Bangalore District Court
M/S. Karnataka State Finance vs M/S. System Logic (India) on 25 July, 2016
IN THE COURT OF XL ADDL.CITY CIVIL &
SESSIONS JUDGE (CCH-41) AT BENGALURU.
Dated this the 25th day of July 2016.
:PRESENT:
SRI.JINARALAKAR. B.L.,
B.A., LL.B. (Spl.)
XL Addl.City Civil & Sessions Judge, Bengaluru.
O.S.NO.8599/2004
PLAINTIFF: M/S. KARNATAKA STATE FINANCE
CORPORATION,
ELF & HP and MBFS Departments,
Head Office: No.1/1, Thimmaiah Road,
Bengaluru-560 052.
A statutory Body formed under State
Financial Corporation Act, 1951,
represented by : Manager, (F & A).
(By Sri.G.S.VINAYA KUMAR, Adv.)
AND:
DEFENDANT: M/S. SYSTEM LOGIC (INDIA)
PRIVATE LIMITED,
No.1281, 21st Main Road,
2nd Phase, J.P. Nagar,
Bengaluru-560 078.
Represented by its Director-Sri.S.K.Patil.
(By Sri.Ajoy Kumar Patil, Advocate.)
***
i) Date of Institution of the 23.11.2004
suit.
ii) Nature of the suit. Money suit.
2 O.S.No.8599/2004
iii) Date of the 08.12.2000
commencement of recording
of evidence.
iv) Date on which the
judgment was pronounced. 25-07-2004
v) Total Duration Years Months Days
11 08 02
***
JUDGMENT
The plaintiff Corporation has filed this suit against the defendant directing him to pay a sum of Rs.9.00 lakhs, which was paid along with future interest at 24% p.a. from the date of suit and further directing to pay a sum of Rs.7.22 lakhs along with future interest at the rate of 24% p.a. from the date of suit towards liquidated damages and costs, etc. .2. The averments of the plaint in brief are that:
The plaintiff - M/s. KSFC has been established by the Government of Karnataka for the State of Karnataka under Sec.3 of the State Financial Corporation Act 1951 and has been carrying on its functions specified in Sec.25 of the said Act in accordance with Se.24 of the said Act. The 3 O.S.No.8599/2004 plaintiff Corporation is a statutory public financial Institution established in the State with the object of rendering financial assistance to industrial concerns and the main motto is to promote industrial development in the State of Karnataka.
In order to give good and effective service to the entrepreneurs and to keep in line with the online accounting of the term loan of the Corporation, it was decided to computerize the entire functions of the Department of Merchant Banking Financial Services and also that of the Hire purchase and Equipment Leasing Departments. The plaintiff Corporation has invited some of the Software Companies to develop Software package in order to provide good and effective loan transactions to the loanees. An invitation was given to the defendant also by letters dated 28.01.1998 and 09.02.1998. After presentation of their proposals before the Management, the proposals dated 04.02.1998 and 02.03.1998 placed before the Board and after examining, the said proposals 4 O.S.No.8599/2004 came to be accepted by the Board. Thus, the said package deal was bagged by the defendant. Corporation has decided to give them the said package, since the proposal given by them was comprehensive, which appears the activities right from enquiry to the account closure. The Software package, which was proposed to be given to ELF & HP and MBFS Departments of the plaintiff Corporation was amounting to Rs.7,90,000/- and 6,00,000/-. After accepting the offer, Corporation on certain terms and conditions given this package deal to defendant by letters dated 03.03.1998 and 28.07.1998. The terms and conditions were agreed and accepted by the defendant. After negotiations, the defendant has agreed to develop the said Software packages for an amount of Rs.7,50,000/- and Rs.4,00,000/- respectively. The package deal was entered into with the defendant for a Software package covering the following modules for both the Departments:
I - Leasing and Hire Purchase Department:
a) Enquiry Module, 5 O.S.No.8599/2004
b) Sanction and disbursement Module
c) Accounting Module
d) Recovery Module
e) MIS, and Taxation Modules II - Merchant Banking and Financial Services
a) Factoring activity
1. Customer - Add, modify, delete and view
2. Other masters
3. Payments
4. Recovery - including interest calculations
5. Income note
6. Reports
7. Adjustments
b) N C D activity
1. Record for sanction of NCD issues
2. Record of actual disbursement of Funds for Sanctioned issues.
3. Record the interest scheme (for e.g. quarterly, half yearly etc., and dates)
4. Record the redemption schedule
5. Find out interest receivables for a given date
6. Generate demand notices for the interest
7. Record the actual receipt of the interest
8. Calculation of penal interest 6 O.S.No.8599/2004
9. receivable reports indicating overdue interest receivable etc.,
10. recording of management fee, under writing fee etc.,
11. find out redemption proceeds receivable for a given date
12. generate demand notices for the redemption amount,
13. record the actual receipt of redemption proceeds.
The said Software packages were supposed to the developed by the defendant in a fixed period as mentioned below:
Period Revised period a) HP & Leasing 32 weeks 43 weeks Package b) Factoring and 22 weeks NCD package
As per own proposals as mentioned above, the defendant could not deliver the package within the stipulated time and also whatever the little amount of work done for the above said Departments were also defective and not operative, thereby breached the terms, which resulted in 7 O.S.No.8599/2004 huge loss to the Corporation. As per the terms of the contract, the payment schedule for both the package is as shown below:
a) Factoring and NCD Scheme
i) on acceptance of his offer : 25%
ii) Upon finalization of requirement: 25% and specification
iii) Upon successful implementation : 50% And training of personnel
b) For ELF & HP Scheme:
i) On acceptance of your offer : 25%
ii) Upon finalization of requirements : 25% and specification
iii) Upon successful implementation and:40% training the officials of Department for usage.
iv) Retention money to be disbursed : 10% after 3 months from the date of implementation of the package.
