Bombay High Court
Kirtanlal International Dmcc vs Sgs India Private Limited And 2 Ors on 5 July, 2019
Author: G.S.Kulkarni
Bench: G.S. Kulkarni
pvr 1 nmcdl413-19- 5 July.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
NOTICE OF MOTION (LODG) NO.413 OF 2019
IN
COMMERCIAL SUIT (LODG)NO.197 OF 2019
Kirtanlal International DMCC. ...Plaintiff
Versus
1.SGS India Pvt.Ltd. & Ors. ...Defendants
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Mr.Mr.Kevic Setalvad, Senior Advocate with Malcolm Signapuria,
Ms.Sonali Aggarwal, Ms.Juhi Dave I/b. M/s.Dhruve Liladhar & Co., for the
Applicant/Plaintiff.
Mr.Shanay Shah with Subodh Kurdukar, Ms.Kajal Malkan I/b. Kurdukar
Associates, for Defendant No.1.
Ms.Madhavi Nalluri with Sujit Lahoti, Ms.Heena Daulat & Ms.Anaish
Zachariah I/b. Crawford Bayley & Co., for Defendant No.2.
Mr.Karl Tamboly with Hormuz Mehta, Ahsan Allana I/b. J.Sagar
Associates, for Defendant no.3.
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CORAM : G.S. KULKARNI, J.
RESERVED ON : 2nd July,2019
PRONOUNCED ON : 5th July, 2019
---
ORDER
1. This is a notice of motion filed by the plaintiff, whereby the plaintiff has prayed for the following interim reliefs pending the hearing and final disposal of the above suit:-
a) that pending the hearing and final disposal of the present suit, this Hon'ble Court be pleased to order and direct Defendant No.1 to disclose on oath full and complete details and/or particulars of the manner, method and specifications adopted by ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:56 ::: pvr 2 nmcdl413-19- 5 July.doc Defendant No.1 for carrying out the inspection of the Product from January 29, 2019 onwards till the date of filing of the present suit;
a-1) that pending the hearing and final disposal of this suit, this Hon'ble Court be pleased to issue a temporary order and injunction restraining all parties concerned and particularly Defendant Nos.1 and 2, from giving effect to or in any manner acting in pursuance or in furtherance of the Final Inspection Report issued/ prepared by Defendant No.1 (Exhibit EEE- to the Plaint).
a-2) that pending the hearing and final disposal of this suit, this Hon'ble Court be pleased to order and direct Defendant no.4 to disclose on oath full and complete details and or particulars of the manner, method and specifications adopted by Defendant No.4 for carrying out the Chemical Testing of the Product;
b) that pending the hearing and final disposal of this suit, this Hon'ble Court be pleased to issue a temporary order and injunction restraining Defendant No.1 from carrying out the inspection of the Product;
c) that pending the hearing and final disposal of this suit, this Hon'ble Court be pleased to issue a temporary order and injunction restraining Defendant no.2 from taking any steps in relation to invocation/encashment of the Bank Guarantee;
d) For interim and ad-interim prayers as per clauses (a) to (c) above;
e) For costs;
f) For such other and further reliefs as this Hon'ble Court
deems fit and proper in the nature and circumstances of the present case."
2. The litigation between the parties has a previous background inasmuch as earlier defendant no.2- Rama Cylinders Pvt. Ltd. (for short "Rama"), had filed Commercial Suit (lodg) no.1381 of 2018 in this Court, which came to be disposed of in terms of the 'consent minutes of the order' dated 7 December 2018. It appears that subsequent to these ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:56 ::: pvr 3 nmcdl413-19- 5 July.doc consent terms and the methodology which has been agreed between the parties in regard to the ascertainment of the quality of the products in question namely the "Hot Finished Seamless Steel Tubes" (for short 'the said product'), by a third party inspection agency-Defendant No.1 and 4, disputes have arisen between the parties, leading to the filing of suit in question. The plaintiff has interalia prayed for reliefs for a declaration that the inspection of the said goods is not carried out as per the consent minutes of the order. The plaintiff has also prayed for a permanent injunction that the expert namely defendant no.1-SGS India Private Ltd. (for short "SGS") be permanently injuncted from carrying out the inspection of the goods, except in strict compliance of the minutes of the order and for further relief that a report issued / prepared alongwith the findings of SGS for the period January 28, 2019 till the date of filing of the present suit, are null and void and non-est. There are other reliefs interalia for damages against defendant 1 and 2 etc.
3. The plaintiff had moved this Court (S.G.Gupte, J.) on the above notice of motion praying for ad-interim reliefs. The Court considering the contentions as urged on behalf of the parties by at that stage, by an order dated 20 February 2019 refused to grant any ad-interim injunction. The ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:56 ::: pvr 4 nmcdl413-19- 5 July.doc Court in paragraph 10 of the said order however observed thus:-
"10. Since the Plaintiff has 120 days' time for replacing of the goods and in any case, as per the time-line fixed by the court, the motion is likely to be heard within that time, this court is not inclined to consider any ad-interim order even as regards the Plaintiff's commitment for replacing defective goods. In case, however, for any reason, the motion is not heard before expiry of 120 days and if Defendant No.2 moved for execution of the consent order, the Plaintiff may have liberty to apply for ad-interim reliefs in the matter. All rights and contentions of the parties on merits are kept open, to be debated at the hearing of the motion or at such ad- interim application, as the case may be."
4. The above order passed by the learned Single Judge was taken in appeal by the plaintiff. The Appeal Court by an order 4 June 2019 permitted the plaintiffs to withdraw the said appeal while directing that the present notice of motion as taken out by the appellant be decided by the learned Single Judge within thirty days from the date of the said order. As the regular Court could not take up these proceedings as an alternate Bench this motion was moved before this Court. Accordingly, the parties are before this Court.
Facts In Brief:
5. The disputes between the parties have arisen out of three purchase orders placed by Rama on the plaintiff for purchase of the said product namely "Hot Finished Seamless Tubes". It is the case of the plaintiff that it is a major importer, stockist and distributor of seamless steel pipes, which ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:56 ::: pvr 5 nmcdl413-19- 5 July.doc find application interalia in the oil and gas, construction, energy segment. Defendant no.1-SGS is a third party inspection agency (TPIA) which engaged in the business of inspection verification, testing and certification interalia of the industrial products. Defendant no.2- Rama is an Indian company interalia engaged in the business of production of high pressure seamless steel cylinders and allied products, who had purchased the said products from the plaintiff as manufactured by defendant no.3-Hengyang Valin Steel Tube Co.Ltd. (for short "HVS"). It is stated that HVS which is a company based in China, is a Chinese public sector undertaking company. It is China's second largest manufacturer of the said product and enjoys a reputation of the very few manufacturers approved by the Chief Controller of Explosives, Nagpur, for the supply of the said product for manufacture of high pressure gas cylinders in India. Defendant no.4- Divine Metallurgical Services Pvt.Ltd. (for short "Divine") is also an independent chemical testing laboratory appointed for carrying out the chemical composition testing of the product.
6. On 19 June 2018 Rama had issued three purchase orders upon the plaintiff for the said product as manufactured by defendant no.3. On 3 July 2018 a sales contract was entered between the plaintiff and Rama for ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:56 ::: pvr 6 nmcdl413-19- 5 July.doc the said product. The total amounts payable under the purchase orders by Rama to the plaintiff was USD 17,12,500. The contract provided for payment of price through letters of credit (LC). The contract also provided that Rama had agreed to buy the said product on the terms and conditions as set out in detail and of the description as per Japanese Industrial Standard (JIS) being "JIS G 3429-88 and technical agreement in the contract". The relevant "technical delivery terms" and "chemical composition" as agreed in the contract interalia provided as under:-
"4. Technical delivery terms as per the following:
.. .. ..
(iii) EMI testing as per ASTM E570, UT testing as per ASTM E 213 with notch depth of 5%.
.. .....
(ix) Chemical composition (%) & Mechanical properties for grade "37 Mn" are as follows:
... ... ... .."
7. The general delivery conditions as agreed in the contract are as under:-
"5. General delivery conditions:
i Quantity tolerance:- 10% + 10% in MT per size
and
in total.
1. Invoicing:Based on actual net weight.
iii. Pipe end:plain end & square cut.
iv. Surface to b varnish coated
v. Caps or plugs: With plastic caps or plugs at both
ends of each pipe.
vi. Surface marking: HYST/Spec & Grade/Size (OD
mm X WT mm X Length m)/Heat no/Batch
no./China.
vii. Shipping marks: Grade/India/Made in China
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pvr 7 nmcdl413-19- 5 July.doc
viii. Packing: as per mills standard.
ix. MTC as per mills standard export practice."
8. Clause 6 of the contract provided for "Inspection" whereby the parties agreed for pre-shipment inspection to be carried out under witness of Rama's person or suggested third party inspector if required at the cost of Rama. Plaintiff/seller was to confirm readiness of the material in advance. It was agreed that in case of conflict between the terms and conditions mentioned in the sales contract shall prevail.
9. It is the case of the plaintiff that proforma invoices in respect of the purchase order were issued by the plaintiff. Rama's banker, Kotak Mahindra Bank issued two letters of credit dated 26 June 2018 in favour of the plaintiff in terms of the sales contract and as duly intimated to the plaintiff by Rama's e-mail dated 26 June 2018. The letters of credit were thereafter amended on the plaintiff's grievance on the terms and conditions in that regard.
10. The plaintiff has contended that pre-shipment inspection of the product was undertaken by Rama's representatives/engineers at HVS's plant in China. Rama has however contended that it had a grievance that ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:56 ::: pvr 8 nmcdl413-19- 5 July.doc the products were not found to be compliant with the specifications as contained in the sales contract. However, the products were subsequently shipped in or about 14 September 2018 and the bills of lading were negotiated by the plaintiff against the letters of credit. The products are 3455 Hot Finished Seamless Steel Tubes/pipes. The plaintiff contends that post shipment Rama raised various grievances which were outside the contract and allegations were made against the plaintiff in respect of pre-
shipment inspection certificate. Plaintiff contends that the product was in consonance with the specification as prescribed. The plaintiff however proceeded to encash the letters of credit by presenting requisite documents to its bankers in the UAE. It is at this stage disputes arose between the parties in respect of inspection of the products.
