Gujarat High Court
Rama Gum Industries -India- Limited vs Sts Products Inc. on 5 July, 2018
Author: Akil Kureshi
Bench: Akil Kureshi, B.N. Karia
C/OJA/35/2015 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/O.J.APPEAL NO. 35 of 2015
In
COMPANY PETITION NO. 141 of 2014
With
CIVIL APPLICATION (OJ) NO. 1 of 2015
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE B.N. KARIA
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1 Whether Reporters of Local Papers may be allowed to
see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of law
as to the interpretation of the Constitution of India or any
order made thereunder ?
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RAMA GUM INDUSTRIES -INDIA- LIMITED
Versus
STS PRODUCTS INC.
==========================================================
Appearance:
MR.S.N.SOPARKAR, LD. SENIOR COUNSEL with MR VIPUL S MODI(491)
for the PETITIONER(s) No. 1
MR.A.L.SHAH, LD. ADVOCATE with ROHAN LAVKUMAR(9248) for the
RESPONDENT(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE B.N. KARIA
Date : 05/07/2018
ORAL JUDGMENT
Page 1 of 37
C/OJA/35/2015 JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. This appeal is filed by the original respondent challenging the order of the Learned Single Judge dated 19.06.2015 passed in Company Petition No.141 of 2014. By such order, by giving detailed reasons, the learned Judge admitted the Company Petition for winding up. While doing so, the present appellant original respondent was granted one more opportunity to discharge its liability within 30 days. If so done, requisite advertisement would not be published.
2. The appeal arises in following factual background.
3. M/s. STS Products Inc., the petitioner of the Company Petition, is a body corporate incorporated under the laws of the State of Delaware, USA and deals in the business of supplying engineering equipments and other connected products. The respondent of the Company Petition Rama Gum Industries (India) Limited is a company registered under the Companies Act and was converted from a partnership firm in the year 2013. Rama Gum Industries is engaged in manufacturing and export of Page 2 of 37 C/OJA/35/2015 JUDGMENT various products including 'Guar Gum' which is an industrial lubricant. M/s. STS Products required such product, for which, after negotiations with Rama Gum Industries, it placed an order on 02.04.2013 for purchase of 120,000 pounds of Fast Hydrating Guar Gum Powder 40/45 CPS (hereinafter to be referred to as 'Guar Gum Powder') which would be shipped in 3 containers. Agreed price of the such product was 3.22 USD per pound which worked out to a total consideration of 386,400 USD. The terms of the agreement were that the freight would be paid till Houston, USA. 20% of the agreed price would be paid in advance. Balance to be paid against bill of lading. Pursuant to such agreement, M/s. STS Products paid 77,280 USD on 03.04.2013 towards 20% advance payment. After product approval by M/s. STS Products, Rama Gum Industries also shipped the 3 containers of the said goods. The vessel left on 03.05.2013.
4. In the meantime, M/s. STS Products placed another order for the same product with Rama Gum Industries for purchase of 3.20 lakh pounds at the rate of 2.65 USD per pound. Total value of the Page 3 of 37 C/OJA/35/2015 JUDGMENT purchase would come to 8.48 lakh USD. M/s. STS Products also made advance payment of 30,000 USD towards this purchase order on or around 17.05.2013.
5. Disputes surfaced between the parties with respect to both these purchase orders. We would take note of the detailed correspondence between two sides more minutely at a later stage. At this stage, it would be sufficient to note that M/s. STS Products negotiated with Rama Gum Industries with respect to the first purchase order of the 3 containers. The supplier Rama Gum Industries agreed to reduce the price by 10%. Total revised payment was made by M/s. STS Products comprising of three components. First was the advance payment of 77,280 USD. Second was adjustment of 30,000 USD which was the advance payment for second consignment. The remaining amount of 240,480 USD was paid through two transactions on or around 01.07.2013. According to M/s. STS Products, by virtue of this arrangement, full payment of the revised price for the 3 containers was paid to Rama Gum Industries. The order for the 8 containers was cancelled through mutual agreement. According to M/s. STS Products, Rama Gum Industries was therefore Page 4 of 37 C/OJA/35/2015 JUDGMENT required to release the bill of lading in favour of the purchaser, upon which, the goods which had by then arrived, would be lifted. Rama Gum Industries however, took a stand that the purchase order for 8 containers of Guar Gum Powder was never cancelled. By the time of placing of the purchase order and payment for the first consignment, the prices in international markets had crashed. Rama Gum Industries had already collected the rawmaterial and started manufacturing the Guar Gum Powder as per the second order of M/s. STS Products also. On account of M/s. STS Products not honoring its commitment for purchase of Guar Gum Powder, Rama Gum Industries suffered heavy losses. Unless these losses are reimbursed by M/s. STS Products, Rama Gum Industries was not obliged to lift its lien over the goods. Since this deadlock was not broken, Rama Gum Industries sold the exported goods of 120,000 pounds of Guar Gum Powder to third party at the rate of 1.50 USD per pound.