The plaintiff Corporation has disbursed the following sum to the defendant:
a) Factoring and NCD Scheme:8 O.S.No.8599/2004
Date of Cheque No. Amount
payment
21.03.1998 4121281 & 82 Rs.1,00,000/-
24.06.1998 413741 & 42 Rs.1,00,000/-
17.02.1999 420693 & 94 Rs.1,00,000/-
31.12.1999 - Rs. 50,000/-
Total Rs.3,50,000/-
b) ELF AND HP Scheme
05.08.1998 402244 Rs.1,87,500/-
29.12.1998 402301 Rs.1,87,500/-
08.11.2001 - Rs.1,75,000/-
Total Rs.5,50,000/-
The total amount paid to the defendant is Rs.9,00,000/-.
The last releases of payments in both schemes i.e. Rs.50,000/- and Rs.1,75,000/- were adjusted to the plaintiffs loan account, which was there at that movement of time. Above payments are made by cheques to the defendant.
The defendant has conducted the study of both Departments and prepared system requirement 9 O.S.No.8599/2004 specifications (hereinafter called as SRS) and submitted the same to the plaintiff for approval. After studying the same, the Corporation Finance and Technical experts approved the SRS with certain modifications. The system requirement specifications approval was given vide letter dated 14.05.1998 and 14.12.1998. The defendant has developed an interim accounting module for HP & Leasing activities for feeding the previous years data starting from 1993-94. But, in the interim accounting package itself provision for accounting of dishonoring cheques was not at all provided. Despite several requests and reminders, the defendant could not provide such kind of facility to feed the said data. First interim module developed was itself defective and it could not be operational.
The plaintiff provided all necessary inputs such as hardware requirements and officers were also deputed to the defendant office for discussions regarding development of the Software package and to enlighten the software engineers about the activities of 10 O.S.No.8599/2004 Departments. The system specification requirement was approved and the same was conveyed to the defendant to start the software development as early as in August 1998 itself. Initially, the defendant developed the interim accounts package, which did not cover the cheque bouncing transactions. Hence, the plaintiff could not use the said package. Thereafter, the said package was not at all rectified. The said accounting module was not set right as per the requirement of the plaintiff. Even at this stage without developing anyone of the five modules HP and Leasing Departments completely the defendant requested for payment of Rs.1,75,000/-, the same was considered and the amount was released on 08.11.2000. In the letter dated 06.11.2000, the defendant undertook to complete the entire package by 15.12.2000, but till date, the defendant has virtually failed to develop even a single module completely to the satisfaction of the plaintiff and said packages were left unattended and which was left in lurch.
11 O.S.No.8599/2004
The plaintiff wrote a letter dated 15.01.2001 indicating the deficiencies in the accounting package and the work to be completed by the defendant.
Subsequently, on 12.06.2001, the plaintiff has written one more letter to the defendant pointing out some of the errors and bugs in the package and also requested to rectify the same and complete other pending works immediately. The defendant vide their letter dated 11.09.2001 admitted that they have not completed the project and indicated certain measures for completion. The defendant has demanded complete payment of the balance amount to be paid for completion of the packages. Without completing a single module, defendant committed breach of contract and also terms and conditions stated in the purchase orders of the plaintiff.
The defendant was supposed to complete the full packages for getting the balance 50% of the agreed amount. But, the Corporation believing the Companies assurances and promises has paid more than 50% of the 12 O.S.No.8599/2004 amount payable to the said packages, but unfortunately, none of the packages were completed as per the terms and conditions. The defendant demanding full payment is nothing but the violation of the agreed terms and conditions of contract. The plaintiff Corporation has issued Legal Notice dated 28.11.2001 noting that despite of payments, the defendant neither developed the software nor installed the same in the Corporation, though giving sufficient opportunity and time to install the said packages. For the non-performance of his part of the contract by the defendant, plaintiff has demanded the full payments made by them till date may be refunded along with interest at 24%. But the defendant neither bothered about the payments nor approached the Corporation for completion of the project. In view of the above developments, plaintiff approached the District Consumer Forum explaining the deficiency of service rendered by the defendant to the Corporation during 20.01.2003. But the Consumer Forum held that the complainant Corporation is not a Consumer as per 13 O.S.No.8599/2004 Consumer Protection Act as his complaint is concerned, accordingly, the complaint is dismissed as not maintainable, however giving liberty to take appropriate action against the defendant before the competent Civil Court by its order dated 05.01.2004.
The defendant has not completed the project. Except the accounting package, which was also not working properly for some of its deficiencies and bugs, the defendant has not delivered the other modules of the Hire Purchase and Leasing Scheme. A project of such a Software package is complete when the Company gives the final important final manuals, such as "User Manual and System Manual" for future usage of the said packages for their modifications. The defendant has developed the Software packages for NCD and factoring activities. He has also installed the same at the Head office of the plaintiff. After installing the package, it was found to fully defective and inoperative and not as per the requirement. Thereby, the defendant has duped the Corporation 14 O.S.No.8599/2004 without providing required Software package within the stipulated time. Since the packages are not completed, it has got no commercial value. Unless or until, it is fully completed or 100 % completed in all respects, it cannot be called as completion at all and cannot be used for any purpose. In the software parlance completion of portion of project is not completion at all. Whatever the portion of the work, which is allegedly claiming to be completed is not at all completed because, it is not in usage in daily commercial transactions of the plaintiff Corporation.