11. Rama approached this Court by filing Commercial Suit (lodg) 1381 of 2018, as noted above interalia praying for issuance of a permanent injunction restraining the plaintiff (defendant no.1 therein) from encashment of the LC and for a permanent injunction to the plaintiff to issue all such instructions to its officers, servants and employees to stop the encashment of the letters of credit. To amicable settle the disputes in the said suit as raised by Rama, the plaintiff and Rama by consent arrived ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:56 ::: pvr 9 nmcdl413-19- 5 July.doc at an arrangement as agreed in terms of the consent minutes of the order dated 7 December 2018, by which the suit came to be disposed of.
Thereafter, Kotak Mahindra bank released the letters of credit to Rama upon collecting the payment against the LC from Rama. The said products were handed over by the agent of the shipping company in exchange of the original bill of lading surrendered by Rama.
12. It is not in dispute that Rama has cleared the said products on payment of customs duty and the said products were thereafter transported to Rama's factory situated at Bhimasar, District Kutch, Gujarat.
13. The genesis of dispute as raised by the plaintiffs emerges for what the parties had agreed in the consent terms qua the inspection of the said products by third party agencies namely SGS and Divine. It would be appropriate to note some of the clauses of the consent terms and more particularly to appreciate the controversy on inspection of the said products.
"2. The plaintiff shall take delivery of all the seamless steel tubes of Diameter 267 X 6.0 mm, Diameter 139.7 X 4.5 mm and Diameter 232 X 5.4 mm lying at the Seabird Container Freight Station and TG Terminal at the Mundra port in Gujarat ("the ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:56 ::: pvr 10 nmcdl413-19- 5 July.doc Products") as per the Sales Contract bearing Ref.No.KI/SOR/1819/0093 dated June 13, 2018, revised on July 3, 2018 ("Sales Contract");
3. The Plaintiff agrees and confirms that it shall make full payment towards import duty to the Customs authorities, as well as all other charges incidental thereto in the course of completing customs and port clearance and taking delivery of the Products, including but not limited to demurrage, detention, storage, CFS handling charges and customs late filing fee, to the respective authorities and/or agencies ("Incidental Charges"). .....
7. The Plaintiff shall appoint any of the following third-party inspection agencies namely, Bureau Veritas, Lloyds Register, Societie Generale de Surveillance or TUV ("TPIA") to conduct inspection of the Products at the factory of the plaintiff located at Bhimasar, Kutch, Gujarat. Before such appointment, the plaintiff shall intimate Defendant No.1 on the name of the TPIA selected by it for its confirmation. Defendant No.1 shall revert with its confirmation/rejection within 48 hours of such intimation, failing which it will be a deemed confirmation on the name of the TPIA so selected. In the event, Defendant No.1 rejects the name of the TPIA first suggested by the Plaintiff, the Plaintiff will suggest another TPIA from the above mentioned names and Defendant No.1 will be bound to accept the same. The inspection is to be conducted to verify that the Products that are supplied by Defendant No.1 are in compliance with the Sales Contract and in conformity with the Japanese Industrial Standards G3429-88 (JIS G 3429-88). The TPIA so appointed shall inspect the Products as per JIS G 3429-88 to ensure that the Products are in strict compliance with the specifications set out in the Sales Contract in accordance with the scope of the TPIA inspection which is annexed as Schedule A hereto. The costs associated with the inspection and testing conducted by the TPIA shall be paid by the plaintiff initially and Defendant No.1 shall reimburse the same proportionately to the ratio of goods not conforming with the Sales contract alongwith the payment of the Contingent Charges. The inspection of the Products by the TPIA shall be conducted without being influenc3ed by the Bureau of Indian Standards Report dated November 1, 2018 ("BIS Report") in any manner whatsoever. The representative(s) of Defendant no.1 shall be present during the course of inspection and testing conducted by TPIA.
8. The scope of TPIA inspection as enumerated in Schedule-A, is limited to identification of non-conformities in the Products caused during manufacturing of the Products. The damage so caused to the Products subsequent to their manufacturing during ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:56 ::: pvr 11 nmcdl413-19- 5 July.doc handling and transportation of the products is to be excluded from the scope of TPIA inspection. The decision of TPIA shall be final and binding on both parties with respect to identification of the cause of non-conformities or damages, if any. The TPIA will complete the inspection as soon as possible and in any event, within a period of ninety (90) days from the date of its appointment. The TPIA shall simultaneously submit a Report (TPIL Report) to the Plaintiff and Defendant No.1, setting out the details of the Products which are in strict compliance with the Sales Contract and JIS G 3429-88 and the quantity of the Products that are not in conformity with the Sales Contract and JIS G 3429-88. The report to be submitted by the TPIA shall be final and shall be binding on both parties.
9. In the event any quantity of the Products is not found to be in conformity with the Sales Contract and JIS G-3429-88 as stated in the TPIA Report, Defendant no.1 agrees and undertakes to replace to the plaintiff, such quantity of the products free of cost ("New Products") as soon as possible and in any event, within a period of 120 days from the date of notice given by the Plaintiff to Defendant No.1 pursuant to the TPIA Report. It is agreed between the parties that although the Plaintiff will pay all the incidental (including Contingent) charges initially, the Plaintiff's liability with respect to Contingent Charges is limited only in respect of the Products which are in conformity with the Sales Contract and JIS G 3429-88 as per the Report. It is agreed between the parties that notwithstanding the amount of the Bank Guarantee, Defendant No.1 shall be solely liable to reimburse to the Plaintiff, all Contingent Charges in respect of the Products which, as per the Report, are not in conformity with the Sales Contract and JIS G- 3429, within fifteen (15) calendar days of the TPIA Report. The amount of Contingent Charges to be reimbursed by Defendant No.1 as stipulated hereinabove, shall be the pro-rata amount based on the tonnage of the non-conforming product.
10. The New Products to be supplied by Defendant No.1 shall be inspected/tested at Mill of the manufacturer by the plaintiff or a third party Inspection Agency (if required by the plaintiff) to be appointed by the Plaintiff. The inspection of the New Products shall be conducted in the presence of representatives of both the Plaintiff and Defendant No.1. Defendant No.1 shall give a written notice of at least 2 weeks to the Plaintiff informing the Plaintiff of the readiness and availability of the new Products (without varnish coating) for the Plaintiff's inspection as stipulated herein. The plaintiff shall not make any subsequent claim on the Defendant No.1 for the New Products which are supplied without varnish coating, and the consequent rust acquired on the New Products as ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:56 ::: pvr 12 nmcdl413-19- 5 July.doc replaced, during sea voyage, due to the absence of varnish (rust preventive) coating.
11. Defendant No.1 shall make all the necessary logistical arrangements at the Mill required by the third party inspection agency for testing/inspecting the new products. The costs of such Inspection Agency, if any, shall be borne by the Plaintiff.
12. Defendant No.1 shall deliver the New Products at its own costs to the Plaintiff at its factory situated at Bhomasar, Kutch Gujarat along with the Inspection Report issued by the Plaintiff or third party inspection Agency. Defendant no.1 agrees and undertakes not to ship these New Products until the Plaintiff/third party inspection agency appointed by the plaintiff, certifies that the New Products conform with the specifications contained in the Sales Contract and JIS G 3429-88. The pre-shipment inspection certificate so provided by the Plaintiff shall be final and binding with respect to the quality of the New Products.
13. In the event Defendant No.1 fails to replace the defective goods within the stipulated time frame or otherwise refuses to replace the defective products in accordance with this Order, Defendant no.1 agrees and undertakes to refund to the plaintiff the sale price as per the sales contract, of the defective products alongwith interest at the rate of 12% per annum from date of payment under Clause 1 of this Order, within 15 working days after the expiry of the time period stipulated in clause 9 above.
14. Upon the Defendant No.1's obligation being completed either in accordance with paragraph 12 or paragraph 13, as the case may be, the plaintiff shall hand over the non-conforming products to the Defendant No.1 at the Plaintiff's factory within 30 days from date of delivery of the New Products, upon failure of the Defendant No.1 to take delivery, the Plaintiff shall be entitled to dispose of the same and retain the value realized thereof.
15. The plaintiff agrees that upon fulfillment of all the obligations of Defendant No.1, the Bank Guarantee provided by Defendant No.1 under clause 5, shall be returned by the plaintiff to Defendant no.1.
16. The suit and (including Notice of Motion No.(L) 2458 of 2018 filed in this Suit) is disposed off in terms of the present Order."
(emphasis supplied) ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:56 ::: pvr 13 nmcdl413-19- 5 July.doc
14. In pursuance of the consent terms SGS was appointed as a third party inspecting agency, to undertake the inspection of the said product which was stored in the manufacturing unit of Rama in Gujarat. In the presence of the representative of the parties, inspection of the said product commenced. The representative of the HVS however withdrew themselves from inspection after two days. There are no admitted reasons for this, on record. Thus, inspection was undertaken by SGS from 28 January 2019 to 12 February 2019, in the presence of the representatives of the plaintiff and reports of daily inspection were prepared. SGS has stated that the inspection included visual inspection as per specifications in JIS-G 3429- 1988 Clause no.6. It is further stated that inspection has been carried out for the seamless steel tubes as per the agreed Inspection and Testing plans ITP as provided in the consent terms. In the inspection report of SGS, out of total 3455 tubes 2848 tubes are rejected to be not in conformity of the said JIS standards. SGS has contended that the inspection/tests were carried out strictly in accordance with the inspection and testing plans (ITP) as agreed in the consent terms which included visual inspection, surface finish (outside, inside and varnish coating), dimensional inspection and verification of product, marking/stenciling, as per the sales contract and JIS G 3429-88 specifications. It is stated that SGS has ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:56 ::: pvr 14 nmcdl413-19- 5 July.doc conducted tests in the presence of all the parties and the daily inspection reports, photographs and attendance sheets etc. were prepared and a final inspection report dated 12 February 2019 (Exhibit DDD) came to be prepared. All this material is placed on record. SGS has stated that electro-magnetic test and ultrasonic test was the manufacturer's obligation and not SGS. It is stated that there are no infirmities in the report of the SGS.
