Delhi District Court
M/S Velocis System Pvt Ltd vs Punjab Communications Limited on 5 February, 2024
In the court of Ms. Anu Grover Baliga
District Judge (Commercial Court-04)
South-East District, Saket Courts
New Delhi.
CS DJ 1448/2018
In the matter of:
M/s Velocis System Pvt. Ltd.
X-1, Basement,
Okhla Industrial Area Phase-II,
New Delhi - 110020.
Corporate Office at:
A-25, Sector 67, NOIDA-201301 (U.P.) ...Plaintiff
Versus
Punjab Communications Limited
B-91, Phase VIII,
Industrial Area S.A.S. Nagar (Mohali),
Punjab - 160 071. .....Defendant
Date of institution : 26.09.2018
Date of reserving judgment : 12.01.2024
Date of pronouncement of Judgment : 05.02.2024
JUDGMENT
1. Vide this judgment, I shall decide a suit filed seeking recovery of Rs.35,23,496/- along with pendente lite and future interest.
Pleadings:
2. The plaint in the present case consists of almost 50 pages and apart from pleading facts, arguments in support of the Plaintiff's case have also been made in the plaint. For the sake of brevity, this Court is hereby reproducing CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 1/ 35 only those averments made by the Plaintiff in its suit which are material and necessary for deciding the present suit. The same are as follows:-
a) The Plaintiff is a company registered under the Companies Act and is engaged interalia in the business of Information Technology, Computer Networking, Data Communication and System integration.
b) On 23.06.2014, the Plaintiff was awarded by Haryana Vidyut Prasaran Nigam Limited (hereinafter referred to as HVPNL) a project for strengthening of the Communication System, providing RTUs and Auxiliary Power Supply System.
c) One of the components of the project was the supply of 102 quantities of Analog PLCC Terminal capacity of 20 W & 40 W.
d) The Defendant is a Government undertaking and is engaged in the business of manufacturing and supply of telecommunications and IT equipment solutions in India and is also one of the approved vendors of HVPNL. Pursuant to the award of the contract in its favour, the Plaintiff issued a letter dated 23.06.2014 to its Principal i.e. HVPNL confirming that Analog PLCC Makers for the contract, in question, would be manufactured and supplied by the Defendant.
e) On the basis of the above and the contractual requirement to source the systems from the Defendant, the Plaintiff and the Defendant entered into a detailed negotiation for settling rates, where after, the Defendant, vide a proposal bearing reference number PMK-FI-4.1526-53 dated 13.04.2015 offered to supply to the Plaintiff, the PLCC Terminals bearing specifications / capacities of 20 W and 40 W.
f) The Plaintiff issued a Letter of Intent dated 19.05.2015 to the Defendant, stating that the intent was for the purpose of Supply, Design, Engineering, FAT, Delivery of the material at site, Freight and Insurance, Type Test, Installation, Testing, Commissioning, Warranty, Pre-sale and Post Sale Support, Training and SAT (Customer Sign -off) of Analog PLCC & with all CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 2/ 35 accessories & Software in all respect at site for procurement process on back to back basis as per the Tender with the Principal / Customer and its amendments.
g) In furtherance of the Letter of Intent, the Plaintiff issued a cheque vide draft no. 02004883 dated 09.12.2015 of Rs. 9,99,662/- as an advance payment towards the Defendant and the first Purchase Order dated 29.02.2016, bearing PO No. 035475 was also placed on the Defendant for supply of 102 PLCC Terminal Equipment Single Channel of 20 W. However, during the course of the transaction, on the needs and requirements of the project there were minor changes in the types and quantities and BoQ of the Analog PLCC Equipment was amended as per the requirements of the Principal. The BoQ, as amended, subsequently required the manufacturing of 100 Nos. of 20 W PLCC Terminals only. The aforementioned amendment was agreed by the Defendants in a joint meeting that was held on 06.05.2016.
h) Subsequent to the above, the Plaintiff, on 17.06.2016, raised a fresh Purchase Order bearing PO No. 35475 to supply 100 Nos. of 20 W Single Channel PLCC Equipments.
i) The Defendant accepted the terms of the purchase order by issuing an invoice dated 10.08.2016 for the quantities as specified in the amended purchase order 17.06.2016.
j) On a separate note, during this process there were certain correspondence between the Plaintiff / Defendant on one side and the Principal / Customer. The correspondences pertained to a legally required approval (WPC Approval), which would be necessary to enable the Plaintiff / Defendant to start with production. The Plaintiff / Defendant were on the same page that the approval was the responsibility of the Principal Customer with the active involvement of the Defendant (since they were regular in the business). Ultimately, due to delay in getting the approval, the Principal advised the Plaintiff to go ahead with the supply.
CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 3/ 35k) Despite the fact that the Defendant was already in receipt of a portion of the advance amount, the Defendant was not providing a confirmation of being able to supply the entire equipments as per the PO. During conversations, the Defendant was stating that it would be in a position to supply only 20 quantities of system. However, the Proforma Invoice was for the complete numbers of systems. In fact, the Plaintiff had received an email, wherein the Defendant requested the Plaintiff to remit advance payments for complete invoice value, which tantamounted to a representation that the Defendant was in a position to supply the entire equipments. In the same communication, the Defendant specified their capacity to supply 20 systems only and asked the Plaintiff to remit payments pertaining to tax difference, etc.
l) To get a clear picture, the Plaintiff's officials visited the offices of the Defendants on 14.12.2016 and during the said visit, the Plaintiff requested the Defendant to share the FAT / Production plan for 20 Nos. of PLCC Equipments and also requested the delivery of the entire quantity before 31.03.2017.
m) The Defendant, overtly expressed their inability and indicated preparedness to supply only 20 Nos. out of the total of 100 Nos. of the equipment. The Plaintiff was under an adverse financial pressure and on goodwill, agreed to provide to the Defendants the additional token advance of Rs. 28,00,338 (Rupees Twenty Eight Lakhs Three Hundred Thirty Eight Only). The same was subsequently, provided vide Cheque / Draft No. 02007798 dated 15.12.2016. With this payment, 20% of the invoice value was duly supplied.
n) Vide an e-mail dated 16.12.2016 the Plaintiff expressed their concern towards Defendant for their inability to supply 100 systems before 31.03.2017 and requested the Defendant to supply as many as possible. In the said email, the Plaintiff duly documented the broad conversations that the Plaintiff had with the Defendant. The Plaintiff reiterated the request for CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 4/ 35 confirmation by the Defendant for supply of as many systems as possible during the relevant financial year i.e. before 31.03.2017. The same was necessary, since the Plaintiff was structuring its strategy for the overall project with the Principal.
o) The Defendant in an e-mail dated 20.12.2016 acknowledged the payment of 20% advance as per the PO forwarded by the Plaintiffs for 100 systems. Strangely, though they insisted on 20% payment of the whole invoice, the Defendants stated their inability to supply the requisite quantities and reiterated that they could supply only 20 No. of PLCC on the basis of vague averments.
p) The Plaintiff was concerned by the fact that the Defendant would continue to manufacture the systems beyond 31.03.2017, which would not be accepted by the Principal. To clarify, the Plaintiff issued an e-mail dated 02.02.2017 whereby, it requested the Defendant to hold their procurement and manufacturing planning for the balance quantities against the purchase order, for the next year i.e. for the period after 31.03.2017.
