Madras High Court
The Food Corporation Of India, ... vs The Bengal Trading Company Represented ... on 26 August, 1991
Equivalent citations: (1992)1MLJ225
JUDGMENT
1. Both these appeals arise out of a common judgment rendered by a learned single Judge in C.S. Nos. 347 of 1979 and 556 of 1981, on the filed of this Court.
2. For the purpose of convenience and to avoid any confusion, we rather prefer to advert to the names of the parties hereinafter instead of referring to their array in either of the suits.
3. The East Indian Commercial Company (P) Ltd., (for short E.I.C.C - a lessee of Sri Krishna Jute Mills Ltd., Eluru, Andhra Pradesh) is the manufacturer of jute products. The Bengal Trading Company (for short 'B.T.C.'), a partnership firm, is the selling agent of E.I.C.C. The Food Corporation of India (for short 'F.C.I.') called for tenders for the supply of 71/2 lakhs of gunny bags. The B.T.C. offered a tender and the F.C.I. accepted the same for the supply of gunnies. It was made clear in the tender itself that the gunny bags would be supplied by the E.I.C.C. and the F.C.I. also accepted that position. Accordingly the gunny bags were supplied to the tune of Rs. 26,43,677-03. The F.C.I. paid only 90% of the value, namely, Rs. 23,79,309.51 and neglected to pay the balance of Rs. 2,64,367-52. The B.T.C. issued a lawyer's notice dated 10.11.1978 demanding the balance of payment, which elicited a reply, disputing the claim made therein, necessitating the filing of the suit, C.S.No.347 of 1979 for recovery of Rs. 3,28,617-52 with interest and costs.
4. The F.C.I. resisted the suit claim inter alia contending that the goods supplied were not according to specification, standard and quality as reflected by the test report submitted by the Indian Institute of Packaging, Madras that with reference to the test report, the value of the gunny bags supplied had been arrived at Rs. 14,99,758 and on the basis of the said value, the B.T.C. has been overpaid and nothing remained to be paid to them; that they are bound to pay penalty as per the terms and conditions of the contract, which come to Rs. 12,738-42, that they have no right to claim any interest and that under such circumstances, they are bound to return the excess amount of Rs. 11,98,128-90, for recovery of which with interest, amounting to Rs. 17,33,574-08, the F.C.I. filed C.S.No.556 of l981.
5. The B.T.C. resisted the suit claim by the F.C.I.. The supplies made by them, they would say, conform to the specification and standard stipulated' in the agreement. If there was any defective gunny bags, F.C.I. should have rejected such of those defective ones and given an opportunity to them to replace them within seven years, as per the terms of the contract. F.C.I. failed to comply with such terms agreed under the contract and they did not even inform them about any defect in any of the gunny bags supplied. Nor were they informed of the test report of the Indian Institute of Packaging, Madras. On the other hand, they had appropriated all the gunny bags without any protest, and consequently, they are precluded from denying the liability or to forfeit the security deposit or to demand any penalty. They are liable to pay the balance of the sale price as claimed by them in C.S. No. 347 of 1979.
6. Necessary and requisite issues, in the light of the pleadings of the parties, had been framed and the parties went on trial and adduced evidence.
7. Learned single Judge, on consideration of the materials placed before him, dismissed C.S. No. 556 of 1981 with costs while decreeing C.S. No. 347 of 1979 with costs with interest at 12 per cent per annum from 23.11.1978 till date of payment, giving rise to the present appeals by F.C.I.
8. The double fanged question as to whether F.C.I. is entitled to (1) impose a cut or reduction in the price of gunny bags supplied, as a consequence of those gunny bags not conforming to the specifications agreed upon between the parties as disclosed by the test report of the Indian Institute of Packaging, Madras; and (2) forfeit the security deposit and claim penalty for not keeping the time schedule in effectuating the supply of gunny bags arises for consideration and decision in these appeals.
9. We shall now make an endeavour to sift such facts of the case as are absolutely essential as well as the question of law arising for consideration in a bid rather to find out an answer for the question so posed.
10. There is no denial of the fact that F.C.I. called for tenders for the supply of 7 1/2 lakhs of gunny bags according to certain specifications and standards and B.T.C. pursuant to the same, offered their quotation, which, in turn, was accepted by F.C.I. demanding the supply immediately to be made and completed before a specified dated, namely, 7.7.1978 without fail. Ex.P-1 dated 29.3.1978 is the tender notice. Ex.P-2 dated 16.6.1978 is the letter from F.C.I. to B.T.C. accepting the quotation for the supply of gunny bags on a time bound schedule.