15. Defendant no.4-Divine is also stated to have undertaken the chemical test and had forwarded its report to SGS which has also been taken into consideration by SGS in its final report dated 12 February 2019. Divine has, however, not appeared in the present proceedings.
16. Defendant no.2-Rama - the buyer of the products has supported the inspection report of SGS. It is contended that SGS has undertaken the inspection as per the consent minutes of order and which categorically included the ITP. Rama has contended that the report clearly indicates that to a large extent 3848 products are rightly rejected by SGS as not conforming to the GIS standard, thus all the obligations of the plaintiff under the consent minutes of the order namely to pay Rama pro-rata ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:56 ::: pvr 15 nmcdl413-19- 5 July.doc contingency charges of USD 73,943 and inspection charges of Rs.6,02,401/- within fifteen days of the submission of the Third Party Inspection Report of SGS as per Clause 9 of the Consent order has become operative. It is Rama's case that the plaintiff is also under an obligation to replace the defective pipes free of cost within 120 days from the date of the notice issued by Rama pursuant to the TPIA report and in case the plaintiff fails to replace the defective goods within 120 days, the plaintiff has to pay Rama the sale price as per the sales contract alongwith interest at the rate of 12% p.a. from the date of payment made by Rama to the plaintiff that is on 10 December 2018. It is contended that attempt of the plaintiff is to evade the obligations which flow from the consent minutes of the order and after paying entire consideration of USD 1148475.37 which is equivalent to Rs.8,25,56,530/- under the sales contract by Rama.
17. Defendant no.3-HVS who is a manufacturer has also filed a reply affidavit and has contended that HVS has not received any complaint qua the quality of the products from any other customers or users who have received such products from the same batches as supplied to Rama. It is stated that form the same manufacturing batches, products were supplied to another entity based in India who is considered as the leader in the ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:56 ::: pvr 16 nmcdl413-19- 5 July.doc business of manufacturing of High Pressure Gas Cylinder, identical to that of Rama. It is contended that the product supplied to each of these entities was manufactured in accordance with the said JIS, identical to the order placed by the plaintiff for the ultimate sale to Rama and the names of all those buyers of the said product from HVS are informed to the Court during the course of hearing. HVS has contended that the EMI and UT testing together with the Non-Destructive Tests were carried out so as to identify any manufacturing defects and the test which are carried out by HVS are very stringent than those contemplated under the JIS G 3429. It is contended that during the course of testing any of the products is found to have a manufacturing defect, such pipes are rejected then and there at the Mill level. It is contended that such rejection at mill level is clearly evident from the report of NDT annexed to the affidavit filed by HVS. It is contended that HVS's representatives i.e. Sales Manager and the Senior Engineer were deputed to the site of Rama for the inspection and these personnel deployed by HVS have decades of experience in connection with the manufacturing and inspection of the said product. It is contended that the inspection was incorrectly carried out by applying the Indian Standards for High Pressure Gas Cylinders, which was pointed out by the representatives of HVS on various occasions and such objections were not ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:56 ::: pvr 17 nmcdl413-19- 5 July.doc taken into account and the representatives of HVS were told not to interfere with the process of inspection. Since the objections were not recorded, the representatives of HVS left the inspection and returned to China after attending first two days of the inspection. The objections of the representatives of HVS were (a) applying the surface requirements for 'gas cylinders' as the basis of acceptance or rejection to 'hot finished seamless steel tubes', (b) not taking into consideration that the surface requirements for gas cylinders were applicable only for defects exceeding 5% of the thickness; (c) not restricting the inspection to identification of 'manufacturing defects', (d) not taking into consideration that surface defects on gas cylinders were to be evaluated only after the process of shot blasting to be performed by Rama; (e) not measuring the depths of the alleged defects for ascertaining compliance to the agreed NDT standards (5% notch depth); (f) incorrectly identifying non-injurious and standard process impressions (typical of any hot finished seamless pipe) and superficial scratch marks as defects; (g) not taking into consideration the repair possibilities for the removal of surface defects, which were fully permissible under the standards for manufacture of gas cylinders.
18. HVS has contended that Rama who is the user of the product, has ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:56 ::: pvr 18 nmcdl413-19- 5 July.doc accepted NDT with 5% notch and what this postulates that any defects which are less than 5% of the wall thickness (or minimum 0.3 mm, as provided in the relevant NDT standards), are acceptable to the user, and cannot be considered as 'injurious to use'. It is contended that the requirement of a 'well finished' surface has to be evaluated within the context of the said product. It is contended that Hot Finished Seamless Steel Pipes is a lower-cost product than a Cold Drawn Seamless Pipe and is a good material for applications, that do not require the close dimensional tolerances and quality of surface finish that Cold Drawn Seamless Pipe provides. It is contended that Hot Finished Seamless Steel Pipes is the preferred choice for manufacturing gas cylinders because the manufacturing process of cylinders has many processes (such as shot blasting, heat treatment, etc) which obliterate the accepted imperfections in the surface of a Hot Finished Seamless Steel Pipes and the rejections of the product by SGS based on the identified/alleged defects, is incorrect.
19. Except for defendant no.4-Divine, all the defendants have filed reply to this plaintiff's notice of motion.
20. On the above backdrop, I have heard the learned Counsel for the ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 19 nmcdl413-19- 5 July.doc parties.
21. Mr.Setalvad, learned Senior Counsel for the plaintiff in disputing the inspection report and in support of the reliefs as made in the prayers, has made the following submissions:-
(I) Consent Minutes of the order are ex facie, not complied. This is even admitted by SGS. Consent Minutes are not complied inasmuch as testing was not carried out as per the parameters of the sales contract i.e. EMI testing as per ASTM E570, UT testing as per ASTME213 with notch depth of 5%. SGS did not refute plaintiff's submission that SGS did not have the equipment to carry out EMI or UT testing.
(II) SGS contending that such testing was not required to be done for the reason that such testing was not provided for in the Inspection & Test Plan Seamless Steel Tube ("ITP"), and such testing was already done by HVS before export from China is untenable. This for the reason that the ITP clearly provides for an "Acceptance Criteria" to be as per "JIS G3429-
88 specification & sales contract". The sales contract expressly provides for "EMI testing as per ASTM E570, UT testing as per ASTM E213 with notch depth of 5% [clause 4(iii). Even SGS contending that the chemical composition prescribed in Clause 4(ix) had to be complied with is not ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 20 nmcdl413-19- 5 July.doc correct as no reasons were forthcoming as to why clause 4(iii) was not to be complied with and why clause 4(ix) was required to be complied with. Further, the consent minutes of the order (clauses, 7, 8, 9 and 12) clearly mention that the produce must conform to the sales contract and JIS G- 3429. It is next submitted that SGS's contention that ASTM E570 & ASTM E213 were required to be carried out by the Mill (HUS) is also misconceived as SGS, did not find any fault with the Mill Test Reports. The Mill Test Reports find a mention in the Report of SGS (internal page Nos. 1, 3 and 4 of the Inspection Report Exhibit DDD). This would mean that SGS has rejected the earlier ASTM E213 as done with high end technology and equipment which SGS admittedly did not possess. There was no such mandate given to SGS and no clarification was sought from this Court.
(III) It is next contended that the non compliance of the consent minutes of the order is evident also from the fact that SGS mandate was only in respect of manufacturing defects as agreed in paragraph 8 of the consent minutes. The Test Report of SGS does not identify any manufacturing defects. The decision of TPIA was final and binding on both parties only with regard to identification of non-comformities during manufacture of the product. It is submitted that the test report essentially proceeds on the ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 21 nmcdl413-19- 5 July.doc basis that there was corrosion and pitting. Such corrosion and pitting are not manufacturing defects and have not been identified as having occurred during manufacture. SGS has in its daily inspection reports (which form a part of the enclosures of the Final Inspection Report) inter alia show rejection of the product on the basis of 'pitting and corrosion'. The same is beyond the scope of the inspection as these are not manufacturing defects. The plaintiffs from the first date of inspection raised this very issue, in particular emails dated 29.01.2019 [at page Nos.825-826 @ 826 and also email dated 09.02l2019]. It is submitted that clause 10 of the minutes of order which provides intrinsic evidence in the consent minutes itself that corrosion/rust acquired on the product during transit cannot be termed as a manufacturing defect and such corrosion /rust is clearly acceptable to the user Rama.
(IV) It is next contended as regards notch depth of 5%, the sales contract prescribed EMI testing as per ASTM E570, UT Testing as per ASTM E213 with notch depth of 5%, which would demonstrate that the defects upto 5% of the thickness of the tubes (5 mm thick were acceptable. It is submitted that notch depth is to be tested as per clause 11 of ASTM E213 and clause 10 of ASTM E570 and that the tolerance of 5% was not tested. It is submitted that it was impossible to carry out this ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 22 nmcdl413-19- 5 July.doc exercise on a mere visual inspection.