q) The Plaintiff vide e-mail dated 13.04.2017 informed the Defendant that the order for 80 Nos. of 20 W would stand amended to 20 Nos. of 20 W PLCC. It was further enunciated that a formal amended Purchase Order for final spare and accessories would be forwarded to the Defendant. Subsequently, the amount of the final supply would be adjusted from the advance with Defendant and requested for the balance amount to be refunded. The copy of the email is being filed with the present plaint.
r) To the surprise of the Plaintiff, the Defendant, vide a letter dated 24.04.2017 bearing reference No.PMK-FI-4-1526-57 made a submission that was in complete contradiction to all the earlier intimations. It was stated that they had prepared the entire order and were keen to supply it within the financial year 2015-2016. They further stated in their letter that the remaining quantity of 80 No. PLCC should have been taken by the Plaintiff in the month CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 5/ 35 of June-July 2017. In furtherance to the aforementioned points, the Defendant stated that they had suffered heavy losses on account of inventory carrying cost of FSA and that the actions for short closing the order for balance of 80 Nos. of PLCC was not fair.
s) Despite the Plaintiff protesting against the said stand of the Defendant, the Defendant refused to return the advance payment already made by the Plaintiff to it on the ground that the advance payment is being retained to recover the costs that it had incurred on account of breach of contract by the Plaintiff.
t) Various correspondences were exchanged between the parties whereby the Plaintiff reiterated the refund of the balance amount and the Defendant refused to release the same and hence, the present suit.
3. In its written statement, the Defendant has vehemently contended that it is not liable to refund any amount to the Plaintiff. According to the Defendant, it had suffered huge losses on account of the unilateral act of the Plaintiff in reducing the order of purchase of 100 PLCC to 20 PLCC. The Defendant has sought to point out the following material facts:-
a) Vide e-mail dated 17.06.2016, the Plaintiff had intimated to the Defendant that the complete consignment of 100 PLCC would be taken by the Plaintiff in 03 lots and asked the Defendant to give likely date for readiness of first lot of 20 PLCC.
b) Taking into consideration that the Plaintiff had placed an order for 100 PLCC and had also paid 5% of the total amount of the said PLCC as advance to the Defendant, the Defendant got manufactured the complete quantity of 100 PLCC and issued proforma invoices dated 01.07.2016 and 10.08.2016 and requested the Plaintiff to take delivery of the complete equipment.CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 6/ 35
c) The Plaintiff however did not come forward to take the delivery and also avoided to release the balance payment, as agreed.
d) The Defendant cautioned the Plaintiff that in case the Plaintiff does not take delivery of the equipment, the Defendant will have to divert the equipment to other customers, to minimize the financial loss likely to be suffered by it.
e) Despite this communication when the Plaintiff did not come forward to take delivery of the equipment, the Defendant diverted the equipment against other pending orders of its customers.
f) The Plaintiff thereafter again approached the Defendant and demanded the delivery of 100 PLCC in the last quarter of the financial year 2016-17.
g) The Defendant duly conveyed to the Plaintiff that since it had not come forward to take delivery of the equipment earlier ordered by it and the Defendant had diverted the said equipment to other customers, it would now take atleast 4-6 months for procurement of raw material for manufacturing 80 Nos. PLCC and that the Defendant could supply now only 20 PLCC to the Plaintiff.
h) On 15.12.2016, when the Plaintiff released the balance payment of advance payment, the Defendant started taking action for manufacturing of the balance 80 PLCC.
i) To the dismay of the Defendant, the Plaintiff suddenly vide e- mail dated 02.02.2017, informed the Defendant to hold the procurement of the raw material for balance quantities and finally, vide mail dated 13.04.2017, cancelled the balance ordered quantity of 80 PLCC unilaterally.
4. To put it succinctly, the defence taken by the Defendant is that the Plaintiff could not have unilaterally reduced the purchase order placed upon the Defendant from 100 equipments to 20 equipments and that the Defendant CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 7/ 35 is entitled to withhold the advance amount as it had taken action for manufacturing of the entire 100 PLCCs. It will be relevant to mention herein that the Defendant in its written statement had also taken a stand that the terms of its initial offer letter dated 13.04.2015 were binding upon the Plaintiff in as much as the Plaintiff had accepted the said offer and had only thereafter issued the LOI. Reliance has been placed upon the terms contained in the said initial offer letter dated 13.04.2015 to contend that Plaintiff had agreed to refer any disputes arising between the parties to Arbitration and had also agreed that it is only the Courts at Mohali which would have jurisdiction to decide any dispute between the parties. It is also a matter of record that based on this offer letter, the Defendant had moved an application under Section 8 of the Arbitration and Conciliation Act but that the said application was dismissed by the Ld. ADJ (before whom the case was then pending) vide order dated 24.02.2020. Vide the said order, it was categorically held by the Ld. ADJ that the terms of the said initial offer letter were not binding upon the Plaintiff and it was the terms of the Letter of Intent dated 19.05.2015 that governed the contract between the parties. Admittedly, the Defendant has chosen not to challenge the said order and in view thereof it has been rightly contended by Ld. Counsel for the Plaintiff that the findings of the Ld. ADJ have become final between the parties. As such, this Court has not sought to consider the terms of the said offer letter dated 13.04.2015.
Issues:-
5. It is a matter of record that this suit was initially filed before the Court of Ld. ADJ and it was received on transfer by this court in terms of order dated 20.12.2022 of Ld. Principal District and Sessions Judge, South-East District, Saket Courts, New Delhi. It is also a matter of record that prior to the transfer of the case, the issues had already been framed by the Ld. ADJ and the case CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 8/ 35 was listed for leading of Plaintiff's evidence. As per record, the Ld. ADJ vide its order dated 30.03.2022 had framed the following issues:-
I. Whether plaintiff is entitled for recovery of sum of Rs.35,23,496/-
as prayed for? OPP
II. Relief.
6. However, on 03.01.2023, when the case was put up before this court for the first time after its transfer, Ld. Counsel for the Plaintiff, Sh. Kaustubh Sinha submitted that the present case does not infact require any leading of evidence but only requires an interpretation of Letter of Intent dated 19.05.2015 executed between the parties. He also contended that in the written statement filed, the Defendant is not disputing the Letter of Intent or the communications exchanged between the parties and it was therefore prayed that this Court instead of listing the matter for Plaintiff's evidence, must hear the final arguments on the basis of the admitted documents on record.
7. On the aforementioned date, Ld. Counsel for the Defendant was stated to be unavailable and it is only on 03.07.2023 that learned Counsel for the Defendant Sh. S.K. Saneja appeared before this Court and fairly conceded that since the documents filed by both the parties are admitted, there is no requirement of leading evidence. Both the learned Counsels also submitted that based on the Letter of Intent issued by the Plaintiff, this Court is only required to determine whether or not the Plaintiff was entitled to unilaterally reduce the purchase order placed upon the Defendant from 100 equipments to 20 equipments.
Contentions of Ld. Counsels:-
8. Both the learned Counsels for the parties have advanced final arguments before this Court on the aforementioned two issues. However, it is only the learned Counsel for the Plaintiff, Sh. Kaustubh Sinha who has filed written CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 9/ 35 submissions on record. Ld. Counsel for the Plaintiff has vehemently contended that neither the Letter of Intent dated 19.05.2015 executed between the parties nor the purchase order dated 17.06.2016 placed by the Plaintiff on the Defendant contained any term whatsoever entitling the Defendant to forfeit the advance payment made by the Plaintiff to the Defendant towards the supply of 100 PLCC equipments. Ld. Counsel for the Plaintiff has sought to submit that in the entire written statement, the Defendant has been unable to point out any term in the Letter of Intent or in the purchase order which stipulates that the advance payment made by the Plaintiff could be forfeited by the Defendant under any circumstances.
