CS(OS)No. 1362/1997 Page 1 of 43 THE HIGH COURT OF DELHI AT NEW DELHI % Judgment Reserved on: 09.05.2011 Judgment Pronounced on: 13.05.2011 + CS(OS) No. 1362/1997 M/S. HERBICIDES (INDIA) LTD. ..…Plaintiff - versus - M/S. SHASHANK PESTICIDES P.LTD. AND ...Defendants Advocates who appeared in this case: For the Plaintiff: Mr. Rajat Arora, For the Defendant: Mr. K.R. Gupta, Mr. S.K. Gupta, Mr. Nitin Gupta and Mr. Manish Gupta, Advs. CORAM:- HON’BLE MR JUSTICE V.K. JAIN 1. Whether Reporters of local papers may be allowed to see the judgment? Yes. 2. To be referred to the Reporter or not? Yes. 3. Whether the judgment should be reported Yes. in Digest? V.K. JAIN, J 1. This is a suit for recovery of Rs 24,90,665/-. Defendant No. 1 is a company alleged to be owned and controlled by defendant No. 4 and his family members. Defendant No. 3 is the wife of defendant No. 4 and is running business in the name and style of defendant No. 2 CS(OS)No. 1362/1997 Page 2 of 43 from the same premises, where defendant No. 1 is functioning. Defendant No. 1-company entered into an agreement to purchase one lakh litres of weedicide, namely 2, 4-D Ethyl Ester 38% EC in 200 litres packaging, at the price of Rs 96.80 per litre plus local tax in staggered lots commencing from October, 1995 and ending in December, 1995. In the event of non-supply or non-lifting of goods, the party, in default, was to pay pre-determined compensation at the rate of Rs 20/- per litre. The plaintiff claims to have supplied 7000 litres of the aforesaid goods to defendant No. 1 in October, 1995. On the request of the defendant, invoice in respect of these 7000 litre of goods were raised on one M/s Paramount Pesticides Pvt. Ltd., nominee of the defendant. Vide letters dated 14th November, 1995 and 17th November, 1995, defendant Nos.1 and 4 informed the plaintiff that due to failure of season, the market had crashed and they were not in a position to make any commitment for lifting or for making financial arrangement for further quantities. The plaintiff, thereupon, informed the defendant that it had made all the necessary arrangements for supply of contracted goods and its refusal to lift the CS(OS)No. 1362/1997 Page 3 of 43 goods would cause immense loss to the plaintiff. The plaintiff asked defendant No. 1 to make arrangements to take delivery of the entire quantity during November and December. Since the defendants have failed to act upon the request and have also paid the price of 7000 litre of goods supplied to it, the plaintiff is now seeking a sum of Rs 18,60,000/- towards pre-determined compensation at the rate of Rs 20/- per litre of unlifted quantity of the goods, Rs 1,97,472/-+ 2,93,680/- toward balance price of 7000 litre of goods after adjusting the payment of Rs 2 lakhs made by the defendant and Rs 1,39,513/- (56,093 + 83,420) towards interest at the rate of 18% per annum on the principal amount due from the defendant. 2. The defendants have contested the suit and have taken a preliminary objection that the suit is bad for mis- joinder of parties since there is no privity of contract between the plaintiff and defendant Nos. 2 and 3 and there was no personal contract between the plaintiff and defendant No. 4. They have also taken a preliminary objection that suit against defendant No. 2, which is not a legal entity, is not maintainable. On merits, it has been alleged that the plaintiff was to deliver 10,000 litre of goods CS(OS)No. 1362/1997 Page 4 of 43 by the eve of Diwali 1995 and the balance quantity was to be delivered in regular intervals commencing from 1st November, 1995 and was to be completed by 15th December, 1995, but, the plaintiff failed to effect the delivery of any part of the goods, despite receiving Rs 4 lakhs from them. It is further alleged that after expiry of season, the plaintiff tried to foist goods on defendant No. 1, but, at that time the goods were of no use to them. The defendants have denied having received 7000 litre of goods from the plaintiff and having asked the plaintiff to raise invoice in the name of Paramount Pesticides Pvt. Ltd. The defendant Nos. 1 and 4 have filed a counter-claim of Rs 5,45,000/- against the plaintiff on the ground that it had not refunded the amount of Rs 4 lakhs, received from them and, therefore was liable to refund that amount along with interest amounting to Rs 1,44,000/- and Rs 1,100/- towards Advocate fee for service of notice. In its replication, the plaintiff-company has admitted receipt of total payment of Rs 4 lakhs from defendant No. 1 3. The following issues were framed on the pleadings of the parties: CS(OS)No. 1362/1997 