/Texas Cotton for import and supply unto them by the Plaintiffs. According to the Defendants, the foreign cotton offered under the contract neither answered and corresponded to the description and/or sample agreed upon. As a result, Defendants were entitled to reject the said goods which they did by their letter dated 5th November 1977. The Defendants then assert that if the Court were to hold that the contract between the Plaintiffs and the Defendants was a simple contract of sale, according to them, the contract being one to procure the contracted goods for the Defendants, the transaction would be outside the scope of the Sale of Goods Act. On the other hand, if the Court were to hold : 11 : that the contract between the parties fell within the ambit of the said Act, the Defendants were entitled to reject and have rejected the goods offered by the Plaintiffs, as the same neither corresponded nor answered the description of the contracted goods or the sample approved by the Defendants. According to the Defendants, the Plaintiffs have committed a breach of contract and are therefore not entitled to exercise any rights under the contract. Further, the Defendants were not liable or obliged to take delivery of goods and/or submit to an arbitration for the alleged quality of the goods imported. The Defendants could legitimately cancel the contract, as the goods offered were not as per the description and sample approved by the Defendants. The Defendants asserted that it would be unreasonable to compel them to accept delivery of the imported goods and accept an arbitration for a quality allowance as suggested by the Plaintiffs. According to the Defendants, the clearance of the goods by the Plaintiffs was not as an agent of the Defendants and that, the Plaintiffs have not acted as a prudent person or in a reasonable manner while accepting the imported goods from the foreign supplier. The only course open to the Plaintiffs, under the circumstances, was to reject the imported goods and repudiate the contract with the foreign suppliers and sue them for damages for failure to supply goods of the description and/or sample under the contract. The Plaintiffs : 12 : could not compel the Defendants and insist upon them to take delivery of such defective goods. In Para 7, the Defendants admitted the letters referred to in Para 4 of the Plaint, while craving leave to rely upon the true meaning and legal effect thereof when produced. The Defendants denied the fact that they failed to take delivery of the imported goods and to make payment thereof as alleged. As a matter of fact, they were entitled to reject the goods and which they did, for which reason, the question of making payment for the said goods did not arise. The Defendants further assert that they were not concerned with the alleged sale by the Plaintiffs to the NTC (NM) Ltd. Further, the NTC (NM) Ltd. being another Governmental Organisation like that of the Plaintiffs, there could be no sale from one Governmental Organisation to another, in the normal sense of the term. According to the Defendants, if the Court were to hold that the role of the Plaintiffs was one of the agent or that of intending agent, the Plaintiffs were not entitled to sell the imported goods at the cost and risk of the Defendants, as the goods have never been appropriated to the contract between them. In any case, contends the Defendants, the alleged sale was unreasonable, unfair and arbitrary. Therefore, the Defendants were not liable to pay the alleged loss of Rs. 86,432.56 suffered by the Plaintiffs. The Defendants further assert that they were not liable to pay the said amount or any other amount as no particulars : 13 : of the cotton alleged to have been sold to NTC (NM) Ltd. have been furnished. Further, the rate at which the alleged cotton has been sold, is the market or reasonable price of such goods, is not forthcoming. The Defendants denied their liability to pay interest on the said amount as demanded by the Plaintiffs. The Defendants assert that since it was agreed that the goods would be supplied at Madras, the Plaintiffs cannot take advantage of their foreign suppliers failure to supply the goods at Madras, especially because the contract between the parties was on principal to principal basis. It is further stated that if the Plaintiffs are held to be agent of the Defendants, the Plaintiffs failed to carry out the instructions of the Defendants and therefore, the Defendants were not liable for the acts of the Plaintiffs. The Defendants relied on the contract while craving leave to rely on the true meaning and effect of the contract and different terms therein when produced. The Defendants denied that the only remedy available to them was to refer the issue of quality of goods for arbitration and accept the quality allowance to be awarded in that behalf. The Defendants assert that the Plaintiffs were not entitled to sell the goods on account of the failure on the part of the Defendants to take delivery thereof. It is stated that the Plaintiffs being Governmental Agency and exclusive canalizing agent for foreign cotton import into India were expected to act fairly in the : 14 : transactions with the Indian Mills in general and the Defendants in particular. The Plaintiffs were the Trustees in the matter to import all the foreign cotton and they failed to act fairly and prudently and for which, the Defendants cannot be made liable for any loss caused to the Plaintiffs due to such import. Accordingly, the Defendants pray that the Suit be dismissed with costs. 