9. In reply to this contention, Ld. Counsel for Defendant, Sh. Saneja has sought to argue that right from the time of execution of the LOI, the Plaintiff had been acting in a high handed manner and was repeatedly amending the terms of its purchase orders placed upon the Defendant. Learned Counsel for Defendant has sought to point out that firstly the Plaintiff had placed a purchase order PO No.035475 dated 29.02.2016 upon the Defendant for supply of 102 PLCCs but that thereafter issued a fresh purchase order on 17.06.2016 reducing the quantity of the PLCCs equipment to 100. He has further submitted that in pursuance of the purchase order dated 17.06.2016, the Defendant infact had manufactured the complete quantity of 100 PLCCs and had issued proforma invoices dated 01.07.2016 and 10.08.2016 and had requested the Plaintiff to take delivery of the complete equipment. He has pointed out that the documents placed on record on behalf of both the parties clearly show that the Plaintiff malafidely and unilaterally failed to take delivery of the said equipments. It has also been pointed out that it is an admitted case between the parties that due to this action of the Plaintiff, the Defendant had to divert the entire lot of 100 equipments to its other customers.
Learned Counsel had also sought to point out that the communications placed CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 10/ 35 on record also reflect that suddenly thereafter in December, 2016, the Plaintiff again started pressurizing the Defendant to go ahead with the manufacture of 100 PLCCs and deliver the same before the end of the financial year 2016-17. According to learned Counsel, the Defendant could not have manufactured and supplied 100 PLCCs at such short notice and duly informed the Plaintiff that it could supply only 20 PLCCs before the end of the financial year 2016-
17. It is also the submission of learned Counsel for the Defendant that the communications placed on record by the parties clearly show that then the Plaintiff agreed to take the delivery of 20 PLCCs and tendered the advance amount against the supply of 100 PLCCs and clearly instructed the Defendant to manufacture and supply the balance 80 PLCCs as soon as possible. Learned Counsel for the Defendant has also sought to contend that it is an admitted case between the parties that pursuant to the said instructions, the Defendant started manufacturing the 100 PLCCs. According to learned Counsel, in view of such admitted facts, the Plaintiff could not have thereafter in February, 2017 unilaterally reduced the said order of supply of 100 PLCCs to 20 PLCCs and demand the refund of the advance amount. It is the submission of learned Counsel for Defendant that the entire purpose of the payment of advance amount was that the Plaintiff gave a guarantee to the Defendant that it would take delivery of the 100 PLCCs. According to Ld. Counsel if the terms of the Letter of Intent are properly interpreted, the parties had agreed that this advance amount would be forfeited by the Defendant in case the transaction fell through by reason of the failure of the Plaintiff to honour the terms of its purchase order.
10. In rebuttal, Ld. Counsel for the Plaintiff, Sh. Kaustubh Sinha has urged that the Defendant has taken a completely false and malafide stand in its written statement. According to Ld. Counsel for the Plaintiff, the Plaintiff had never placed any final order for delivery of 100 PLCC equipments against CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 11/ 35 which the Defendant assertedly manufactured and made ready for delivery the 100 PLCC equipments. Ld. Counsel for the Plaintiff has pointed out that both the Letter of Intent dated 19.05.2015 and purchase order dated 17.06.2016 executed by the Plaintiff in favour of the Defendant made it clear that the procurement process of the PLCC equipments was on a back to back basis as per the requirements of its Principal HVPNL and that the Letter of Intent was not to be considered as a permission from Plaintiff to the Defendant to commence manufacturing. It has been further pointed out that even the purchase order dated 17.06.2016 made it clear that the Defendant should start manufacturing of goods only after written confirmation from the Plaintiff. According to Ld. Counsel, till November 2016, the Plaintiff could not confirm the final purchase order because the Defendant was refusing to assist the Plaintiff in obtaining WPC approval. He has further submitted that once the Principal of the Plaintiff i.e. HVPNL confirmed that the Plaintiff could go ahead with the project without the WPC approval, it immediately informed the Defendant to go ahead and supply the complete 100 PLCC equipments mentioned in its purchase order dated 17.06.2016. The submission therefore is that it is due to the conduct of the Defendant that the Plaintiff could not confirm the purchase order dated 17.06.2016 till November 2016. According to Ld. Counsel for the Plaintiff, the Defendant by demanding, in December 2016, the total advance amount of 20% against the supply of 100 PLCC equipments represented to the Plaintiff that it would be in a position to deliver the said equipments before March, 2017 but that after receiving the advance took a somersault and started giving one excuse or the other for not supplying the 100 PLCC equipments prior to March 2017 and agreed to supply only 20 PLCC equipments. Ld. Counsel for the Plaintiff has pointed out that the communications placed on record by the Plaintiff reflect that the Principal of the Plaintiff HVPNL was not willing to accept any equipments post March 2017 and it is therefore in such circumstances that the Plaintiff had to instruct CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 12/ 35 the Defendant that it would be taking delivery only of 20 PLCC equipments immediately.
11. According to Ld. Counsel, the fact that the Letter of Intent specifically mentioned that the procurement process was on a back to back basis as per the HVPNL tender and its amendments, itself makes it clear that the Defendant was at all times made aware that it was required to supply the equipments as per the directions of HVPNL and that the Plaintiff had no role in deciding the quantum of equipments required by HVPNL. In such circumstances, according to Ld. Counsel for the Plaintiff, the Plaintiff was fully justified in taking delivery of only 20 PLCC equipments and that the Defendant was bound to refund it the advance amount paid by the Plaintiff against the balance 80 PLCC equipments.
12. In the alternative, learned Counsel for Plaintiff had also contended that even if it is assumed that there has been a breach of contract by the Plaintiff, the LOI did not stipulate that the Defendant would be entitled to forfeit the amount of advance given by the Plaintiff. It is further the submission of learned Counsel for the Plaintiff that the contention of the Defendant that it is entitled to forfeit the amount of advance given by the Plaintiff, for it had started taking action for manufacture of 100 PLCCs on the basis of advance tendered by the Plaintiff to it, is also misplaced. Learned Counsel has pointed out that the Defendant has nowhere alleged that it had suffered any losses on account of the Plaintiff reducing the purchase order from 100 to 20 PLCCs and that therefore in the absence of any losses suffered by the Defendant, it had no right whatsoever to forfeit the advance amount already paid by the Plaintiff. In support of this contention, learned Counsel for the Plaintiff has relied upon the judgment pronounced by the Hon'ble Supreme Court in the case titled and reported CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 13/ 35 as Kailash Nath Associates Vs. Delhi Development Authority, (2015) 4 SCC 136. He has pointed out that in the said judgment the Hon'ble Supreme Court has categorically held that no damages can be awarded to a party to a contract merely on the basis that the contract stipulated a sum as compensation for damage or loss caused by breach of contract and that actual damage or loss caused is a sine qua non for the applicability of the provisions of Section 73 and Section 74 of the Indian Contract Act.