6. M/s. STS Products thereupon issued a notice dated 19.11.2013 to Rama Gum Industries and threatened criminal action against the directors of Page 5 of 37 C/OJA/35/2015 JUDGMENT the company. However, as a last chance, granted two days time for sending the original bill of lading, failing which, besides criminal action, the company would institute appropriate proceedings for refund of the entire amount paid with interest at the rate of 15% per annum and claimed damages as well. There was no reply to this notice by Rama Gum Industries. M/s. STS Products thereupon issued statutory notice on 24.12.2013 and demanded a refund of 340,760 USD with interest at the rate of 18% per annum. If such payment was not done within the statutory period, the company may initiate winding up proceedings against Rama Gum Industries. There was neither compliance, nor reply to this notice, upon which, the Company Petition for winding up came to be filed.
7. In such Company Petition, Rama Gum Industries filed a detailed reply and principally took the defense of dues of the petitioner not being admitted. In detailed narration, the attempt on the part of the Rama Gum Industries was to demonstrate that the dues are disputed, the defense is genuine and not illusory and the issues would require examination of disputed facts. Essentially, the respondent company raised Page 6 of 37 C/OJA/35/2015 JUDGMENT the dispute about the second consignment of 8 containers of Guar Gum Powder. According to the respondent company, it had never agreed to cancellation of contract. The petitioner company having failed to honor its commitment to purchase such goods, the respondent Rama Gum Industries had incurred heavy losses. Unless such losses are reimbursed, Rama Gum Industries was under no obligation to either provide the goods or to return the sale consideration to M/s. STS Products.
8. The learned Company Judge in the detailed order, came to following important conclusions:
I. That M/s. STS Products has made a full payment of revised price for the first order of 3 containers which came to 340,760 USD.
II. The second order for purchase of 8 containers of goods was mutually cancelled.
III. Despite full payment for the first consignment, the respondent failed to supply the documents as well as the goods.
IV. Rama Gum Industries, the respondent of the Page 7 of 37 C/OJA/35/2015 JUDGMENT Company Petition replied to the statutory notice dated 24.12.2013 only on 30.06.2014, which was after issuance of notice by the Court on 19.06.2014. Rama Gum Industries had also filed a suit in April, 2015, for recovery of damages in connection of the second purchase order.
9. In the opinion of the learned Company Judge;
"Thus, I am of the opinion that the dispute raised by the respondent cannot be said to be a reasonable and bonafide dispute. It is nothing but an afterthought. The said dispute can be said to be sham and moonshine and therefore this petition deserves admission."
10. Eventually therefore, by the impugned order, the learned Judge while ordering admission of the Company Petition for winding up, made following further provisions:
"The Company is granted one more opportunity to discharge its liability. In case if the same is not done within 30 days hereof, it will be open to the learned advocate for the petitioner to urge the Court for issuing requisite advertisement, as the same is deferred only with a view to afford one more opportunity to the Company to discharge its liability towards the petitioner."
11. Appearing for the appellant Rama Gum Industries, learned senior counsel Shri Soparkar submitted that Page 8 of 37 C/OJA/35/2015 JUDGMENT the company is a going concern and is in good financial condition. It's balance sheet is on record. It cannot be stated that the company is not in a position to discharge its debt. Order for winding up therefore cannot be passed. Counsel further submitted that there are serious disputes which need to be resolved before the claim of M/s. STS Products can be decided. Winding up petition is not a correct remedy for such exercise. The defense raised by Rama Gum Industries is genuine and bona fide. Rama Gum Industries had never agreed to cancel the order for purchase of 8 containers of Guar Gum Powder. On account of M/s. STS Products not honoring its commitment arising out of such purchase order has Rama Gum Industries has suffered a heavy financial loss since in the meantime, international price of the commodity had crashed. Unless and until Rama Gum Industries is reimbursed such losses, it was under no obligation to supply goods to M/s. STS Products even if substantial payment for purchase may have been made. He submitted that it was open for the Rama Gum Industries to oppose the prayers of M/s. STS Products by way of counterclaim. Counsel relied on the Page 9 of 37 C/OJA/35/2015 JUDGMENT judgments of the Supreme Court in case of IBA Health (India) Private Limited v. INFODRIVE Systems SDN. BHD. reported in (2010) 10 SCC 553, in which, it was observed that where there is a bonafide dispute as to liability of the company, order for winding up cannot be passed. It was observed that duty of the Court is to ascertain whether the causes of the refusal were reasonable or existence of bonafide dispute which can be adjudicated only by trial in Civil Court. It was further held that in Company Petition, Court cannot hold a trial when the dispute as to liability for payment of debt is bonafide and not spurious, speculative, illusory or misconceived. Where dispute requires detailed consideration of facts and require interpretation of terms and conditions between the parties, Court would not proceed with winding up proceedings.
