Delhi District Court
M/S Unique Fashion vs Pure Cotton on 8 May, 2020
IN THE COURT OF MS NEENA BANSAL KRISHNA
DISTRICT & SESSIONS JUDGE
SOUTH EAST : SAKET COURT, NEW DELHI.
CS No. 208469/16 (Old No. 35/2015)
M/s UNIQUE FASHION
HAVING ITS REGISTERED OFFICE AT
17, GODAVARI APARTMENTS
ALAKNANDA, KALKAJI, NEW DELHI
....PLAINTIFF
VERSUS
1. PURE COTTON
A UNIT OF CRESCENDO
CLOTHING PRIVATE LIMITED
HAVING ITS REGISTERED OFFICE AT
A21, NIZAMUDDIN EAST
NEW DELHI 110003
AND ALSO AT :
A71, SECTOR 2, NOIDA,
UP 201301
2. Mr. NATALINO DUO
D124, 2nd FLOOR, PANCHSHEEL ENCLAVE,
NEW DELHI 110024
....DEFENDANTS
Date of filing : 07.11.2015
First date before this court : 09.11.2015
Date of Decision : 08.05.2020
Appearance: Shri Kunal Anand and Ms. Ayushi Rajput, counsel for plaintiff
Shri Manoj Tomar, counsel for defendant
CS No. 208469/2016 (Old No. 35/2015)
M/s Unique Fashion vs Pure Cotton & Anr. Page 1 of 18 Pages
JUDGMENT
1. This suit for recovery of Rs.56,00,000/ has been filed by the plaintiff against the defendants.
2. The facts in brief are that plaintiff M/s Unique Fashion is a Partnership Firm duly registered under Section 58 (1) of the Indian Partnership Act vide registration No. 2308/2009. It has two partners namely Shri Sandeep Sethi and Shri Sanjay Arora and the plaint has been duly signed on behalf of the partnership firm. It is submitted that plaintiff is registered with Apparel Export Promotion Council as Manufacturer and Exporter of Ready made Garments. The defendant no. 1 Crescendo Clothing Pvt. Ltd., a duly incorporated Company under the Companies Act, having Buying House in the name of Pure Cotton which procures orders from foreign customers and places them with suppliers in India. Defendant no. 2 Mr. Natalino Duo is the Director and Chief Executive Officer of defendant no. 1 Company and responsible for the day to day affairs of the company.
3. It is submitted that Pure Cotton, the unit of defendant Company placed 11 Purchase Orders bearing no. 1456, 1452, 1447, 1447, 1451, 1450, 1449, 1515, 1516, 1518, 1520 for a total value of US $ 53,667.75 for 6,369 pieces of manufactured garments through email dated 18.08.2011 as well as through a hard copy. The defendant Company also directed the plaintiff to send the shipment to M/s Motor CS No. 208469/2016 (Old No. 35/2015) M/s Unique Fashion vs Pure Cotton & Anr. Page 2 of 18 Pages Tekstil San Ve Tic. A.S., Istanbul, Turkey (hereinafter referred to as "Motor Jeans"). As per Standard Operating Procedure (hereinafter referred to as "SOP") given by the defendant to plaintiff, Letter of Credit was to be established by the buyer in favour of Pure Cotton as first beneficiary and then the L/C was to be opened in the name of the plaintiff as second beneficiary. The garments as per the Purchase Orders were ready for dispatch when defendant no. 2 Mr. Natalino Duo on behalf of defendant no. 1, explained to the plaintiff on 18.01.2012 that the buyer Motor Jeans is not in a position to issue Letter of Credit and that the shipment may be dispatched on basic documents against payment in 150 days. The documents against payment means an arrangement in which an exporter instructs a bank to hand over shipping to an importer only if the importer accepts the accompanying Bill of Exchange or Draft by signing it. The plaintiff has submitted that Mr. Natalino Duo had also assured the plaintiff that the defendant no. 1 has already received post dated cheques from the buyer Motor Jeans and in case the buyer fails to pay then the defendant shall pay the invoice amount of US $ 53,667.75 in four equal installments. The defendant also directed the plaintiff to ship the goods directly to Motor Jeans vide invoice no. 4522 dated 11.01.2012 of the plaintiff firm and the Bill of Lading No. BOM081658 document No. BOM/541441 dated 24.01.2012 for the amount of US $ 53,667.75 and the same delivered on 20.02.2012 at Turkey. The delivery of goods was certified by DHL Logistics Pvt. Ltd. vide Landing Certificate issued by it. The defendant no. 1 vide letter dated 12.11.2012 informed the plaintiff that the garments were duly sent CS No. 208469/2016 (Old No. 35/2015) M/s Unique Fashion vs Pure Cotton & Anr. Page 3 of 18 Pages to Motor Jeans, Istanbul, Turkey. A bill was raised by defendant no. 1 upon the buyer consignee. The defendant however, instead of paying the accepted invoice amount, fraudulently and maliciously took the plea that the bill has already been raised upon Motor Jeans for shipment but the payment has not been given to the defendant and it shall make the payment to the plaintiff as and when it receives the money.