(V) It is next submitted that a bald statement purportedly based on clause 6(2) of JIS G3429 that the product was injurious to use is clearly untenable when clause 6(2) of JIS G3429 provides that "The inside and outside surface of the tube shall be finished and free from defects injurious to use". It is submitted that SGS has not refused the plaintiffs' contention that it was impossible to visually inspect the entire surface of the inside of the 50 foot with a 8 inch diameter tube, and this was clearly not done by SGS. It is submitted that SGS has failed to establish the basis of declaring the alleged defects, identified during visual inspection, to be 'injurious to use'. It is submitted that SGS has rejected the said products based on clause 7 of NS B8241 and purported to reject the products on the basis of applying India standard refillable seamless steel gas cylinders specifications IS 7285 part 2', even though compliance of the final product (gas cylinders) to the requirements of this clause is the sole responsibility Rama and not the plaintiff . It is submitted that SGS has not considered the various processes like shot blasting, heat treatment etc which Rama will perform in the course of manufacturing the gas cylinders from the tubes. While SGS's final inspection report has admittedly rejected the tubes based on the requirements of standard JIS B8241, it has not made a ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 23 nmcdl413-19- 5 July.doc reference to this standard in its daily inspection activity reports SGS's email response dated 31.01.2019 also refers to inspection of the tubes strictly in accordance with the requirements of JIS G3429. (VI) It is submitted that SGS in its affidavit in reply dated 13.03.2019 in paragraph 8 has stated that 'This JIS G 1253 specification was a standard testing method equivalent to ASTM E-415-2017 (Spectro)...' Apart from producing an email dated 15.02.2019 of Divine to SGS, during the course of the hearing on 24.06.2019. SGS in no manner has set out how ASTM E- 415-2017 is equivalent to JIS G 1253. It is submitted that the email itself appears to be incomplete. It is submitted that there is no mention in respect of the ASTM being equivalent to JIS G 1253 and hence application of ASTM E-415-2017 instead of JIS G 1253 was without the consent of the plaintiff and was without obtaining any clarification from this Court. It is submitted that Divine, who has carried out the chemical testing has sent an email dated 11.03.2019 as tendered to the Court during the hearing which stated that 'no sample was drawn for testing' and once again requested by Mr. Vishwas A.Nakhwa, the National manager Quality (Industrial Services), comments on the correctness of the Chemical Report Divine. It is submitted that the differences between JIS G 1253 and ASTM E-415 -2017, as pointed out on behalf of plaintiff are not required by SGS. ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 :::
pvr 24 nmcdl413-19- 5 July.doc It is next submitted that SGS has in its affidavit in reply at paragraph 12(j) has stated that Chemical analysis test was carried out as per the JIS specifications and the sales contract. JIS G0303 was referred in turn refers to JIS G0321 for taking method of sampling. It is submitted that SGS has referred to clause 6 of JIS G0303 to contend that inspection was done with the naked eye and that SGS has admitted to Divine application of JIS 0321, which in fact contains the tolerance levels. However, it is evident that had the tolerance been applied, the chemical tests would Conform the product. Further Divine has not received any documentation as per their email dated 13.02.2019 as SGS states that it was not concerned with the chemical testing. It is submitted that the contentions of the plaintiff on chemical test conformity as per JIS 0321 are refuted by SGS.
(VII) It is submitted that SGS has not considered the various processes (like shot blasting, heat treatment, etc.) which are perform in the course of manufacturing the gas cylinders from the tubes. While Final Inspection Report has admittedly rejected the tubes based on the requirements of standard JIS B8241, it has not made a reference to this standard in its daily inspection activity reports. SGS's email response dated 31.01.2019 also refers to inspection of the tubes strictly in accordance with the ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 25 nmcdl413-19- 5 July.doc requirements of JIS G3429.
(VIII) It is submitted that SGS has stated on 24.06.2019 that the plaintiff did not raise issue with the inspection, which is factually not correct, as plaintiff has continuously raised issues vide its email dated 29.01.2019 to 11.02.2019, and also filed the present suit prior to the submission of the Final Inspection report by defendant No.1.
(IX) It is submitted that as a complete copy of the final inspection report issued by SGS along with the enclosures was only provided to the plaintiff on 04.03.2019, after the ad-interim order was passed by the Court which completely supports the plaintiff's contentions. (X) It is submitted that present suit which inter alia challenges the final inspection report, Rama is in no manner concerned with the manner and method in which the final inspection report has been prepared. Rama has, however, during the course of arguments Rama has stated that the balance of convenience is not in plaintiffs favour, cannot be accepted as the suit itself is filed on the basis of the final inspection report to be null and void, non-est. It is submitted that if reliefs are not granted the suit itself would become infructuous, whereas SGS and Rama will not suffer any harm or loss. It is submitted that plaintiff is still ready and willing to have the goods re-tested strictly in compliance of the consent minutes of ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 26 nmcdl413-19- 5 July.doc the order.
22. Learned Counsel for SGS in supporting the report, referring to the reply affidavit of Mr.Vishwas A Nakhwa has contended that the inspection has been undertaken as per the ITP as noted above and that the representatives of SGS who have carried out inspection are experts. It is submitted that the grievance of the plaintiff on the visual inspection is totally misconceived inasmuch as the JIS G3429 itself contemplates under paragraph 9 that general matters of inspection as specified in JIS G0303 and thus, there cannot be any objection to visual inspection and the finding recorded in that regard. It is contended that lot testing, visual inspection, surface finishing, dimensional inspection and verification of the product in the marking were strictly carried out as per the norms and accordingly and that the following remarks as made in the inspection report which are relevant read thus:-
"4. As per the clause 6(2) of JIS G3429-88, the inside & outside surface of the tube shall be well finished and free from defects injurious to use. Tubes observed with defects like groove (Score/Seam Mark), Ribs & Material rupture (Fold/lapping) very much harmful and injurious to use. Also defects like pitting, scale & corrosion cannot be considered as well finished tubes.
.........
6. During dimensional inspection, checked wall thickness at both end at accessible area of the tubes and observed less wall ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 27 nmcdl413-19- 5 July.doc thickness i.e. 5.02 to 5.31 mm in place of 5.4 mm (min) of size dia. 232 mm for 13 nos. of tubes & 4.39 to 4.40 mm in place of 4.5 mm (min) of size dia.139.7 mm for 02 nos. of tubes. Already mentioned in Daily inspection activity reports.
.........
8. Witnessed Chemical analysis at NABL approved Lab as per Sales contract and ITP and Result does not meeting the requirement (Not Conform) as per technical agreement of Sales contract for following Heat No.1835776VQ (Size:267.0 mm, Report No.S7618) & Heat No.1825771VQ & 1814164VQ. (Size:139.7 mm, Report No.: S7613 & S7614) ... ... .. .
Details of activity performed, findings and product marking.
.. ... .. ...
. Visual inspection of tubes at inside and outside conducted very carefully and correctly because there were most of the tubes observed with rust at inside surface and varnish coating at outside surface on each tubes, so we used sand paper of grad 80 to 120 grit, cotton waste and Abrasive Non woven polishing pad ( Not any electrical hard grinder) for only superficial surface cleaning.
... ... ....
. As mentioned above defects, observed during visual inspection are not compliance to the specification JIS G 3429-88, Clause no.6(2) and also as per JIS B 8241, Clause No.7 (for Seamless steel gas cylinder), which is mentioned in the scope of JIS G 3429-1988.
5. Witnessed Chemical analysis at NABL approved Lab as per Sales contract and ITP and Result does not meeting the requirement (Not conform) as per technical agreement of Sales contract for following Heat No.1835776VQ (Size:267.0mm, Report No.S7618) & Heat No.1825771VQ & 1814164VQ (Size:139.7 mm, Report No.S7613 & S7614) .. .. .. .. .."
23. Learned Counsel for Rama in opposing the notice of motion would contend that the plaintiffs have failed to make out a prima facie case for ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 28 nmcdl413-19- 5 July.doc grant of the injunction as prayed for inasmuch as that the said product has failed the test in four inspection reports, firstly the inspection as undertaken by Rama in China, secondly the report of the Bureau of Indian Standards dated 10 October 2018 and thirdly the report of SGS and fourthly the report of Divine, thus it is an obligation on the part of the plaintiffs to replace the said product as per the consent minutes of the order which are 2848 pipes out of 3455 pipes. It is contended that the plaintiff is a stockist, trader and/or the importer, cannot challenge the expert's report as made by the agency of international repute and that the plaintiff will be required to lead evidence to contest the expert's report and the same cannot be sustained at the interim stage without leading evidence. It is next contended that the balance of convenience is also in favour of Rama, and if an injunction is granted irreparable harm and injury would be caused to Rama inasmuch as Rama has spent an amount of Rs.67567042/- till date on the defective goods against which the plaintiff has not performed any of its obligations. It is submitted that if injunction is granted, Rama would further lose a sum of USD 945650 towards replacement of the defective goods and in addition to that USD 73943 being the contingency charges and Rs.6,02,401/- as inspection cost. It is submitted that as oppose to this the plaintiff if denied injunction ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 29 nmcdl413-19- 5 July.doc would have to discharge his obligation under the consent terms, and will be at liberty to subsequently amend the present suit to claim appropriate damages and the plaintiff can be certainly re-compensated in monetary terms. To support this contention learned Counsel for Rama would rely on the judgment of the Supreme Court in Best Sellers Retail (I) Pvt. Ltd. Vs. Aditya Birla Nuvo Ltd.1 It is next submitted that the plaintiff has not approached this Court with clean hands, as the plaintiff is in breach of the consent terms and therefore, does not have any equity in his favour. This also for the reason that the suit has been filed only with an intention of defeating the rights of Rama which is evident from the prayer of damages which is completely unsubstantiated and without any supporting pleadings. It is next submitted that if the relief of injunction is granted, it would mean indirect modification/alteration of the consent order, without the plaintiff having made out a case for fraud, coercion to set aside the consent order. It is submitted that the goods certified as defective would be used by end-user as if the injunction is granted would absolve the plaintiff of the obligation to replace the defective pipes as per clause 9 of the consent order which would translate in hazardous material entering into the market. It thus submitted that the notice of motion ought to be dismissed.
1 (2012)6 SCC 792
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24. Learned Counsel for defendant no.3-HVS at the outset would submit that the contents of the reply affidavit as filed on behalf HVS have gone undisputed. It is submitted that no complaint was received by HVS in respect of quality from any other customer who were sold the products from the same batches as supplied to Rama. It is submitted that the manufacture of the products is in accordance with the JIS and the EMI and UT testing together with the non-destructive test were carried out so as to identify any manufacturing defects. These tests are more stringent than the one performed by SGS. It is submitted that the claim as made by Rama would in fact damage the reputation in the international standing of HVS and would have a far reaching consequence. It is submitted that the inspection was not conducted fairly inasmuch as the representatives of the HVS were returned to China as the objections which were raised on behalf of HVS are not recorded in the inspection report. HVS is in fact a supplier to the entity of Government of India (Chief Controller of Explosives Nagpur). It is submitted that HVS has applied the Indian Standard which are not applicable and applying any other standard not applicable apart from the JIS would amount to modification of the consent minutes of the order. It is submitted that even the deponent who has affirmed the ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 31 nmcdl413-19- 5 July.doc affidavit on behalf of SGS appears to be not possessing any qualification to depose to the inspection report, nor is a party to the inspection report who can be said to have a personal knowledge inasmuch as there is no verification clause to the affidavit. This is clearly oppose to the provisions of Order 19 Rule 3 of the Code of Civil Procedure.
Discussion and Conclusion:
25. It is on the above backdrop, I have heard learned Counsel for the parties and with their assistance I have perused the record.