12. On the other hand, learned counsel Shri A.L.Shah for M/s. STS Productsoriginal company petitioner, opposed the appeal contending that full payment for purchase of the first consignment of 3 containers of Guar Gum Powder was made. Rama Gum Industries having agreed to provide the goods, did not honor its Page 10 of 37 C/OJA/35/2015 JUDGMENT commitment citing frivolous reasons. The order for purchase of the product worth 8 containers was cancelled with mutual agreement. Not only inability to pay the debt, but refusal to pay the debt when the liability is admittedly, would be a good ground for winding up of a company. The disputes raised by Rama Gum Industries as held by the Company Judge, are non genuine. Counsel relied on following judgments:
I. In case of SICOM Limited v. Shree Marathawada Paper Mills Pvt. Ltd. reported in 2016 SCC OnLine Bom 2334, in which it was observed as under:
"19. Moreover, it is the case of the company that in the arbitration going on it has made a claim for unliquidated damages. That cannot be a ground for not admitting the petition. A claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a court or by an award of the arbitrator. The liability of respondent company having been admitted, counterclaim in an arbitration made by the company which is in the nature of unliquidated damages cannot be equated with the admitted liability of the petitioner. Infact in this case it is not even a claim for breach of contract that is before the arbitrator. The case in short, as it could be seen from the affidavit in reply, in the arbitration is that the company purchased certain machineries from a supplier who was recommended by the officers of the petitioner and as the machineries Page 11 of 37 C/OJA/35/2015 JUDGMENT turned out to be defective, the company suffered losses. Therefore, the company is claiming damages from the petitioner."
II. In case of judgment of Learned Single Judge of Bombay High Court in case of Tree of Life Pvt. Ltd. v. Power Horse India Pvt. Ltd. passed in Company Petition No.673 of 2014, in which, it was observed as under:
"9 In my view, the amounts claimed have to be treated as debts due to the petitioner and a winding up petition is clearly maintainable. I gather support from two judgements of the Delhi High Court. In Ajai Johri & Ors. Vs. Shingal Land and Finance P. Ltd., the petitioner had made a claim for refund and under Section 434(1)(a) & (e) and Section 434 of the Companies Act, 1956 on account of failure of consideration. The failure of consideration alleged therein was a breach of respondent's obligation to transfer title of property sought to be purchased for which consideration was paid. The Court came to the conclusion that there was a failure of title because the respondent did not have title to the land and the Court held that the petitioner was entitled to maintain their claim under Section 434(e) of the Companies Act. In Ajay Johari (supra), it was urged by the company that the claim is based upon damages for breach of warranty of title and the same cannot be treated as debt within the meaning of Section 433 (1)(e) or Section 434 of the Companies Act. The Court came to the conclusion that the undisputed fact which has emerged from the record is that although the company had not acquired any Page 12 of 37 C/OJA/35/2015 JUDGMENT title over a land as no sale deed was obtained by it in its favor, it had unequivocally represented in the sale deeds to the petitioners that it was the absolute owner of the land and the plot was free from all encumbrances whatsoever."
III. In case of M/s.Madhusudan Gordhandas & Co. v. Madhu Woollen Industries Pvt. Ltd. reported in 1971 (3) SCC 632, in which, it was observed as under:
"21. Where the debt is undisputed the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt (See Re. A Company). Where however there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the court will make a winding up order without requiring the creditor to quantity the debt precisely (See Re. Tweeds Garages Ltd. The principles on which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends."