During the period of software development, the defendant has deputed as many as 3 Software Engineers one after the other. But, this has hindered the development of the Software package as each engineer when he is being deputed afresh, he has to study the entire contents of the package from the beginning and understand the nature of the activity carried out by the plaintiff. Although these engineers were deputed to look into the development of the said packages. None of the 3 15 O.S.No.8599/2004 engineers remained with the defendant. Due to the inordinate delay and non-functional of the packages, plaintiff Corporation has failed to provide good services to its customers and has lost most of the business and the customers. The loss incurred due to poor services rendered and non-availability of the Software package, which cannot be quantified. However, Corporation has invested huge sum of money towards hardware equipments, stationery, power, etc., and also manpower coordinated with the defendant in the development of the Software package.
The plaintiff has paid the amount of Rs.9.00 lakhs till date to the defendant, since the defendant has not paid the said amount with an interest at 24% p.a., the plaintiff has approached the Court directing the defendant to pay the same along with liquidated damages. The plaintiff is claiming an amount of Rs.7.22 lakhs as liquidated damages with interest at 24% p.a. from the defendant towards huge investment on hardware provided for the 16 O.S.No.8599/2004 package, manpower, stationery power, usage of telephone, fax, etc. The plaintiff has written several letters requesting the defendant to rectify the defects and bugs in the software and to complete the development of all the modules. Despite the same and several visits of the officials and telephone calls, the defendant has not bothered to rectify the bugs and complete the software package. The defendant without completing the Software package has demanded full release of the agreed amount, which has resulted in breach of terms of the purchase order. One more letter dated 21.08.2004 addressed to the defendant for an amicable settlement, but the defendant neither replied nor attended the office. Hence, the plaintiff Corporation has filed the present suit against the defendant.
.3. In pursuance of summons, the defendant appeared through counsel and filed written statement denying the material averments / allegations of the plaint regarding the plaintiff inviting other software companies to develop 17 O.S.No.8599/2004 the Software package, conducting studying of both departments, the interim accounting package did not provide for accounting of dishonour cheques, not providing the same, interim module was defective and non-operational, providing SRS in August 1998, requesting for payment and released without developing any modules completely, writing a letter dated 11.09.2001 admitting non-completion of project, package fully defective and inoperative, etc. However, the defendant admitted the plaintiff requesting to submit proposals for development of Software package, submitting the same as per letter dated 04.02.1998 and 02.03.1998, acceptance of the same, cost of packages of Rs.7.50 lakhs and 4.00 lakhs respectively, payment of Rs.9.00 lakhs, time scheduled for developing Software packages, mode of payment schedule disbursement and adjustment of the accounts, Further the defendant contended that the suit is barred by limitation in as much as the cause of action if 18 O.S.No.8599/2004 any arose much earlier even according to the plaintiff in June 1999 and the suit filed in the month of November 2004 is hopelessly barred by limitation. Even if the last letter written by the Director of the defendant to the plaintiff Corporation dated 11.09.2001 is taken to be the date on which the cause of action arose, the suit is barred by law of limitation having been filed in the month of November 2004, much beyond the period of limitation of three years. The averments of Paras-3 and 4 of the plaint are not within the knowledge. The averments of Para-5 of the plaint are substantially correct. The proposals submitted were accepted by the plaintiff with certain modifications. Thereby two proposals submitted to the plaintiff for development of Software packages namely - Factoring and Non-Convertible Debenture (F & NCD) System for Merchant Banking and Financial Services (MB & FS) Department and Leasing & Hire Purchase System (L & HP) System for Equipment Lease Finance and High Purchase (ELF &HP) Department of KSFC. The plaint averments regarding modules to be developed are 19 O.S.No.8599/2004 incorrect. The defendant has agreed to develop only the modules as stated in the Letters dated 04.02.1998 and 02.03.1998 and no other modules were agreed to be developed. The SRS for both departments was finalized after detailed discussion between the parties. The software to be developed for both the departments included the modules as stated in the proposals and SRS, which was finalized after detailed discussions between the Software Engineers of the defendant and top officials of both departments. The plaintiff has produced only Letters dated 14.05.1998 and 14.12.1998 approving the SRS, but has withheld both SRS documents and not produced the same and has suppressed the same. The plaintiff is guilty of suppressio veri and suggestio falsi. The SRS was provided only in December 1998. The payment was requested and plaintiff released because of satisfactory implementation of the package as per the terms of payment schedule. The plaintiff was satisfied that the modules have been fully and successfully developed. Hence, payment was made on 08.11.2000 pursuant to the 20 O.S.No.8599/2004 request by the defendant as per letter dated 06.11.2000. The plaintiff wrote a letter dated 15.01.2001, but its contents are totally false and incorrect. A suitable reply given to the same on 20.01.2001 pointing out all the issues raised in the said letter have already been addressed. The letter dated 12.06.2001 raises the issue of bugs and same is not covered by the proposal and SRS. The payments were made only after the plaintiff was satisfied with the packages have been developed and completed. The Corporation got issued a Legal Notice dated 28.11.2001 and in the same clearly admitted that the project should have been completed by June 1999. It is clear that the cause of action if any arose in June 1999. The suit is hopelessly barred by limitation. The plaintiff has filed false complaint before the District Forum, Bengaluru and same came to be dismissed on 05.01.2004. If the plaintiff had any grievance or cause of action, nothing prevented it from filing the suit in the first instance. The very fact of filing complaint and thereafter approaching the Court clearly go to show that the plaintiff 21 O.S.No.8599/2004 is only fishing around without there being any cause of action. The defendant has fully and satisfactorily completed the project and handed over all the user manuals and documentation to the officials of the plaintiff.