26. At the outset, it needs to be noted that the sales contract as entered between the plaintiff and Rama in clause 6 clearly provided for a pre- shipment inspection to be carried out under the witness of "Rama Cylinders Persons or suggested third party Inspector" at the cost of Rama. Rama in the reply affidavit filed to this motion has categorically contended that the right of pre-shipment was exercised and as averred in paragraph 4(d) to (l) of the reply, supporting its contention on the basis of the correspondence ensued between the parties, that prior to the shipment HVS was informed that the products were defective setting out the details as to why they are defective. In fact Rama is on record to contend that ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 32 nmcdl413-19- 5 July.doc despite this serious objection on the quality of the product, the plaintiff has played a fraud on Rama in shipping the said goods, without rectifying the defects. Rama has contended that such dispatch of the goods of inferior quality on 14 September 2018, when the plaintiff as also HVS were well informed of the defects, is an act of fraud perpetrated by the plaintiff on Rama. This more for the reason that in a joint meeting held on 18 September 2018 plaintiff was never disputed that the products were defective and in fact had proceeded to shift the goods without prior notification and/or approval of Rama. Rama has contended that the plaintiff had failed to offer the entire lot of products for inspection to Rama and therefore, issuing a pre-shipment inspection as mandated under the sales contract, purchase orders and letters of credit could not have arisen. Rama has contended that the plaintiff never disputed that the products were not in conformity to the sales contract and the subsequent purchase orders. These relevant averments as made in the reply affidavit find no specific traverse by the plaintiff in the rejoinder affidavit filed on behalf of the plaintiff of Mr.Sachin Pawar when in paragraph 11 the deponent states that "paragraphs 4(a) to 4(r) of the Reply, the contents of the paragraphs under reply are a matter of record and I repeat and reiterate the contents of the plaintiff's pleadings and deny the contents of the ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 33 nmcdl413-19- 5 July.doc paragraphs under reply that they are contrary to and inconsistent with the contents of the plaintiff's pleadings and the present affidavit... .."
27. It is in these circumstances confronted with the encashment of letters of credit, Rama was required to approach this Court by filing commercial Suit (lodg) no.1381 of 2018 interalia seeking an injunction on the encashment of two letters of credit. This Court (S.J.Kathawalla, J.) considering the dispute in regard to the quality as agreed between the parties by an order dated 10 October 2018 directed the Bureau of Indian Standards to be appointed as an inspection agency and prepare a report. The said order reads thus:-
"1. As agreed between the parties, the Bureau of Indian Standards, a Government of India Organisation, is hereby appointed to conduct sampling inspection on random basis of all seamless steel tubes of Diameter 267 X 6.0 mm, Diameter 139.7 X 4.5 mm and Diameter 232 X 5.4 mm. The Inspection is to be conducted in accordance with the Sale Contract dated 13 th June 2018 (as revised on 3rd July,2018) placed by the Plaintiff on Defendant No.1 as per spec JIS G3429-88 and technical agreement in the contract. The Plaintiff has disclosed to this Hon'ble Court that the Plaintiff engages the services of BIS for testing/inspection of its finished products.
2. The Plaintiff shall inform Bureau of Indian Standards and arrange for the inspection of seamless steel tubes of Diameter 267 X 6.0 mm, Diameter 139.7 X 4.5 mm and Diameter 232 X 5.4 mm presently lying in sealed containers at Seabird Container Freight Station at the Mundra Port in Gujarat.
3. The inspection of the seamless steel tubes of Diameter 267 X 6.0 mm, Diameter 139.7 X 4.5 mm and Diameter 232 X 5.4 mm is to be conducted in the presence of representatives of both the ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 34 nmcdl413-19- 5 July.doc Plaintiff and Defendant No.1.
4. Bureau of Indian Standards in the presence of representatives of both the Plaintiff and Defendant no.1 is hereby permitted to open the sealed containers and take 25-30 pipes of respective sizes for the purpose of conducting such inspection.
5. Bureau of Indian Standards shall inspect these samples for defects at the Seabird Container Freight Station area. The in- charge of the Mundra port shall permit Bureau of Indian Standards to conduct the inspection of seamless steel tubes of Diameter 267 X 6.0 mm, Diameter 139.7 X 4.5 mm and Diameter 232 X 5.4 mm.
6. Bureau of Indian Standards shall inspect and prepare a Report and submit their Report to this Court within one week from the date of receipt of this order.
7. The issue of payment of demurrage and detention charges shall be decided after receipt of the report between the Plaintiff and Defendant No.1.
8. The ad-interim order dated 9th October, 2018 shall continue till the next date."
28. Accordingly the Bureau of Indian Standards inspected the goods and prepared a report dated 1 November 2018. The inspection was planned from 30 October 2018 to 1 November 2018. The following report was made by the Inspectors of the Bureau of Indian Standards:-
"........
After reaching Mundra Port, it was informed that 37 out of the 40 containers were at the TG Terminal and the remaining 3 were at the Seabird Container Freight Station. A pre-inspection meeting was conducted with representatives of both the Plaintiff and the Defendant at TG Terminal Conference Room and after that inspection process was initiated.
Events of the 1st and the 2nd days of inspection have been documented and got countersigned by both parties and are being hereby attached at Annex 3 and 4 respectively for kind ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 35 nmcdl413-19- 5 July.doc consideration. Here it is pertinent to add that the inspection had to be stopped prematurely after the 2 nd day due to strong objections raised by the defendant's representatives regarding damage to pipes being caused at the time of unloading from containers. The defendant's representatives were adamant not to allow any further unloading of pipes after 27 pipes (267mm X 6.0mm) were unloaded from the first container (UETU 5452854) thereby forcing the undersigned officers to stop the unloading process. Even an alternative solution for continuing the inspection which was proposed by the undersigned officers, was also rejected by the defendant's representatives. The defendants' statement regarding the above objection is being attached in Annex5.
After the inspection had to be stopped due to reasons stated above, the undersigned officers were left with no choice but to conduct a curtailed inspection on the available 27 pipes that were unloaded from 1st container. Based on the stacking of the unloaded pipes, only 17 pipes were in a position to be inspected for defects. The observations of the undersigned officers are as below:-
1. A Scab (defect) of length 1.5 to 2.0 cm. was found on 1 pipe at a distance of about 2.67 meters from one end.
2. On the same pipe, a series of Scales (impression formed due to chipping out of locally oxidised metal) about 10 cm in total length, located at a distance of about 3.6 meters from the other end. These may have been formed at the time of manufacturing due to Hot-Forming processes.
3. A Hard Scale (defect) was observed on a second pipe, on the inside surface, at a distance of about 30 cm from one end.
The defects observed as at S.Nos.1 and 3 above are contrary to the acceptable norms of appearance of the imported steel tubes, as indicated in Clause 6(2) of JISG 3429-88. The observations as at S.No.2 above, are usually found on the surface of any hot worked steel product due to localised oxidation at temperature normally above 1100 degree Celsius. Photographs attached in Annex 6. Finally, it is also being submitted that no testing of any of the mechanical or chemical parameters could be carried out at the Port, due to unavailability of the requisite testing facilities on-site. The above are being submitted for kind consideration of the Hon'ble Court please.
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Sd/- Sd/-
Kunjan Kumar Anand Subhangshu Sen
Scientist B Scientist
"
29. On this background and confronted with a report adverse to the plaintiffs, the suit was decided to be compromised by the parties in terms of consent minutes of the order dated 7 December 2018, whereby and the parties interalia agreed for appointment of third party inspection agencies as set out in Clause 7. The names of which were set out being Bureau Veritas, Lloyds Register, Societic Generale de Surveillance or TUV as third party inspecting agencies. However it was agreed that this time the inspection report shall be binding on the parties. As per the agreed procedure in Clause 7 of the consent terms, SGS was appointed. In Clause 7 the parties agreed that the inspection is to be conducted to verify that the products which were supplied by the plaintiffs, were in compliance with the Sales contract and in conformity with the Japanese Industrial Standard G 3429-88 (JIS G). It would be appropriate to note the relevant contents of this clause:
"7. ........................
The inspection is to be conducted to verify that the Products that are supplied by Defendant No.1 are in compliance with the Sales Contract and in conformity with the Japanese Industrial Standards G3429-88 (JIS G 3429-88). The TPIA so appointed shall inspect the Products as per JIS G 3429-88 to ensure that the Products are in strict compliance with the specifications set out in the Sales ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 37 nmcdl413-19- 5 July.doc Contract in accordance with the scope of the TPIA inspection which is annexed as Schedule A hereto. The costs associated with the inspection and testing conducted by the TPIA shall be paid by the plaintiff initially and Defendant No.1 shall reimburse the same proportionately to the ratio of goods not conforming with the Sales contract alongwith the payment of the Contingent Charges. The inspection of the Products by the TPIA shall be conducted without being influenc3ed by the Bureau of Indian Standards Report dated November 1, 2018 ("BIS Report") in any manner whatsoever. The representative(s) of Defendant no.1 shall be present during the course of inspection and testing conducted by TPIA."
(emphasis supplied) Further in Clause 8 the scope of the third party inspection was agreed as enumerated in Schedule A limited to identification of non-conformities in the products caused during manufacturing of the products. In this clause the parties agreed that the decision of the TPIA shall be final and binding on both the parties with respect to identification of non conformities for damages if any. As Clause 8 is relevant in the context of the controversy, it is required to be extracted and reads thus:-
"8. The scope of TPIA inspection as enumerated in Schedule-A, is limited to identification of non-conformities in the Products caused during manufacturing of the Products. The damage so caused to the Products subsequent to their manufacturing during handling and transportation of the Products is to be excluded from the scope of TPIA inspection. The decision of TPIA shall be final and binding on both parties with respect to identification of the cause of non-conformities or damages, if any. The TPIA will complete the inspection as soon as possible and in any event, within a period of ninety (90) days from the date of its appointment. The TPIA shall simultaneously submit a Report ("TPIA Report") to the Plaintiff and Defendant No.1, setting out the details of the products which are in strict compliance with the Sales Contract and JIS G 3429-88 and the quantity of the Products that are not in conformity with the Sales Contract and JIS G 3429-88. The report to be submitted by the TPIA shall be final and shall be binding on both parties."