Page 5 of 43 1. Whether the suit is bad for mis-joinder of defendant Nos. 2, 3 and 4 as parties, as alleged by defendants? OPP 2. Whether the suit has been filed by a duly authorized person on behalf of the plaintiff? OPP 3. Whether any quantity of 2, 4-D, Ethyl Ester 38% EC supplied by the plaintiff to defendant No. 1? OPP 4. Whether the defendant Nos. 1 and 4 are liable jointly and severally to pay pre-determined compensation of Rs 18,60,000/- to the plaintiff, as claimed? OPP 5. Whether the defendant Nos. 1 to 4 are liable jointly and severally to pay the sum of Rs 6,30,665/- for the goods supplied by the plaintiff to defendant? OPP 6. Whether the counter-claim has been instituted, signed and verified by a duly authorized person on behalf of defendant Nos. 1 and 4? OPD 7. Whether the defendant No. 1 is entitled to receive from the plaintiff the sum of Rs 5,45,000/- as claimed in its counter-claim? OPD CS(OS)No. 1362/1997 Page 6 of 43 8. Whether the defendant No. 1 is entitled to receive any interest, if so, at what rate and on what amount? OPD 9. Whether the plaintiff is entitled to receive any interest, if so at what rate? OPP 10. Whether there exist any privity of contract between the plaintiff and defendants 2&3? OPP 11. Whether the suit against defendant No. 2, non- juristic person is maintainable? OPD 12. Whether any contract was entered into between the plaintiff and defendant Nos.2 and 3 for the supply of goods set out in the plaint and whether any goods were supplied by the plaintiff to the defendants 2 and 3, if so of what value? OPP 13. Relief. Issues No. 10, 11 & 12 4. This is not in dispute that only the plaintiff- company and defendant No.1-company were parties to the agreement for supply of goods. Defendant No. 1 is a legal entity and defendant No. 4 is one of its Directors. There is, however, no privity of contract between the plaintiff and CS(OS)No. 1362/1997 Page 7 of 43 defendant Nos. 3 and 4. If there is a breach of contract on the part of defendant No. 1 or defendant No. 1-company has failed to pay the price of the goods received by it from the plaintiff-company, the remedy of the plaintiff-company lies only against defendant No. 1 and neither defendant No. 3 nor defendant No. 4 is personally liable to discharge the liability of defendant No. 1. Defendant No. 2 is not a legal entity and is only a trade name adopted by defendant No. 3. The issues are accordingly decided in favour of the defendants and against the plaintiff. The names of defendant No. 2 to 4 are struck off from the array of defendants. Issue No. 2 Ex.PW-1/1 is the copy of the Resolution passed by the Board of Directors of the plaintiff-company, authorizing Mr Ahok Dugar, Mr V.P. Singal, Mr R.K. Gupta and Mr Paras Parakh and to commence & institute suits, etc. on behalf of the plaintiff-company and to sign and verify the pleadings etc. The suit having been instituted and the plaint having been signed and verified by Mr Ashok Dugar, the issue is decided in favour of the plaintiff and against the defendants. CS(OS)No. 1362/1997 Page 8 of 43 Issues No.3 & 5 5. PW-1/A, Mr. Ashok Dugar, Director of the plaintiff- company, has stated that 7000 litre of goods in 35 drums were dispatched vide GR dated 21st October, 1995 (Ex.PW1/5) and the delivery of the consignment was taken by defendant Nos. 1 and 4, making endorsement in this record on the back side of GR. It has come in the deposition of PW-1 that the goods were moved by the plaintiff-company from Jaipur to Delhi on Stock Transfer basis and the truck, containing 7,000 litre of stock, was unloaded at the godown of defendant No. 1. It has also come in his deposition that defendant No. 4 Mr R.K. Gupta, who is the Director of defendant No. 1-company, was in touch with the officials of the plaintiff-company so that delivery could be taken at the godown of defendant No. 1. In rebuttal, DW-1, Mr R.K. Gupta, has stated that no goods were supplied by the plaintiff to defendant No. 1. A perusal of the Goods Receipt Ex.PW-1/5 shows that it bears an endorsement of receipt of 35 drums on the back of the document. It is also noted in the endorsement that one drum had leakage from it. The GR pertains to 35 drums of CS(OS)No. 1362/1997 Page 9 of 43 pesticides, the consignor as well as consignee is Harbicides India Ltd. and the goods were sent from Jaipur to Delhi on 21st October, 1995. According to Mr Ashok Dugar, these goods were received by Mr Vishesh Jain of the defendant, who made the endorsement on the back of this document. It has been admitted by Mr R.K. Gupta that Mr Vishesh Jain is also a Director of defendant No. 