Andhra HC (Pre-Telangana)
National Sugar Industry And Anr. vs Narala Venkaiah (Died) Per L.R. on 29 April, 1994
Equivalent citations: 1994(3)ALT276
JUDGMENT B.K. Somasekhara, J.
1. The appeal is against the judgment and decree passed by the learned District Judge, Adilabad in O.S.No. 24/72 dated 12-10-1981. The learned District Judge decreed the suit for recovery of a sum of Rs. 40,000.00 together with costs and interest at 6% per annum from the date of the suit till the date of realisation. The appellants are the defendants. The plaintiff is dead and his legal representative is prosecuting the proceedings. As a convenient course, the parties will be referred to as the plaintiff and defendants in the status they occupy in the suit.
2. The facts and controversies may be recorded in brief: The plaintiff as A proprietor of M/s Maruthi Khandasari Sugar Factory, Nirmal, Adilabad district wanted to establish a Khandasari Sugar Factory at Manchiryal under the said name and style. The defendants are the counterparts of the two units of the firm - National Sugar Industries at Madras and Meerut city, Uttar Pradesh. The plaintiff wanted the machinery for the sugar factory to be established and for that purpose, he placed orders with the defendants to supply the machinery at a total cost of Rs. 2,34,715/-. The defendants agreed to supply the machinery to the plaintiff for the said purpose. The terms of the agreement appear to be that out of the total cost of the machinery, the plaintiff was to pay 25% amounting to Rs. 58,000/- initially and the balance at the time of delivery of the machinery by the defendants. The plaintiff paid Rs. 40,000/towards the agreed 25% of the total cost by means of a Bank demand draft and he was to pay the balance of Rs. 18,000/-. It appears that the defendants sent a letter to the plaintiff dated 27-10-1969 seeking the remittance of the balance outstanding towards the advance of 25%. In the meanwhile, the plaintiff having not able to establish the Khandasari Sugar Factory, intimated the first defendant by telegram dated 27/28-10-1969 to keep the order pending and not to proceed with the said order. Defendant No. 1 replied to the letter of the plaintiff on 14-11-1969 intimating that the work had already been commenced and it was not possible to refund the amount paid by the plaintiff until he got alternative purchase. It is alleged that there was negotiation between the plaintiff and defendant No. 1 regarding the refund of Rs. 40,000/- paid by the plaintiff to the defendants. There was exchange of notices between the parties wherein the plaintiff demanded the refund of Rs. 40,000/- paid to the defendants and the defendants denied their liability to refund the same. Ultimately neither the plaintiff paid the balance of the agreed amount nor the defendants were able to supply the machinery as agreed. The plaintiff alleged that in view of his decision not to establish the Khandasari Sugar factory as proposed, it was intimated to the defendants as alleged and the conditions of the order being that the manufacture of the machinery will start only on the payment of the 25% of the cost-price of the machinery, there was no concluded contract. It is further alleged that in spite of negotiations and the demands by the plaintiff to refund the amount of Rs. 40,000/- by the defendants and in spite of the registered notice, there was no response and therefore, he had to file the suit for recovery of the same.
3. The defendants denied that there was a concluded contract between the parties wherein the plaintiff had already paid a portion of the cost price of the machinery and in response to the same, defendant No. 1 had already commenced the manufacture of the machinery by investing huge amounts and therefore, the plaintiff having committed breach of contract in not paying the balance of the cost price out of 25%, could not enforce his alleged right to get refund of Rs. 40,000/-. On the other hand, the defendants contended that the plaintiff having committed breach of contract is liable to pay the damages to them, tegarding which they would file a separate suit. The defendants denied the plaintiff's right to recover Rs. 40,000/- from them much less the interest thereon or the costs of the suit. It is contended by the defendants that the trial court had no jurisdication to try the suit since the contract was entered into and concluded upon, outside the jurisdiction of the trial court, as it was stipulated that the delivery of the machinery was to be taken by the plaintiff at Madras and the balance of the cost-price was also payable at Madras. As a whole, the defendants sought for the dismissal of the suit with costs.
4. The following issues were settled :
1. Whether the suit contract is irrevocable?
2. Whether the plaintiff agreed to pay Rs. 58,000/- as advance and failed to pay Rs. 18,000/- and thus committed breach of contract?
3. Whether the defendants were always ready admitting to perform their part of the contract?
4. Whether the defendants can claim set off towards loss and damages without paying court fee?
5. Whether the advance of Rs. 40,000/- is forfeited?
6. Whether this court has on jurisdiction to try this suit?
7. To what relief?
5. Parties went to trial whereby two witnesses were examined for the plaintiff and one witness for the defendants and nine documents were got marked by the plaintiff as per Exs. Al to A9 and six documents were got marked by the defendants as per Exs. Bl to B6. After hearing both the sides and on the basis of the materials placed before him, the learned District Judge held issues 1 to 3 in favour of the plaintiff and issues 4 to 6 against the defendants and consequently decreed the suit as prayed for.
6. The grounds of appeal may be stated in brief as: The learned District Judge erred in holding that:
(a) the court had jurisdiction to try the suit.
(b) there was a concluded contract between the parties.
(c) the defendants' case regarding their readiness and willingness is not true.
(d) the defendants are liable to refund Rs. 40,000/- to the plaintiff,
(e) the findings of the learned Sub (sic. District) Judge are incorrect and liable to be set aside and
(f) the suit is liable to be dismissed.