IV. In case of Union of India v. AIR Foam Industries (P) Ltd. reported in (1974) 2 SCC 231, in which, it was observed as under:
"11. Having discussed the proper Page 13 of 37 C/OJA/35/2015 JUDGMENT interpretation of cl. 18, we may now turn to consider what is the real nature of the claim for recovery of which the appellant is seeking to appropriate the sums due to the respondent under other contracts: The claim is admittedly one for damages for breach of the contract between the parties. Now, it is true that the damages which are claimed are liquidated damages under cl. 14, 568 but so far as the law in India is concerned, there is no qualitative difference in the nature of the claim whether it be for liquidated damages or for unliquidated damages. Sec. 74 of the Indian Contract Act eliminates the somewhat elaborate refinements made under the English common law in distinguishing between stipulations providing for payment of liquidated damages 'and stipulations in the nature of penalty. Under the common law a genuine preestimate of damages by mutual agreement is regarded as a stipulation naming liquidated damages and binding between the parties a stipulation in a contract in terrors is a penalty and the Court refuses to enforce it, awarding to aggrieved party only reasonable compensation. The Indian Legislature has sought to cut across the web of rules and presumptions under the English common law, by enacting a uniform principle applicable to all stipulations naming amounts to be paid in case of breach, and stipulations by way of penalty, and according to this principle, even if there is a stipulation by way of liquidated damages, a party complaining of breach of contract can recover only reasonable compensation for the injury sustained by him, the stipulated amount being merely the outside limit. It, therefore makes no difference in the present case that the claim of the appellant is for liquidated damages. It stands on the same footing as a claim for unliquidated damages. Now the law is well settled that a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a Page 14 of 37 C/OJA/35/2015 JUDGMENT Court or other adjudicatory authority. When there is a breach of contract, the party who commits the breach does not eo instanti incur any pecuniary obligation, nor does the party complaining of the breach becomes entitled to a debt due from the other party. The only right which the party aggrieved by the breach of the contract has is the right to sue for damages. That is not in actionable claim and this position is made amply clear by the amendment in s. 6(e) of the Transfer of Property Act, which provides that a mere right to sue for damages cannot be transferred. This has always been the law in England and as far back as 1858 we, find it stated by Wightman, J., in Jones v. Thompson (1) "Exparte Charles and several other cases decide that the amount of a verdict in an action for unliquidated damages is not a debt till judgment has. been signed".. It was held in this case that a claim for damages dots not become a debt even after the jury has returned a verdict in favour of the plaintiff till the judgment is actually delivered. So also in O' Driscoll v. Manchester Insurance Committee,(2) Swinfen Eady, L. J., said in reference to cases where the claim was for unliquidated damages "in such cases there is no debt at all until the verdict of the jury is pronounced assessing the damages and judgment is given. The same view has also been taken consistently by different High Courts in India. We may mention only a few of the decisions, namely, Jabed Sheikh v. Taher Mallik,(3) S. Malkha Singh v. M/s N. K. Gopala Krishna Mudaliar(4) and Iron & Hardware (India) Co. v. Firm Shamlal & Bros.
Chagla, C. J. in the last mentioned case, stated the law in these terms:
" In my opinion it would not be true to say that a person who commits a breach of the contract incurs any pecuniary liability, nor would it be true to say that the other party to the contract who complains of the breach has any amount due to him from Page 15 of 37 C/OJA/35/2015 JUDGMENT the other party.
As already stated, the only right which he has is the right to go to a Court of law and recover damages. Now, damages are the compensation which a Court of law gives to a party for the injury which he has sustained. But, and this is most important to note, he does not get damages or compensation by reason of any existing obligation on the part of the person who has committed the breach. He gets compensation as a result of the fiat of the Court. Therefore, no pecuniary liability arises till the Court has determined that the party complaining of the breach is entitled to damages. Therefore, when damages are assessed, it would not be true to say that what the Court is doing is ascertaining a pecuniary liability which already existed. The Court in the first place must decide that the defendant is liable and then it proceeds to assess what that liability is. But till that determination there is no liability at all upon the defendant."
This statement in our view represents the correct legal position and has our full concurrence. A claim for damages for breach of contract is, therefore, not a claim for a sum presently due and payable and the purchaser is not entitled, in exercise of the right conferred upon it under cl. 18, to recover the amount of such claim by appropriating other sums due to the contractor. On this view, it is not necessary for us to consider the other contention raised on behalf of the respondent, namely, that on a proper construction of cl. 18, the purchaser is entitled to exercise the right conferred under that clause only where the claim for payment of a sum of money is either admitted by the contractor, or in case of dispute, adjudicated upon by a court or other Page 16 of 37 C/OJA/35/2015 JUDGMENT adjudicatory authority. We must, therefore, hold that the appellant had no right or authority under cl. 18 to appropriate the amounts of other pending bills of the respondent in or towards satisfaction of its claim for damages against the respondent and the learned Judge was justified in issuing an interim Injunction restraining the appellant from doing so."
13. As is wellknown, section 433 of the Companies Act, 1956 lays down the circumstances in which the company could be wound up by the Court, one of them being, if the company is unable to pay its debts. Section 434 of the Act lays down the circumstances under which the company when deemed unable to pay its debts. As per clause (a) of subsection (1) of section 434, a company shall be deemed to be unable to pay its debts if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor. In the context of such provisions, the Page 17 of 37 C/OJA/35/2015 JUDGMENT Courts have from case to case basis considered whether in the given case a company has been unable to or failed to discharge its dues. The fact that the company is a going concern and is in good financial condition, is undoubtedly one of the considerations. Nevertheless, if the dues are virtually undisputable and the defense putforth by the defendant company is found to be wholly untenable, spurious or illusory, its refusal to pay the debt could be a good ground for ordering of winding up of the company irrespective of its financial condition.
