Case: Kanchan Udyog Limited Vs. United Spirits Limited

that kind in mind as not unlikely to result from a breach. After noticing The Achilleas (2009) AC 61 it was observed: "69......The Achilleas shows that there may be cases, where based on the individual circumstances surrounding the making of the contract, this assumed expectation is not well founded." The observations noticed therein from para 23 and 24 of the Parabola case (2011) QB 477 are also considered relevant as follows: "23....The next task is to quantify the loss. Where that involves a hypothetical exercise, the court does not apply the same balance of probability approach as it would to the proof of past facts. Rather, it estimates the loss by making the best attempt it can to evaluate the chances, great or small (unless those chances amount to no more than remote speculation) taking all significant factors into consideration.24.....The judge had to make a reasonable assessment and different judges might come to different assessments without being unreasonable. An appellate court will be slow to interfere with the judges assessment." 27. The appellate court with reference to evidence has adequately discussed that the appellant failed to take steps to mitigate it losses under the Explanation to Section 73 of the Act. We find no reason to come to any different conclusion from the materials on record. If concentrates were available from M/s. VEC, the appellant had to offer an explanation why it stopped lifting the same after having done so for nearly a year, and could have continued with the business otherwise and earned profits as observed in Payzu Ltd. (supra). It could also have taken steps to sell the unit after its closure in May, 1989 rather than to do so belatedly in 1996. No reasonable steps had been displayed as taken by the appellant for utilisation of its bottling plant by negotiations with others in the business. Nothing had been demonstrated of the injury that would have been caused to it thereby. 28. That leaves the question with regard to reliance loss and the expectation loss. Whether the two could be maintainable simultaneously or were mutually exclusive? In Pullock & Mulla, 14th Edition, Volume II, page 1174, the primary object for protection of expectation interest, has been described as to put the innocent party in the position which he would have occupied had the contract been performed. The general aim of the law being to protect the innocent partys defeated financial expectation and compensate him for his loss of bargain, subject to the rules of causation and remoteness. The purpose of protection of reliance interest is to put the plaintiff in the position in which he would have been if the contract had never been made. The loss may include expenses incurred in preparation by the innocent partys own performance, expenses incurred after the breach or even pre-contract expenditure but subject to remoteness. The following passage from the same is considered appropriate for extraction: "No Recovery for Both, the Expectation Loss and the Reliance loss." Although the rules as to damages seek to protect both the expectation and the reliance interests, the innocent party cannot ordinarily recover both expectation loss, viz., loss of profit, and reliance loss, viz., expenses incurred in reliance on the promise; that would involve double counting. He has to choose between the two measures. However, he cannot claim reliance losses to put himself in a better position that if the contract had been fully performed: else, the award of damages for reliance losses would confer a windfall on the plaintiff, and would increase the damages in proportion to the claimants inefficiency in performance, rather than in proportion to the gravity of the breach, and probably of normal principles of causation. In such cases, therefore, the plaintiff can recover the loss on account of the wasted expenditure or outlay only to the extent of the expected gain; and the onus of proving lies on the party committing the breach to show that the reliance costs (or any part of them) would not have been recouped, and would still have been wasted, had the contract been performed. 29. In C & P Haulage (supra), which considers Cullinane (supra) also, it has been observed as follows: "The law of contract compensates a plaintiff for damages resulting from the defendants breach; it does not compensate a plaintiff for damages resulting from his making a bad bargain. Where it can be seen that the plaintiff would have incurred a loss on the contract as a whole, the expenses he has incurred are losses flowing from entering into the contract, not losses flowing from the defendants breach. In these circumstances, the true consequence of the defendants breach is that the plaintiff is released from his obligation to complete the contract-or in other words, he is saved from incurring further losses. If the law of contract were to move from compensating for the consequences of breach to compensating for the consequences of entering into contracts, the law would run contrary to the normal expectations of the world of commerce. The burden of risk would be shifted from the plaintiff to the defendant. The defendant would become the insurer of the plaintiffs enterprise. Moreover, the amount of damages would increase not in relation to the gravity or consequences of the breach but in relation to the inefficiency with which the plaintiff carried out the contract. The greater his expenses owing to inefficiency, the greater the damages." 30. In view of the conclusion, that the appellant was not entitled to any expectation loss towards anticipated profits, for reasons discussed, any grant of reliance loss would tantamount to giving a benefit to it for what was essentially its own lapses. There are no allegations of any deficiency in the plant. Contrary to its claim of Rs. 2.52 crores towards cost of the plant, the learned Single Judge awarded Rs. 1.60 crores without any discussion for the basis of the same. Though the appellant had preferred a cross appeal, it did not press the same.