7. The learned Advocate for the appellants pointedly canvassed the following points in support of the grounds of appeal:
(1) No part of the cause of action for the suit arose within the jurisdiction of the trial court as the (i) terms were settled at Madras, (ii) part payment was made at Madras, (iii) the delivery of machinery was to be taken by the plaintiff at Madras and (iv) the failure to pay the balance of initial payment is at Madras. (2) There was a concluded contract between the parties as it was a case of sale of known goods (machinery) whose price was fixed and a part payment of price was made in terms of the contract. (3) The defendants were always ready and willing to perform their part of the contract to supply the machinery as agreed and had commenced the manufacture of machinery by investing huge amount. (4) The plaintiff kept the order pending and did not cancel it. (5) It was the plaintiff who committed breach of contract. (6) The defendants were entitled to forfeit Rs. 40,000/- paid by the plaintiff in addition to their right to file a suit for damages against the plaintiff for breach of contract out of which Rs. 40,000/- should be given as set off. (7) At any rate no case was made out by the plaintiff to get the refund of Rs. 40,000/- and (8) the judgment and decree of the learned District Judge are liable to be set aside.
8. Sri C.P. Sarathy, the learned Advocate for the respondent has argued contra and totally supported the trial court's judgment and decree.
9. The issues involved in the suit, the findings thereon which are wholly in challenge as above opens up all of them for reconsideration as clear points viz., (1) The territorial jurisdiction of the court to try the suit.
(2) The nature and scope of transaction between the parties and the legal consequences flowing therefrom.
(3) Who committed breach of their obligations under the transaction and who has to be remedied?
(4) Whether the defendants can forfeit or withhold Rs. 40,000/- paid by the plaintiff?
(5) Whether the findings of the trial court warrant interference to any extent?
(6) Whether the judgment and decree of the trial court deserve to be set aside, altered or modified to any extent?
10. feint No. 1:- Both from the pleadings and the evidence the matter arises out of an agreement to supply machinery by the defendants to the plaintiff at a cost of Rs. 2,34,715 / - with a stipulation to pay 25% of the cost immediately and the balance at the time of delivery of the machinery. Neither the full amount of 25% was paid by the plaintiff at any time (only Rs. 40,000.- were paid) nor the transaction was completed nor carried out by the parties for their own justifiable reasons. The plaintiff is a resident of Nirmal and wanted to establish Khandasari Sugar Factory at Mancherial in Adilabad district. Defendant No. 1 has its principal place of business at Madras and defendant No. 2 at Meerut city in Uttar Pradesh. The parties have conceived a suit based on an agreement on contract and the failure or breach by one or both of them.. Neither of them was tryingto compel the other to perform his part of the contract. The plaintiff wants the refund of the part paid sale price Rs. 40,000/- and the defendants want to forfeit it for themselves. The learned District Judge made the question of Jurisdiction very simple, based on admitted or proved facts in para 14 of the judgment mainly on the grounds that: "Admittedly the amount Rs. 40,000/sent under two demand drafts by the plaintiff to the defendants, was drawn in the State Bank of Hyderabad branch at Nirmal......Khandasari sugar factory is to be started at Mancherial in Adilabad district.... The defendants have to deliver the machinery parts to the plaintiff at Mancherial........There was no concluded contract between the plaintiff and the defendants. In such a case, the relationship between the plaintiff and the defendants is that of a creditor and debtor......The creditor is entitled to institute the suit for the debt at the place of his residence." (Practically paras 6 and 7 of the plaint are extracted by the learned District Judge.) The learned District Judge may not be totally wrong either in the reasoning or the finding. The trite law operating a suit based on contract or agreement to fix the jurisdiction of a court is the situs of the contract and the cause of action arising through connecting factors. It is by virtue of Section 20 (c) of the Code of Civil Procedure. The whole gamut of such cause of actions is predicated by the Supreme Court in A.B.C. Laminart Pvt. Ltd v. A.P. Agencies, Salem, as follows :
"In the matter of a contract there may arise causes of action of various kinds. In a suit for damages for breach of contract the cause of action consists of the making of the contract, and of its breach, so that the suit may be filed either at the place where the contract was made or at the place where it should have been performed and the breach occurred. The making of the contract is part of the cause of action. A suit on a contract, therefore, can be filed at the place where it was made. The determination of the place where the contract was made is part of the law of contract. But making of an offer on a particular place does not form cause of action in' a suit for damages of breach of contract. Ordinarily, acceptance of an offer and its intimation result in a contract and hence a suit can be filed in a court within whose jurisdiction the acceptance was communicated. The performance of a contract is part of cause of action and a suit in respect of the breach can always be filed at the place where the contract should have (been) performed or its performance completed. If the contract is to be performed at the place where it is made, the suit on the contract is to be filed there and nowhere else. In suits for agency actions the cause of action arises at the place where the contract of agency was made or the place where actions are to be rendered and payment is to be made by the agent. Part of cause of action arises where money is expressly or impliedly payable under a contract. In cases of repudiation of a contract, the place where repudiation is received is the place where the suit would lie. If a contract is pleaded as part of the cause of action giving jurisdiction to the Court where the suit is filed and that contract is found to be invalid, such part of cause of the action disappears. The above are some of the connecting factors."
The Supreme Court cautiously added the concluding words' The above are some of the connecting factors' to mean that they are merely illustrative and not exhaustive and not exclusive. So much so, the facts and circumstances of each of such cases based on contract determine the connecting factors and the cause of action decisive of jurisdiction.
11. In the present case admittedly neither the transaction between the parties was commenced nor concluded within the jurisdiction of Adilabad district. As rightly pointed out by the learned Advocate for the defendants, P. W.1 the Head Clerk of the plaintiff has emphatically admitted that no part of the suit transaction took place in Adilabad district and that all of them were settled in Madras. The plaintiff appears to be totally ignorant about the details of the transaction as it was done through P. W.1. and one Krishnaswami. It is clear from the evidence of the plaintiff and P. W.1 that as per the recommendation of Krishnaswami the parties met at Madras, settled the deal and on that basis they proceeded further. D. W.1 who is the Supervisor working in the Company of the defendants is totally ignorant of the transactions between the parties muchless their deals. Apart from the testimony of D. W.1, nobody on behalf of the defendants is examined to speak regarding the details of the transaction for the purpose of fixing the situs of the contract for the purpose of jurisdiction. Therefore, as rightly contended by the learned Advocate for the defendants, if the place of transaction under the contract is the basis, the trial court had no jurisdiction to try the suit.