14. With this brief preamble, we may peruse the correspondence between two sides more minutely. In the process, our attempt would be to ascertain whether claim putforth by M/s. STS Products for refund of the sale consideration was reasonable or whether the defense putforth by Rama Gum Industries of setoff of the loss arising out of nonlifting of the second consignment of 8 containers of Guar Gum Powder was genuine or plausible defense and that therefore, the Company Petition should have been dismissed.
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15. On 02.04.2013, M/s. STS Products placed an order through email with Rama Gum Industries for purchase of 120,000 pounds of Guar Gum Powder at 3.22 USD per pound. The sale consideration would come to 386,400 USD. The terms and conditions agreed were as under:
"Freight: Prepaid till Houston. Packing: 2000 Lbs Jumbo (Bulk) Bags. Delivery: To be shipped on Ship leaving Mundra Port around 15th April 2013 Payment: 20% Advance. Balance against BL."
16. Towards such purchase order, M/s. STS Products also paid to Rama Gum Industries a sum of 77,280 USD comprising of 20% of the total sale consideration. This was done on 03.04.2013. Rama Gum Industries also raised an invoice for a total amount of 386,400 USD on 09.04.2013.
17. After M/s. STS Products approved the sample of Guar Gum Powder, Rama Gum Industries also shipped the requisite quantity of the product on 02.05.2013. According to M/s. STS Products, there was some delay in this process also. However, nothing really turns on this. The shipment arrived on or around 21.06.2013.
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18. In the meantime, M/s. STS Products placed second purchase order with Rama Gum Industries for purchase of the same product on 30.04.2013 weighing 3.20 lakh pounds at the rate of 2.65 USD per pound. The total sale consideration would therefore come to 8.48 lakh USD. This purchase was also subject to same condition of 20% payment in advance, balance against the bill of lading. STS Products had paid advance of 30,000 USD.
19. On 19.06.2013, SDS industries wrote to Ramagam industries and stated as under:
"We are having a very rough time since the markets have crashed. I do apologize for this. By copy of this mail we request to cancel the 8 containers that are on hold as well as the 3 containers that are on ocean. Please refund all of the funds that were collected for these containers. I hope you can understand."
20. On 20.06.2013, M/s. STS Products wrote to Rama Gum Industries and conveyed as under:
"Ref our telecon, I suggest following measures to arrive at a resolution.
1: For 3 containers at Sea, please give us release documents and we undertake to pay balance dues within 60 days. You may suggest any guarantee you need on this account and if found to be mutually agreeable, we shall provide.Page 20 of 37
C/OJA/35/2015 JUDGMENT 2: For 8 containers lying ready for shipment, you may ship the goods and send original docs to STS Bankers, Frost Bank on 60 days terms.
You would realize the difficult situation we are in and a mutually acceptable and beneficial way out must be sought earliest in common interest."
21. On the same day, Rama Gum Industries responded to said mail as under:
Regarding 3 containers, it was conveyed that;
"...for these 3 container we can release only on receiving payment so pls send me payment by today, our payment terms was remaining payment against bl and we are waiting for payment almost since 60 days"
Regarding 8 containers, it was conveyed that;
"...if u want we can ship these 8 fcl with lc 30 days, pls advise"
22. After some more exchange of mails, on 28.06.2013, M/s. STS Products wrote to Rama Gum Industries as under:
"Due to reasons as discussed the order shipped of 3 containers Guar Gum have been cancelled by the customer of STS. We propose the following and request you to give your acceptance. Balance payment due would be USD 221,160 which on remittance would lead to couriering of all original shipment documents including BL to STS by DHL Courier immediately."Page 21 of 37
C/OJA/35/2015 JUDGMENT On the same day, Rama Gum Industries conveyed to M/s. STS Products as under:
"We request u to make discount of 10% and make remaining payment by Monday"
23. On 29.06.2013 Rama Gum Industries conveyed as under:
"B/L No & Date:SUDUI36421273269 DTD. 02.05.2013 Invoice Value in USD: 386400.00 Payment received USD: 107255.50 Remain USD: 279144.50 ==less 38640 usd we requested by STS for making payment due to price decreased ====240504.5 usd Please make a payment urgent, so we can send original document to Buyer by Courier.
If you have already made this payment please ignore this and we request you please give us the proof (Swift Massage copy)"
On 29.06.2013 itself, M/s. STS Products responded said mail and conveyed as under:
"Payment remitted by us till now is US$ 77,280 + 30,000 = 107,280. Balance due would be 240,480.
Also kindly mention in your email that the order for 8 containers stands mutually cancelled."
