Case: Chalisgaon Shri Laxmi Narayan Mills Company Limited Vs. Armitlal Kalidas, Kanji

language of the section, damages are awarded in exceptional cases on the footing that the other party was aware of the circumstances which entitled the claimant to damages on the other footing. In this second class of cases damages are occasionally awarded on the footing of loss of profits because of knowledge of the promisee or the other party. The relevant circumstances in connection with the claim for damages in this case may be summarised as follows:-22. At the date of the contract as well as the breach thereof, contracts relating to export of cloth were governed by the provisions of the Export Trade Control Act and the Cotton Control Order. The result of the above circumstance was that there was in fact no open market for purchase and sale of cloth for export. Even so it was quite possible that the defendants Mills or other Mills may have made contract for export of cloth on or before July 31, 1951. The plaintiffs evidence in this case is that the goods of the description which the defendants had agreed to sell to him were not available in market for export. It would have been easy for the defendants to produce their own contracts for sale for export at relevant times if there was open market for purchase and sale of cloth for cloth for export at material dates. The defendants have not produced any such contracts. This case must, therefore, be decided on the footing that there was no open market for sale and purchase of the cloth of the contract quality for export at relevant date viz July 31, 1951.23. It is established beyond doubt that to the knowledge of defendants the contract in suit was made for export of cloth. The plaintiff has established that he had contracted to export the cloth to foreign purchasers in Africa. Having regard to non-existence of open market at the material time the plaintiff claimed damages on the footing that he was entitled to loss of profits on the footing of the contracts that he had made with foreign purchasers. The learned Judge appears to have accepted that position and considered the evidence led on behalf of the plaintiff on that footing. There are 3 contracts, Exhs. 172, 173 and 174, which the plaintiff made for re-sale of the whole of the quantity of the contract goods on August 14, 1950. Exh. 172 is for sale or 49,693 yards at the rate of Rs. 1-3-0 per yard F.O.B. Bombay to Messrs. Rawji Amarsi and Co., Mombasa. Exh. 173 is for sale of 50,000 yards at the rate of Rs. 1-3-0 per yard F.O.B. Bombay to Messrs. Kalidas Kanji (Africa) Ltd., Mombasa. Exh. 174 is for sale of 50,000 yards on the same terms as to price to Messrs Juthalal Velji Ltd., Daresselaam, The plaintiff led his own evidence as also evidence of partners and directors of the above foreign contracting parties to prove the above contracts. The plaintiff admitted that for the consignment of the goods to the foreign parties he had to take delivery of the grey calendar cloth from the defendants Mills and to have it processed and thereafter shipped the same from Bombay. The plaintiff led conclusive evidence to prove the expenses that he incurred in connection with processing and up to the stage of putting the same on board of steam-ship as regards the 49,693 yards grey calendar cloth. That evidence is contained in the accounts, which are Exhs. 186 and 198. The evidence led by the plaintiff conclusively proves that the plaintiff spent Re. 0-2-11 per yard for processing, dyeing and transporting the goods from Chalisgaon to Bombay and thereafter shipping the same. This however, does not include the amount of export duty that the plaintiff was bound to pay at the date of breach if the goods were delivered and shipped. It is also necessary to record that it is clear from the correspondence that has been tendered that the foreign purchasers were willing to accept delivery of these goods at the contract rate of Rs. 1-3-0 per yard F.O.B. Bombay as late as May 1951. The plaintiffs case throughout was that as at the date of breach purchasers in Africa were willing to make contracts for export of cloth on July 31, 1951 at the rate of Rs. 1-3-0 per yard F.O.B. Bombay. As there was no open market for purchasing cloth for export at the date of breach and as to the knowledge of the defendants the contract in suit was made for export purposes only, the damages in this case can be ascertained by relying upon the market rate for export contracts for Africa that were available at the date of breach. The plaintiff proved by his above evidence that at the date of breach the market rate was Rs. 1-3-0 per yard F.O.B. Bombay. From that market rate the expenses for processing and shipping of the goods at the rate of Re. 0-2-11 per yard as deposed to by the plaintiff must be deducted. Now this rate of Re. 0-2-11 per yard does not include the further expense which the plaintiff as exporter would have to bear as regards the payment of export duty. Without considering the amount of export duty on the above basis, the learned Judge calculated the damages payable in respect of 1,00,000 yards of cloth at Rs. 32,812-8-0. From out of this amount awarded to the plaintiff, the export duty expense which the plaintiff was bound to incur in connection with these goods if they were shipped must be deducted. Both Mr. Daji and Mr. Divekar have informed us that the amount of export duty in respect of 1,00,000 yards of goods would come to Rs. 17,187-8-0. The plaintiff accordingly would be entitled to damages only in the sum or Rs. 15,625. The damages as awarded by the trial court will be set aside.24. These were the only contentions made on behalf of the Appellants in this case.