4. The plaintiff has asserted that the privity of contract is only between plaintiff and defendants and not between plaintiff and foreign customer Motor Jeans. The dishonoured cheques were also issued by the Buyer in the name of the defendant. There is no contractual relationship between the plaintiff and M/s Motor Jeans and the liability is to pay is only that of the defendants. The defendant has duly acknowledged its liability to pay the amount to the plaintiff but he has failed to do so. Hence, the present suit has been filed for recovery of Rs.56,00,000/ along with interest of 18% per annum.
5. The defendants in their written statement took the preliminary objection that the plaintiff has not approached the court with clean hands and have suppressed material facts. On merits, it is submitted that defendant has not acted as a buyer or buying agent as no contract exists between Motor Jeans and the defendant. The defendant is a Merchant Exporter, as per the rules and definitions of Apparel Export Promotion Council, Ministry of Textile. It is submitted that on receipt of orders, the defendant Firm identifies suitable factories to which the same CS No. 208469/2016 (Old No. 35/2015) M/s Unique Fashion vs Pure Cotton & Anr. Page 4 of 18 Pages can be allocated and the goods required as per such orders, are shipped directly from the seller / manufacturer to the buyer. The only role of the defendant Firm is to procure orders, assist the manufacturer in order execution by coordinating with the foreign Company at the end of the manufacturing process. Once the goods are manufactured then they are dispatched and invoiced by the manufacturer to the buyer. It is the buyer who has the liability to make payment of the goods.
6. It is further explained that Trading Agent / Merchant Exporter who brings business to any manufacturer needs to make his appropriate margin in the transaction. The payments of goods are routed through the bank of the merchant exporter who on receipt of the amount from foreign buyer bank, immediately transfers the full amount due for the goods to the manufacturer exporter but only the difference between value indicated in his invoices by the manufacturer and the value that merchant exporter has agreed upon with the foreign buyer is kept by the Merchant Exporter as his profit. This is a usual practice being followed in the entire industry. There is no personal liability on the part of the Trading Agents or its directors against any default committed by the foreign buyer in making lawful payments to the exporters.
7. The defendant has claimed that there were never any instructions from the defendant to the plaintiff but only communication from the buyer. The defendant in the capacity of trading agent was always in the chain of communication and present at almost all levels of CS No. 208469/2016 (Old No. 35/2015) M/s Unique Fashion vs Pure Cotton & Anr. Page 5 of 18 Pages interactions between the seller and the buyer. A different role has been sought to be assigned to the defendant by the plaintiff by wrongfully claiming that it is the defendant who is liable when in fact the defendant was only liable to the extent of facilitating the transactions between the foreign buyer and the plaintiff.