24.
Rama Gum Industries
replied to said email on
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29.06.2013 and conveyed as under:
"Pls make payment as per your below calculation of 240480 usd and send me swift copy"
25. After this correspondence, M/s. STS Products paid a sum of 240,480 USD which was received by Rama Gum Industries on or around 02.07.2013. Along with this payment, 30,000 USD advance payment for second consignment was adjusted for purchase of 3 containers of Guar Gum Powder. 77,280 USD was paid as advance. Put together, M/s. STS Products paid 347,760 USD to Rama Gum Industries which was original agreed price of 386,400 USD discounted by 10%. On July, 10, 2013, Rama Gum Industries wrote to M/s. STS Products stating that regarding the order for 8 containers of Guar Gum Powder, the product is ready since about two months. No instructions have been received from M/s. STS Products despite reminders. M/s. STS Products should therefore send the advance payment so that shipment can be processed. If however M/s. STS Products wish to postpone or cancel the order, it should pay the difference between the agreed price and current price of 2.05 USD which does not include the interest for two months. The price difference of Page 23 of 37 C/OJA/35/2015 JUDGMENT 0.60 USD per pound for total quantity of 320,000 pounds was calculated at 192,000 USD.
26. On 12th July, 2013, M/s. STS Products responded to this mail of Rama Gum Industries and contended as under:
"This is Incorrect. Please refer discussion and enclosed email of 29th June, exchanged between Mr Rahul Kapoor and Dr Mehta, and kindly note A. It was agreed that 8 containers order was mutually agreed to be cancelled.
B. Advance of $ 30000 paid was agreed to be adjusted against the 3 containers already shipped. This was in addition to advance of $ 77280 paid against the shipment under clearance.
C. Additional 10% discount was agreed.
D. Accordingly US $ 240480.0 was transferred."
27. On 14th July, 2013, M/s. STS Products wrote to Rama Gum Industries stating as under:
"I thanks for response, However kindly note: a. Both are separate issues.
b. Let us resolve the first by releasing the B/L as per agreement & details given in my trailing EMail.Page 24 of 37
C/OJA/35/2015 JUDGMENT c. We can further discuss and sort out the second issue (although cancelled) by mutual agreement. This will help us in long term association."
28. On 16th July, 2013, Rama Gum Industries wrote to M/s. STS Products as under:
"Please note we have received the following funds as of today:
1. Advance - USD 77,273.50
2. Transferred advance - USD 30,000
3. Transfer 40,442.00
4. Transfer 200,000.00 Total: 347,715.50 Price of goods : 386,400 Outstanding to pay : 38,684.50 The contract calls for the balance 80% to be paid on sending the electronic confirmation of BL after the vessel departed. Till today you have not paid the full funds for these 3 FCL's.
8 containers pending order :
Please note there was absolutely no "mutual consent" to cancel the order. We procured the split for these 8 containers and material has been prepared since almost 2 months. The price difference is as follows:
Price booked at : USD 2.65 / lb Price estimated at Houston today : USD 2.05 / lb.
Difference : USD 0.60 / lb Difference in value : USD 192,000 Page 25 of 37 C/OJA/35/2015 JUDGMENT We can settle this issue by u make advance payment as per contract and accept goods or u can pay USD 192000 in order to cover our losses.
Once we have all these funds prior to COB July 19th, we will release the containers to your good selves."
29. As noted, since there was no resolution of disputes between the two sides, Rama Gum Industries diverted the shipment of 3 containers of Guar Gum Powder to third party purchaser selling the entire stock of 1.20 lakh pounds at 1.50 USD per pound. To complete the recording of facts, we may note that subsequently Rama Gum Industries has filed a Special Civil Suit against M/s. STS Products seeking damages from M/s. STS Products for not having fulfilled its purchasing of 8 containers of Guar Gum Powder after placing orders for the same. M/s. STS Products has filed a Summary Suit seeking recovery of the principal paid for purchase of 3 containers of Guar Gum Powder with interest.