11. Ex.P-1 consists of two parts. The first part deals with instruction to tenderers, while Part II deals with specification and special conditions for sup-ply of new jute gunny bags. Both the parts, as aforesaid, contain terms and conditions dealing with the rights and liabilities of the parties in the matter of supply of gunny bags. Clause 2 of Part II contains specifications of the gunny bags to be supplied, besides giving the present approximate requirement. Clause 2(e) prescribes:
90% payment will be made on satisfactory completion of supplies as per specifications, terms and conditions on bills to be presented by the tenderer in quadruplicate duly pre-receipted, stamped and supported by acknowledgment of stocks by the Deputy Manager (PO) Food Corporation of India Madras Harbour, Madras-I/Joint Manager (PO), Food Corporation of India, Vizag and the balance of 10% will be released on receipt of report from the India Institute of Packaging, Madras or any other Government recognised laboratory as decided by the Zonal Manager, Food Corporation of India, Madras-6 or an Officer acting of his behalf.
12. Clause 4.1 of Part I requires the tender to furnish within a week of the acceptance of their tender, security deposit of Rs. 50,000 (Rupees Fifty thousand only) failing which the contract shall be liable to cancellation at the risk and costs of the tenderer and to subject such other remedies as may be open to the Zonal Manager, F.C.I. Madras-6 under the terms of the contract.
13. Clause 4.5 contemplates a situation as to when the security deposit will be refunded to the tenderer. According to this clause, refund of security deposit will be made on due and satisfactory performance of the services and on completion of all obligations by the tenderer under the terms of the contract.
14. Clause 4.6 envisages the rights of the Zonal Manager, F.C.I. to forfeit the entire or part of the amount of security deposit, in the event of termination of the contract contemplated in Clauses 4.11 to 4.13. For a better understanding of those clauses, we think it necessary to reproduce the same in verbatim and they read as follows:
4.11. The Zonal Manager, F.C.I. Madras-6 reserves the right to accept or reject any of the offers or to place orders for supply in whole or in part, of the requirement of gunnies, with any of the tenderer(s) in accordance with the rates quoted and his decision shall be final. The supplies should strictly adhere to the time schedule indicated in the tender. In the event of failure on the part of the tenderer to adhere to the time of schedule, the Zonal Manager will have the discretion to terminate the contract and forfeit the Security Deposit.
4.12. The quality of the goods supplied by the tenderer should strictly conform to the specifications as per the specimen available in the office for perusal. In case of delay in the supply of the gunnies beyond the agreed period, he shall be liable to pay penalty of 1 % of the value of undelivered gunnies for the delay of every week or part thereof subject to the maximum of 5% of the value of gunnies delivered after the stipulated delivery period after which the Zonal Manager, F.C.I., Madras-6, shall have the freedom to cancel the order or to obtain it from an alternative source of supplier at his risk and cost.
4.13. In the event of the tenderers supplying gunnies not conforming to the specifications, the gunnies are liable to be rejected. After such rejection, the tenderer may however be given an opportunity, if the Zonal Manager, F.C.I., Madras-6, so desire to supply gunnies according to and conforming to the I.S.I. specifications within seven working days from the date of such rejection. If the tenderer(s) fail to deliver such gunnies as may be stipulated within seven working days from the date of such rejection, the contract will be terminated and security deposit will also be forfeited.
15. Clause 11-2 reserves a right in favour of the Zonal Manager to reject any or all jute gunny bags, which do not comply with I.S.I. specifications and the instances to flow from such rejection. Clause 11.3 deals with a situation reserving a right in favour of the Zonal Manager to make purchases at the risk and cost of the supplier, in case of default by the tenderer to make the supply according to schedule. Both the clauses read as follows:
11.2. The Zonal Manager, F.C.I., Madras-6 retains the right to reject any or all jute gunny bags delivered under this tender which do not comply with the I.S.I specifications as laid down in Part II. Such rejected just gunny bags shall be removed from our godown site within seven days by the successful tenderer at his own cost on intimation by Zonal Manager, F.C.I. Madras-6 or by an officer authorised by him. The cost of jute gunny bags thus rejected will not be paid for. Any advance payments made in respect of the jute gunny bags before it has been rejected will be recovered from the supplier, from subsequent bills or adjusted in Security Deposit. Such rejected jute gunny bags shall be left at the risk and responsibility of the suppliers concerned at the godown site and Zonal Manager, F.C.I., Madras-6 will not accept any responsibility whatsoever for its loss, damage or deterioration, etc., due to failure on the part of the suppliers to remove the rejected bags. In case of any inordinate delay exceeding seven days of such rejection in collecting the rejected gunny bags from the godown site, the Corporation reserves the right to sell such goods may auction or by any other method according to its convenience.