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

Explanation:
1[ds]Now it is true that under the contract between the parties, the delivery was to be ejected by the defendants Millsgodown at Chalisgaon it is also true that in term 1 in the provisional contract it is provided that delivery of the goods will be given against cash payment. In this connection, it is also necessary always to bear in mind that at all material times transactions between the manufacturing Mills and the purchasers of cloth for export were governed, inter alia, by the provisions of the Export Control Act and the Cotton control Order. Manufacture of cloth was controlled in the widest possible manner. In connection with the cloth manufacture, it was impossible for the purchasers to know the quantities manufactured and as to whether the manufacturing Mills were in a position, to effect delivery of the goods contracted to be sold. As is shown by the correspondence that is en record, it is clear that in connection with the goods to be manufacture for delivery under the contract in suit, the plaintiff repeatedly wrote to the defendants Mills inquiring about the manufacture of the contract goods and the probable dates for delivery thereof. In the correspondence the defendants Mills continuously informed the plaintiff that the goods were not ready for delivery, in connection with their liability to make deposit, the plaintiff made initial deposit of Rs. 25,000 as required. When the plaintiff was informed in August 1950 by delivery of pro forma invoice of the defendants Mills that 49,596 yards were ready for delivery the plaintiff immediately in accordance with the provisions in the contract and what had been discussed between the parties in correspondence paid in cash Rs.and made available, from out of the initial deposit of Rs. 25000 Rs. 10,000. The plaintiff thus in fact paid the total price of Rs.that was shown by the Defendants Mills in theirinvoice as payable towards the price on the goods. In spite of the above payments made by the plaintiff in August 1950, the defendants Mills failed and neglected to give delivery of the quantity mentioned in theinvoice (49,693 yards), till 7th June 1952 in spite of the conduct of the defendants Mills in neglecting delivery even of these goods, the plaintiff repeatedly in correspondence made demands not only of these goods, out also of the whole of the contract quantity of the goods. The defendants continuously expressed their inability to effect delivery of the goods offered as well as the balance of goods. Even so, the plaintiff from time to time for the convenience of parties agreed to extend time for delivery of the goods to 31st July 1951. It is abundantly clear that the plaintiff was throughout ready and willing to pay the price of goods, if they were manufactured and offered or available for delivery by the defendants. The defendants in fact having received the price of 49,596 yards of the contract goods in August 1950 effected delivery thereof after expiry of due date in June 1952. The defendants willfully committed breach of the contract by expressing their inability to effect delivery of the remaining goods, it is difficult to appreciate now under these circumstances the contention made as above by Mr. Divekar can be accepted in our view, the plaintiff was always ready and wining to pay cash against delivery. The defendants were willfully negligent in effecting delivery. In those circumstances the plaintiff was not bound to tender price in cash or at all. The first contention must, therefore bethis observation of their Lordships, in our view, applies to the facts of this case in all particulars. The present suit is a suit against a company which is being wound up by the Court. As regards this suit, in accordance with the observations of Their Lordships, the date of the institution of the suit is not the factual true date being June 6, 1955, but for the purposes of Section 3 it stands advanced to an earlier date, viz. the date when the plaintiff lodged his claim in the first instance before the joint liquidators, i.e. June 14, 1952. That being the true position, having regard to the observations of Their Lordships, in this case we must hold that this suit though in truth instituted on June 6, 1955, was in law instituted on June 14, 1952. The result is that the suit was filed within about 11 month and 2 weeks from the date of breech being July 31, 1951.12. The further observations as contained in the case of 60 Ind App 13 : (AIR 1933 PC 63  ) also support the view that the application before the joint liquidators can he considered to be a civil proceeding instituted in a Court within the meaning of those words in Section 14 of the Limitationwould have been some difficulty in accepting the contention of Mr. Daji that the liquidators must be considered as the Court of first instance, if the language of the explanation to Section 3 as quoted