30. From the materials on record, it can be seen that after M/s. STS Products placed back to back two purchase orders with Rama Gum Industries for purchase Page 26 of 37 C/OJA/35/2015 JUDGMENT of 3 containers and 8 containers worth the material respectively, the market conditions underwent substantial change. Initially M/s. STS Products showed inability to purchase the entire quantity due to such circumstances. This becomes clear from its mail dated 19.06.2013 conveying to Rama Gum Industries that the company is having rough time since the market has crashed. In fact, it was suggested that orders for both purchases i.e. 8 containers which according to M/s. STS Products was on hold and 3 containers which were on Ocean, be cancelled and advance be refunded. On 20.06.2013 M/s. STS Products requested for extending credit for payment. For the 3 containers at sea credit period of 60 days was requested, subject to providing security. For the 8 containers also, similar credit period was asked. The response of Rama Gum Industries was that the goods of the 3 containers can be released only on receiving full payment. Regarding 8 containers shorter credit period of 30 days was offered. On 28.06.2013, Rama Gum Industries finally offered 10% discount for the 3 containers and called upon M/s. STS Products to make payment immediately. Page 27 of 37
C/OJA/35/2015 JUDGMENT On 29.06.2013, M/s. STS Products sent a communication which is of great significance. M/s. STS Products offered discounted payment for 3 containers pointing out that 77280 USD is already paid by way of advance. It also referred to the sum of 30,000 USD which was lying with Rama Gum Industries towards the second purchase order and offered to pay the balance of 240,480 USD. While doing so, company also conveyed to Rama Gum Industries that the order for 8 containers stands mutually canceled. Interestingly, on the same day, Rama Gum Industries responded to this email communication requesting M/s. STS Products to make payment of 240,480 USD and send a swift copy for such payment. This mail however was silent on mutual cancellation of order for 8 containers. Admittedly such payment was made. Rama Gum Industries received it on or around 02.07.2013. A few days later, Rama Gum Industries renewed the dialog regarding the order for purchase of 8 containers of Guar Gum Powder pointing out that the product is already ready since long. M/s. STS Products if does not want to lift the goods, it would be liable to pay the difference of 192,000 USD. The Page 28 of 37 C/OJA/35/2015 JUDGMENT response of M/s. STS Products was not obviously positive.
31. From the above sequence of events, it can be seen that both the purchase orders went through some rough weather. After the 3 containers were shipped and even when they arrived, M/s. STS Products initially showed inability to straightway lift the goods pointing out adverse market conditions. M/s. STS Products also desired to altogether cancel the order for purchase of 8 containers of Guar Gum Powder. The issue was negotiated at length between the parties and finally M/s. STS Products agreed to pay the sale consideration for 3 containers of goods after Rama Gum Industries offered 10% discount on the originally agreed price. As per M/s. STS Products' offer, this payment would comprise of the initial 20% advance paid by it, by adjusting 30,000 USD which was paid by way of advance for placing order for the 8 containers and remaining amount would be paid immediately. While making this counter offer, M/s. STS Products also requested that the order for 8 containers be mutually cancelled and it be so conveyed in the email. Rama Gum Industries urged Page 29 of 37 C/OJA/35/2015 JUDGMENT M/s. STS Products to make the payment but kept silent about the cancellation of the order for 8 containers. Only after M/s. STS Products made further payment of 240,480 USD and the total of the three modes of payment came to 347,715.50 USD that the counter dispute concerning the purchase order of 8 containers was raised.
32. As noted, M/s. STS Products had offered to make the full payment of discounted sale price on the condition that Rama Gum Industries also cancels the order for 8 containers. Rama Gum Industries accepted the payment but did not specifically cancel the order. We are prepared to accept the stand of Rama Gum Industries that there was no clear and mutual cancellation of order for purchase of 8 containers of Guar Gum Powder. However, the issues of two purchase orders, the negotiations which preceded the culmination into full payment being made by M/s. STS Products for 3 containers would make it clear that the issues were entirely separate and separated out by Rama Gum Industries. The dispute with respect to the first purchase order of three containers of Guar Gum Powder stood resolved when M/s. STS Products Page 30 of 37 C/OJA/35/2015 JUDGMENT offered to make full payment of a discounted sale price which Rama Gum Industries also accepted and upon M/s. STS Products making such payment which Rama Gum Industries received without any further conditions. The liability of Rama Gum Industries to release the goods in favour of the purchaser stood crystallized. If there was any dispute about the cancellation of the subsequent contract, the matter was completely separate and compartmentalized by the parties. It is not necessary for us to judge the validity of the contention of the M/s. STS Products that the subsequent contract of purchase of 8 containers of Guar Gum Powder stood cancelled through mutual agreement nor are we required to decide the contention of Rama Gum Industries that there was no such agreement on its part. This is a contentious issue and must be left for the competent Civil Court to decide. However, in our opinion, resolution of this dispute would no way permit Rama Gum Industries to withhold the delivery of the goods in favour of the petitioner. To reiterate, through series of correspondences, the two sides completely separated the two purchase orders. The dispute with respect to Page 31 of 37 C/OJA/35/2015 JUDGMENT first purchase order having been resolved and the full payment on the revised terms having been received, it was no longer open for Rama Gum Industries to withhold the delivery of the goods on the ground that the disputes with respect to the subsequent purchase order still survived. After having received full discounted sale consideration for 3 containers of goods, the effort on part of Rama Gum Industries to link the release of goods with resolution of disputes for 8 containers had an element of dishonesty. Rama Gum Industries offered 10% discount for 3 containers. M/s. STS Products offered to pay it through three sources. 20% or 77280 USD advance payment, 30,000 USD advance towards 8 containers and 240,480 USD to be paid. Rama Gum Industries accepted this mode of payment. If it had any intention to link the two purchase orders, it would not have accepted adjustment 30,000 USD paid in relation to second purchase order. In fact, later on, Rama Gum Industries even disowned the discount of 10% offered by it. In a mail dated 16.07.2013, we may recall, it conveyed to STS Products as under:
"Please note we have received the following Page 32 of 37 C/OJA/35/2015 JUDGMENT funds as of today:
1. Advance - USD 77,273.50
2. Transferred advance - USD 30,000
3. Transfer 40,442.00
4. Transfer 200,000.00 Total: 347,715.50 Price of goods : 386,400 Outstanding to pay : 38,684.50 The contract calls for the balance 80% to be paid on sending the electronic confirmation of BL after the vessel departed. Till today you have not paid the full funds for these 3 FCL's."