13. It is relevant to mention that the aforementioned contentions of Ld. Counsel for Plaintiff and the judicial dicta filed by him were not controverted by Ld. Counsel for Defendant. It is a matter of record that learned Counsel for the Defendant had made oral submissions on 03.07.2023 and 23.08.2023. On 23.08.2023, after making the aforementioned submissions, learned Counsel for Defendant had informed this Court that he had been suffering from an eye infection and that therefore he must be granted some more time to properly prepare and conclude his arguments. On his request, he was granted an opportunity to conclude his arguments on the next date of hearing and was also directed in the meanwhile to file written submissions. It is also a matter of record that despite the aforementioned directions, on the next 04 consecutive dates of hearing, learned Counsel for Defendant failed to appear. He has thus neither orally controverted the judicial dicta relied upon by learned Counsel for Plaintiff nor has filed any written submissions on record. Taking into consideration that this case is of the year 2018 and as such has been pending more than 5 years, this Court therefore has proceeded to decide the same.
Findings on the issues framed:-
14. A consideration of the averments made in the plaint makes it clear that the grievance of the Plaintiff against the Defendant is two fold. Firstly, according to the Plaintiff, despite the fact that the Defendant had agreed to CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 14/ 35 manufacture and supply 100 PLCC equipments to the Plaintiff in the financial year/current year 2016, it failed to do so. Secondly, though the Defendant demanded and received 20% of the total invoice amount raised by it for supply of 100 PLCC equipments, it refused to refund the corresponding amount paid to it against unsupplied 80 PLCCs equipments.
15. The Defendant on the other hand, has asserted that it was always ready and willing to supply 100 PLCC equipments to the Plaintiff in the year 2016 and that infact it had manufactured the said amount of equipments and had offered the same for delivery to the Plaintiff but that it is the Plaintiff who failed to take delivery of the same till October, 2016. It is the stand of the Defendant that when the Plaintiff refused to take delivery of the 100 PLCC equipments manufactured by it, the Defendant diverted the said equipments to its other customers, to reduce its losses. According to the Defendant, the Plaintiff then suddenly in December, 2016 again instructed the Defendant to supply 100 PLCC equipments to it before March, 2017 and it is at this juncture that the Defendant expressed its inability to supply the 100 PLCC equipments at such short notice. It however agreed to supply 20 PLCC equipments as soon as possible and once the Plaintiff paid 20% of the total invoice amount of 100 PLCC equipments as advance to the Defendant, in terms of the LOI executed between the parties, the Defendant started to take steps for the production of the total 100 PLCC equipments in January, 2017.
However, the Plaintiff again unilaterally directed it to stop manufacturing 100 PLCC equipments and then took delivery of only 20 PLCC equipments. The stand of the Defendant therefore is that in such circumstances, it was entitled to retain the entire advance amount paid to it by the Plaintiff.
16. Considering the aforementioned stands taken by both the parties, it will be first necessary to determine, from the documents placed on record by both CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 15/ 35 the parties, the chronology of events that took place from the time the LOI was executed between the parties in 2015 till the time the dispute arose between them in 2017( As narrated hereinabove the parties have chosen not to lead any oral evidence and had informed this court the emails and other documents placed on record by both of them are admitted documents/emails and therefore be read in evidence). In this respect the following facts have emerged on record;
(i) Vide Letter of Intent (LOI) dated 19.05.2015, the terms agreed between the parties regarding the supply of PLCCs equipments by the Defendant to the Plaintiff, were reduced into writing. Some of the relevant clauses of the said LOI are as follows;
"We, Velocis System Pvt. Ltd are pleased to give you this letter of Intent for the supply, design, Engineering, FAT, delivery of material at site, Freight & Insurance, Type Test, Installation, Testing, Commissioning, Warranty, Pre- sale & post Sale support, Training & SAT (Customer Sign-Of of Analog PLCC & with all accessories & Software in all respect at site for the above-noted procurement process on back to back basis as per HVPNL Tender & its amendments & below mutually agreed Terms & Conditions between us:
"1. Puncom will submit to Velocis all the approved copies of DRS, previous Type Test Reports, Performance Certificates from Power Utilities, EMC/EMI Certificates, MAF, quality Reports, drawings, previous BOQ Certificate, Product Manuals, Datasheets and brochures within 10 days from the date of issue of LOI & an extended date as mutually agreed "2. Subsequently Velocis will submit all aforesaid documents to HVPNL/PGCIL for approval. Puncom will be responsible for the technical approval of documents (DRS. Type Test Reports, Drawing, Datasheets, Test Procedures) & handling any technical query from the Customer or their Consultant & handling all commercials in taking approval would be handled by Velocis.
"3. Puncom will submit Drawing, BOQ per Tender Technical Specifications/Customer requirement for approval subsequently VSPL will release formal PO once approved BOQ received from HVPNL/PGCIL.
................................................................................................
"6. Payment Terms: 20% advance along with PO & balance against 30 days usance LC (30 days interest to Puncom's account).
................................................................................................CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 16/ 35
Velocis reserves the right to cancel this LOI in case of failure to comply with point no. - 1, 2,3 of this LOI. Further this LOI will be automatically converted into a final Purchase order to be separately issued by us on compliance of point no-1,2,3.
Please be advised that this letter of Intent should not be considered as permission from Velocis System Pvt Ltd to commence manufacturing of your product & other deliverables except point no. 1. Velocis System Put Ltd.will not be responsible or liable for any expenses related to the Deliverables.
(ii) The aforementioned terms make it clear that this Letter of Intent was not be considered as permission from the Plaintiff to the Defendant to commence manufacturing the equipment. It also makes it apparent that once the approved BOQ is received from HVPNL, a final purchase order would be placed by the Plaintiff upon the Defendant and it is that time that the Plaintiff would be liable to pay 20 percent advance.
(iii) Admittedly, pursuant to this Letter of Intent, a purchase order dated 17.06.2016 was placed upon the Defendant by the Plaintiff for supply of 100 PLCCs (Apparently, in the month of February i.e. prior to this purchase order, a purchase order for 102 PLCCs was placed upon the Defendant but subsequently, this purchase order was placed, amending the previous order). Certain relevant terms of the said purchase order were as follows:-
"14a) Final supplies of Analog PLCC (Make, Model, Qty, Type) will be as per approved BoQ received from HVPNL. PO and Prices will be amended accordingly.
14b) M/s Puncom will start manufacturing of goods after written confirmation from Velocis in mail.
22. Product must be manufactured in current year 2016 & must be as per approved DRS, GA Drawing Datasheets & Test Procedure approved by HVPNL.
24. The materials to be supplied under this purchase order shall comply with all local legislation and regulations.'' Alongwith the said purchase order, the Plaintiff also instructed the Defendant as under:-
CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 17/ 35"Please find attached order of Analog PLCC. We would like to inform you that we would be taking billing of complete order in 3 lots after completion of FAT.
1st Lot will be 20 No's against which we require earliest FAT dates from you.
2nd Lot would have 80 No's.
& 3rd Lot is for spares, Dummy load and PCB test kit."
(iv) Thus it is this purchase order which directed the Defendant to manufacture all the products in the year 2016 but at the same time also instructed the Defendant not to start manufacturing the entire lot till the Plaintiff gives it instructions to do so.