12. Admittedly, the plaintiff had to pay 25% of the cost price to the defendants out of Rs. 2,34,715/-, amounting to Rs. 58,000/- for which only Rs. 40,000/- were paid and a balance of Rs. 18,000/- were outstanding. This is made emphatic both in the pleadings and the evidence. But at the same time, admittedly, the balance out of 25% of the cost price was not at all paid much less the plaintiff was interested in paying the same as a part of pursuing or concluding the contract. Therefore, in other words, the transaction failed due to the non-payment of the agreed part payment of the cost-price. There is nothing to indicate either from the pleadings or from the evidence as to where the balance of the agreed part payment was to be paid. Therefore, that may not decide the basis to fix the jurisdiction of the court. However, there is a clear admission and evidence in the case that Rs. 40,000/- were paid by the plaintiff to the defendants by means of two bank drafts (one for Rs. 35,000/- and another for Rs. 5,000/-) which were handed over to one Krishnaswami at Nirmal and it is not denied by the defendants that they received the drafts from Krishnaswami at Madras. P.W.1. has testified about it in emphatic terms. The learned Advocate for the defendants has seriously contended that Krishnaswami was a broker and representing the plaintiff and he had been even paid the brokerage and therefore, the non-examination of Krishnaswami is fatal to the case of the plaintiff regarding the question of jursdiction. This Krishnaswami has been consistently referred to in the pleadings and evidence by both the parties and his playing some important role in the transaction, cannot be thus ignored in whatever capacity he did it. The examination or non- examination of Krishnaswami is a. matter which may have some consequences to prove or not to prove a particular fact much less the question of jurisdiction. When the fact remains that Krishnaswami received the two drafts at Nirmal from the plaintiff through P. W.1. within Adilabad district and handed over the same to the defendants, that should decide the place of payment and acceptance as a connecting factor regarding the cause of action. The learned Advocate for the defendants is right in relying upon a precedent of the High Court of Kerala in M/s. Shakti Cement Co (P) Ltd. v. M/s F.A.C.T., wherein it was held that the advance payment made by D.D. payable at a particular place determines the jurisdiction to entertain the suit. In that case, the agreement provided for the payment of the advance by D.D. payable in the bank of Cochin and therefore, on facts it was held that Cochin Court had the jurisdiction to try the suit. The present case is distinguishable on facts that there is no clear proof of the place of payment of the advance or part of the price money much less there is any clear proof of the demand draft payable at a particular place to fix the place of jurisdiction. As rightly pointed out by the learned Advocate for the plaintiff, payment by demand draft tantamounts to payment by cash as the encashment of demand draft is not part of payment. It is common knowledge that in case of demand draft which is almost like a currency note, nothing more has to be done to mean it encashment, except the receipt of the same. Therefore, when the demand drafts were handed over by the plaintiff through P.W.I to Krishnaswamiat Nirmal, the payment of Rs. 40,000/-was complete. Therefore, that created part of cause of action to fix the situs of contract for the purpose of jurisdiction.
13. Admittedly the machinery to be supplied by the defendants to the plaintiff was for establishing Khandasari sugar factory at Manchiryal. The machinery was to be manufactured within Madras to be lifted to Manchiryal where it was to be erected. In fact, it is the case of the defendants that the machinery had been manufactured and kept ready and even shown to the plaintiff and in spite of the intimation, they were not taken at all by the plaintiff. Ex. A-6 is depended upon by the defendants, as the terms of the agreement dated 6-10-1969 to prove the stipulations of the agreement. Admittedly Ex. A-6 is a unilateral document but not a bilateral one affirming the consent on the part of the plaintiff by putting signature or writing in the same to the defendants. Therefore, Ex. A-6 can only be construed as further proposal or offer by the defendants made to the plaintiff. Even assuming that Ex. A-6 stipulated certain terms between the parties either concluded or to be approved, it spells out as many as 17 parts of the machinery were to be manufactured by the defendants at Madras and to be transported to Manchiryal where they were to be erected by the Expert Engineers of the defendants under their supervision. Therefore, the delivery of so many items of machinery in whatever manner the parties spell out whether they were to be lifted by the plaintiff or the defendants, it only means that the delivery was to be effected by the defendants at Manchiryal and it was not completed (sic) the erection was completed. In fact, it appears to this court that the erection, of the machinery by thedefendants at Manchiryal for the plaintiff is a main part of the contract or agreement without which there was no conclusion of the contract. P.W.I has emphatically stated in his testimony that the machinery was to be delivered at Manchiryal regarding which there was neither cross-examination nor denial by the defendants on oath. Therefore, Manchiryal being the place of delivery of machinery by the defendants for the plaintiff, has clearly fixed the situs of the contract for the purpose of jurisdiction.