8. The defendant has further claimed that he had informed the plaintiff on several occasions about the doubtful financial position of the foreign buyer, but the plaintiff refused to cover the business risk by taking appropriate Export Insurance coverage. The defendant due to severe concern for protecting the plaintiff from business risk, took the onus to pay the Insurance Company (ECGC) on behalf of the plaintiff. The plaintiff himself has been negligent in recovery of the money that was outstanding from the foreign buyer as it was negligent in filing the complaint before ECGC on time and the same was rejected by it on the ground of negligence as plaintiff failed to file the claim within the stipulated time. The payment that was to be received from the Motor Jeans fell due on 25.06.2012, but the plaintiff firm made the insurance claim with incomplete documentation and proof of attempt to recover the amount due from the foreign buyer. The ECGC prescribes to approach the Indian Embassy and other authorities in the destination country for attempting recovery of the money. The plaintiff did not follow any of the guidelines prescribed by ECGC and consequently the insurance claim was rejected.
CS No. 208469/2016 (Old No. 35/2015) M/s Unique Fashion vs Pure Cotton & Anr. Page 6 of 18 Pages
9. The defendant has asserted claimed that the plaintiff is trying to play a fraud by taking false stand, and making bald assertions without placing any proof on record. The defendant as per its email dated 16.04.2015 had clearly brought out the fact that there is no liability whatsoever on the defendant to make the payment.
10. The contents of the plaint are admitted, but it is claimed that it has no liability to pay the suit amount which is payable only by the foreign buyer and the defendant was merely acting as a mediator.
11. The plaintiff in its replication has reaffirmed its case and claimed that there is no privity of contract between the plaintiff and the foreign buyer and that it is only the defendant who is liable to pay the suit amount.
12. The issues were framed on the basis of pleadings on 26.11.2018, as under :
(i) Whether plaintiff is entitled to recovery of suit amount from defendant? OPP
(ii) Whether plaintiff is entitled to any interest on the suit amount? If so at what rate and for what period?
OPP
(iii) Relief.
13. The plaintiff in support of its case has examined PW1 Shri CS No. 208469/2016 (Old No. 35/2015) M/s Unique Fashion vs Pure Cotton & Anr. Page 7 of 18 Pages Sandeep Sethi, partner of the plaintiff firm, who tendered his evidence by way of affidavit Ex.PW1/X. The documents relied by the plaintiff are Ex.PW1/1 to Ex.PW1/22.
14. PW2 Shri Sanjay Arora is the other partner of the plaintiff firm, who has also deposed on similar lines as PW1 vide his evidence affidavit Ex.PW2/A.
15. The defendant in support of its case examined DW1 Shri Sunil Kumar Pandey, its authorized representative who tendered his evidence Ex.DW1/1. The documents relied upon by the defendant are Ex.DW1/A to Ex.DW1/N.
16. The detailed testimony of the witnesses shall be considered subsequently.
17. I have heard the arguments and have perused the record and the evidence led therein. My issuewise findings are as under :
Issue No. (i)
(i) Whether plaintiff is entitled to recovery of suit amount from defendant? OPP
18. It is the admitted case of the parties that 11 Purchase Orders dated 17.08.2011 Ex.PW1/3 to Ex.PW1/13 were placed by Pure Cotton, CS No. 208469/2016 (Old No. 35/2015) M/s Unique Fashion vs Pure Cotton & Anr. Page 8 of 18 Pages a unit of the defendant company on the plaintiff in the sum of US $ 53,667.75. It is further an admitted case that no payment has been received by the plaintiff against these pay orders and therefore, the present suit for recovery has been filed.
19. The defendant, first and foremost, has claimed that there was no contract between the parties; in fact it was only a facilitator and the actual contract was between the foreign buyer Motor Jeans based in Turkey and the plaintiff. The entire transaction has been explained by the defendant in its written statement and also in the testimony of DW1 Shri Sunil Kumar Pandey wherein it is deposed that as per the market practice, defendant is not a buyer or a buying agent but merely is a Merchant Exporter as per the rules and definition of Apparel Export Promotion Council, Ministry of Textile. The defendant procures the orders from the foreign market and thereafter, identifies suitable factories to which the orders are allocated and the goods required as per such orders are shipped directly from the seller / manufacturer to the buyer. The role of the defendant is claimed to be only to procure orders, assist the manufacturer and execution of the orders and to coordinate with the foreign company at the end of the manufacturing process.