(v) Pursuant to receiving the aforementioned purchase order the Defendant raised a proforma invoice dated 17.06.2016 for 20 PLCC equipments and called upon the Plaintiff to take delivery of the said 20 equipments and release the 20% advance against the purchase Order. The said fact is apparent from the email dated 19.07.2016 placed on record by the Plaintiff. The said email reads as follows;
"Kindly refer to our mail Dt. 13.07.2016, wherein we had requested you to provide us approved documents and release our 20% advance payment as per Proforma invoices already provided to you, but till date we have not received any document/payment or reply from you in this regard. We wish to inform you that 20 PLCC terminals are ready to be offered for inspection at PUNCOM against your above referred order immediately on receipt of requisite documents/payment.' .................
We will wait for your reply on the matter till tomorrow and after that the integrated systems will be diverted for supplies against orders placed on PUNCOM by other customers.
......
Kindly note that once diverted, we will be not be able to supply the terminals against your order before next three months."
(vi) The Plaintiff instead of taking delivery wrote this mail dated 21.7.16 to the Defendant;
CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 18/ 35"..... Since submission, we both are continuously chasing the same but still formal approval is awaited, during my last visit to HVPNL on 14.07.2016. HVPNL requested us to start the process of WPC clearance. It was also discussed that at site it would be difficult to tune the frequencies. Without formal approval of frequencies if we move further at last we will waste at least 3 to 4 man day per site. We request you to please submit the WPC Clearance procedure.".
(vii) In reply to the aforementioned mail of the Plaintiff, the Defendant further vide its email dated 31.07.2016 communicated as under:
"With reference to your trailing mail, it appears that approval of frequencies from HVPNL and further WPC clearance will take lot of time. So keeping in view the delay on your part it is advisable for PUNCOM to divert the systems and supply against other orders in hand. PUNCOM will try to supply the systems as soon as possible against your order on completion of all documents and formalities. For WPC clearance procedure kindly contact Sh. Jagjit Singh of our Technical team."
(viii) The Plaintiff at this stage gets a mail from its Principal HVPNL dated 03.08.2016 part of which it has reproduced in para 11 of its plaint as follows;
"changes incurred, if any due to the approval from WPC over any of the links, same can be returned at site."
The Plaintiff has then gone on to aver that this was therefore the final approval provided by its Principal to proceed with the work and so it directed the Defendant to go ahead with the work. Apparently after receiving this go ahead the Defendant went ahead with the manufacturing of the entire lot of equipment.
(ix) The Plaintiff again thereafter started telling the Defendant to get WPC clearance and the following communications were exchanged between the parties;
CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 19/ 35In its e-mail dated 19.10.2016 the Defendants communicated to the Plaintiffs that:
"The investment on account of Velocis material is always being questioned by the Statutory auditors and lot of expenses had been incurred by PUNCOM in this project. We are ready with the equipment and there is no question to have a meeting of PUNCOM with HVPNL as the queries of HVPNL had already been replied. Velocis may have a meeting with HVPNL and FAT instructions may be issued for the first 15 Links (30 PLCC equipment)."
In the e-mail dated 20.10.2016 the Plaintiffs communicated to the Defendants that:
"Both Velocis and PUNCOM have invested a lot of time and money on Analog PLCC part. Our intension is clear and willing to move forward on FAT of first 15 Links. We already released Advance to show our intension of willingness to execute this Order. Matter stuck due to technical compliance of WPC Clearance and tuning of Analog PLCC Equipment at sites. I request you to please confirm that Any Frequency tuning required at site to meet the HVPNL/WPC requirement same shall be done by M/s PUNCOM. Sir, we are worried that at later Stage i.e. Post Supply, Installation and Testing our Payment will be stuck at HVPNL end due to frequency issues that time Velocis be the sufferer. Please look into this matter and be fair and reasonable."
In the e-mail dated 20.10.2016 the Defendants in reply again communicated to the Plaintiff as under:
"We understand you concern of WPC Clearance. Please note that frequencies are allotted by the Purchaser (HVPNL). We, as a vendor / contractor, have never been involved in taking WPC clearance for any projects and the work did not get delayed on account of WPC approvals. It appears that if the planned frequencies are within the allocated band for Power Line Carrier Communication then WPC approvals do not get delayed but one has to inform the competent authority about the same."...
In response in its e-mail dated 24.10.2016 the Plaintiffs again informed the Defendants as under:
"We do not agree with your view point on WPC Clearance. As Contractor/Employer we all are bound with Rule and Regulation of Govt. of India and it's mandatory requirement to get WPC Clearance before start of manufacturing of such equipment. Frequencies are proposed by us (Not allotted by M/s HVPNL) and having possibility to change during WPC Clearance. As an manufacturer your view point to start manufacturing without WPC Clearance is somehow seems to be OK but Sir, as major system integrator we are worried that at later Stage i.e. Post supply, Installation and Testing our Payment will be stuck CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 20/ 35 at HVPNL end due to frequency issues that time Velocis be the sufferer. Matter is under deliberation with HVPNL and will revert you soon."
(x) It is relevant to mention that all the aforementioned mails have been mentioned by the Plaintiff in para 11 of the plaint. It appears that after the aforementioned exchange of mails, as per the documents placed on record by both the parties there are no mails exchanged between the parties till December 2016.During the final arguments on a specific query by this court Ld. Counsel for the Plaintiff also admitted that after the aforementioned exchange between the parties, there was no exchange of communication between the parties and that the Plaintiff's officials had only visited the Defendant's office in December 2016 for further deliberations.
(xi) As to what transpired in the said deliberations is evident by the following exchange of mails.
Email dated -- from Plaintiff to the Defendant.
Dear Mr. Notta, Hope you are doing fine, Please refer trailing mail, as per PO terms we have made 20% advance payment for 100 systems. As conveyed to you during the meeting, Velocis requested for complete (100 systems) supply before 31st March 2017. However due to limitation expressed by you it appear that you can supply only 20 systems before 31 st March
17. In such a situation, please reconfirm the same & also advise us the schedule of the balance Systems.
We would again request you to supply us as many systems before 31 st March 17 and we are willing to open LC for the same quantity, Looking forward your favourable reply.
Email dated 20.12.2016 from Defendant to the Plaintiff.
Dear Sir, CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 21/ 35 Thanks for remitting the 20% advance payment as per terms of the PO. As discussed in the meeting on 14 th Dec 2016, we were keen to supply the entire equipment in the financial year 2015-16 but due to delay from your end, it could not materialize. Series of communications were made after closing of financial year 2015-16 for getting the supplies on priority as the case was under direct monitoring of BOD due to heavy investments on raw material which are not converted into sales in a stipulated time schedule.
Kindly note that we have initiated a PI for the entire qty of 100 Nos on Aug 10 2016 after finalization of BOQ, but no positive response has been received from your side and now in the last quarter of financial year when the production is heavily loaded to meet the delivery schedules of our regular customers, we can supply only 20 Nos. of PLCC in this financial year for which the PI is attached along with BG Format and other points for further necessary action on most urgent basis.
(xii) Thereafter in February, 2017 the Plaintiff wrote this mail dated 02.02.2017 to the Defendant.
Dear Mr. Mohan, This is in continuation to below mail, kindly hold your procurement & manufacturing planning for balance quantities against our purchase order (#35475 dated 17th June) for next year till our next mail confirmation.