14. The last but not the least appears to. be the concept of a debtor approaching the creditor fixing the situs of contract regarding the jurisdiction. Without going into the merits of the legal implications of the nature of the transaction between the parties and the legal implications flowing therefrom, at this stage, prima facie, it can be stated that the agreement or contract between the parties failed due to the plaintiff not proceeding with his project of establishing the Khandasari sugar factory and thereby calling back his payment from the defendants by way of recovery to the extent of Rs. 40,000/-. The exchange of letters and the Lawyer's notice put an end to the transaction in addition to the claim for refund of Rs. 40,000/- by the plaintiff from the defendants. This is apparent both from para-2 of the plaint and Ex. A-7 the notice issued by the plaintiff to the defendant with even date 15-9-1972. The refund of the amount is demanded in the notice along with the interest at 6% per annum from 1-11-1969 until the date of payment. However, the plaintiff has confined the relief only to the recovery of the principal sum due and not tine interest. The law appears to be that from the date or time a person becomes liable to make good or refund the amount to the other person, the two persons occupy the status of debtor and creditor respectively. The expression 'debtor' has been defined in so many enactments for the purpose of such enactments. In the common parlance of simple grammatical and dictionary meaning and also the simple legal meaning, 'debt' is known as "things due, that which is due from one person to another; that which one person is bound to pay or perform for another; what is incumbent on one to do or suffer; a due, an obligation, the state of owing something to another....". In that context a "debtor' is said to be "a person who owes another either money, goods or services; and the correlative of creditor is that one who has received from another an advantage of any kind; one indebted or in debt." (Page 219 third right column in The New Webster Encyclopedic Dictionary of the English Language 12th Supplementary Reference Sections 1980 Edition). Even in the latest Concise Oxford dictionary the expression 'debt' is explained as "something that is owed, especially money or state of obligation to pay something owed". (Page 298 left column of Concise Oxford dictionary. New edition of 1990). Therein the debtor is explained to be a person who owes a debt especially money. Perhaps the commercial world may not differentiate a debtor or a creditor in such a situation and may import the same meaning. It may not be forgotten that whatever be the nature of the form of transaction between the parties, prima facie it was a clear transaction of sale of goods within the meaning of Section 2(1), (3), (7), (10) and (13) of the Sale of Goods Act, 1930, because it has the components of buyer, seller and goods in addition to the price. It also appears to be a case of recovery of the part of the sale price paid by the plaintiff to the defendants on failure of the transaction since the plaintiff could not establish the sugar factory. If we read Section 61 (1) of the Sale of Goods Act, one can visualise a clear suit by a seller to recover the money paid where the consideration for the payment of it has failed. In such a situation, Section 61 (2) contemplates that in the absence of contract to the contrary the court may award interest at such rate as it thinks fit on the amount of price to the seller in a suit filed by hi m for the amount of price by the date of tender of the goods or the date on which the price was payable. In other words, when the plaintiff's demand to recover Rs. 40,000/- from the defendants failed and if the court can pass a decree, he was entitled to recover the interest at such rate as the court thinks fit in regard to the provisions stated above. It may not be necessary to emphasise that the charging of the interest on a sum due should necessarily make the amount a debt. Therefore, in a total conspectus of all tine situations in this case, after a particular time stated above, the plaintiff and defendants stood in the relationship of creditor and debtor as rightly stated by the learned District Judge and that formed a basis to fix the situs of contract. The doctrine that a debtor must seek his creditor, is a well known proposition of the common law rule in England which is equally applicable in this country also. However, such a rule shall be applied with caution. The further rule appears to be that where no place of performance is satisfied in the contract either expressly or impliedly, the debtor must seek the creditor for payment of money due. The implication of the rule is not excluded even where the amount of debt is disputed. That is how, rightly the rule was applied by the learned District Judge. Reliance was rightly placed on a pronouncement of this Court in Mahiamunnisa Begum v. Noor Mohamad Saheb Alias Akma Noor, 1965(1) An.W.R. 450. The rule is further reported in Maria Munnisa Begum v. Noore Mohammed, . (Summum bonum of the principle can be found on page 87 of the Sarkar on Code of Civil Procedure Vol 1, 7th Edition.) The learned District Judge appears to have taken the place of residence of the plaintiff for fixing the situs of contract regarding jurisdiction. Although there is no support for such a principle, it may not be totally inconsistent with the established principle regarding jurisdiction. There was an instance where such a principle was accepted in State v. Rajaram, where the trial of a suit for security money payable by the Government at the place of the plaintiffs residence was upheld. However, such a rule appears to be exceptional, having due regard to the facts and circumstances of that case. To conclude on the question of jurisdiction, the District Court of Adilabad was rightly held to be a court having jurisdiction to try the suit and the learned District Judge was right in recording the finding in favour of the plaintiff which should be affirmed.
15. Even assuming that Adilabad Court has no jurisdiction to try the suit, it is still open under Section 21 of the Code of Civil Procedure to consider whether the objection as to place of suing has been taken in the trial Court and whether there has been a consequent failure of justice as a whole due to the reason that the said Court had no territorial jurisdiction to try the suit. The law is settled that both the conditions mentioned supra must exist, but the last is all important, for unless there is failure of justice there will be no interference by the appellate Court even if the other condition is present, (page 91 of Sarkar on C.P.C. supra). Undoubtedly, the first part of Section 21(1) of the Code of Civil Procedure has been complied with since the objection to the place of suing had been taken by the defendants in the trial Court. .Now the question is whether there is consequent failure of justice for want of territorial jurisdiction for the Court to try the suit. The law appears to be that the purport of the failure of justice in a given situation depends upon the facts and circumstances of each case. The principle behind such a legal rule appears to be that the jurisdictional defect is open to correction by an appellate Court where it has occasioned failure of justice. Want of territorial jurisdiction is an irregularity and does not make a decree nullity unless there is a further element of consequent failure of justice and there should be an element of trial of the suit on merits when the objection to jurisdiction has been taken. In simple sense 'failure of justice' refers to the merits of the case. In other words, failure of justice as a result of question of jurisdiction should be viewed with reference to the prima facie materials in the case which lead to the final decision in the suit. In that back-ground the facts and circumstances of the present case may be examined. In the first place, the defendants had the opportunity to resist the suit which they did. Secondly there was a part and substantial payment of the sale price amounting to Rs. 40,000/- which has remained with the defendants up-till today. Even assuming that there was a breach of contract by the plaintiff and the defendants were not to be blamed for inconclusive termination of the contract due to the conduct of the plaintiff and that the defendants had to invest certain amounts either for the materials to be procured or for the labour chages, the difference in the loss as a whole, as can be made out from the evidence, has not exceeded more than Rs. 30,000/- to Rs. 35,000/-. The defendants had the benefit of the plaintiff's money in the form of interest or in the form of interest-free advance from 1969 up-till today which should be for almost 15 years and even at the rate of 10% it would be Rs. 4,000/- per year and for 15 years it would be Rs. 60,000/-. Even on prima facie materials, it has been found by the trial Court that the plaintiff has made out a case for refund of Rs. 40,000/- whereas the defendants had no justification to withhold it. As against the defendants, the plaintiff was not only under the circumstances, could not establish the Khandasari Sugar Factory but at the same time was relieved of Rs. 40,000/- by way of part payment of the sale price regarding which tine loss or benefit by way of interest would be Rs. 60,000 /-. However, without going into the niceties of the merits, prima facie having due regard to the facts and circumstances of the case, there is no failure of justice in the case so far as the defendants are concerned. Even on that count, the plea of want of jurisdiction for the trial Court to try the suit raised by the defendants, deserves to be rejected.
