Case: Kanchan Udyog Limited Vs. United Spirits Limited

2. The appellant entered into an agreement with the respondent for establishment of abeverages bottling plant at Dankuni, West Bengal, and sale under the respondents trade mark, Thrill, Rush, Sprint, and McDowells Sparkling Soda. The respondent provided technical consultancy for establishment of the plant, incorporated in the Project Engineering Services Agreement dated 11.09.1985. A Bottlers agreement dated 26.10.1985 was separately executed, valid for ten years with a renewal option, containing the respective rights and obligations of the parties, along with a Marketing agreement. The concentrate (Essence), for preparation of thebeverage, was to be supplied by the respondent. The beverage was to be sold in specified districts of West Bengal, as provided for in the marketing agreement.3. The appellant, on 15.12.1985 applied for loan, Exhibit `C, to the West Bengal Industrial Development Corporation (hereinafter referred to as the WBIDC) for establishment of the bottling plant at an estimated cost of Rs. 226.80 lakhs. In accordance with procedures, it was processed by the West Bengal Consultancy Organisation Ltd. (hereinafter referred to as WEBCON), which independently prepared afeasibility report, `Exhibit F1. Loan was then advanced to the appellant by the WBIDC, and the West Bengal State Financial Corporation. Commercial production commenced on 01.01.1987. The bottlers agreement was terminated by the respondent on 16.03.1988. Commercial production at the plant ceased in May, 1989, and the suit was instituted by the appellant in 1990. The learned Single Judge decreed the Suit, awarding damages for Rs. 2,73,38,000/towards loss of anticipated profits, and a sum of Rs. 1,60,00,000/towards costs for installation of the plant, after deducting Rs. 9.05 lakhs payable by the appellant to the respondent as consultancy charges. The respondent was held liable to pay to the appellant a sum of Rs. 4,24,33,000/with interest @ 10% from the date of suit till payment. The Division Bench in appeal reversed the decree, and dismissed the Suit.The appellant, on 15.12.1985 applied for loan, Exhibit `C, to the West Bengal Industrial Development Corporation (hereinafter referred to as the WBIDC) for establishment of the bottling plant at an estimated cost of Rs. 226.80 lakhs. In accordance with procedures, it was processed by the West Bengal Consultancy Organisation Ltd. (hereinafter referred to as WEBCON), which independently prepared ay report, `Exhibit F1. Loan was then advanced to the appellant by the WBIDC, and the West Bengal State Financial Corporation. Commercial production commenced on 01.01.1987. The bottlers agreement was terminated by the respondent on 16.03.1988. Commercial production at the plant ceased in May, 1989, and the suit was instituted by the appellant in 1990. The learned Single Judge decreed the Suit, awarding damages for Rs. 2,73,38,000/towards loss of anticipated profits, and a sum of Rs. 1,60,00,000/towards costs for installation of the plant, after deducting Rs. 9.05 lakhs payable by the appellant to the respondent as consultancy charges. The respondent was held liable to pay to the appellant a sum of Rs. 4,24,33,000/with interest @ 10% from the date of suit till payment. The Division Bench in appeal reversed the decree, and dismissed the Suit.

Court's reasoning:
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.