11.3. On default by the tenderer to make the supply according to schedule, Zonal Manager, F.C.I. Madras-6 reserves the right to make purchases at the risk and cost of the supplied Any extra cost incurred by Zonal Manager, F.C.I., Madras-6 in making such risk purchases will be recovered from the supplier as damages arising out of breach of this contract. Zonal Manager, F.C.I., Madras-6 will serve a written registered notice on the supplier of its intention to make such risk purchases and will proceed to make the purchases without awaiting for suppliers' reply. Such extra costs will be recovered from any outstanding amounts or Security Deposit held by the Corporation.
16. Clause 6.1 of Part II specifies the period of contract and the contract will be effective for the supplies from April, 1978 to September, 1978 or for any extended period depending upon the 'requirement of F.C.I.
17. Clause 13.1 of Part II envisages in what manner the rejected goods are to be removed by the suppliers and it reads as follows:
13.1. All new jute gunny bags rejected or refused on the ground of inferior quality or on any ground whatsoever shall be replaced by the suppliers. In case any defective bags are found to have been despatched, the suppliers shall remove the rejected bags against payment of the value and replace them at their cost and risk within Seven days, after notice has been received by them. In the event of non-removal of bags by the suppliers as aforesaid within seven days after notice has been received by them of such rejection within the said period of seven days, it shall be lawful for the Corporation to dispose of such goods as it thinks fit and in such a case, the suppliers shall be credited with the sale proceeds thereof after deducting the payments already made for those goods and incidental expenses incurred from the Security Deposit, but the suppliers will not be entitled to any loss or damage occasioned by such sale. In the suppliers are not satisfied with the decision of any authority below the rank of,. Joint Manager rejecting or refusing the jute gunny bags, they may appeal to the Joint Manager within seven days of the receipt of such notice. The decision of the Joint Manager shall be final and binding in all cases. Such rejected materials will be left at the risk and responsibility of the suppliers concerned and For Corporation of India will not accept any responsibility for its loss, damages or deterioration etc. while in their custody after rejection.
18. The enumerated clauses of Ex.P-1 as above, if interpreted and understood in the broad spectrum analysis, we feel a flood of light will be thrown in arriving at a just decision in the case.
19. There is no denial of the fact that B.T.C. effected the entirety of the supplies, as agreed for, through E.I.C.C. to F.C.I., which in turn, utilised the supplies so made, besides effecting 90% of the cost price, without any murmur or demur at any point of time. Worthy it is to note at this juncture that the claim made by B.T.C. for payment of the balance of l0% of the sale consideration innumerable times fell into deaf ears of F.C.I. necessitating them the issuance of a legal notice dated 10th November, 1978 under Ex.P-3 calling upon F.C.I. to effect the balance of payment within seven days from the date of receipt of the said notice. It is only at this juncture, F.C.I. sent a reply under Ex.P-4 dated 23.11.1978 coming forward with a theory that the gunny bags supplied by B.T.C. are of inferior quality and do not conform to I.S.I. specifications. After propounding such a theory, the said notice reads further as follows:
In as much as your firm had failed to perform its contractual obligations by supplying gunnies which are not in conformity with the specifications laid down in the supply order, we are forfeiting the security deposit of Rs. 50,000 furnished to us in the form of bank guarantee. Besides, in view of the supplies being inferior in quality and to make good such losses to the extent suffered by the Corporation, we have decided to impose a cut in proportion to each variation as per details enclosed. Totally, 56.73% cut is imposed on Your firm for non-adherence to specifications in the quality of gunny bags.
After adjustment of the balance 10% payment against the cut imposed, the amount outstanding is 46.73% which is refundable by you to this Corporation. You are therefore, requested to refund this amount within SEVEN days from , the date of receipt of this after, failing which we may be constrained to take legal recourse to recover the amount at Your risk and cost.