The defendant has developed software package for NCD and factoring activities and installed the same in the Head Office of the plaintiff. Due to the gross inefficiency, ignorance of the officials of the plaintiff, they are not in a position utilize the same. There was a dedicated team of about 6 soft engineers employed, who were working simultaneously on the project and all of them were fully conversant with the SRS and the contents of the package and they involved in the development of the Software packages till completion of the project and even thereafter. The plaintiff has paid Rs.9.00 lakhs for the work done in fully developing, completing and installing the Software packages. Hence, question of paying the same with interest does not arise. A sum of Rs.2.50 lakhs is still due from the plaintiff towards cost of the project as 22 O.S.No.8599/2004 agreed upon. The defendant has been advised to initiate separate legal proceedings against the plaintiff to recover the same and also for extract costs incurred for developing the software and the contract has been fully executed and implemented and question of paying liquidated damages does not arise. The plaintiff has not written several letters and no such letters were received. The letter dated 21.08.2004 has not at all been received. The plaintiff has not produced both SRS documents, which were finalized after detailed discussions between the parties and which were approved with certain modifications. The plaintiff has intentionally with malafide reasons not produced the said documents. The plaintiff has also not produced Certificate issued as far back as on 08.04.1999 stating that the project is in final stage of implementation.
The defendant was selected for development of Software packages for MB & FS Department and ELF & HP Department of the plaintiff Corporation. The terms and 23 O.S.No.8599/2004 conditions were incorporated in the proposals submitted and so far as the MB & FS package, the defendant was requested by the plaintiff to offer revised quotes for development and implementation of the software Programme for F & NCD system as per letter dated 22.12.1997. Accordingly, by letter dated 04.02.1998 the defendant submitted revised proposal for turnkey development of F & NCD system clearly stating the terms and conditions and recommended infrastructure to be provided by the KSFC. Clause-4 of the said proposal stated that financial accounting module pertaining to the F & NCD operations to be provided by the defendant shall be independent of the existing main accounting system at KSFC and that integrating the proposed solution to the main accounting system is not within the scope of the solution. Clause-8 detailed the recommended infrastructure for the implementation and usage of the developed application at KSFC. Clause 9 stated that the defendant will design/ implement the F & NCD system as per the detailed system Requirement Specifications to be 24 O.S.No.8599/2004 finalized upon completion of the requirements study. Clause-11 detailed the requirements from KSFC namely- i) availability of key personnel for discussions during requirements study, ii) availability of suitable hardware and software to carryout the user acceptance testing and final implementation at KSFC, and iii) availability of key personnel during user acceptance testing, implementation and training. This was accepted by the plaintiff by its letter dated 03.03.1998. Subsequently, after detailed discussions and consultations between the parties and the study conducted by the defendant, the SRS was finalized and approved by the plaintiff by a letter dated 14.05.1998. The plaintiff accepted the offer and the defendant put maximum effort, time and money and developed the Software packages for MB & FS Department. The defendant completed its part and handed over the developed Software package to the plaintiff. The software engineers assisted the KSFC in feeding the backlog data even though the terms of the Agreement and proposal did not provide for the same. 25 O.S.No.8599/2004 The plaintiff acknowledged the delivery of the package and requested the opposite party to test the software and certify its suitability by its letter dated 18.11.1998. Subsequently, the plaintiff has also issued Certificate that the defendant has developed the Software package for implementation of F & NCD schemes in the MB & FS Department. The Software package was successfully tested and thereafter even installed in June 1999 in KSFC site. But the required infrastructure and configuration to run the developed software was not available / inadequately installed at KSFC's office. The developed Software package was delivered and handed over to the officials of KSFC, who refused to sign the delivery documents on the ground that they will be retiring or transferred and they would inform the software engineers that they neither understood nor knew anything about the software business and did not want to take risk of signing for something that they are not at all aware of and they did not want to take responsibility and accountability for signing the delivery documents.
26 O.S.No.8599/2004
So far as the ELF & HP Software package, the proposal as per letter dated 02.03.1998 was submitted pursuant to the specific request of KSFC to submit such a proposal as per its letter dated 09.02.1998. The proposal submitted along with the said letter clearly stated the terms and conditions and the recommended infrastructure to be provided by KSFC. Clause-5 outlined the project scope and clause-6 dealt with the implementation plan. Clause-8 stated the recommended infrastructure for the implementation and usage application at KSFC. Clause-10 dealt with the terms and conditions and stated that the defendant will design / implement the system as per the detailed System Requirement Specifications to be finalized upon completion of the requirements study. It also stipulated that the necessary software (back end data base engine, operating system, etc.) and the hardware for the implementation of the system has to be provided by KSFC. It also stipulated that the defendant shall provide warranty against bugs reported for a period of three months from the date of installation. Clause-12detailed 27 O.S.No.8599/2004 the requirements from KSFC namely - i) availability of key personnel for discussions during requirements study, ii) availability of suitable hardware and software to carry out the user acceptance testing and final implementation at KSFC, and iii) availability of key personnel during user acceptance testing, implementation and training. This was accepted by the plaintiff by his letter dated 28.07.1998, which clearly stated that the Software package will have to be developed as per the scope of work and terms of offer detailed in the letters / proposals dated 02.03.1998. Subsequently, after detailed discussions and consultations between the parties and the study conducted by the defendant, the SRS was finalized and approved by the letter dated 14.12.1998.