20. The procedure as explained by the defendant in his written statement and its evidence clearly states that it is the defendant who procures the foreign orders, gets them executed through the manufacturer by an independent contract. After getting the goods CS No. 208469/2016 (Old No. 35/2015) M/s Unique Fashion vs Pure Cotton & Anr. Page 9 of 18 Pages manufactured, it exports the goods to the foreign buyer. The true nature of transaction can be understood by understanding what are the Purchase Orders and what is their legal sanctity.
21. In the present case, admittedly there is no written contract. The transactions between the plaintiff and the defendants are defined by Purchase Orders which when acted upon by the defendant, became legally binding contract. Each purchase order is an independent contract. All these Purchase Orders Ex.PW1/3 to Ex.PW1/13 have been placed by M/s Pure Cotton, a unit of defendant on the plaintiff. None of these Purchase Orders have been placed by the defendant on foreign buyer Motor Jeans. The perusal of these Purchase Orders clearly shows that the garments were ordered by the defendant to be manufactured by the plaintiff as per the specifications and upon manufacture, these goods were to be shipped to Motor Jeans at Istanbul, Turkey. The Purchase Orders clearly witness and establish that the transactions were between the plaintiff and the defendant and that the Motor Jeans was not a party to the contract between the plaintiff and defendant. On the directions as contained in the Purchase Orders, the plaintiff undertook to manufacture the goods as per the specifications given by the defendant. The Purchase Order when accepted by the plaintiff became a contract between the plaintiff and defendant. The foreign company Motor Jeans was only a beneficiary to whom the goods were shipped by the plaintiff on the instructions of the defendant. Merely because the goods had been delivered to the company at Turkey on the instructions and directions of CS No. 208469/2016 (Old No. 35/2015) M/s Unique Fashion vs Pure Cotton & Anr. Page 10 of 18 Pages defendant, would not give rise to the independent contract between plaintiff and the foreign company.
22. This conclusion is fortified by the letter dated 12.11.2012 Ex.PW1/18 which was admittedly written on behalf of the defendant to the plaintiff. In the said letter, it was reiterated that defendant is a buying house who procures orders from foreign customers and places the same to the suppliers in India. It is admitted that based on the orders received by defendant from Motor Jeans, Istanbul, Turkey, the defendant has placed Purchase Orders for a value of US $ 53,667.75 for direct shipment to Istanbul, Turkey. Not only this, it is further stated in the letter that after the goods were manufactured, they were inspected and found in order as per the specifications by the buyer in Istanbul and accordingly, directed the plaintiff to ship the goods directly to M/s Motor Jeans, Istanbul, Turkey vide Invoice No. 4522 dated 11.01.2012 Bill of Lading No. BOM081658 Document No. BOM/541441 dated 24.01.2012. It is confirmed that the delivery of the aforesaid goods has been taken by the buyer in Istanbul, Turkey. It is further stated that they have raised a bill upon Motor Jeans but have not received payment from the buyer. If they will receive the payment in future, the defendant would either pass on the payment to the plaintiff in satisfaction of the Invoice No. 4522 dated 11.01.2012 or in case the claim is received from ECGC, then the payment shall be made to ECGC on realization. The defendant stated that legal recourse was being taken against the foreign Company and sought authorization from the plaintiff to pursue appropriate legal CS No. 208469/2016 (Old No. 35/2015) M/s Unique Fashion vs Pure Cotton & Anr. Page 11 of 18 Pages remedies for recovery of the payment amount from the foreign Company.
23. This letter Ex.PW1/18 clearly explains the entire transaction of the contract being between the plaintiff and the defendant. The goods had been inspected by the defendant and the delivery of the goods was made to the foreign buyer directly by the plaintiff on the instructions of the defendant. The delivery of goods was also to the defendant but was physically supplied to Foreign Buyer Motor jeans (the beneficiary) on his instructions. The defendant vide this letter had even admitted its liability to pay US $ 53,667.75 to the plaintiff in case the payments are not received from the foreign buyer and that defendant shall take legal recourse for recovery of the amount from the foreign buyer. This letter Ex.PW1/18 further reinforces that the contract was between the plaintiff and the defendant and that plaintiff is entitled to recovery of US $ 53,667.75.