1. Since Mr Ashok Dugar had, in his deposition, claimed that these goods were received by Mr Vishesh Jain, it was incumbent on defendant No. 1 to produce Mr Vishesh Jain in the witness box to controvert the deposition of Mr Ashok Dugar in this regard and to prove that neither the goods were received by him nor does the GR Ex.PW-1/5 bear an endorsement by him. 6. In Enuga Lakshmamma Vs. Vennapuse Chinna Malla Reddy (Dead) by Lrs., 1985 (2) SCC 100, there was dispute with respect to the date of birth of the plaintiff/appellant. It was noticed that the father of the plaintiff/appellant was not produced as a witness. Supreme Court was of the view that non-examination of the father of the plaintiff/appellant on the most material issue, namely, the birth date of the plaintiff will have to be regarded as fatal to the plaintiff's case and the High Court was right in CS(OS)No. 1362/1997 Page 10 of 43 drawing adverse inference against the plaintiff on this aspect. In Iswar Bhai C. Patel @ Bachu Bhai Patel Vs. Harihar Behera & Anr. 1999 (3) SCC 457, the appellant did not enter the witness-box to deny on oath. The statement of defendant/respondent No.2 that it was at the instance of the appellant that he had advanced a amount of Rs 7,000/- to the appellant by issuing a cheque on the account of respondent No.1. The Court was of the view that the appellant having not entered the witness box and having not presented himself for cross-examination, an adverse presumption has to be drawn against him on the basis of the principles contained in Illustration (g) of Section 114 of Evidence Act. No explanation has been given by defendant No. 1 for not producing Mr Vishesh Jain in the witness box. It can, therefore, be presumed that had Mr Vishesh Jain been produced in the witness box he would not have supported the case of defendant No. 1 in this regard. 7. Ex.PW1/18 is the copy of the letters dated 20th November, 1995, sent by the plaintiff-company to defendant No. 1. It is subsequently stated in this letter that the CS(OS)No. 1362/1997 Page 11 of 43 plaintiff had supplied only 7000 litre of goods to the defendant No. 1 against its assurance to lift 60,000 litre of goods during November, 1995, thereby leaving a shortfall of 56,000 litres. This letter was sent vide Courier Receipt Ex.PW-1/19. Ex.PW-1/20 is the letter dated 29th November, 1995 from the plaintiff-company to defendant No. 1 which purports to have been delivered by hand on 29th November, 1995 and bears the stamp of defendant No. 1. Vide this letter, the plaintiff sought billing instructions for the balance 5,000 liters supplied to defendant No. 1 and also sought dispatch instructions for the balance 53,000 litres to be supplied, during November and 40,000 litre to be supplied during December. This is not the case of the defendant that Ex.PW-1/20 does not bear stamp of defendant No. 1. In his affidavit, Mr R.K. Gupta did not claim that the signature and stamp on this letter have been forged by the plaintiff-company. Ex.P-1/21 is the letter dated 23rd December, 1995 sent by the plaintiff-company to defendant No. 1, referring to the telephonic discussion, wherein the plaintiff had requested defendant No. 1 to place further order for 93,000 litre, enclosing therewith invoice No. 655 for supply of 5,000 litre of goods and informing that CS(OS)No. 1362/1997 Page 12 of 43 2000 litre of goods had already been billed on Paramount Pesticide Pvt. Ltd., Meerut as per the advice of the plaintiff. This letter was sent by registered post vide postal receipt Ex.PW-1/22 and the AD card bearing the stamp of defendant No. 1 is Ex. PW.1/23. Section 27 of General Clauses Act gives rise to presumption that service of notice has been effected when it is sent to the correct address by registered post. Similar presumption can be raised under Section 114 (e) of Evidence Act, once it is proved that a letter by registered post was sent at the correct address of the addressee and the registered envelope is not received back unserved, a statutory presumption of service on the addressee arises. Therefore, even if the AD card filed by the plaintiff is excluded from consideration, the service of this letter stands proved on account of the letter having been sent by registered post at the correct address of defendant No. 1-company. 