above was not clear in providing that a claim lodged before the liquidator is relevant, in connection with a suit against a company in liquidation. It is also clear having regard to, the provisions of the Companies Act that all claims in respect of a company in winding up must be made by lodging them before the liquidator. It is not necessary or compulsory for any party having a claim against a company in liquidation to file a suit for recovering the amount cue to the party. It is, on the contrary, necessary under the provisions of the Companies Act that ordinarily a creditor of a company in winding up must initially lodge a claim for me amount due to him before the liquidator in accordance win the scheme prescribed by the Companies Act. The Act further provides for appeal and reference to the Civil court for decision in the ultimate instance of the claims preferred before the liquidator. In appeals before the Court, the decisions of liquidator are liable to be confirmed, modified and altered in all respects. It is having regard to that scheme that the Companies Act provides that as against a company ordered to be wound up no suit or proceedings could be continued or commenced except by leave of the Court, it la in the light of these provisions and the scheme of the Companies Act that we have come to the conclusion mat a claim lodged before a liquidator of a company ordered to be wound up must be held to be a civil proceeding mea Before a Court of first instance as provided in Section 14 of the Limitation Act. An extremely difficult and absurd position must arise if this is not the true construction on the provisions of Section 14 of the Limitation Act. In spite of a claim duly lodged before the liquidator having been fought out in the ultimate Court, it would be permission or the defendants in a further suit which may have to be filed to contend that the time that was taken in the proceedings before the liquidator cannot be excluded in computation of the period of limitation, in our view, the provisions of the Companies Act and the scheme therein provided for proof of claims by lodging the same before the liquidator were not intended to bring about such a situation.14. In this connection, we may observe that similar questions have arisen having regard to the provisions in the insolvency Law and the Courts have always field that where claims could be lodged before receivers and official assignees the time taken in infructuous proceedings before the receivers and the official assignees was liable to be excluded in computing the period of limitation.15. We cannot accept the contention made by. Mr. Divekar that the claim of the plaintiff was not rejected by we court on the grounds as mentioned in Section 14 of the Limitation Act, viz. from defect of jurisdiction or other cause of a like nature. The claim of the plaintiff before the liquidators was ultimately rejected by the District Judge only on the ground that it was a claim for damages and could not be therefore disposed of summarily in the proceedings by way of claim. The District Judge himself directed the plaintiff to file this suit if he wanted to substantiate ms claim. It was hereafter that the District Judge dealing with the defendants Mills in winding up gave leave for tiling this suit. This rejection of the plaintiffs claim lodged before the liquidators, in our view, must be held to be rejection though not on the ground of detect of jurisdiction, in any event, on the cause of a like nature. It was permissible for the District Judge to deal completely with the claim of the plaintiff. He, however, appears to have felt difficulty in summarily dealing with the plaintiffs claim. He accordingly rejected the claim and directed the plaintiff to tile the suit. These must be held to be the circumstances indicating the cause of a like nature within the meaning of that phrase in Section 14 of the Limitation Act. Having regard to the above findings, in our view, the period that expired between June 14, 1952 and April 30, 1955, must be excluded in computing the period of limitation for the filing of this suit.Having regard to what we have observed above, the contention made by Mr. Divekar that the plaintiffs sun was barred by the Law of Limitation must beonly ground on which the amount of export duty expended by the plaintiff could fee awarded to ins plaintiff would be that the item must form part of damages payable in connection with the late delivery of the above quantity of the contract goods, The plaintiffs case is that the due date for delivery in this case was extended upto July 31, 1951. Subsequent to that date, there was no obligation on either side to give or takeappears to us that this question can be resolved by referring to the provisions of Section 55 of the Contract Act, which relates to "effect of failure to perform at fixed time the contract in which time is essential". The first paragraph of the section