24. The defendant itself has explained that the payments for the goods delivered to foreign buyer are received in the account of the defendant who forwards the contract amount as per the invoices between the plaintiff and the defendant, to the plaintiff while retains its own profit in its account. It has been explained by him that the contract amount are negotiated independently with the buyer which includes the cost of the garments and the profit of the defendant. This again shows that the defendant entered into the contract for manufacture of goods from the CS No. 208469/2016 (Old No. 35/2015) M/s Unique Fashion vs Pure Cotton & Anr. Page 12 of 18 Pages plaintiff and entered into an independent contract with the foreign buyer for the supply of the goods. There is an independent contract between the foreign buyer and the defendant, there was no contract whatsoever between the plaintiff and the foreign buyer. Therefore, the liability vide Purchase Orders Ex.PW1/3 to Ex.PW1/13 is only that of the defendant.
25. The defendant had claimed that the plaintiff had already been informed about the high risk and was informed that the buyer was unable to furnish a Letter of Credit and that the goods may not be shipped. However, DW1 Shri Sunil Kumar Pandey himself had deposed that the post dated cheques were received from the buyer and against those post dated cheques the plaintiff was asked to ship the goods to the foreign buyer. The post dated cheques were in the name of the defendant which again reinforce that the contract was between the defendant and the foreign buyer and any default in payment by the foreign buyer has to be suffered by the defendant. He cannot transfer the said liability to the plaintiff especially in view of his own admissions as contained in the letter dated 12.11.2012 Ex.PW1/18.
26. It has been argued on behalf of the defendant that the defendant being aware of the high risk transaction, had insisted upon the plaintiff to get the goods insured with ECGC but the plaintiff had refused to do so. Therefore, the defendant paid the premium amount for the Insurance cover which was ultimately taken by the plaintiff. The plaintiff failed to pursue his claim diligently with ECGC on account of which the CS No. 208469/2016 (Old No. 35/2015) M/s Unique Fashion vs Pure Cotton & Anr. Page 13 of 18 Pages same was rejected. The defendant has thus, claimed that on account of negligent act of the plaintiff, he has not been able to recover the insured amount as the plaintiff filed the claim belatedly after 150 days time frame for claim from the ECGC, for which the defendant cannot be made liable.
27. In this regard, it may be noted that the goods were dispatched vide bill of lading Ex.PW1/14 dated 11.01.2012. The claim for the amount could have been made within 150 days of 11.01.2012. However, it is the case of the defendant himself that post dated cheques had been given by the buyer to the defendant for securing the payments. The said cheques have been dishonoured only on 26.09.2012 and the plaintiff has been informed about the dishonour of the post dated cheques and about non receipt of payment only in December, 2012. The plaintiff could not have therefore, possibly filed the insurance claim in July, 2012 i.e. 150 days from issue of bill of lading on 11.01.2012. It could not have filed the claim even thereafter till January, 2013 when it was filed since till then, the defendant had been pursuing and assuring the plaintiff that payments would be made by the defendant either from the money received from the foreign buyer or from its own funds. The plaintiff therefore, cannot be considered responsible for filing of the delayed claim or its rejection by ECGC.
28. An objection has been taken by the plaintiff that the written statement is signed by Shri Sunil Kumar Pandey and it is Shri Sunil CS No. 208469/2016 (Old No. 35/2015) M/s Unique Fashion vs Pure Cotton & Anr. Page 14 of 18 Pages Kumar Pandey, who has appeared as DW1 on behalf of the defendant. However, no Minutes of Board of Directors has been filed nor is there any power of attorney in his favour and thus, he was neither competent to sign the written statement on behalf of the defendant Company or to depose on behalf of the defendant. For any person to sign for and on behalf of the Company, it is mandatory that such person should be authorized by a Board Resolution to represent the Company in any litigation. In the present case, admittedly neither any Board Resolution has been placed on record nor the minutes of the Board has been filed on record by the defendant. There is only one authority letter Ex.PW1/N which has been issued in the name of Shri Sunil Kumar Pandey by Mr. Natalino Duo, Director of the defendant company. This authorization letter issued by the Director Mr. Natalino Duo is not sufficient as per the Companies Act. There should have been procedurally a board resolution and the minutes of the board duly authorizing Shri Sunil Kumar Pandey or authorizing Mr. Natalino Duo, the Director to authorize any person to represent the Company in the litigation. The plaintiff has taken a valid objection in regard to the admissibility of the evidence of DW1 Shri Sunil Kumar Pandey. However, even if his testimony is not considered, the present case rests upon the facts and admitted documents and require only legal interpretation.