The plaintiff as per its letter dated 28.07.1998 accepted the proposal submitted by the opposite party. This letter accepted the terms and conditions detailed in the offer letters of the opposite party. After the acceptance of proposal, the defendant put in maximum 28 O.S.No.8599/2004 time, effort and money and developed the Software package. The defendant has completed its part of the work and handed over the developed Software package to the plaintiff. The Software package was successfully tested but could not be loaded at the KSFC site because the necessary hardware requirement was not available / procured. Subsequently, the hardware was procured and the defendant also loaded the package and the training of KSFC personnel was also completed. The KSFC has acknowledged if its letter dated 03/04.05.1999.. The defendant also informed the plaintiff that the system has become operational. But, the plaintiff sought for changes in the allocation logic, which was different from that given at the time of finalizing the System Requirement Specifications. Subsequently, more than a year later, the plaintiff by letter dated 21.09.2000, acknowledging the successful implementation of the packages requested for documentation of the same and also requested for removal of the tables in the package developed on the insistence of the Information Technology Department of 29 O.S.No.8599/2004 the KSFC (which Department was not in existence earlier while finalizing the SRS). The plaintiff wrote another letter dated 15.01.2001 falsely alleging that there are certain deficiencies in the package and reply to the same on 20.01.2001 pointing out that all the issues mentioned in the said letter have been addressed. Again, after 6 months, the plaintiff wrote another letter on 13.03.2001 for inclusion of service charges in the software package and logic, which came into effect from 01.04.1999. Both these did not form part of the original System Requirement Specifications and were outside the scope of the proposal. Further a Letter dated 12-14.06.2001 was received by the defendant to rectify the bugs in the Software package. Warranty, as per the terms and conditions of the proposal was provided against any bugs reported for a period of three months from the date of installation. The Letters sought to make modifications and changes in the software requirements, which were not covered by the SRS or the proposal. Inspite of the same, the defendant has detailed discussion with the plaintiff 30 O.S.No.8599/2004 and as per the Letter dated 11.09.2001 submitted certain fresh proposals to meet the ever changing requirements of KSFC. The changes sought for by the plaintiff were nothing but change and modification of the terms of the contract and SRS, which the defendant ws not bound to comply. Inspite of the same, in order to maintain good and cordial relations, a letter was written, which has not been received and reply to the said proposals.
The defendant has strived the utmost and put in maximum time, effort and money to complete the project entrusted to it and completed its part and handed over the developed Software packages to the KSFC. The fully and completely developed Software packages in respect of both Departments has been installed in the site i.e., KSFC office. The required infrastructure and configuration to run the Software is not available / inadequately installed in the KSFC office even as on today and the defendant cannot be held responsible for the lapses committed on the part of the plaintiff. The Software 31 O.S.No.8599/2004 packages developed can only be operated provided the infrastructure mentioned in both the proposals is procured / provided by the KSFC. However, to this day, the plaintiff has not bothered to procure / provide the necessary infrastructure. Whatever infrastructure was available with the plaintiff was neither properly installed nor correctly configured. Since adequate infrastructure is a must to run the Software packages developed by the defendant, non- procurement / inadequate provision of the infrastructure has resulted in the Software packages developed and installed not being utilized / run properly by the plaintiff. The Software packages developed by the defendant are fully functional and operational and have been tested and handed over to the plaintiff. The criminal negligence, complete lack of understanding and coordination and gross inefficiency and incompetence on the part of the officials of the plaintiff has resulted in the Software packages developed not being utilized / used properly by the KSFC. In addition to not providing required infrastructure, the plaintiff use to frequently change the 32 O.S.No.8599/2004 specifications of the Software packages. The changes were contrary to the terms and conditions of the proposals and SRS finalized after detailed discussions between the parties. The change in specifications resulted in cost overruns in executing and completing the project / work. The officials of the plaintiff, who were assigned to the project were being frequently changed and due to the frequent change in specifications and officials by the plaintiff, the entire software development work had to be revisited and revised. The entire development work of the Software packages on many occasions, after substantial development had been done, had to be started from the beginning all over again. This resulted in the entire design of the project being changed leading to a regression effect. The frequent changes in the method of calculating penal interest, processing fee, etc., had a wide implication on the entire design of the project resulting in cost overruns in executing and completing the project. Inspite of the same, the defendant has fully and completely developed the entire Software packages and handed over 33 O.S.No.8599/2004 the same to the plaintiff. The various modules for completing the project as detailed in the proposals were developed and tested initially and were found to run satisfactorily. The modules were thereafter delivered and handed over to the officials of the KSFC for acceptance testing and for implementation of the application in the production environment. However, the officials of the KSFC refused to sign the delivery documents even though the Software packages were fully functional and operational. This shows a complete lack of responsibility and accountability, gross inefficiency, incompetence, criminal negligence, apathy and total lack of co-ordination and understanding on the part of the officials of the KSFC. The suit and the earlier complaint before the District Consumer Forum is nothing but an attempt by the KSFC to cover up the gross inefficiency, criminal negligence, total lack of responsibility and accountability and total dereliction of duty on the part of the plaintiff's officials. 34 O.S.No.8599/2004