16. Point No. 2:- There appears to be no controversy between the parties that in the nature of the transaction between them, it was for the sale of machinery, by the defendants to the plaintiff for the purpose of establishing Khandasari sugar factory, for a known sum. As already pointed out it was a simple transaction of sale of goods. The parties are known, the machinery is known, the sale price is known and the stipulations are also known. In substance, the defendants agreed to supply the machinery to the plaintiff at a cost of Rs. 2,34,715/- and out of which 25% was to be paid in advance and the balance was to be paid at the time of delivery of the machinery. This is spelt out both in the pleadings, in the testimony of plaintiff and his witness P.W.I and also in the documents - Exs.A-1 printed proforma of the contract, A-2 the acknolwedgment for payment of Rs. 40,000/- towards part payment of tine price, A-3 letter dated 27-10-69 addressed by the 1st defendant to the plaintiff, A-4 Letter dated 4-11-1969 of the 1st defendant, A-5 the draft agreement, A-6 the stipulations of the agreement, A-7 postal cover along with the acknowledgment, B-l letter dated 23-4-70 written by the plaintiff and Ex.B-6 reply to the notice of the plaintiff. The learned Advocate for the defendants has contended, as the defendants had contended in the trial Court, that it was a concluded contract enforceable by either one or both in regard to their respective rights, whereas the learned advocate for the plaintiff has contended, as in the trial Court, that there was no concluded contract and it stood at the stage of agreement only as there was failure of consideration since the factory could not be established by the plaintiff. As already pointed out within the legal fitment it was a transaction for sale of goods operated by the provisions of Sale of Goods Act. Whatever be the nature and the scope of the transaction, unless it can be brought within the scope of Section 4 of the Sale of Goods Act, 1930, the legal implication cannot flow therefrom for enforcing the right or for suffering the liability. Section 4 of the Sale of Goods Act reads as follows:
"Sale and agreement to sell:- (1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may by a contract of sale between one part- owner and another.
(2) A contract of sale may be absolute or conditional.
(3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.
(4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred."
The above provision contemplates two segments of the sale of goods in law viz., (1) a contract of sale of goods and (2) an agreement to sell the goods. Sub-clause (3) of Section 4 is the determinative factor whether the transaction would be a contract of sale or an agreement to sell. In the former, the goods is transferred from the seller to the buyer whereas in the latter, the transfer of the property will take place at a future time or subject to some condition thereafter to be fulfilled. Neither the delivery of the goods nor the payment of the price may be an important ingredient to constitute the contract of sale within tine meaning of Section 5 of the Sale of Goods Act. Because the subject matter of the transaction of sale of goods may be either existing goods, future goods or perishable goods. There may not be any difficulty in regard to the existing goods or the goods which may be perished after the contract is concluded. It is only in case of future goods, the question arises whether there would be a concluded contract within the meaning of Section 4 or whether it would be still an agreement to sell till the future goods come into existence. In view of Section 21 of the Sale of Goods Act, where there is contract for the sale of specific goods and the seller is bound to do something for the goods for the purpose of putting them into deliverable state, the property does not pass until such thing is done and the buyer has notice thereof. Admittedly, although there was the contract for the sale of specific goods viz., the machinery for establishing sugar factory by the plaintiff they were to be manufactured by the defendants. It is also found that they were not in the deliverable state. It is in the evidence that for want of payment of the balance price out of 25% of the total price, the defendants could not commence the work or atleast could not do the work rapidly. In Ex.A-3 dated 27-10-69 the letter of the defendants to the plaintiff, it is stated as follows:
"According to our letter No. 69/687 dated 4th October, 1969, we have no received the full advance as we mentioned in our above letter. And also it was agreed previously and due to that we are unable to start the work rapidly. We request you to send us the balance advance immediately. Further, your drawings are in progress and we will be sending them within a short period."
Therein one thing is certain that the payment of advance was a condition precedent for the defendants to commence the work or to complete it and even at that stage, the drawings were in progress and they were to be sent to the plaintiff for approval. Reading this, on the face of it, the goods to be sold by the defendants to the plaintiff were not at all in existence much less in deliverable state. That they were the future goods, within the meaning of Section 2(6) of the Sale of Goods Act, is without doubt since 'future goods' means goods to be manufactured or produced or acquired by the seller after the making of the contract of sale. In this case the defendants were to manufacture or produce the machinery for the sugar factory of the plaintiff. Therefore, at the inception and till the plaintiff did not pursue tine transaction by seeking refund of the amount of Rs. 40,000/- from the defendants, there was no concluded contract. Or in other words, there was only an agreement of sale of goods between the parties till then.