29. The defendant has also taken an objection that there is no independent personal liability of the Director of the Company and that Mr. Natalino Duo cannot be sued by way of present suit, in his CS No. 208469/2016 (Old No. 35/2015) M/s Unique Fashion vs Pure Cotton & Anr. Page 15 of 18 Pages independent capacity. From the pleadings of the plaintiff, it can be made out that Mr. Natalino Duo has been sued not in his independent capacity, but as a director of the Company.
30. In Tristar Consultants vs M/s Vcustomer Services India Pvt. Ltd. & Anr. C. R. P. No. 365/2006, Hon'ble High Court of Delhi decided on 05.03.2007, it had been observed that company is a juristic person and can act only through a living human being. Collectively, decisions on behalf of the company are taken by the Board of the Directors and individual director has no power to act for and on behalf of the Company of which he is a director, unless there is a specific resolution of Board of Directors giving him specific powers. Further, directors are agents, trustees or representatives of the Company and act in a fiduciary capacity. They perform acts and duties for and on behalf of the Company. The directors are not personally liable for contracts entered into by them on behalf of the Company. Director cannot therefore, be made personally liable for the acts of the Company except under the Law of Torts. Defendant no. 2 therefore, cannot be sued in his individual capacity, but only as a capacity of the director of the defendant Company.
31. In this context, it may be noted that plaintiff has filed a suit for recovery of Rs.56,00,000/ but as per its own document Ex.PW1/X1, the shipment value is US $ 53,667.75 which is to Rs.28,14,873/ which is the claim filed before ECGC. The plaintiff has not been able to explain CS No. 208469/2016 (Old No. 35/2015) M/s Unique Fashion vs Pure Cotton & Anr. Page 16 of 18 Pages on what basis, it is claiming a sum of Rs.56,00,000/ as the recovery is for US $ 53,667.75 which is to Rs.28,14,873/.
32. The plaintiff has been able to prove that the defendant has defaulted in making payment of Rs.28,14,873/ (US $ 53,667.75) and hence, entitled to recovery.
33. Issue No. 1 is decided in favour of the plaintiff and against the defendants.
Issue No. (ii)
(ii) Whether plaintiff is entitled to any interest on the suit amount? If so at what rate and for what period?
OPP
34. There is no contract between the parties in regard to interest and also no interest was demanded. It is accordingly, held that plaintiff is entitled to simple interest at a rate of 6% per annum from the date of filing of the suit till realization.
35. Issue no. (ii) is accordingly decided.
Relief
36. In view of above findings, suit is decreed in favour of plaintiff against defendant for a sum of Rs. 28,14,873/ with simple interest thereon at a rate of 6% per annum from the date of filing the suit CS No. 208469/2016 (Old No. 35/2015) M/s Unique Fashion vs Pure Cotton & Anr. Page 17 of 18 Pages till realization.
37. Decree sheet be accordingly drawn. Parties to bear their own costs. File be consigned to record room.
Announced in the open court on
this 8th day of May 2020 (NEENA BANSAL KRISHNA)
District & Sessions Judge
Digitally signed South East, Saket Courts
by NEENA
NEENA BANSAL New Delhi (a)
BANSAL KRISHNA
Date:
KRISHNA 2020.05.08
14:27:39 +0530
CS No. 208469/2016 (Old No. 35/2015)
M/s Unique Fashion vs Pure Cotton & Anr. Page 18 of 18 Pages