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30. The consent terms in clause 9 provided for the consequence in the event the quantity of the product is not found in conformity with sales contract and JIS G 3429-88 as stated in the TPIA report. The plaintiff in this clause agreed and undertook to replace the products free of costs to Rama. Further clause 10 provides for modalities in the event the products are to be replaced.
31. Thus from the reading of the consent terms,it is apparent that the parties had agreed that the inspection of the products shall be confined for verification that the products supplied by the plaintiffs are in compliance with the "Sales Contract" and in conformity with Japanese Industrial Standards G3429-88 and for that purpose the TPIA was under an obligation to identify the non-conformities in the products caused during the manufacturing of the products excluding the damage subsequent to the manufacturing and/or during handling and transportation of the product which was excluded from the scope of TPIA inspection. The parties in terms agreed that the report of the TPIA shall be final and binding on both the parties with respect to identification of cause of non- conformities for damages if any.
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32. It is from the above perspective the grievance of the plaintiff is required to be considered that the report of the SGS - the TPIA is not in accordance with the specifications in the sales contract and the JIS G 3429-88. The scope of the inspection and test plan ITP as agreed in the consent minutes of the order is required to be noted and reads thus:-
Inspection & Test Plan Seamless Steel Tube Customer:Rama Cylinders Contractor :- Not applicable Pvt.Ltd Manufacturer: Hengyang Purchase Req.No.: Not Valln Steel Tube Co.Ltd, applicable China Seller: Kirtanlal International Material Description: Hot finished Seamless steel tubes as per DMCC JIS G-3429-88 Project: Not Applicable Sales Contract: KI/SOR/1819/0093 dated 13.06.2018 Revision No.01 dated 03.07.2018 Reference Documents:- JIS G3429-88 specification and Sales Contract Size: 139.70 mm X 4.50 mm X 4.11m (Mul of 715 mm), Gr.37Mn - 261.184 Tons 232.00mm X 5.40mm X 4-11m (Mul of 1545mm), Gr.37Mn-259.771 Tons 267.00mm X 6.00mm X 4-11m (Mul of 865 mm), Gr. 34CrMo4-502.141 Tons Stages Activity Characteristics Quantum Acceptance Control to be Verified of Check Criteria Points T.P.I. Testing Scope 1 Lot Testing Chemical 1 Set Per JIS G3429-88 W (Test Sample's Analysis at Heat specification identification) NABL Lab & Sales Contract Inspection Scope 2 Visual Inspection, Surface shall be 100.00% JIS G3429-88 W Surface Finish free from specification ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 40 nmcdl413-19- 5 July.doc (Outside, Inside & Defects & Sales Varnish coating) (Manufacturing Contract Defects only.
Damages due to handling /transportation to be excluded) 3 Dimensional Outside 15.00% JIS G3429-88 W Inspection Diameter, Wall specification Thickness, & Sales Length, out of Contract roundness, straightness etc. (Damages due to handling/transpo rtation to be excluded) 4 Verification of Mill Marking on 100.00% JIS G3429-88 W Product the Products specification Marking/Stenciling & Sales Contract Legend: W-Witness, H.-Hold, R-Review, A-Approval, RW-Random Witness
33. The parameters of the inspection activity is thus categorised under four heads namely (i) Chemical Analysis at NABL Lab, (ii) Surface shall be free from Defects (Manufacturing Defects only. Damages due to handling/transportation to be excluded), (iii) Outside Diameter, wall thickness, length, out of roundness, straightness etc. (Damages due to handling/transportation to be excluded), (iv) Mill Marking on the Products.
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34. As to what are the findings of SGS on the above parameters is required to be noted which read thus:
"4. As per the clause 6(2) of JIS G3429-88, the inside & outside surface of the tube shall be well finished and free from defects injurious to use. Tubes observed with defects like groove (Score/Seam Mark), Ribs & Material rupture (Fold/lapping) very much harmful and injurious to use. Also defects like pitting, scale & corrosion cannot be considered as well finished tubes.
5. During marking/stenciling verification of SIZE:267.0 MM OD X 6.0 MM THK, observed additional marking/stenciling on two tubes i.e. "2007" on tube no.267/1131 & "2011" on tube no.267/1181.
6. During dimensional inspection, checked wall thickness at both end at accessible area of the tubes and observed less wall thickness i.e. 5.02 to 5.31 mm in place of 5.4 mm (min) of size dia. 232 mm for 13 nos. of tubes & 4.39 to 4.40 mm in place of 4.5 mm (min) of size dia.139.7 mm for 02 nos. of tubes. Already mentioned in Daily inspection activity reports.
7. As mentioned in Table of page no.01 of 05, Not accepted tubes are not compliance to the requirement of specification JIS G 3429-88, Clause no.6(2).
8. Witnessed Chemical analysis at NABL approved Lab as per Sales contract and ITP and Result does not meeting the requirement (Not Conform) as per technical agreement of Sales contract for following Heat No.1835776VQ (Size:267.0 mm, Report No.S7618) & Heat No.1825771VQ & 1814164VQ. (Size:139.7 mm, Report No.: S7613 & S7614)
9. Marks quantities as **** in Table of page no.01 of 05 added as not accepted due to Heat Numbers not conformed to the requirement of chemical analysis as per technical agreement of Sales Contract.
Enclosure: Sales order copy & QAP, Daily Attendance Sheets, Daily Inspection activity reports, (Dated 28.01.2019 to 11.02.2019), Dimensional reports, Chemical test reports, 6.Mill Test Certificates & Calibration certificates. ... ... .. .
Details of activity performed, findings and product marking.::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 :::
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.. ... .. ...
. Visual inspection of tubes at inside and outside conducted
very carefully and correctly because there were most of the tubes observed with rust at inside surface and varnish coating at outside surface on each tubes, so we used sand paper of grad 80 to 120 grit, cotton waste and Abrasive Non woven polishing pad ( Not any electrical hard grinder) for only superficial surface cleaning.
During visual inspection observed defects like Groove (seam/score) ribs, material rupture (fold/lap), straightening mark, Pitting/Pit marks, Scale & Corrosion at inside of the tubes and defects like pitting/pit marks and material ruptures at outside surface of the tubes, so identified the tubes with such defects as not accepted, recorded in Daily inspection activity reports with photo sheet and stored separately with proper identification (silver marker pen).
.........
As mentioned above defects observed during visual inspection are not compliance to the specification JIS G 3429-88, clause no.6(2) and also as per JIS B 8241. Clause No.7 (for Seamless Steel gas cylinder), which is mentioned in the scope of JIS G 3429-1988.
... ... ..
During dimensional inspection, checked wall thickness at both end at accessible area of the tubes and observed less wall thickness i.e. 5.02 to 5.31 mm in place of 5.4 mm (min) of size dia.232 mm for 13 nos. of tubes & 4.39 to 4.40 mm in place of 4.5 mm (min) of size dia.139.7 mm for 02 nos. of tubes. Already mentioned in Daily inspection activity reports.
For, SIZE:232.0MM OD X 5.4 MM THK -13 Nos. (Required THK:
Min.5.4 mm & Max. 7.02 mm) in following tube No.232/204- 5.20mm, 232/178-5.20 mm, 232/233-5.25, 232/284-5.31 mm, 232/329-5.25 mm, 232/539-5.30 mm, 232/540-5.30 mm, 232/654-5.31mm, 232/673-5.30mm, 232/674-5.17mm, 232/679- 5.02mm, 232/684-5.25mm & 232/702-5.18mm Thk.
.... .... ...
Out of above 13 nos of tubes of size dia 232.0mm 08 nos. of tubes were observed less wall thickness in visually accepted tubes. For Chemical analysis 02 nos. of sample drawn per Heat and all Samples identified with "Heat No." & SGS Hard Punch "(SGS/AD84)" Total 12+06+14=32 nos. and 01 nos. samples per ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 43 nmcdl413-19- 5 July.doc Heat (Total 06+03+07=16nos) kept as a counter samples duly Sealed by "SGS" Yellow Sticker.
Following are the samples with Heat Number as per Mill TC:
Satisfactory For SIZE:139.7MM OD X 4.5MM THK -07nos. Heat (1825770VQ, 1825768VQ, 1814163VQ, 1825769VQ, 1814162VQ, 1825771VQ & 1814164VQ), For SIZE 232mm OD X 5.4mm THK= 03 nos. Heat (1736223VQ, 1736222VQ & 1835365VQ) & For SIZE 267MM OD X 6.0MM THK =06nos. Heat (1835776VQ, 1835777VQ, 1835778VQ, 1835779VQ, 1835780VQ & 1835781VQ.
Witnessed Chemical analysis at NABL approved Lab (Divine, Odhav-Ahmedabad) as per Sales contract and ITP. Refer Divine metallurgical service report No. S7608 to S7623 Dated 12.02.2019.
5 Witnessed Chemical analysis at NABL approved Lab as per Sales contract and ITP and Result does not meeting the requirement (Not conform) as per technical agreement of Sales contract for following Heat No.1835776VQ (Size:267.0mm, Report No.S7618) & Heat No.1825771VQ & 1814164VQ (Size:139.7 mm, Report No.S7613 & S7614) Verification of Product Marking/stenciling carried out as per Mill Test Certificate for each tube each size.
From the white inkjet marking on each tubes are as "HYST, SPECIFICATION, GRADE, SIZE (OD x THK x MUL), HEAT NO., BATCH NO. & CHINA".
"During marking/stenciling verification of SIZE 267.0 MM OD X 6.0 MMTHK ---- additional marking/stenciling on two tubes i.e. "2007" on tube no.267/1131 & "2011" on tube no.267/1181.
7. Reviewed Calibration certificate of various measuring instruments and Found Satisfactory.
8. White paint marked on each accepted tubes at one end for identification purpose only.
Number of Photographs taken : 3667 snaps.