20. The terms and tenor of the reply notice under Ex.P-4, as extracted above, are thus to be seen to be totally opposed to the various clauses, as adumbrated in Ex.P-1. As per the various clauses, as enumerated above, F.C.I. irretrievably lost all its right, except to enforce its right under Clause 2(e) of Part II, which relates to the release of 10% of the balance amount, on receipt of the report from the Indian Institute of Packaging, Madras, provided the report had been duly proved in the manner allowed by law.
21. At this juncture, we may point out that various clauses adumbrated under Ex.P-1 cataloguing the rights and liabilities of the parties are nothing but the mere reflection of the salient and sanguine provisions adumbrated under Sections 15, 42 to 44 and 59 of the Sale of Goods Act, 1930, (for short 'the Act') and the expounding of all those provisions, we feel is unnecessary as being redundant without serving any purpose, except to make a casual and cursory reference to the provisions of Section 42 dealing with acceptance and Section 59, which prescribes remedy for breach of warranty to bring home the point that the legal fitment to be given to the facts of the present case is not in any way antagonistic to the case of B.T.C. and this aspect of the matter, we feel, be profitably dealt with after considering the legal effect of the test report of the Indian Institute of Packaging, Madras.
22. Ex.D-6 dated 11.8.1978 is the Laboratory Test Report of Indian Institute of Packaging, Madras. A frontal attack is made as to the admissibility of the said report, which, in the circumstances of the case, we feel, cannot at all be stated to be not sustainable. Assuming for argument's sake the same is admissible, even then the report suffers from serious infirmities and doubtful, circumstances casting a cloud as to its origin and authenticity, the consequence of which was that the probative value that could be attached to such a test report is practically 'nil'.
23. The serious infirmities attaching to the said report may first fall for consideration in the arena of discussion. There is no intrinsic material traceable to the said report as to the gunny bags, subjected to test analysis, were the ones, which were the representative samples of gunny bags supplies by B.T.C. to F.C.I. No material whatever had been placed before Court as to the date on which and by whom the sampling had been done from the supplies effected by B.T.C. Not even any contemporaneous record had been produced for the packing of samples from the supplies so effected, although it is admitted in evidence by D.W.2 that F.C.I, maintained registers for such sampling. If really sampling had been done and entries made in the relevant register, nothing prevented F.C.I. from producing those registers, From the non-production of such registers, it is legitimately permissible to draw an adverse inference.
24. There is one more dismal feature of the entirety of the gunny bags being appropriated and utilised by F.C.I., after making payment of 90% of the cost of the gunnies. As per Clause 2(e) of Part II of Ex.P-1, as already referred to, the payment of 90% of cost price would be made only if F.C.I. derived its subjective satisfaction as to the gunny bags received conforming to the specifications and standards.
25. Another perplexing factor is that, as already referred to, F.C.I. did not at all intimate to B.T.C. that the gunny bags supplied by them were of inferior quality and not conforming to the specifications, as agreed upon, till upto the issuance of the reply notice under Ex.P-4. It is also bewildering to note that inspite of several communications emerging from B.T.C. demanding payment of the balance of 10% of the sale price as well as security deposit, F.C.I. kept mum without intimating the reason for withholding such payments. If really F.C.I. was awaiting the laboratory test report from the Indian Institute of Packaging before making such payments, it could have been wellnigh possible for F.C.I. to have intimated such a reason.
26. Astonishing it is to note even the communication under Ex.P-21 letter dated 26.9.1978, F.C.I. was emboldened to inform B.T.C. as follows:
As you are aware, the question of release of balance 10% payment, due to your firm towards supply of S.B.T. gunnies to our Madras Harbour, is under consideration. We would like you to note that the bank guarantee of Rs. 50,000 furnished thrqugh M/s. Central Bank of India, Hyderabad is valid till 30.9.1978 and therefore, we request that the validity of bank guarantee may be extended for a further period of 2 months.
Please arrange to take immediate steps to furnish the bank guarantee afresh and confirm.
27. Pertinent it is to note here that the Laboratory Test Report had been received by F.C.I on 17th August, 1978, as evidenced by the seal affixed to the said report. If really the test report was available with F.C.I. on 17th August, 1978, F.C.I., could have intimated the details of the report under Ex.P-21 communication and stated that as a consequence of the test report, revealing startling details of the samples not conforming to the specifications and standards, they were not able to make payments of 10% of balance of sale consideration, as well as security deposit.