33. Nor do we believe that Rama Gum Industries could have paused this issue as a counterclaim to withhold the delivery of the goods or to refuse returning the purchase price when it was in no mood to deliver the goods or to oppose the company petition on the ground that the dues of the company were not ascertained. As held and observed by the Supreme Court in case of AIR Foam Industries (P) Ltd. (supra), a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory authority. A person would have a right to go to a Court and recover damages upon breach of Page 33 of 37 C/OJA/35/2015 JUDGMENT contract, however, he does not get compensation or by reason of any existing obligation on the part of the person who has committed a breach. He gets compensation as a result of the fiat of the Court. Therefore, no pecuniary liability arises till the Court has determined that the party complaining of the breach is entitled to damages.
34. Section 47 of the Sale of Goods Act, 1930, pertains to seller's lien. Subsection (1) thereof provides that subject to the provisions of the Act, the unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in the following cases, namely:
(a) where the goods have been sold without any stipulation as to credit;
(b) where the goods have been sold on credit, but the term of credit has expired;
(c) where the buyer becomes insolvent. Thus, even as per this provision, the seller's lien over the goods would continue only till the payment is not made. The seller cannot exercise lien on the goods on a specious ground that the purchaser has to Page 34 of 37 C/OJA/35/2015 JUDGMENT account for cancellation of an entirely different purchase order.
35. Before closing, a few peripheral issues need to be dealt with. We have noted the foundational conclusions of the learned Company Judge to allow the Company Petition. Some of the observations may need some tampering. To begin with the conclusion that the second order (for purchase of 8 containers of Guar Gum Powder) was mutually, would not be an accurate statement. Whether it was mutually cancelled with mutual agreement is a highly debatable issue and we leave it to the Civil Court to decide the same. The conclusion of the learned Company Judge that the dispute raised by the respondent is not a reasonable or bonafide dispute, that it is an afterthought and is also which is a sham and moonshine, must be seen and confined with respect to the first purchase order of three consignments of goods. These observations would caste no shadow on the interparty disputes about cancellation of the second purchaser order of 8 containers of Guar Gum Powder.
36. The learned Judge has granted one last Page 35 of 37 C/OJA/35/2015 JUDGMENT opportunity to the company to discharge its liability, without quantifying the same. It would therefore be unclear whether such liability would include only the principal sum or any interest computed thereon. The notices issued by the petitioner company call upon Rama Gum Industries to pay the principal with interest. In the Company Petition, the prayer of course, is for winding up of the company. Whether on the unpaid sum in question, the petitioner company would be entitled to interest and if so, at what percentage and from which date, is not clear. Learned advocate for the petitioner company stated that he is pressing only for the principal sum without interest in these proceedings. Issue of interest would be raised in the civil proceedings. We would therefore segregate the liability of Rama Gum Industries to discharge its debt to avoid the consequences of winding up between the principle delinking the interest. In other words, within the extended time which we propose to give now if Rama Gum Industries repays to the petitioner company the principal sum of 347,760 USD, the question of interest on such sum could be left to Page 36 of 37 C/OJA/35/2015 JUDGMENT be judged in the civil proceedings.
37. In view of above discussion, subject to the observations made earlier, OJ Appeal is dismissed. The appellant Rama Gum Industries however, would have time upto 31.08.2018 to pay to M/s. STS Products 347,760 USD. If so done, the order for admission of the winding up petition would stand recalled. Publication of advertisement is differed till 31.08.2018. It is clarified that the question of payment of interest on such principal sum is not examined by us.
38. OJ Appeal along with Civil Application (OJ) stands disposed of.
(AKIL KURESHI, J) (B.N. KARIA, J) ANKIT SHAH Page 37 of 37