Confirm Instruments used are in working condition & suitable for ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 44 nmcdl413-19- 5 July.doc intended purpose: Yes/No. Verified the Qualification, Training & Experience of the person performing the test before witness: YES/NO Instrument Calibration date Calibration due Calibrated by Calibration Name & date Traceable to Identification National/Interna no. tional standard OD Micrometer 07/10/18 06/10/19 RCPL National (Range: 150- Standard 300mm) & Sr.No.56126687 OD Micrometer 07/10/18 06/10/19 RCPL National (Range: 0- Standard 150mm) & Sr.No.56110214 Ball point 13/12/2018 12/12/19 RCPL National Micrometer Standard (Range: 0-
25mm) & Sr.No.86286351 Measuring Tape 15.12.2018 14.06.2019 RCPL National (Range 0-15 Standard Mtr) & Sr.No.MT-01 Slip Gauge Set 10/10/17 09/10/19 Samarth National (Range 0.5- Calibration Lab Standard 100mm) & Sr.No.031001
Verified the Calibration Certificates of above mentioned Instruments also for Accuracy, Uncertainty & % Error before allowing/using it for test/inspection and found suitable: Yes/No .. .. .. .. .."
35. The contention as urged on behalf of the plaintiff in now disputing the report of SGS and Divine is principally that the same does not conform ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 45 nmcdl413-19- 5 July.doc to the JIS G3429-88 inasmuch as JIS G3429-88 which provide for the standard/quality specification for "Seamless Steel Tubes for High Pressure Gas Cylinder" provides for number of parameters interalia on chemical composition, appearance, tests, and inspection, marking. It would be appropriate to note some of the relevant requirements of JIS G3429-1988 in the context of the present dispute which reads thus:
"1. Scope This Japanese Industrial Standard specifies the seamless steel tubes, hereinafter referred to as the "tubes" used for the manufacture of seamless steel gas cylinders specified in JIS B 8230 and JIS B 8241.
..........
3. Chemical Composition The tubes shall be tested in accordance with 8.1 and the resulting ladle analysis values shall comply with the requirements given in Table 2.
... ... ..
5. Dimensional Tolerances Tolerances on the outside diameter, wall thickness, wall thickness disparity and length of the tubes shall be as specified in Table 3. unless otherwise specified.
Table 3: Tolerances on outside Diameter, Wall Thickness, Wall Thickness Disparity and Length of the Tube Tolerance on Tolerance on wall Tolerance on Tolerance on outside thickness wall thickness length diameter disparity +1% _ 30 % Within 20% of + 30 0 the nominal 0 mm wall thickness
6. Appearance The appearance shall be as follows:::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 :::
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(1) The tube shall be straight for practical purposes, and its
ends shall be at right angles to its axis.
(2) The inside and outside surface of the tube shall be well-
finished and free from defects injurious to use.
..... ... ...
8. Tests 8.1 Analysis Test 8.1.1 Analysis Test General matters of the analysis test and the method of sampling test specimens for the test shall be as specified in 3. of JIS G 0303.
8.1.2 Analysis Method. The analysis method shall be in accordance with one of the following Standards.
JIS G 1211 JIS G 1212 JIS G 1213 JIS G 1214 JIS G 1215 JIS G 1216 JIS G 1217 JIS G 1218 JIS G 1253 JIS G 1256 JIS G 1257.
8.2 Hydrostatic Characteristic or Nondestructive Characteristic:
The hydrostatic test or the nondestructive examination of the tubes shall be in accordance with the respective requirements below. (1) When hydrostatic pressure is applied on the tubes and maintained at a specified or designated value, the tubes shall be checked for any leakage.
(2) The test method of the nondestructive examination shall be as specified in JIS G 0582 or JIS G 0583.
9. Inspection The inspection shall be as follows:
(1) General matters of inspection shall be as specified in JIS G 0303.
(2) The test results of chemical composition, either hydrostatic or nondestructive characteristic, dimensions and appearance shall conform to the requirements of 3., 4., 5. and 6. However, the nondestructive examination other than that of 8.2 may substitute by agreement between the parties concerned. (3) Either the hydrostatic test or the nondestructive examination shall be conducted for each tube. (4) The number of specimens for product analysis shall be subject to agreement between the parties concerned. (5) The purchaser may designate part or all of the items of examination listed below in addition to that of (2). In this case, the inspection items, method of sampling test specimens, test method ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 47 nmcdl413-19- 5 July.doc and criteria of acceptance shall be agreed upon in advance by the parties concerned.
(a) Magnetic particle examination (1)
(b) Hardenability examination (2)
(c) Ultrasonic examination (3)
(d) Mechanical property examination (4)
Notes (1) Shall be in accordance with JIS G 0565
(2) Shall be in accordance with JIS G 0561
(3) Shall be in accordance with JIS G. 0582
(4) Shall be in accordance with JIS Z 2201, JIS Z 2241, JIS Z 2202, JIS Z 2242, JIS Z 2243 or JIS Z 2245.
... ... ..
11. Report The manufacturer shall, as a rule, submit to the purchaser a report on the test results, manufacturing process, ordered dimensions, quantity and work lot number indicating the history of manufacture."
36. The JIS G3429-88 thus clearly incorporates within its ambit several other Japanese Industrial Standards and more particularly JIS G 0303 as can be clearly seen. There is a list of applicable standards for the purposes of JIS G3429-1988 as set out on page 6 of the said JIS which are about 24 in number.
37. The plaintiff's contention is that the report of the SGS and Divine is contrary to the Sales Contract inasmuch as the Sales Contract dated 3 July 2008 (Exhibit E) has made a reference in paragraph 4 to the technical delivery terms interalia to include EMI testing as per ASTM E570, UT testing. On behalf of the plaintiff as much has been commented on Clause ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 48 nmcdl413-19- 5 July.doc 4 and Clause 5 of the Sales Contract, it would be appropriate to note the relevant extract of the clauses, which reads thus:
"4. Technical delivery terms as per the following:
i. As per the related Spec(s) of Standard(s) and below technical points.
ii. Length tolerance:- 0mm/+50mm;
iii. EMI testing as per ASTM E570, UT testing as per ASTM
E213 with notch depth of 5%;
iv. GL should be 5.65 X vSo;
v. Heat-treatment condition mentioned below is only for
customer reference;
vi. Mechanical properties described below is only for tube
Specimens after suitable heat treatment; Full length of the Pipe body is to be free from heat-treatment; vii. Tubes with one heat number for individual sizes minimum 80 tons per size per heat number;
viii. The combined content of Vanadium, Niobium, Titanium, Boron & Zirconium shall not exceed 0.15%;
ix. Chemical composition (%) & Mechanical properties for grade "37Mn" are follows:
----.....
x. Chemical composition (%) & Mechanical properties for grade "34CrMo4" are as follows:-
... ... ... ... ...
5. General delivery conditions:
(i) Quantity tolerance:-10%/+10% in MT per size and in total.
(ii) Invoicing: Based on actual net weight.
(iii) Pipe end: plaint end & square cut.
(iv) Surface to b varnish coated.
(v) Caps or plugs: With plastic caps or plugs at both ends of each pipe
(vi) Surface marking: HYST/Spec & Grade/Size (OD mm X WT mm X Length m)/Heat no/Batch no/China.
(vii) Shipping marks: Grade/India / Made in China
(viii) Packing: as per mills standard.::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 :::
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(ix) MTC as per mills standard export practices."
38. It is vital to note that paragraph 4 are the technical delivery terms as agreed between the parties, however, what cannot be lost sight of is the clear conditions in the Sales contract that Rama has agreed to buy the goods as per JIS G3429-88 and technical agreement in the contract. This clause reads thus:-
"The Buyer agrees to buy the following goods on terms and conditions as set forth below from the Seller:- Description: Hot finished seamless steel tubes as per spec JIS G3429-88 & technical agreement in the contract."
39. From the reading of the Sales Contract it is thus clear that the conformity of the products as per the JIS G3429-88 is the primary and integral requirement under the Sales contract and what paragraph 4 envisages is the technical delivery terms. Further in Clause 6 has provided for a pre-shipment inspection as agreed between the parties and as noted above Rama had raised serious objections on the manufacturing defects as is clear from the several e-mails of Rama which are placed on record and which are not disputed by the plaintiff. The consent terms therefore incorporate the compliance of Japanese Industrial Standard (JIS G 3429-
88) in compliance with the Sales Contract. The plaintiff cannot contend that the Sale Contract provides for specifications which are different from ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 50 nmcdl413-19- 5 July.doc the JIS G 3429-88. This is clear from the following specific agreement in the consent terms:-
"7. ... ... .... The inspection is to be conducted to verify that the products are supplied by defendant no.1 are in compliance with Sales Contract and in conformity with Japanese Industrial Standard G3429-88 ("JIS G 3429-88") The TPIA so appointed shall inspect the products as per JIS G 3429-88 to ensure that the products are in strict compliance with the specifications set out in the Sales Contract and in accordance with the scope of the TPIA inspection which is annexed at Schedule A hereto."
40. On a perusal of the inspection report of SGS, the contention of the plaintiff that the said report is required to be discarded and not acted upon, prima facie cannot be accepted,for the following reasons:-
(I) The Inspection and Test Plan (ITP) as provided in the consent terms clearly provided for (i) lot testing , (ii) Visual inspection, surface finish (outside, inside & varnish coating), (iii) Dimensional Inspection,
(iv) Verification of product, marking/stenciling.
(II) Admittedly chemical analysis was undertaken by NABL Lab (Defendant no.4-Divine) and SGS has undertaken the inspection which included visual inspection surface finish (outside, inside varnish coating) which included verification of characteristic namely that the surface shall ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 51 nmcdl413-19- 5 July.doc be free from defects, manufacturing defects only and damages due to handling and transportation to be excluded as per the JIS G3429-88 specification. Further the dimensional inspection as per the said JIS norms is also undertaken to verify the characteristic of outside diameter, wall thickness, length out of roundness, straightness etc. (III) The report categorically identifies the infirmities which is a deviation from the JIS norms as observed by SGS and Divine and as noted above.
(IV) The plaintiff' has clearly agreed in Clause 8 of the consent terms that a decision of SGS (TPIA) shall be final and binding on both the parties with respect to identification of the cause of non conformities for damages, if any. Having so agreed unless there is something palpably illegal, malafide and unconscionable on the part of SGS, it may not be possible for the plaintiff to contend that the report is not binding on the plaintiff.
(V) It is merely the bare words of the plaintiff to say that the report of SGS, who are reputed experts in the field and who were appointed by consent of the plaintiff, is faulty and not complying with the JIS standards. There is no contrary material to support any of the contention of the plaintiff, except the magnified scrutiny of the report by ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 52 nmcdl413-19- 5 July.doc the plaintiffs, so that the Court can hold that there is substance in the contentions as urged on behalf of the plaintiff on the inspection report of the SGS.