The payments made by the KSFC clearly go to show that the Software packages have been fully developed and implemented. As per the payment terms and conditions as mentioned in the acceptance letter dated 03.03.1998, the final 50% of the cost of the package to be developed for the MB & FC Department was to be paid on successful implementation and training of personnel. Out of the total package cost of Rs.4.00 lakhs, the plaintiff has admittedly paid Rs.3.5 lakhs. If the Software packages had not been successfully developed and implemented, the payment in excess of Rs.2.00 lakhs could not have been made. It is only because the Software package was fully developed and successfully implemented, the KSFC released the payment of Rs.1.5 lakhs towards the same. The balance sum of Rs.50,000/- is being withheld even though the defendant has trained the personnel of KSFC. Similarly, in the case of Software package for the ELF & HP Department, part payments have been made by KSFC in accordance with the terms contained in the acceptance letter dated 28.07.1998. Out 35 O.S.No.8599/2004 of the total cost of Rs.7.5 lakhs, admittedly Rs.5.5 lakhs has been paid by the plaintiff. The initial 50% of the cost of the package amounting to Rs.3.75 lakhs was paid on acceptance of the offer and finalization of the System Requirement Specifications and another Rs.1.75 lakhs was released upon successful implementation and training of the personnel. The plaintiff is withholding over 20% of the cost of the package inspite of successful implementation of the same. Though the defendant has raised invoices for payment of balance amount for both packages, the plaintiff has not bothered to pay the same. The suit is totally false and misleading. The Software packages have been fully developed and are functional and operational. The plaintiff has not suffered any losses and on the other hand, the defendant has suffered loss due to cost overruns and change in specifications. The defendant has spent more than the amount paid by the plaintiff in developing and installing the Software packages. Since the Software packages have been fully developed, question of paying any amount does not arise 36 O.S.No.8599/2004 and the plaintiff is not entitled to any refund or damages and prays to dismiss the suit with exemplary costs. .4. On the above pleadings, the following issues & additional issue framed:
ISSUES
1. Whether the plaintiff proves that the services provided by the defendant for a Software package under the Agreement was defective and not accordance with the standard requirement of the plaintiff and the system has failed as alleged?
2. Whether the plaintiff further proves that due to the defective service of package provided by the defendant caused huge financial loss to the plaintiff as alleged?
3. Whether the defendant proves that they had developed Software package to the plaintiff and it was successfully installed, but not being utilized or used properly by the plaintiff the system is not functioning properly as alleged in Para No.30 of written statement?
4. Whether the plaintiff is entitled to recover Rs.9,00,000/- with interest at 24% p.a. from the defendant paid towards installation of Software package as prayed?
5. Whether the plaintiff is entitled to recover Rs.7.22 lakhs with interest at 24% p.a. towards the liquidatory damages as prayed? 37 O.S.No.8599/2004
6. To what relief, if any, the partiers are entitled?
ADDITIONAL ISSUE
1) Whether the suit is barred by limitation as alleged by the defendant?
.5. In support of the case, the plaintiff Corporation got examined it's Deputy Manager (F & A) Department of HP & FS as PW.1, got marked documents at Ex.P.1 to Ex.P.41 and closed the side. The defendant got examined it's the then Manager (Finance) as DW.1, got marked documents at Ex.D.1 to Ex.D.11 and closed the side.
.6. Heard arguments on both side.
.7. My answers to the above Issues are:
Issue No.1 - in the affirmative.
Issue No.2 - in the negative.
Issue No.3 - partly affirmative.
Issue No.4 - partly affirmative.
Issue No.5 - in the negative.
Addl. Issue No.1 - in the negative.38 O.S.No.8599/2004
Issue No.6 - As per final order for the following:
REASONS .8. ISSUE Nos.1 to 4: As these Issues are connected to each other, I have taken all together for discussion for the sake of convenience and to avoid repetition.
The plaintiff contended that the defendant has accepted the invitation to develop the Software packages, both Departments namely HP & Leasing Package and Factoring & NCD package, the defendant has not developed the said packages, inspite of payment of Rs.9.00 lakhs and the Software packages were defective and not in accordance with standard requirements and due to defective service of packages, caused much financial loss and is entitled to recover the said Rs.9.00 lakhs with interest at 24% p.a. from the defendant, etc. Per contra, the defendant contended that it has developed Software packages and successfully installed, but not being utilized or used properly by the officials of the plaintiff, the amount 39 O.S.No.8599/2004 paid by the plaintiff in developing and installing the Software packages, which have been fully developed and question of paying amount does not arise and the plaintiff is not entitled for any refund or damages, etc. .9. To substantiate respective contentions of the parties, the plaintiff Corporation has got examined its Deputy Manager (F & A) Department of HP & FS as PW.1, who in his affidavit evidence stated inviting software companies to develop Software packages and also giving invitation to the defendant, the defendant representing the proposals on 04.02.1998 and 02.03.1998, acceptance of the proposals on certain terms and conditions by letters dated 03.03.1998 and 28.07.1998, the defendant agreeing to develop both packages namely HP and Leasing Package, Factoring and NCD package, period to develop both the packages, payment for both the packages in all Rs.9.00 lakhs, the defective and not functioning and operational of the 1st interim module developed by the defendant, failure to develop even single module completely to the 40 O.S.No.8599/2004 satisfaction, packages left on attending deficiencies in packages, issuance of Legal Notice dated 28.11.2001 stating neither develop nor install the software inspite of giving sufficient opportunity and time to install the same packages, non-performance of part of contract, demanding full payment made to the defendant, loss incurred due to poor service rendered and non-availability of Software packages etc., by reiterating the plaint averments and got marked documents at Ex.P.1 to Ex.P.41.