17. The defendants took the burden to prove that there was a concluded contract since inception. On the other hand, the evidence in the case shows that there was no concluded contract. The cross-examination of P.Ws.1 and 2 is not pointedly to the effect that notwithstanding the manufacture of the future goods the parties agreed for a concluded contract. The defendants have not produced any satisfactory evidence to prove that the machinery was manufactured or brought into deliverable state at any stage, much less, at the stage when the plaintiff went back from the transaction. D.W.1 a Supervisor working under the defendants is examined to discharge such a burden. His evidence is found to be unreliable and uncorroborated from required materials. His testimony that one person belonging to plaintiff's company came to the defendants' company and machinery parts were shown to him and that Rs. 30,000/- had been invested on the raw material and Rs. 30,000/- were spent for labour charges, finds no corroboration or support from documents. The learned Advocate for the defendants did not for a moment suggest at any stage of the arguments that the defendants factory is such small so as to accept not to maintain any documents either for investment of money for manufacture or for showing the stock of the machinery at any particular point of time. No such documents are produced or attempted to be produced by the defendants. The whole testimony of P.W.I opens the defendants for adverse inference that either there are no such documents or that what defendant No. 1 has deposed is an after thought or at any rate, even if there are such documents the production of the same would go against the defendants. The documents which are produced before the Court themselves establish that payment of 25% of the sale price was a condition precedent and till the payment was made the defendants would not commence the manufacture of the machineries. Ex.A-5 the proposed unilateral agreement has no mention of the undertaking of the defendants to commence the manufacture of the machinery immediately and the transaction came into existence. Ex.A-6 letter dated 6-10-1969 addressed to the plaintiff by the defendants while dealing the machineries to be manufactured, has made a categoric mention in the concluding portion as follows:
"Payment: 25% advance with order and balance against delivery. Delivery: 2 to 3 months time from the date of order with full advance. All machineries are manufactured in supervision of an expert Engineer and in this line has an experience of 23 years and successfully erected about 35 open pan system sulphitation process sugar factories. After erection technical advice and guidance is given without any obligation by our expert.
After receiving the order, if the prices of the raw materials are going up accordingly we may increase the prices of the machineries affected by the same.
We reserve the rights to change the design according to the availability of the materials and to suit to the modern production methods as well as the performance of the machineries.
The Machineries will be supplied in parts as and when a load is ready and the purchaser has to make arrangements to lift the materials on the intimation of the supplier.
If the materials are not lifted within a week after the information from the supplier (us), further supplies also may delay accordingly.
If there is any strike or electricity failure or non-availability of raw materials of such any other causes beyond the supplier's control we cannot accept any liability for the damages direct or indirect or on account of delay to delivery within the time stated."
The above stipulations speak for themselves that the payment of 25% of the sale price was a condition precedent and the machineries were to be manufactured thereafter and the delivery of the same was in parts as and when they got ready and it was also subject to various vagaries and the conditions. Therefore, even on the date of Ex.A-6 neither the full amount agreed to be paid by way of advance was paid nor the machineries were in existence. The learned Advocate for the defendants has drawn the attention of this Court to Ex.A-3 which is already extracted as above to contend that the defendants were unable to start the work rapidly, meaning that, they had already commenced the work of manufacturing the machinery. In the first place, the author of Ex.A-3 is not examined by the defendants to give such a meaning and consequently it is difficult to read such a meaning into such an expression. In the circumstances, if we read Ex.A-3 it means that unless the agreed part of the sale price was paid fully, the work of manufacturing the machinery could not be expedited or fuflilled quickly as per the expectation. The fact that even the drawings were not ready at the time of Ex.A-3, is inconsistent with the stand taken by the defendants that the work of manufacturing of the machinery had already begun. Even in Ex. A-4 the defendants insisted the payment of the balance of the sale price out of 25% and did not appreciate the stand of the plaintiff in not maintaining the orders by sending the telegram to that effect. In Ex.B-1 it is mentioned that the defendants had spent huge amounts on the machineries and the plaintiff should take delivery of the machinery. This appears to be a later thought after the plaintiff sought for the refund of the advance amount. Even in Ex.B-1 dated 23-4-1970, the plaintiff has pursued the demand to get back tine advanceofRs.40,000/- which was being negotiated through one Krishnaswami regarding which the defendants had agreed. It is only in Ex.B-4, as a finality, the defendants appear to have come up with a case that the plaintiff should lift the machinery from the defendants which are said to be ready. If we read these conflicting stands taken by the defendants, the interested testimony of P.W.I cannot be safely accepted particularly in the absence of the useful evidence which the defendants could have produced before the Court. Therefore, at this stage, on a legal basis, it can be concluded that there was no concluded contract between the parties and it was only an agreement of sale between them in regard to the future goods which never came into existence till the plaintiff repudiated the contract and sought for refund of the advance. The learned trial Judge is totally justified in coming to such conclusions and deserves to be supported.
18. Point No. 3:- The plaintiff could not establish the sugar factory and therefore, put an end to the transaction and called back the refund of the sale price of Rs. 40,000/- paid by him to the defendants. The reason for calling back the amount of Rs. 40,000/-by the plaintiff is not seriously disputed either in the written statement or in the cross-examination of P.Ws.1 and 2. At no stage, the defendants have come out with a case that the stand of the plaintiff is false and there was any mala fides on his part in putting an end to the transaction and seeking the refund of the amount. Admittedly, the plaintiff sent a telegram to the defendants prior to 4-11-1969 which is made a reference in Ex. A-4 stating as follows:
"Keep the order pending. Letter follows......Maruti Khandasari Sugar Factory."