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]The primary document, Exhibit `F1 not having been proved, any assumptions in Exhibit `C already considered in the latter, could not be the basis for a profit projection. There was no evidence in support of the claim that Exhibit `C had been prepared in association with Dr. R.K. Baisya. No adverse inference could be drawn against the respondent and it was for the appellant to have summoned Dr. Baisya as a witness to prove its case, since he had since resigned and left thethe facts of the present case, the conduct of the appellant in placing orders and receiving supply of concentrates directly from M/s. VEC, for a period of nearly one year, and continuing to do so even after it wrote to the respondent in this regard, without recourse to any legal remedies for denial of its legal right to receive concentrates from the respondent, undoubtedly amounts to waiver by conduct and acquiescence by it to the new arrangement. The plea that it was done under compulsion, and not voluntarily, is devoid of any material, substance and evidence. It is unacceptable and merits no consideration. Alternatively, if it was an assignment under Clause 5 of the agreement, there had been no termination of the contract by the respondent.Exhibit `C was a loan application, submitted by the appellant to the WBIDC. There is no evidence that it was prepared together with the respondent. The intent and purpose of a loan application is entirely different, relevant only for the purpose of the borrowerthe lender. The most fundamental characteristic a prospective lender will want to examine in a loan application are assessment of the Credit History of the Borrower, Cash Flow History and Projections for the Business, Collateral that is Available to Secure the Loan and Character of the Borrower. The profitability projections in such an application are only broad estimates based on assumptions and presumptions of the borrower intended to convince the lender of the viability of its project, in absence of which the loan application itself may not be considered. The appellants projections in it of assumed estimated profitability for viability of the project also went completely awry from its own admission that there was no likelihood of profit in the next 5 to 6 years. Viability of the project for sanction of loan cannot lead to an automatic presumption of profits, in the facts of the case, especially when there is evidence that the appellant did not even deploy manpower in accordance with the projections made by it in the loan application. It was not sanctioned on basis of the assumption of the appellant for earning profits. The loan was sanctioned by the WBIDC on basis of thefeasibility report by WEBCON Exhibit `F1. The loan application, after consideration, lost its independent identity and got subsumed in Exhibit `F1.Annexure `M to the plaint containing the projected estimated profitability was only a reproduction of Exhibit `C. The primary document was Exhibit `F1, which took into consideration Exhibit `C also. The former being inadmissible in evidence, as not having been proved in accordance with law, the appellant cannot seek to prove indirectly what it has been unable to prove directly. The conclusion of the appellate court that Exhibitbeing the primary document, the claim for loss of anticipated profits on basis of Exhibit `C was unsustainable, cannot be faulted with.25. In the facts of the present case, it cannot be held that the breach alone was the cause for loss of anticipated profits, much less was it the primary or dominant reason. The appellate court has adequately discussed the appellants letter dated 04.07.1987 thanking the respondent for its advertising support. During the yearthe respondent spent Rs. 2,05,13,376.14 for advertising purposes evident from its balance sheet. Similarly, init spent Rs. 1,65,87,158.73 towards advertisement and sale promotions. On the contrary, for the year ending 31.03.1987, the appellant spent Rs. 6,68,856.00 towards advertisement and in the yearit spent only Rs. 39,288.00. The fact that it was unable to pay for the concentrates seeking deferred payment, acknowledgement on 09.05.1988 that it would continue to suffer loss for the next six years uptoseeking long term credit for five years for supply of concentrates and its acknowledgement in letter dated 27.04.1987 that due to "many factors already discussed with you we have not been able to run the factory and the sales of our product have not picked up in the market", and not to press for payment of consultancy fees, failure to deploy adequate manpower as per its own projections demonstrates the poor financial condition of the appellant as the prime reason for its inability to run the plant and earn profits. As against a value of Rs. 4,26,685.19 of raw materials in 1989, the appellant had an over draft of Rs. 13,89,000.00. It had a credit entry of Rs. 5,135.00 only in July, 1988 in its account with the State Bank of India. The current account with the Union Bank of India reflected a balance of Rs. 1,28,619.25 on 28.03.1989. The Bank balance on 31.03.1989 reflected from its balance sheet was only Rs. 43,345.38, and its loss as reflected in the balance sheet on 31.03.1987 was Rs. 18,47,018.11. In the facts of the present case, it cannot be held that the breach by the respondent was the cause, much less the dominant cause for loss of anticipated profits by the appellant. In Galoo Ltd. (supra) the emphasis was on the common sense approach, holding that the breach may have given the opportunity to incur the loss but did not cause the loss, in the sense in which the word "cause" is used in the law.The appellate court with reference to evidence has adequately discussed that the appellant failed to take steps to mitigate it losses under the Explanation to Section 73 of the Act. We find no reason to come to any different conclusion from the materials on record. If concentrates were available from M/s. VEC, the appellant had to offer an explanation why it stopped lifting the same after having done so for nearly a year, and could have continued with the business otherwise and earned profits as observed in Payzu Ltd. (supra). It could also have taken steps to sell the unit after its closure in May, 1989 rather than to do so belatedly in 1996. No reasonable steps had been displayed as taken by the appellant for utilisation of its bottling plant by negotiations with others in the business. Nothing had been demonstrated of the injury that would have been caused to it thereby.In view of the conclusion, that the appellant was not entitled to any expectation loss towards anticipated profits, for reasons discussed, any grant of reliance loss would tantamount to giving a benefit to it for what was essentially its own lapses. There are no allegations of any deficiency in the plant. Contrary to its claim of Rs. 2.52 crores towards cost of the plant, the learned Single Judge awarded Rs. 1.60 crores without any discussion for the basis of the same. Though the appellant had preferred a cross appeal, it did not press the same.