8. Moreover, no evidence has been led by defendant No.1 to prove that the stamp on the AD Ex.PW-1/23 is not of defendant No. 1-company and/or the signature and stamp on this document have been forged by the plaintiff- company. No such claim was made by Mr R.K. Gupta in his CS(OS)No. 1362/1997 Page 13 of 43 affidavit by way of evidence and no other witness has been produced by the defendant. Had the plaintiff not supplied 7000 litres of goods, defendant No. 1 would not have remained silent to the averments made in this regard in the letters Ex.PW-1/19 PW-1/20 and PW-1/21 and would have definitely controverted the same by writing to the plaintiff- company, immediately of receipt of these letters, that no material at all had been supplied to it. Failure of defendant No. 1 to controvert the averment made in the letters in this regard indicates that these goods were actually supplied to defendant No. 1 and the plea taken by the defendants in this regard are false. The plaintiff-company, therefore, is entitled to recover the balance price of that 7000 litre goods, but only from defendant No.1. The balance amount, payable towards price of 7000 litre of goods, after deducting Rs 4 lakhs paid to the plaintiff-company, comes to Rs 91152/-. The issue is decided against accordingly. Issues No. 4, 6 & 7 9. A perusal of Ex.PW-1/3 which is the letter of the plaintiff-company dated 19th October, 1995, Ex.P-1/D1 & D-4, which is the letter of defendant No. 1 dated 20th October, 1995, Ex.PW-1/4, which is the letter of the CS(OS)No. 1362/1997 Page 14 of 43 plaintiff-company dated 21st October, 1995, Ex.P-2/D1 & D4, which is the letter of defendant No. 1 dated 26th October, 1995, discloses the following terms agreed between the parties: (a) The total quantity agreed to be purchased by defendant No. 1 was 1 lakh litres; (b) The agreed price as per letter Ex.PW-1/3 was Rs 96.80 per litre + 2% local tax/CST Form in lieu of the sale. The rate given in the letter of defendant No. 1 is Rs 88 per litre + excise, which I am informed comes to Rs 96.80 per litre only; (c) 10,000 litres of the material was to be supplied by the eve of Diwali, 1995; (d) The supplies were to be completed by 15th December, 1995; 60,000 litres were to be supplied up to 30th November and the balance quantity in December, 1995, and were to be made at regular intervals, maintaining proper ratio. (e) In case of either non-supply on the part of the plaintiff or non-lifting of goods on the part of CS(OS)No. 1362/1997 Page 15 of 43 defendant No. 1, a sum of Rs 20 per litre was agreed to be paid as compensation by the party in default. 10. Ex.P-4/D1&D4 is the letter dated 14th November, 1995, written by defendant No. 1 to the plaintiff-company, enclosing therewith a circular issued by M/s Parijat Agencies Pvt. Ltd and seeking review of the matter on account of market conditions being bad and season having been miserably failed. Ex.P-5/D1&D4 is the letter dated 17th November, 1995 written by defendant No. 1 to the plaintiff- company, referring to the earlier letter dated 14th November, 1995 (Ex.P-4/D1&D4) and regretting that the season had miserably failed and therefore, the market had crashed. It was stated in this letter that since there was no lifting and no finances in the market, defendant No. 1 was not in a position to make any commitment for lifting or to make financial arrangements. Defendant No. 1-company expressed its inability to pursue the matter in the circumstances and requested the plaintiff-company to make CS(OS)No. 1362/1997 Page 16 of 43 some alternative arrangement. In view of these letters, it cannot be disputed that defendant No.1-company had refused to accept any further delivery from the plaintiff- company and, thereby committed breach of contract to purchase one lakh litre of goods from the plaintiff-company. In its letter dated 20th November, 1995 (Ex.PW- 1/18), the plaintiff-company informed defendant No. 1 that on account of firm written confirmation from it they had already procured 40 M.T. of 2, 4-D Ethyl Ester technical Remix/Acromax and also liquid Emulsifiers costing approximately Rs 83 lakhs and defendant No. 1’s failure to lift the material would put them to a great loss. Vide letter dated 21st November, 1995 (Ex.PW-1/20), the plaintiff again sought instructions for dispatch of remaining 93 litre of goods. These letters indicate that the plaintiff-company had obtained the necessary raw material and was in a position to supply the remaining 93,000 litre of goods to defendant No. 1. 