In Ex.A-4 it is clearly mentioned that not only the plaintiff issued such a telegram, but also had an intention to get back the refund of Rs. 40,000/- and in Ex.A-4, the defendants have come out with an expression that if immediately or even few days after placing the order, the defendants would not have hesitated to refund the amount after taking some compensation and after such a long time, it was not possible to refund the amount. It is also mentioned therein that the drawings are prepared and the raw materials had been purchased by the defendants. The details of the compensation are also calculated in Ex.A-4. Therefore, it was a clear case of repudiation of the agreement by the plaintiff before the contract was concluded and the defendants alleging breach of concluded contract by the plaintiff. In so far as the plaintiff is concerned, there could not have been any breach of contract since Khandasari Sugar Factory could not be established for the reasons best known to him. Neither the plaintiff has alleged the breach of contract by the defendants nor the defendants committed such a breach of contract as it became infructuous due to nonpayment of full advance of the sale price much less due to the plaintiff not pursuing the same. On a careful examination of the materials in the case, this Court is of the considered opinion that not only there was a mere agreement of sale in the transaction between the parties, but also it was a contingent contract on the happening of certain event viz., the plaintiff establishing sugar factory and paying 25% out of the sale price agreed between the parties. Neither of the contingencies occurred to make it a concluded contract either for enforcement or the breach thereof. The case is wholly covered by Section 31 of the Indian Contract Act, 1872, as a contingent contract is said to be a contract to do or not to do some thing if some event collateral to such contract does or does not happen. The event collateral to such a contract or agreement between the parties was fundamentally the establishment of the sugar factory which did not happen and the event of non-payment of full agreed 25% of the sale price did not happen collaterally as the main event of establishing the sugar factory did not at all occur. By virtue of Section 32 of the Contract Act, contingent contracts to do or not to do anything if an uncertain future event happens, cannot be enforced by law unless and until that event has happened. In fact if the event becomes impossible such contract becomes void. For the reasons stated above, perhaps the transaction between the parties becomes void by virtue of the said provision. To again recall the implications of such an agreement of sale of goods by virtue of Section 4 of the sale of Goods of Act, tine contingency for either of the parties to the agreement or contract or to breach it did not at all occur since the goods in the property did not pass to the plaintiff since the subject matter of the transaction was the future goods to be manufactured to bring them to deliverable state. It is true that Section 31 of the Sale of Goods Act imposes the reciprocal duties on the parties to a transaction viz., for the seller to deliver the goods and for the buyer to accept and pay for them in accordance with the terms of the contract of sale. Section 32 of the Act makes the payment and delivery as a concurrent condition. The rules as to delivery of the goods are governed by Sections 32 to 39 of the Act. If there was a concluded contract and the passing of the goods in the property sold whether the price or part thereof was paid or not, the rights and liabilities of the parties to the said transaction are governed by Sections 55 to 59 of the Act. The seller is entitled to file a suit for recovery of the price of the goods from the buyer under Section 55 or for damages for non- acceptance of the goods under Section 56 of the Act. The buyer may sue the seller for damages for non-delivery of the goods under Section 57 of the Act. Both the parties are entitled to file suits for specific performance under Section 58 of the Act to enforce the respective terms of the contract. There is also remedy for breach of warrantly either by the seller or buyer under Section 59 of the Act. In this case if there was a concluded contract Sections 55 to 57 would have come into effect for the respective remedies, but since the plaintiff repudiated the contract before it could be performed, there was no scope for such remedies. It was only a suit for specific performance under Section 58 which was open for the defendants, or to file a suit for damages for breach of con tract by the plaintiff. Section 60 of the Sale of Goods Act contemplates that where either of the parties of the sale repudiates the contract before the date of delivery, the other may either treat the contract as subsisting and wait till the date of delivery or he may treat the contract as rescinded and sue for damages for the breach. The plaintiff actually repudiated the contract, but the defendants did not choose to do so and on the other hand wanted the plaintiff to perform his part of the contract to pay the balance sale price and showed their readiness and willingness to manufacture and supply the machinery as per the stipulations in the contract. So far, the defendants have not pursued any of the remedies as contemplated under law or as proposed in the written statement. To repeat again, it was a clear case of failure of consideration for the payment to file the suit for recovery of the money paid by the plaintiff within the meaning of Section 61(1) and 61(2)(b) of the Act for refund of the price which was partly paid, as is evident from the materials on record. Therefore, all other exercises on the part of the defendants to demonstrate that they were all along ready and willing to perform their part of the contract in manufacturing and supplying the machinery to the plaintiff, appears to be futile. Therefore, even assuming that there was failure on the part of the plaintiff to pay the balance of sale price as agreed to and that there was breach of contract, the remedy for the defendants was some thing else as per law and not to resist the suit for refund of the amount paid under the transaction on one ground or the other. The suit of the plaintiff to recover the amount of Rs. 40,000/- from the defendants was very much justified.