28. Yet another dismal feature to be taken note of the test report, is that the same cannot at all be utilised for litigation and this aspect of the matter is brought to light by a note, printed at the bottom of each page of the test report and the printing matter reads as follows:
This report is for private use only. Not to be used for publicity or litigation.
In view of the disturbing features as noted above, we feel not inclined to place any reliance on such a report, even in the extreme case of the same being admissible in law.
29. We may now divert our attention to the admissibility of the test report. Admittedly, no one connected with the said document had been examined in Court. Of course, the said document had been marked as an exhibit. But the mere marking of the said document itself, by consent of parties, we feel cannot at all be elevated to the status of the said document, being construed as a substantive evidence, unless the same had been proved, in the manner allowed by law.
30. Section 67 of the Indian Evidence Act prescribes that if a document is alleged to be signed or to have been written wholly or in part by any person, the signature or the handwriting of so much of the document as is alleged to be in that person's handwriting must be proved to be in his handwriting. On the face of such an explicit provision of law, it goes without saying that the test report is clearly inadmissible and consequently, it cannot at all be looked into for any purpose whatever. Thus, it is crystal clear that Ex.D-6, apart from being inadmissible, is also suffering from such infirmities as is not possible to place any reliance on it.
31. We now proceed to consider the aspect of the legal fitment to be given to the facts of this case, in the light of the salient provisions adumbrated under Sections 42 and 59 of the Act. Section 42 reads thus:
42 Acceptance:- The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, or when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller, or when, after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them.
32. The section, as extracted above, provides for a legal fiction of deeming acceptance of the goods by the buyer under certain circumstances enumerated therein. They are:
(1) When he intimates to the seller that he accepted the goods; or (2) When the goods have been delivered to him and he does any act in relation to them, which is inconsistent with the ownership of the seller; or (3) When after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them.
33. The instant case squarely falls under the category of circumstances enumerated as (2) and (3) as above. Admittedly F.C.I., as already referred to, appropriated and used all the gunny bags supplied by the B.T.C. without any complaint whatever either as respects the quality or the occasioning on any delay in effecting such supplies and also effected payment of 90% of the sale price. The complaint as to quality of the gunny bags, in the sense of not conforming to the specifications, as agreed to between the parties, had been belatedly made in the reply notice under Ex.P-4, obviously as a defence for the non-payment of 10% of the balance of sale consideration, which was demanded by B.T.C. to be paid forthwith by the issuance of the legal notice under Ex.P-3. It is thus clear that the act of F.C.I, in the appropriation and utilisation of the gunny bags has to be construed as one done inconsistent with the ownership of B.T.C. Further the inordinate delay caused in intimating B.T.C. that the gunnies supplied by them were not conforming to the standards has to be construed as a contumacious circumstance of the acceptance of the gunnies by F.C.I. In such a situation, there is no feasibility or plausibility for F.C.I. to reject the gunny bags and sue for the refund of the price already paid and if at all there is any remedy for the breach of the condition of supplying of goods conforming to the specifications and standards, there is no other go for F.C.I. to treat the breach of condition as a breach of warranty and set up against the seller, the breach of warranty in diminution or extinction of the price or sue the seller for damages for breach of warranty, as per the provisions enumerated under Section 59 of the Act, which reads as follows:
59. Remedy for breach of Wananty:- (1) Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods; but he may
(a) set up against the seller the breach of warranty in diminution or extinction of the price or
(b) due the seller for damages for breach of warranty.
(2) The fact that a buyer has set up a breach of warranty in diminution or extinction of the price does not prevent him from suing for the same breach of (sic) if he has suffered further damage.
34. In the trite situation in which F.C.I. is placed, in the sense of there being no evidence that the gunny bags supplied by B.T.C. were not conforming to the specifications and standards as agreed to between the parties, about which we have dealt with earlier, in pointing out that the only evidence available on this aspect of the matter, namely, the test report under Ex.D-6 of the Indian Institute of Packaging, Madras- cannot at all be looked upon for any purpose whatever, as a consequence of the same being inadmissible, apart from suffering from / serious infirmities, it is not legitimately permissible for F.C.I. to avail of the remedies, as had been provided for under Section 59 of the Act.
35. We may point out here that learned single Judge, who tried the suits, had taken into consideration in a threadbare fashion all those aspects, as discussed above and in this view of the matter, it cannot be stated that there was any error either on facts or on law calling for interference.
36. For the foregoing reasons, we are of the view that the appeals deserve to be dismissed.
37. In the result, both the appeals are dismissed with costs.