(VI) Significantly the JIS G3429-1988 in Clause 11 provides for a report of the manufacturer on the product and as a rule submit the same to the purchaser and which shall be a report on the test result, manufacturing process, order dimensions, quantity and work and lot number indicating the history of manufacture. There is no such report which is placed on record by the plaintiff as made available by HVS - the manufacturer to Rama on the basis of which the products could be shifted after a pre-shipment inspection by the buyer.
(VII) In any case the plaintiff has not alleged any malafides of any nature, dimensional inspection is also undertaken by using the well accepted scientific parameters, as also there is verification of product marking, stenciling. These are all as per the JIS G 3429-88 norms.
(VIII) The plaintiff's contention that the parameters/requirements under the sales contract have not been followed by SGS and/or Divine inasmuch as the Electro-magnetic Inspection (EMI testing) as per the ASTM E570 and Ultrasonic Testing (UT) as per ASTM E213 with notch depth of 5%, which fall in clause 4 of the sales contract under the heading ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 53 nmcdl413-19- 5 July.doc "Technical Delivery Terms" is not undertaken also cannot be accepted.
This for the reason that SGS has stated that these are the test to be conducted at the manufacturers mill and that such testing was not required to be done, being specifically not provided for in the Inspection & Test Plan Seamless Steel Tube ("ITP"),as this testing was already done by HVS before export from China as per plaintiffs own case. True it is that the parties in the consent minutes of the order have not specifically incorporated the inclusion of such tests. The plaintiff contend about its implied inclusion as it finds place under the head 'Delivery Terms' under the sales contract. In my opinion the plaintiff may not be correct in so contending, for the reason that requirement of paragraph 4 of the sales contract does not in any manner obliterate the compliance of the product as per the contractual clause which provides that the products shall be as per JIS G3429-88 and technical agreement in the contract. In any case SGS is on record to submit that all parameters as per the ITP have been followed with strict rigour as evident from its detail report. The attempt of the plaintiff to have a microscopic dissection of the report and overlooking the basic tenets and findings of the report surely cannot be accepted, so as to permit the plaintiff not to honour its commitments/obligations under the consent minutes of the order passed ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 54 nmcdl413-19- 5 July.doc by this Court.
(IX) The report clearly indicates that there are findings of "pitting on outside surface throughout the length, grove/score inside body throughout the length (a long deep line that is cut in the surface of something), hairline cracks inside throughout the length, These are the findings recorded in respect of the visual observations which is permissible as per JIS G3429-88 read with JIS G0303 as per clause 9 of the JIS G 3429-1988.
(X) This apart, as noted in extenso in the foregoing paragraphs, following are the remarks in the report on chemical analysis:-
"5 Witnessed Chemical analysis at NABL approved Lab as per Sales contract and ITP and Result does not meeting (sic) meet the requirement (Not conform) as per technical agreement of Sales contract for following Heat No.1835776VQ (Size:267.0mm, Report No.S7618) & Heat No.1825771VQ & 1814164VQ (Size:139.7 mm, Report No.S7613 & S7614)"
This clearly indicates that there is certainly a reason for Rama to contend that the plaintiff should discharge its obligation under the consent terms.
41. In so far as the contention as urged on behalf of the plaintiff that the report is merely visual inspection and the findings as made in the report cannot be believed inasmuch as the findings are merely commenting on rust on inside surface that too without following any ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 55 nmcdl413-19- 5 July.doc scientific examination, cannot be accepted. This contention of the plaintiff militates against Clause no.6 of the JIS G3429-88 which clearly contemplates that the inside and outside surface of the tube shall be well finished and free from defects injurious to use. Further in clause 9 of the said JIS norms which provides for inspection would take within its ambit general matters of inspection as specified in JIS G0303. These requirements as contained in JIS G3429-88 cannot be disputed by the plaintiff and on a plea that these are norms applicable to final cylinders. Thus on this count also the contention of the plaintiff cannot be accepted. The plaintiff is not contending that rusting of the pipes is not part of the JIS norms and more particularly in the context of clause 6 and clause 9 of JIS G3429-88, significantly when use of the pipes would be for manufacturing of high pressure gas cylinders. Even if it is accepted that rusting is not a manufacturing defect as identified by SGS on some part of the consignment, however, the fact remains that there are other defects as pointed out in the inspection report and therefore, it is not a situation that the report of SGS is totally on unacceptable norms de'hors the JIS specifications. Considering the clear norms as set out in the JIS and when the parties have specifically agreed that the scope of SGS - the inspecting agency would be to apply the JIS norms, it cannot be said that SGS was in ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 56 nmcdl413-19- 5 July.doc any manner at fault in recording its observation in regard to the appearance and the quality, the product resemble on such visual inspection which was part and parcel of the work assigned to SGS.
42. In the above circumstances, there is much substance in the contention as urged on behalf of Rama that it cannot be foisted with these products to the extent they are found to be not complying with the JIS standards as agreed between the parties, and that the plaintiff is under a solemn obligation to comply with the agreed terms and conditions of the order passed by this court in terms of the consent minutes of the order passed in the earlier proceedings. In any event, if what the plaintiff contends is correct and so proved at the trial, the plaintiff is entitled to seek damages from Rama. Already there is a prayer as made in the plaint being prayer clause (g) whereby a case is sought to be made out by the plaintiff without any supporting pleading, as noted above. The plaintiff is conscious that it can claim damages against defendant no.1 and defendant no.2. Learned Senior Counsel for the plaintiff has fairly conceded that there is no supporting averment/material to support the quantified claim for damages as appearing the said prayer clause. ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 :::
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43. Considering the clear obligations of the plaintiff as contained in the consent minutes of the order, it is required to be observed that the balance of convenience is in fact in favour of Rama inasmuch as the consent terms clearly contemplated that the products which are not complying with the JIS norms are required to be replaced by the plaintiff. The consent terms clearly reflect commercial/business decision on the part of the plaintiff to replace the product. Now when the quantity of the products which are not complying with the specifications has been identified, the plaintiff cannot by raising such contentions of the inspection being faulty, contend that it does not intend to comply with the obligation under the consent minutes of the order.
44. On a perusal of the voluminous day to day inspection reports and the final report as placed on record along with the photographs it needs to be observed that the opinion of an expert body of international repute like the SGS and Divine who are appointed by consent of the parties and on whose expertise and performance even the plaintiffs never had any doubt cannot be rendered inconsequential on the plaintiffs version as made on the report. Even HVS in its reply affidavit except for commenting on the manufacturing facets and its purported objections and withdrawal of its ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 58 nmcdl413-19- 5 July.doc representatives in the very beginning of the inspection does not bring out any serious objection to the acceptability and sanctity of the report of SGS. HVS in paragraph 21 of its reply affidavit commenting on the Indian Standards being relevant to the finished gas cylinders is also not good as the JIS G 3429-88 also takes into consideration the standards in various other JIS standards and more particularly those applicable for finished product in JIS G 0303. There is nothing on record to show that the Indian standards if at all applied are in any manner contrary to the JIS.
45. The contentions as urged in the reply affidavit of HVS cannot be accepted as it can be clearly seen from the reply affidavit of SGS and more particularly from paragraph 8(a) to (f), the modalities as adopted by SGS and Divine. It is thus not possible to accept the plaintiffs contention and for that matter of HVS that the report of SGS is prima facie required to be held as flawed.
46. In so far as the contention as urged on behalf of HVS that the products as quantified in the inspection report of SGS/Divine as not complying the JIS norm should not be accepted as no complaints were received from any other agency to whom the batch of products were sold, ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 59 nmcdl413-19- 5 July.doc cannot be accepted , in the absence of any report as furnished to Rama as per the requirement of clause 11 of JIS G3429-1988, coupled with the fact that it prima facie appears to be indisputed that Rama had raised objection to the quality of goods before they were shipped. Prima facie there is substantial reason to hold that these partly non compliant product were being foisted on Rama. It cannot be envisaged that however strict norms being followed in the process of manufacturing, the goods at every possible incident of manufacture, would always free from defects. If that was to be the case, then all these conditions of pre-shipment inspection, quality report etc, were not necessary. These are not the kind of ready to use goods but are raw materials for further manufacturing for which the required standards need to be met, as dependent on such raw material, is the further manufacture of the final product. The plaintiff and Rama solemnly agreed to have the inspection report by the agency of repute such as SGS and Divine. Now once the report is to some extent against the plaintiff, on such contentions that the report is required to be kept aside and/or discarded, and that the plaintiff should be permitted to not honour its obligations under the consent minutes of the order, in the facts and circumstances of the case, cannot be accepted. In fact HVS was not a party to the earlier proceedings when the consent terms were entered by the ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 ::: pvr 60 nmcdl413-19- 5 July.doc plaintiff with Rama.
47. It is difficult to accept the contention as urged on behalf of the plaintiff that a prima facie case has been made out and /or the balance of convenience is in favour of the plaintiffs. The facts demonstrate that it is Rama who would be caused an irreparable damage if an injunction as prayed for is granted in favour of the plaintiff considering the clear mandate of law as laid down in the decision of the Supreme Court in "Best Sellers Retail India Pvt. Ltd. Vs. Aditya Birla Nuvo Ltd. & Ors." 2
48. It needs to be also observed that in the earlier proceedings it has been the consistent stand of the plaintiff as clear from paragraph 8 of the reply affidavit dated 27 October 2018 filed in the earlier proceedings (Notice of Motion (l) no.2458 of 2018 in Com. Suit (l) no.1381 of 2018) that the plaintiff had solemnly stated that plaintiff will ensure replacement of defected pipes/cylinders free of cost and the same was also the part of the final consent terms as entered between the parties. Now when it comes to honouring its commitments commercial prudence would require that the plaintiffs abide by their assurances and undertaking and that too as made in legal proceedings.
2 (2012)6 SCC 792
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49. In the light of the above discussion, I find no merit in the notice of motion. It is accordingly rejected.
(G.S.Kulkarni, J.) ::: Uploaded on - 05/07/2019 ::: Downloaded on - 06/07/2019 05:38:57 :::