in effect provides that in a contract where time is of essence and the contract is to be performed at or before the specified time and the promise fails to perform his obligation at or before the specified time, so much of the contract that has not been performed becomes voidable at the option of the promise. The second paragraph of the section relates only to contracts where time for performance is no of essence and is not relevant to the purposes of thisthe contract between the parties was for sale of goods, the time for delivery must be held to be essence of the contract. The time for delivery in this case expired on July 31, 1951. The plaintiff accordingly was entitled to avoid the contract altogether and not accept delivery at any time subsequently, in the correspondence the plaintiff stated that he would charge the defendants the expenses incurred towards export duty as also damages that would ensue if late delivery was effected. The defendants refused to give delivery to the plaintiff if he insisted upon the above conditions. In fact the export duty was imposed in April 1951.Even so and in spite of the defendants having informed the plaintiff that the defendants would not pay any amount of the export duty, the time for performance was by consent of parties extended to July 31, 1951. By agreeing to the above extension, the plaintiff, must be held to have given up and waived any right to payment of the export duty as damages. Upon extension of the due date to July 31, 1951, the parties proceeded on the footing that for all purposes the plaintiff would have to pay and bear the export duty for himself. The plaintiff cannot, therefore, be entitled to recover the sum of Rs.which he expended in connection with the export duty for consignment of the 49,693 yards that were delivered to the Plaintiff in July 1952.20. As regards damages that arose due to late delivery, it is relevant to point cut that the defendants Mills committed wilful breach of contract and expressed inability in deliver any goods. The plaintiff thereupon towards late 1951 filed criminal complaint and prosecution against the directors and managing agents of the defendants Mills. The accused then appear to have arranged to get 49,693 yards of goods delivered to the plaintiff. The defendants Mills were then ordered to be wound up. The liquidators then carried out arrangements made to effect delivery. The delivery was given under arrangements made due to criminal complaint and prosecution. The plaintiff having procured delivery in the above circumstances, must be deemed to have waived his right to damages arising on late delivery. Having regard to the above position, the plaintiff is not entitled to recover any amount by way of damages for late delivery of the 49,693 yards of the contract goods.21. The further question relates to the sum or Rs.which has been awarded to the plaintiff as damages in respect of breach of the contract byof 1,00,000 yards of the contract goods. The breach admittedly occurred on July 31, 1950. Though it is not clear from the judgment of the trial Court, it appears that the damages in the above sum have been awarded on the footing that the plaintiff was entitled to payment of all loss of profits that he would have recovered if the contract goods had been delivered. For awarding damages on the above footing, nothing is mentioned by way of explanation in the judgment. It is, therefore, necessary to record that generally having regard to the provisions of Section 73 of the Contract Act, the party suffering damages is entitled to receive from the party who has broken the contract compensation for loss or damage which naturally arises in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. The above language of the section has been construed again and again to mean that in all cases ordinarily the damages must be assessed by finding out the difference between the contract rate and the market rate of the contract goods at the date of the breach. The market rate is the true criteria for arriving at what may be described as the loss or the damage which naturally arises in the usual course of things. Whenever damages are awarded on any other footing, it is necessary to explain the circumstances why the criteria of market rate was not applicable to the facts of that case, it is true that having regard to the latter part of the above quoted language of the section, damages are awarded in exceptional cases on the footing that the other party was aware of the circumstances which entitled the claimant to damages on the other footing. In this second class of cases damages are occasionally awarded on the footing of loss of profits because of knowledge of the promisee or the other party. The relevant circumstances in connection with the claim for damages in this case may be summarised asAt the date of the contract as well as the breach thereof, contracts relating to export of cloth were