4. On the basis of the above pleadings, my predecessor proceeded to frame seven issues on 13th July 1998, which read thus: “ISSUES FINDINGS 1. Whether plaintiffs prove that goods were agreed to be sold and delivered to the defendants of the description and quality ordered? If so, do they prove to have attempted to deliver goods as stated in paras 3 and 4 of the plaint? YES 2. Do plaintiffs prove that defendants refused to take delivery of the said goods and thereby committed breach of the contract? YES 3. Do defendants prove that goods supplied by the plaintiffs were not of the quality and description agreed and they were justified in refusing to take delivery thereof? NO 4. Do plaintiffs prove that they sold 44 bales of cotton to National Textile Corporation at the price of Rs.3225/- per candy as stated in para 5 of the plaint? YES : 15 : 5. Do they prove damage at Rs.86,432.56? YES 6. Are plaintiffs entitled to recover the said amount of damages from the defendants? YES 7. What decree or order? AS PER FINAL ORDER.” 5. The matter proceeded for trial on 16th June 2005 but was adjourned from time to time. On 16th June 2005, direction was issued to the parties to produce all documents on which they wish to rely and also to file affidavit of their witnesses in lieu of examination-in-chief as per provisions of Order XVIII Rule 4 of the Code of Civil Procedure (hereinafter referred to as `the CPC’). As per the said direction on 23rd June 2005, the Plaintiffs tendered the documents along with a list which were taken on record and marked as P-X for identification, subject to their admissibility and proof. The Plaintiffs further furnished affidavit of PW 1 as evidence by way of examination-in- chief. At the request of Defendants, hearing was deferred for cross- examination. The matter appeared on several dates thereafter only to be adjourned. On 16th March 2007, the Plaintiffs’ witness PW1 was present in Court for giving evidence. The Court proceeded to record his further examination-in-chief. When his evidence was being recorded, the first objection taken by the Counsel for the Defendants was that the affidavit of the said witness filed in lieu of examination-in-chief was not in conformity : 16 : with the provisions of Order XIX Rule 3 of the CPC and the same cannot be taken on record. This objection was rejected, keeping in mind provisions of Order XVIII Rule 4 of the CPC. Counsel for the Defendants then submitted that the documents which are sought to be relied by this witness were not primary evidence, but xerox copies which is a secondary evidence. The same were inadmissible. The Court opined that the question of admissibility of the documents can be considered at the appropriate stage. Thereafter, the recording of further examination-in-chief of PW 1 commenced. However, soon thereafter, the Advocate for the Defendants raised objection with regard to question posed by the Plaintiffs’ Advocate to the witness on the ground that the same was vague and leading question. Both these objections were rejected. The witness once again proceeded to depose. When the witness was shown circular dated 12th March 1977 issued under the signature of Shri V.Munikrishnan, Deputy Manager and asked about whether he could identify the signature of the Officer on the said document, Advocate appearing for the Defendants raised objection and insisted that the witness be called upon to produce original copy of the Circular as was stated in the affidavit. This objection was overruled. At the same time, in the context of the objection, the Advocate for the Plaintiffs asked the witness as to whether he possessed the copy of the original circular. The witness : 17 : explained that the document produced by him is the original of cyclostyled copy of the circular. The Plaintiffs’ Advocate therefore requested to mark the said document as Exhibit. That request, however, was objected by the Counsel for the Defendants on the ground that the Plaintiffs had not produced the original copy of the circular. This objection came to be overruled, keeping in mind the Explanation II to Section 62 of the Evidence Act and it was held that the document produced was a primary evidence being original of the cyclostyled copy. Accordingly, the same was marked as Exhibit P-1. The witness proceeded to depose further and spoke about the circumstances in which the original compilation of documents have been misplaced. He also deposed that fortunately he had taken out xerox copy of the said compilation on which he was now relying as the original documents were misplaced. He has stated that documents at Serial Nos.2 to 34 of the compilation were misplaced while shifting of the office of the Plaintiffs and he had preserved the xerox copy of the said original documents which was taken out by him when issues were framed in or around July 1998. Accordingly, Plaintiffs’ request to mark the said documents as Exhibit P-2 to