Per contra, the defendant got examined its then Manager (Finance) as DW.1 who in his affidavit evidence stated regarding acceptance of proposal for development and Software packages namely-Factoring and NCD for MB & FS Department, L & HP System for equipment (ELF & HP) Department at the cost of 4.00 lakhs and 7.5 lakhs respectively, schedule time for developing the same, finalizing SRS after discussions between the parties, approval of said SRS, release of amount, because of satisfactory and implementation of the packages and 41 O.S.No.8599/2004 modules have been fully and successfully developed, full and satisfactorily implementing the project and developing both Software packages and handing over all user manuals and documentation to the officials of the plaintiff, free from defects and operational, fully developing and completing and installing Software packages at place of the plaintiff, the plaintiff not in a position to use the same due to gross inefficiency, ignorance and incompetence of officials, non-availability of required infrastructure and configuration to run the developed software installed in the KSFC office, non-bothering to procure / provide necessary infrastructure, the plaintiff not suffering any loss, suffering loss by the defendant due to change in specifications, the plaintiff not entitled for any amount, etc., by reiterating the averments of the written statement.
10. It is not in dispute that the defendant has agreed to develop Factoring and NCD for MB & FS Department, L & HP System for equipment (ELF & HP) Department of the KSFC at the cost of Rs.4.00 lakhs and 7.50 lakhs 42 O.S.No.8599/2004 respectively, period for execution of the work, mode of payment and receipt of Rs.9.00 lakhs by the defendant. The plaintiff alleges that the Software packages under Agreement were defective, not in accordance with standard requirement, whereas, the defendant alleges that it has developed Software packages and successfully installed, but the same is not being utilized properly due to gross inefficiency and ignorance of the officials of the plaintiff and also not provided required infrastructure, etc. The plaintiff has produced proposal of the defendant in respect of development of two Software packages at Ex.P.6, which shows the details of both packages. Further, the plaintiff has produced Letters at Exs.P.16 to 20, Ex.P.23, Exs.P.25 to Ex.P.27, Exs.P.32 to 36 and Ex.P.38 & Ex.P.39, which shows requesting the defendant to implement the Software packages and to attend pending work as stated therein. 43 O.S.No.8599/2004 .11. DW.1 in his cross-examination admitted that he has not produced any documents to show that they have developed two packages and given both to the plaintiff, they have not received any acknowledgment from the plaintiff having completed the Software packages and handed over to the plaintiff, there are no records in the office regarding imparting of training, not produced documents regarding work done in respect of user, acceptance, testing, implementation and sign off to HP and Leasing Department and also Factoring and NCD Department. Considering the above referred documentary evidence and materials on record go to show that the Software packages under Agreement, which were defective and not with the standard requirements. The plaintiff contended that due to defective service of packages, they have caused huge financial loss to the plaintiff, etc. But, the plaintiff has not adduced satisfactory evidence in respect of the same. As per Ex.P.6, the plaintiff also has responsibility to provide certain infrastructure and others as mentioned therein. The defendant specifically taken 44 O.S.No.8599/2004 contention that due to gross inefficiency and ignorance of the officials of the plaintiff, the plaintiff could not be use the developed software, etc. The defendant also produced Certificate given by the plaintiff at Ex.D.5 under which the plaintiff has certified that the defendant has developed Software packages for implementation of Factoring and Non-convertible Debenture scheme in Merchant Banking and Financial Services Department and the package includes entire modules from enquiry of accounting stage developed on Oracle backend with Developer 2000 as frontend, which is at the final stage of implementation and this document supports the contention of the defendant regarding developing the Software packages. But, though the defendant has developed Software packages, it has not adduced satisfactory evidence that the said Software packages are implemented and operative for the use in business transaction. Hence, the defendant is liable to repay the amount of Rs.9.00 lakhs received from the plaintiff. However, the defendant having developed the Software packages and also having taken contention that 45 O.S.No.8599/2004 due to lack of knowledge of the officials, not being used, the plaintiff is not entitled for interest as prayed. Hence, the plaintiff proved that the services provided by the defendant for a Software package under the Agreement were defective and not in accordance with the standard requirement, but failed to prove that due the defective service of package provided by the defendant, caused huge financial loss. The defendant also proved that it has developed Software package, but has failed to prove that it was successfully installed and implemented as per terms and conditions of Ex.P.6. The defendant having developed the Software packages and having taken contention regarding not utilize the same by the plaintiff and the plaintiff also having failed to adduce satisfactory evidence regarding infrastructure provided in terms of conditions of Ex.P.6 is only entitled for recovery of Rs.9.00 lakhs paid to the defendant, but not interest as prayed. Hence, I answered Issue No.1 in the affirmative, Issue No.2 in the negative, Issue No.3 partly affirmative and Issue No.4 partly affirmative.