governed by the provisions of the Export Trade Control Act and the Cotton Control Order. The result of the above circumstance was that there was in fact no open market for purchase and sale of cloth for export. Even so it was quite possible that the defendants Mills or other Mills may have made contract for export of cloth on or before July 31, 1951. The plaintiffs evidence in this case is that the goods of the description which the defendants had agreed to sell to him were not available in market for export. It would have been easy for the defendants to produce their own contracts for sale for export at relevant times if there was open market for purchase and sale of cloth for cloth for export at material dates. The defendants have not produced any such contracts. This case must, therefore, be decided on the footing that there was no open market for sale and purchase of the cloth of the contract quality for export at relevant date viz July 31, 1951.23. It is established beyond doubt that to the knowledge of defendants the contract in suit was made for export of cloth. The plaintiff has established that he had contracted to export the cloth to foreign purchasers in Africa. Having regard toof open market at the material time the plaintiff claimed damages on the footing that he was entitled to loss of profits on the footing of the contracts that he had made with foreign purchasers. The learned Judge appears to have accepted that position and considered the evidence led on behalf of the plaintiff on that footing. There are 3 contracts, Exhs. 172, 173 and 174, which the plaintiff made forof the whole of the quantity of the contract goods on August 14, 1950. Exh. 172 is for sale or 49,693 yards at the rate of Rs.per yard F.O.B. Bombay to Messrs. Rawji Amarsi and Co., Mombasa. Exh. 173 is for sale of 50,000 yards at the rate of Rs.per yard F.O.B. Bombay to Messrs. Kalidas Kanji (Africa) Ltd., Mombasa. Exh. 174 is for sale of 50,000 yards on the same terms as to price to Messrs Juthalal Velji Ltd., Daresselaam, The plaintiff led his own evidence as also evidence of partners and directors of the above foreign contracting parties to prove the above contracts. The plaintiff admitted that for the consignment of the goods to the foreign parties he had to take delivery of the grey calendar cloth from the defendants Mills and to have it processed and thereafter shipped the same from Bombay. The plaintiff led conclusive evidence to prove the expenses that he incurred in connection with processing and up to the stage of putting the same on board ofas regards the 49,693 yards grey calendar cloth. That evidence is contained in the accounts, which are Exhs. 186 and 198. The evidence led by the plaintiff conclusively proves that the plaintiff spent Re.per yard forprocessing, dyeing and transporting the goods from Chalisgaon to Bombay and thereafter shipping the same. This however, does not include the amount of export duty that the plaintiff was bound to pay at the date of breach if the goods were delivered and shipped. It is also necessary to record that it is clear from the correspondence that has been tendered that the foreign purchasers were willing to accept delivery of these goods at the contract rate of Rs.per yard F.O.B. Bombay as late as May 1951. The plaintiffs case throughout was that as at the date of breach purchasers in Africa were willing to make contracts for export of cloth on July 31, 1951 at the rate of Rs.per yard F.O.B. Bombay. As there was no open market for purchasing cloth for export at the date of breach and as to the knowledge of the defendants the contract in suit was made for export purposes only, the damages in this case can be ascertained by relying upon the market rate for export contracts for Africa that were available at the date of breach. The plaintiff proved by his above evidence that at the date of breach the market rate was Rs.per yard F.O.B. Bombay. From that market rate the expenses for processing and shipping of the goods at the rate of Re.per yard as deposed to by the plaintiff must be deducted. Now this rate of Re.per yard does not include the further expense which the plaintiff as exporter would have to bear as regards the payment of export duty. Without considering the amount of export duty on the above basis, the learned Judge calculated the damages payable in respect of 1,00,000 yards of cloth at Rs.From out of this amount awarded to the plaintiff, the export duty expense which the plaintiff was bound to incur in connection with these goods if they were shipped must be deducted. Both Mr. Daji and Mr. Divekar have informed us that the amount of export duty in respect of 1,00,000 yards of goods would come to Rs.The plaintiff accordingly would be entitled to damages only in the sum or Rs. 15,625. The damages as awarded by the trial court will be set aside.24. These were the only contentions made on behalf of the Appellants in this case.