11. In his affidavit by way of evidence, Mr Ashok Dugar, Director of the plaintiff–company, has specifically stated that the plaintiff duly made all arrangements and procured all the raw-material, consisting mainly of 2,4-D CS(OS)No. 1362/1997 Page 17 of 43 Ethyl Ester Technical and required stabilizers, solvents and drums etc. at a considerable cost. According to him, the plaintiff purchased a total quantity of 60 MT of 2,4-D Ethyl Ester Technical at the relevant time which also included 39 MT of 2,4-D Ethyl Ester Technical required for formulation of one lakh litres of the said goods. The said 39 Mt was procured at a landed cost of Rs 73,61,250/-. He has further stated that the plaintiff had also procured other emulsifiers, drums, solvents, etc. at an approximate value of Rs 15,00,000/- in order to fulfil its obligations in supplying one lakh litres of the said goods to the defendants 1 and 4. He has also referred in his evidence to Ex.PW-1/6 to 15, which are the invoices by the Atul Products Ltd. on the plaintiff, during August, 1995 to November, 1995 towards supply of 2,4-D, Ethyl Ester Technical. 12. The learned counsel for the defendant has objected to the invoices being read in evidence on the ground that they have not been proved in accordance with law as the person, who procured the invoices, has not been produced in the witness-box. In support of his contention that mere putting exhibit marks on the document does not by ipso facto amount to proof of the document. The learned counsel CS(OS)No. 1362/1997 Page 18 of 43 for the defendant has referred to decisions of Sait Tarajee Khimchand And Ors. vs Yelamarti Satyam Alias Satteyya And Ors., AIR 1971 SC 1865 and Narbada Devi Gupta vs Birendra Kumar Jaiswal And Anr. AIR 2004 SC 175. 13. Even if these invoices are excluded from consideration, the deposition of PW-1, read along with letters sent by the plaintiff-company to defendant No. 1- company, clearly shows that the plaintiff-company had procured the requisite raw-material for supply of one lakh litre of the material to defendant No. 1-company. Vide letter dated 20th November, 1995 (Ex.PW-1/18) in response to defendant No.1’s letter dated 17th November, 1995, the plaintiff-company informed it that on their firm written confirmation, it had already procured 40 M.T. of 2, 4-D Ethyl Ester technical Remix/Acromax and also liquid Emulsifiers costing approximately Rs 83 lakhs and their declining to lift the material when the goods were ready for dispatch was not only against business ethics, but will also put the plaintiff to a great loss. Defendant No. 1-company was requested to make balance payment so as to enable the CS(OS)No. 1362/1997 Page 19 of 43 plaintiff-company to deliver the balance quantity of 53,000 litres which was to be delivered in November, 1995 and to make necessary arrangement for further 40,000 litres which was to be supplied during December 1995. There was no response from defendant No. 1 to this letter. Vide letter dated 29th November, 1995 (Ex.PW-1/20), the plaintiff again requested defendant No. 1 to send dispatch instructions for the balance 53000 litres to be supplied during November and 40,000 litres to be supplied during December so as to enable it to arrange immediate supply from Jaipur plant. Again, there was no response from defendant No.1. These letters, coupled with the deposition of PW-1 Ashok Dugar, are sufficient to prove that the plaintiff-company had either produced the remaining 93000 litres of the finished product or at least 53000 litre which was the balance quantity to be supplied in November, 1995 or it had at least procured the necessary raw material and was ready to supply those goods to defendant No. 1-company immediately on receiving dispatch instructions and requisite payment from it. Even otherwise, it is difficult to say that the plaintiff-company would not have procured raw material even up to 17th November, 1995, when it had to supply 600 litres of CS(OS)No. 1362/1997 Page 20 of 43 material during November, 1995 and 40,000 of material during December, 1995. The plaintiff-company had agreed to pay liquidated damages at the rate of Rs 20 per litre in case of its failure to supply the goods, within the agreed time. Therefore, it would not have taken the risk of paying those damages to defendant No.1-company and, therefore, must have procured the necessary raw material for this purpose. 14. It was contended by the learned counsel for the defendants that even if there was breach of contract on behalf of defendant No.1 and despite the contract between the parties providing for payment of liquidated damages in case of breach of contract on the part of either party, the plaintiff-company is not entitled to damages since there was no proof of any damages having been actually suffered by it. In support of his contention, he has relied upon the decision of Supreme Court in Fateh Chand vs. Balkishan Dass, AIR 1963 SC 1405, Maula Bux vs. UOI AIR 1970 SC 1955 and Gopal Krishnaji vs. Mohamed. Haji, AIR