Best Regards Bhandari
(xiii) Eventually then in April, 2017, vide its email dated 13.04.2017, the Plaintiff informed the Defendant that its purchase order stands amended to 20 number of PLCCs. In reply, the Defendant vide its email dated 24.04.2017, informed the Plaintiff that the entire ordered equipments had been ready for inspection in 2016 and that it has suffered heavy losses on account of the Plaintiff's failure to take delivery of the same. It was also mentioned in the said email that the action of the Plaintiff in short closing the order for the balance 80 number of PLCCs is unfair and that it should take deliveries in the months of June-July, 2017.
CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 22/ 3517. The aforementioned chronology of events being admitted by the parties, the issue that needs determination is whether or not it can be held that is the Defendant who failed to deliver 100 PLCC equipments in the year 2016 in compliance of Purchase order dated 17.06.2016. In the considered opinion of this Court the answer to the same has to be in the negative. The aforementioned mails make it clear that once the Plaintiff gave the go ahead to the Defendant on 03.08.2016, the Defendant informed the Plaintiff that all equipments are ready for delivery in October 2016. However Ld. Counsel for the Plaintiff, on the basis of the aforementioned communications, has sought to vehemently make two main contentions. He has firstly contended that the said communications reflect that the Defendant was refusing to adhere to the terms of the LOI and was refusing to assist the Plaintiff in getting the WPC approval required by the Plaintiff to start its project with HVPNL. It is the submission of Ld. Counsel for the Plaintiff that Wireless Planning and Coordination, a wing of Department of Telecommunication (DoT) under the Ministry of Communications and Information Technology, is responsible for licensing and managing of frequency spectrum and that the Defendant being the manufacturer of the wireless devices was bound to have taken WPC approval from the competent authority. According to Ld. Counsel for the Plaintiff despite the Plaintiff repeatedly requesting the Defendant to obtain the said approval, the Defendant refused to do so. In this respect, Ld. Counsel for the Plaintiff has relied upon two mails dated 21.07.2016 and 20.10.2016 written by the Plaintiff to the Defendant. Thus according to him the Defendant by failing to get WPC clearance, failed to deliver, in the year 2016, 100 PLCC equipments, as per the terms agreed between the parties. His second contention that even if it is assumed that the Defendant had manufactured 100 equipments and offered the same for delivery to the Plaintiff, the said act was again contrary to the terms of the agreement entered in to between the parties. Ld. Counsel for the Plaintiff has sought to contend that vide the purchase CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 23/ 35 order dated 17.06.2016, the Defendant was given instructions to only manufacture 20 PLCCs. According to Ld. Counsel for the Plaintiff, both the LOI and the purchase order made it clear that the Defendant was not to start manufacturing for the entire lot of 100 PLCC equipments , till the Plaintiff instructs it to do so. It is further his contention that the Defendant by raising invoice dated 17.06.2016 for only 20 PLCCs equipments, is deemed to have agreed to the terms of the LOI, purchase order and therefore was bound to have waited for written instructions from the Plaintiff before starting manufacturing of the entire 100 PLCC equipments. It is also his contention that since the Plaintiff never gave such instructions, there was no question of the Plaintiff having committed breach of the LOI or having unilaterally reduced the order for supply of 100 PLCC equipments to 20. It is the submission of Ld. Counsel for the Plaintiff that since the LOI categorically recorded that the procurement process was on back to back basis as per HVPNL tender and its amendments, the Defendant was always made aware and infact it agreed that the purchase order could be amended from time to time depending upon the instructions of HVPNL.
18. I am afraid none of the contentions of Ld. Counsel for the Plaintiff can be accepted. Present is a classic case where the Plaintiff is blowing hot and cold. On the one hand, it is seeking to contend that it never gave instructions to the Defendant to go ahead with the manufacturing of 100 PLCC equipments before December 2016 while on the other hand, it is vehemently contending that the Defendant failed to deliver the said equipments in December 2016. In the considered opinion of this Court, the averments made in the plaint and the emails placed on record by the Plaintiff itself make it clear that the Plaintiff did instruct the Defendant to supply 100 PLCC equipments in August 2016 itself. In this respect, it is to be taken note of that the Plaintiff in para 11 of its plaint has referred to a CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 24/ 35 mail dated 03.08.2016 received by it from its Principal HVPNL and has itself pleaded that vide this mail, it received a final approval from its Principal to proceed with the manufacturing of all the equipments and that it duly communicated this fact to the Defendant. This averment of the Plaintiff in the plaint itself is in teeth of the contention of Ld. Counsel for the Plaintiff that the Plaintiff never instructed the Defendant to go ahead with the manufacturing of 100 PLCC equipments. The record as discussed herein above further reflects that though initially the Defendant had raised a proforma invoice dated 17.06.2016 for supplying only 20 PLCC equipments, however pursuant to the instructions of the Plaintiff received on 03.08.2016, the Defendant did thereafter raise an invoice dated 10.08.2016 for the entire 100 PLCCs equipments. In the considered opinion of this Court, in such facts the Plaintiff cannot be heard to contend that it had directed the Defendant only to manufacture and deliver 20 PLCC equipments. Further, it also cannot be held that the Defendant, by not assisting the Plaintiff to obtain the WPC approval, failed to deliver the equipments in the year 2016. It has been rightly asserted by the Defendant in its written statement that neither the LOI nor the purchase order ever contemplated that it was the obligation of the Defendant to obtain WPC approval. The Defendant also made this stand amply clear to the Plaintiff vide its letter dated 03.10.2016 and emails dated 19.10.2016 and 20.10.2016. In the said communications the Defendant categorically informed the Plaintiff that all the equipment was ready for delivery and as a vendor/contractor, it has never been involved in taking WPC clearance. It also made it clear to the Plaintiff that WPC is an issue to be resolved between the Plaintiff and HVPNL and that the Plaintiff must not seek this as a reason to not take delivery of the PLCCs equipments. It is further apparent from the facts averred in para 11 of the plaint that the Principal of the Plaintiff i.e. HVPNL informed the Plaintiff vide its letter dated CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 25/ 35 03.08.2016 that the approval from WPC should not be a hindrance for the Plaintiff to proceed with the work. As narrated herein above the Plaintiff has also averred that after this final approval provided to it by its Principal to proceed with the work, it directed the Defendant to go ahead with the work. Thus as per the own averments of the Plaintiff, its Principal was not pressing for the WPC approval with respect to the supply of PLCC equipments. It is apparent from the averments made in the plaint and the communications written by the Plaintiff that despite this approval from the Principal, the Plaintiff itself was apprehensive about taking delivery of equipments without the WPC approval and therefore kept on insisting that the Defendant must assist it in the same. Particular reference in this respect be made to email dated 24.10.2016, reproduced in para (ix) of para 16 hereinabove.
19. In view of the discussion hereinabove, this Court is thus of the considered opinion that the Defendant had not failed to deliver 100 PLCC equipments in the year 2016 and it is the Plaintiff who refused to take delivery of the same. Thus the first grievance raised by the Plaintiff in its suit namely that the Defendant had failed to give delivery of 100 PLCC equipments in 2016, is held to be unjustified.
20. This court will now examine the second grievance raised by the Plaintiff in its suit. The second grievance of the plaintiff was that after taking the complete 20% advance payment in December, 2016 the Defendant was bound to have delivered the entire lot of 100 equipments prior to March, 2017 and since it did not do so it was bound to have refunded the excess advance amount paid to the Plaintiff .
CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 26/ 3521. To examine the said grievance, one will need to examine the conduct of the parties in December, 2016. As narrated in para 16 of this judgment in this month the Plaintiff again approached the Defendant to deliver 100 PLCC equipments. It had now apparently resolved the issue of WPC approval with its Principal HVPNL. The communications exchanged between the parties in this month and reproduced in para 16 hereinabove show that when the Plaintiff again approached the Defendant in the month of December, 2016 to complete the manufacturing of the entire 100 PLCCs, the Defendant was constrained to inform the Plaintiff that it would not be possible to manufacture the entire lot of 100 equipments before 31.03.2017 and that it could supply the first lot of 20 equipments before the said date. The contention of the Ld counsel for the Plaintiff that the Defendant by doing so was committing breach of the purchase order accepted by it, cannot be accepted. In the considered opinion of this Court when the Plaintiff itself had failed to honor the terms of the purchase order dated 17.06.2016 by refusing to take delivery of the equipment in October, 2016, it cannot be allowed to resort to the terms of the purchase order dated 17.06.2016 to insist that the Defendant was bound to have, for the second time, manufactured the equipment for the Plaintiff before the close of the financial year 2016-17. The Defendant had categorically informed the Plaintiff that it had already diverted the equipments manufactured by it in the month of October, 2016, for the Plaintiff to its other customers. The other contention of Ld. Counsel of the Plaintiff that the Defendant by demanding and accepting 20 % advance against supply of 100 equipments was then bound to deliver 100 PLCC equipments prior to March 2017 also cannot be accepted. It is the LOI executed by the Plaintiff in favour of the Defendant that mandated that alongwith the Purchase Order the Plaintiff was to pay 20% advance. However at the time of placing the PO dated 17.06.2016 the plaintiff itself did not follow this mandate and only paid CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 27/ 35 5%. Though at that time, the Defendant accepted the same,it was fully justified to demand the entire 20% in the month of December when the plaintiff again approached it for delivery of 100 equipments. Looking into the previous conduct of the Plaintiff, the Defendant cannot be faulted for demanding the entire amount of 20% before starting to take further action to manufacture again 100 PLCCs.
22. However having said so, it still needs to be examined whether the Plaintiff committed any wrongdoing by then reducing the purchase order to
20. It is to be noted that the LOI did not stipulate any date of delivery of equipment by the Defendant. It was the Purchase Order which did and once the plaintiff failed to take delivery of the equipments in October, 2016, the stipulation in the purchase order that the Defendant was to deliver equipments in the year 2016 no longer remained relevant. The mails placed on record and reproduced herein above make it clear that though the Plaintiff now wanted the delivery prior to March 2017 , the Defendant was not ready to give any assurance in this respect. Thus there was no consensus id idem between the parties in this respect. Further in view of the fact that though rightly the Defendant was not willing to deliver 100 equipments prior to March 2017, the plaintiff also cannot be faulted for then reducing the purchase order from 100 to 20, as per the instructions of its Principal. The circumstances having changed in the interregnum period between the time that the Plaintiff for the first time placed the purchase order in June, 2016 and the time it again approached the Defendant for delivery of equipments prior to the end of the financial year 2016-17, neither of the parties can be held to be at fault for the contractual purchase order having fallen through in the year 2017.
CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 28/ 3523. The only question that needs now to be determined is whether or not in the aforementioned circumstances, the Defendant was still entitled to retain the advance amount paid by the Plaintiff. As narrated hereinabove, Ld. Counsel for the Defendant, despite various opportunities granted, has not appeared before this Court to conclude his arguments on this issue. The only submission made in this respect by Ld. Counsel for the Defendant was that the entire purpose of the payment of advance amount was that the Plaintiff gave a guarantee to the Defendant that it would take delivery of the 100 PLCCs. According to Ld. Counsel if the terms of the Letter of Intent are properly interpreted, the parties had agreed that this advance amount would be forfeited by the Defendant in case the transaction fell through by reason of the failure of the Plaintiff to honour the terms of its purchase order.
24. Admittedly, the Letter of Intent issued by the Plaintiff in favour of the Defendant and accepted by the Defendant, contains no explicit clause whatsoever regarding the forfeiture of the advance amount paid by the Plaintiff, in case of cancellation of the purchase order. From the other terms of the LOI and purchase order, there appears to be no such inference arising. To understand what the Ld. Counsel for the Defendant could have been referring to, this Court has carefully gone through the contents of the written statement filed by the Defendant. In the same it is to be noted that, in reply to para 25 of the plaint, the Defendant has asserted as follows:
"the advance payment is always being retained to recover the costs and to avoid breach of contract, which has been done by the plaintiff, who failed to give the specific instructions for supply of the 100 systems as per the aforementioned order."
From the said averments, it is to be held that the advance payment has been retained by the Defendant, not on the basis of any clause in the contract entered between the parties, but on the basis that the very nature of an advance CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 29/ 35 payment taken at the time of a contract is to ensure that the said advance would be sufficient to cover the costs incurred by a seller, in case of a breach of contract by the purchaser of goods. Ld. Counsel for the Plaintiff, on the basis of said averments has submitted that the Defendant is treating the payment of advance analogous to the payment of the earnest money paid at the time of an agreement to sell an immovable property. It is his submission that even if this assertion of the Defendant is accepted and this Court is inclined to treat the advance payment as similar to the payment of earnest money paid at the time of agreement to sell, even then the Defendant is not entitled to forfeit the said amount. He has submitted that there is no clause in the Letter of Intent or the purchase order issued by the Plaintiff in favour of the Defendant envisaging any such forfeiture. He further submits that the Defendant would not be entitled to forfeit the said advance payment even by virtue of the provisions of Section 73 or 74 of the Indian Contract Act. In support of his contentions, Ld. Counsel has relied upon the judgment of the Hon'ble Supreme Court in Kailash Nath Associates Vs. Delhi Development Authority, (2015) 4 SCC 136. He has pointed out that the provisions of Section 73 and 74 of the Indian Contract Act have been dealt with, in detail by the Hon'ble Supreme Court in the aforementioned case of Kailash Nath Associates (supra) and that in para 43 of its judgment, the Hon'ble Supreme Court, has held as follows:-
43. On a conspectus of the above authorities, the law on compensation for breach of contract Under Section 74 can be stated to be as follows:
1. Where a sum is named in a contract as a liquidated amount payable by way of damages, the party complaining of a breach can receive as reasonable compensation such liquidated amount only if it is a genuine pre-estimate of damages fixed by both parties and found to be such by the Court. In other cases, where a sum is named in a contract as a liquidated amount payable by way of damages, only reasonable compensation can be awarded not exceeding the amount so stated. Similarly, in cases where the amount fixed is in the nature of penalty, only reasonable compensation can be awarded not exceeding the penalty CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 30/ 35 so stated. In both cases, the liquidated amount or penalty is the upper limit beyond which the Court cannot grant reasonable compensation.
2. Reasonable compensation will be fixed on well known principles that are applicable to the law of contract, which are to be found inter alia in Section 73 of the Contract Act.
3. Since Section 74 awards reasonable compensation for damage or loss caused by a breach of contract, damage or loss caused is a sine qua non for the applicability of the Section (emphasis applied).
4. The Section applies whether a person is a Plaintiff or a Defendant in a suit.
5. The sum spoken of may already be paid or be payable in future.
6. The expression "whether or not actual damage or loss is proved to have been caused thereby" means that where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded.