19. The defendants want to forfeit Rs. 40,000/- paid by the plaintiff on the ground of breach of contract or as per tine terms of the contract for nonperformance on the part of the plaintiff. In view of a clear finding that there was no breach of the terms of the contract by the plaintiff much less in view of the failure of the contract due to the non-happening of the contingency to establish the sugar factory, the defendants cannot be allowed to forfeit the amount of Rs. 40,000/- under the transaction. However, both the sides have dealt with the law relating to forfeiture of the amount paid under the terms of the contract. At the outset I may mention that strictly speaking there is no written agreement or written contract between the parties to think of a forfeiture clause for the purpose of enforcement. As already pointed out, the so-called terms of the agreement or contract were unilateral and are not proved to be put into conclusion. Even in the proposed contract or agreement, Exs.A-5 and A-6, there is no stipulation for forfeiture of the part payment of 25% of the sale price by the plaintiff. Admittedly there was a stipulation to pay 25% advance of the sale price of the order and only Rs. 40,000/- was paid by the plaintiff at the time of the order and the rest was not at all paid thereafter. Assuming that there was breach of contract on the part of the plaintiff, the law has to settle whether the defendants are entitled to forfeit Rs. 40,000/-. The learned Advocate for the plaintiff has contended that notwithstanding the quantum of the advance sale price agreed between the parties, it represented earnest money left with the defendants by the plaintiff for the due performance of the terms of the contract by the plaintiff and therefore, the defendants were entitled to forfeit the same. As against this the learned Advocate for the defendants has contended that it was not earnest money, but it was a simple deposit. Both the sides have depended upon an authoritative pronouncement of the Surpeme Court in Maula Bux v. Union of India, in support of their respective stands. The distinction between the earnest money and the deposit under a contract has been succinctly explained in the pronouncement and there is no need to record or elaborate. 25% of the sale price stipulated to be paid by the plaintiff as part of the transaction should be necessarily part of the purchase price and even if there was a stipulation for forfeiture of the same the defendants would not have made it a penal clause for the purpose of Section 74 of the Contract Act. The necessary conditions to apply the principle laid down in Maula Bux's case, for operation in this case are not warranted, because in the first place, there is no proof of stipulation for forfeiture. Secondly, there was no concluded contract between the parties. Thirdly there is no breach of the alleged contract. Finally, the forfeiture cannot be enforced by the defendants as they have made gain for themselves in the form of interest which is 1 1/2 times the amount paid by retaining it for a long time. However, apart from Maula Bux's case, our own High Court in Rabina Bibi v. Pulipaka Satyavathi, following Chiranjit Singh v. Har Sarup, AIR 1926 P.C. 1 which was also relied on in Maula Bux's case, has authoritatively laid down that:
"Where in a contract for sale if the buyer commits a breach of the contract, the seller can forfeit the earnest money and is not liable to refund it. The mere fact that such earnest money has been mentioned as 'advance' or 'consideration for sale' in the contract cannot take away the right of the seller if it was originally agreed to be earnest money."
Although, on facts, the present case is distinguishable from the precedent supra, having due regard to the facts and circumstances of the case, the defendants are totally debarred from forfeiting Rs. 40,000/- paid to them instead of refunding the same to the plaintiff.
20. Finally it was contended for the defendants that the plea of set off, is not seriously considered by the trial Court since the defendants had already invested heavy amounts on the purchase of the raw material and manufacturing the machineries which were far in excess of the advance sale price paid and even assuming that the defendants were liable to refund Rs. 40,000/- to the plaintiff having due regard to their loss amounting to Rs. 35,000/- presuming that they did not pursue the recovery of the same by way of counter claim or set off, there was no reason for decreeing the suit by the learned District Judge. Obviously, the learned Advocate for the plaintiff has strongly repelled such a contention. Such a contention appears to be lacking any merit both in law and on facts. Except using the words "set off" in para 14 of the written statement, they have not done anything to lay such a claim of set off in accordance with the procedure. Order VIII Rule 6 and Rules 6-A to 6-G and 7 of the Code of Civil Procedure regulate both substantial and procedural rights of a person claiming set off or counter claim in a suit. In the first place, such a claim should be set up in the written statement by giving all the particulars and the cause of action, as such a claim would be in the nature of a complaint regarding which the plaintiff will be entitled to file a reply which will be considered as a written statement and all the Rules relating to such set off, counter claim etc., would be governed by the rules of the pleadings and the Court will also after enquiring into the same would pass a decree either in favour of the plaintiff or in favour of the defendants in regard to the claim and counter claim. Even the Rules relating to valuation of suit and the payment of court fee on such a claim are operative. In view of the assertion and the denial of such claims necessarily issues should arise regarding which the parties will be entitled to produce evidence and the Court will give necessary findings thereon. In the absence of all these contingent requirements, the trial Court could not have entertained the plea of set off by the defendants. Even assuming that it could have been gone into by the trial Court, the defendants have practically not produced any material in support of the same. Except examining D.W.I regarding the manufacture of machinery which are kept ready for delivery according to him, no documents are produced as already pointed out in support of the same and a responsible person like a partner of the firm has not even entered the witness-box on behalf of the defendants to swear in support of the set off or counter claim. Therefore, such a plea deserves to be rejected. Although the learned District Judge dealt with the matter in his own way and not pointedly as has been done by this Court, he has come to correct conclusions, recorded the correct findings and rightly decreed the suit in favour of the plaintiff. The defendants should thank themselves for not mulcting them with the liability to pay interest on Rs. 40,000/- to the plaintiff which is statutorily permissible as stated above in which case the so-called set off would be lost of its lustre and purpose. The claim of the plaintiff for refund of Rs. 40,000/- has been quite bona fide through out and limited to the just minimum and legitimate right in law. The learned District Judge was justified in supporting such a claim on all its intent and purpose. This Court fully supports the same. There is no reason to interfere with the judgment and decree of the trial Court to any extent and they deserve to be confirmed.
21. At some stage of the arguments, it was seriously considered whether the defendants can be relieved of their liability to pay the costs, to the plaintiff either in the trial Court or in this Court or in both the Courts. This Court after a careful consideration of the same is not persuaded to depart from the rule that the costs follow the event.
22. With all the expressions stated above either accepting or rejecting the rival contentions of both sides, this Court expresses its total satisfaction of the assistance of the learned Advocates - Sri M. Ramachandra Rao, on behalf of the appellants and Sri C.P. Sarathy, on be half of the respondent, in disposing of the matter fully and effectively.
23. In the result, the appeal fails and it is dismissed with costs.