7. Section 74 will apply to cases of forfeiture of earnest money under a contract (emphasis applied). Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no application.
25. This Court completely agrees with the aforementioned contentions of Ld. Counsel for Plaintiff and is of the considered opinion that even if it is held that the Plaintiff did commit breach of the contract/terms of the purchase order issued by it by not taking delivery of the equipments in October, 2016, the Defendant would not be entitled to retain/forfeit the advance payment. The judicial dicta referred to by Ld. Counsel for Plaintiff makes it clear that even in cases where a penalty has been stipulated for breach of contract, the party asserting that it had suffered losses has to prove the loss caused to it, in case it is possible to prove actual loss or damage. It will be relevant to mention herein that in the written statement, at more than one places, the Defendant has taken a stand that it will be filing a counter claim to recover from the Plaintiff the losses suffered by the Defendant on account of breach of contract by the CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 31/ 35 Plaintiff. In particular, in reply to para 34 of the plaint, it has been interalia asserted by the Defendant as follows:-
"It is submitted that the counter claim is being filed by the defendant for the recovery of amount of losses suffered due to the non performance of the contract by the plaintiff for which the plaintiff is liable to compensate the defendant."
Similarly, in reply to para 19 of the plaint, the Defendant has interalia asserted as follows:-
"The defendant reserves its right to file the counter claim for recovery of the excess amount spent by the defendant."
In other words, according to the Defendant, in the present suit, it is not claiming any set off of the losses allegedly suffered by it due to breach of contract by the Plaintiff. The only claim being made regarding non refunding of the advance payment made by the Plaintiff is that the said amount was in the nature of penalty which the Defendant is entitled to retain. The Hon'ble Supreme Court in Kailash Nath's case (supra) has categorically held that Section 74 of the Indian Contract Act will apply to the cases of forfeiture of earnest money under a contract. It has been also specifically held that even to claim a sum as penalty for breach of contract committed, the party complaining of such a breach in terms of Section 74 of the Indian Contract Act has to prove that a loss or damage was suffered by it. The Hon'ble Supreme Court has made it clear that damage or loss caused is a sine qua non for the applicability of Section 74 of the Contract Act. In the present case, there is no agreement whatsoever executed between the parties to show that the Defendant was entitled to forfeit the advance amount paid by the Plaintiff. It also cannot be lost sight of that the advance payment of which recovery is being sought was demanded by the Defendant from the Plaintiff in December, 2016 that is after the Plaintiff had failed to take delivery of the equipments in October, 2016 and had committed breach of the terms of the Purchase Order. Clearly the disputed advance payment therefore cannot be CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 32/ 35 forfeited against the said breach. As regards the renewed request for delivery of 100 equipments made by the plaintiff from the defendant in December 2016, apart from a mere averment that the Defendant had started taking action to manufacture the entire lot of 100 PLCC equipments, the Defendant has chosen not to quantify the losses assertedly suffered by it and has chosen to state that it will file a separate counter claim to recover the losses assertedly suffered by it in this respect. In such view of the matter when neither the agreement executed between the parties stipulated the forfeiture of advance amount nor the Defendant has led any evidence to show as to what losses it suffered due to the Plaintiff taking delivery of only 20 PLCC equipments, it cannot be held that the Defendant is entitled to retain this advance amount.
26. In view of the discussion hereinabove, this Court hereby holds that the Defendant had no justification for withholding the advance amount of Rs.27,58,125.60 and was bound to have refunded the same to the Plaintiff. As such, it is hereby held that the Plaintiff is entitled to the refund of Rs.27,58,125.60, the amount admittedly paid by it towards the proportionate supply of balance 80 PLCC equipments. It is relevant to mention herein that though in the plaint the Plaintiff had claimed two other sums of Rs.1,70,286/- and Rs.60,000/- on account of some extra payments made by it to the Defendant, Ld. Counsel for the Plaintiff during the course of final arguments, has stated that the Plaintiff is not pressing the recovery of the said sums. He has fairly conceded that the Plaintiff has not filed any documents on record on the basis of which these claims can be decided by this Court.
27. The question that now arises as to at what rate of interest is the Plaintiff entitled to, on the aforementioned amount and for what period. For the pendente lite and future interest, Ld. Counsel for the Plaintiff has submitted that in terms of Section 34 of CPC, since the liability in relation to the sum CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 33/ 35 adjudged has arisen out of a commercial transaction, this Court must award interest @ 10% per annum for the same is the rate on which moneys are lent and advanced by nationalised banks in relation to commercial transactions. Taking into consideration that many suits are pending in this Court wherein nationalized banks are claiming recovery of unpaid loan amounts alongwith interest @ 10% per annum, the aforementioned contention of Ld. Counsel for the Plaintiff is accepted.
28. As regards the interest prior to the filing of the present suit, it is the submission of Ld. Counsel for the Plaintiff that though there is no written agreement between the parties regarding the interest to be payable by the Defendant to the Plaintiff, the Plaintiff had issued a legal notice dated 26.03.2018 calling upon the Defendant to refund the amount of Rs.27,58,125.60 alongwith interest. Ld. Counsel for the Plaintiff has submitted that the Defendant cannot be allowed to take undue advantage or undue enrichment at the costs of the Plaintiff and therefore this Court must grant interest at an equitable rate.
29. The Hon'ble Delhi High Court in the cases CS (OS) 209 / 2016 titled as Gopesh Mehta Vs Swift Initia Pvt. Ltd. and RSA No. 195 / 2004 titled as Sh. Zile Singh Vs. Sh. Mangloo Ram Bansal, has held that even if there was no agreement between the parties with respect to the payment of interest on delayed payments, a Plaintiff is entitled to claim interest on the principles of equity, justice and good conscious. In both the said cases, the Hon'ble High Court on the basis of the aforementioned principles, awarded interest in favour of the Plaintiff, from the date of the legal notice issued to the Defendant.
30. Taking into consideration the aforementioned judicial dicta and the fact that in the present case the Plaintiff had demanded interest in the legal notice CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 34/ 35 issued by it to the Defendant (which was duly served upon the Defendant and as per record, the Defendant had even given reply to the said notice) this Court allows interest on the principal amount adjudged of Rs.27,58,125.60 @ 10% w.e.f. 26.03.2018 (date of issuance of legal notice) till 26.09.2018 (date of filing of the present suit).
31. As such, the suit of the Plaintiff is hereby decreed against the Defendant for an amount of Rs.27,58,125.60 (Rupees Twenty Seven Lakhs Fifty Eight Thousand One Hundred Twenty Five and Paise Sixty Only) alongwith interest @ 10% per annum w.e.f. 26.03.2018 till 26.09.2018. Pendente lite and future interest are also awarded @ 10% per annum, on the principal amount adjudged of Rs.27,58,125.60. Costs of the suit are also allowed. Decree Sheet be prepared accordingly.
File be consigned to record Room.
ANU Digitally signed
by ANU GROVER
GROVER BALIGA
Date: 2024.02.07
BALIGA 12:41:00 +0530
Announced in the Open Court (Anu Grover Baliga)
on 5th February, 2024. District Judge (Commercial Court-04) South-East District, Saket Courts New Delhi CS DJ 1448/2018 M/s Velocis System Pvt. Ltd. Vs. Punjab Communications Ltd. Page 35/ 35