46 O.S.No.8599/2004.12. ISSUE NO.5: The plaintiff Corporation contended that it has suffered loss due to non-availability of Software packages and is entitled for liquidated damages with interest at 24% p.a. towards installment made on hardware provided for package, manpower, stationery power, usage of telephone, fax, etc. The plaintiff has not produced satisfactory evidence in support of the said contention. Hence, the plaintiff is not entitled for the liquidated damages with interest. Hence, the plaintiff is not entitled to recover Rs.7.22 lakhs with interest at the rate of 24% p.a. towards liquidated damages, accordingly, I answered Issue No.5 in the negative.
.13. ADDITIONAL ISSUE NO.1: The defendant contended that the suit is barred by limitation. DW.1 in his affidavit evidence also stated regarding suit is barred by limitation and not filed within 3 years. The learned counsel for the defendant during the course of arguments submitted that the suit is barred by limitation and even according to the plaintiff, the cause of action arose in June 47 O.S.No.8599/2004 1999 and the suit is filed in the year 2004 beyond 3 years and same is barred by limitation and also relied upon a decision reported in AIR 1999 Supreme Court 1047, wherein their Lordships held that:
" (A) Limitation Act (36 of 1963), S.18 -
Acknowledgment - Should be made during subsistence of period of limitation -
Acknowledgment of liability after expiration of prescribed period of limitation for filing suit - Does not revive period of limitation."
The facts and circumstances of the present case are not applicable to the above cited decision. In the instant case, the plaintiff contended regarding approaching the Consumer Forum and after disposal of the same, filing the suit, etc. The plaintiff has produced Revised Schedule for the development of Leasing and HP application at Ex.P.15 and Revised Schedule for development of Factoring and NCD system at Ex.P.30 under which the defendant has undertaken to complete the project on 15th August 1999 and 21st August 1998 respectively. The plaintiff has produced the Certified copy of Order dated 05.01.2004 in 48 O.S.No.8599/2004 Complaint No.384/2003 of Consumer Forum and the said Complaint was dismissed as 'not maintainable' with a liberty to take appropriate action before competent Civil Court, if not otherwise, prohibited under law of limitation. Under Ex.P.15, the defendant has undertaken to complete the project work on 15th August 1999 and whereas, the plaintiff lodged complaint before the Consumer Forum in 2003 and after disposal of the same, filed the present suit on 23.11.2004 and the time consumed for initiating proceedings before the Consumer Forum is to be deducted. Hence, the defendant having not produced satisfactory evidence regarding suit barred by limitation, the suit is within time. Hence, the defendant has failed to prove the suit is barred by limitation and accordingly, I answered Additional Issue No.1 in the negative. .14. ISSUE NO.6: In view of the reasons and discussion on the above Issue Nos.1 to 5 & additional Issue No.1, I proceed to pass the following:
49 O.S.No.8599/2004
ORDER Suit of the Plaintiff Corporation is hereby partly decreed with costs as under:
The defendant is directed to pay a sum of Rs.9.00 lakhs to the plaintiff Corporation, which was received in relation to Software packages within three months from today, failing which, the defendant is liable to pay interest at the rate of 18% p.a. from today till realization.
Draw decree accordingly.
(Dictated to the Judgment Writer, computerized by her and corrected, revised, signed and then pronounced by me in the open Court on this the 25th day of July 2016.) (JINARALAKAR. B.L.) XL Addl. City Civil & Sessions judge, Bengaluru.
ANNEXURE WITNESSES EXAMINED ON BEHALF OF PLAINTIFF: PW.1 - H.M.Mukundappa.50 O.S.No.8599/2004
DOCUMENTS PRODUCED ON BEHALF OF PLAINTIFF: Ex.P.1 & 2 Copy of Work Orders issued to the defendant.
Ex.P.3 Letter dated 28.07.1998
Ex.P.4 Copy of Offer Letter dated 09.02.1998
given to 3 Software developers.
Ex.P.5 Certified copy of Letter dated 02.03.1998
written by the defendant to the plaintiff Corporation.
Ex.P.6 The system requirements specification prepared by the defendant.
Ex.P.7 Letter dated 13.02.1998 written by the defendant.
Ex.P.8 Certified copy of Letter dated 25.02.1998. Ex.P.9 to Extract of Passbook for having maintained Ex.P.13 accounts for payment made to defendant issued by the Canara Bank.
Ex.P.14 Certificate issued by the plaintiff. Ex.P.15 Letter dated 17.12.1998 written by the defendant.
Ex.P.16 Letter written to defendant.
Ex.P.17 Copy of letter written to defendant dated
29.07.1999.
Ex.P.18 Copy of one more Letter dated 24.12.1999
written to defendant.
Ex.P.19 Copy of one more Letter dated
24.12.1999.
Ex.P.20 Copy of Letter dated 24.12.1999 written to
defendant.
Ex.P.21 Letter dated 20.12.1999 of the defendant.
Ex.P.22 One more Letter dated 17.12.1999.
Ex.P.23 Copy of Letter dated 17.01.2000 written to
the defendant.
Ex.P.24 Copy of Letter dated 08.11.2000.
Ex.P.25 Copy of one more Letter dated 26.02.2001
written to defendant.
Ex.P.26 One more Letter dated 04.01.2000.
51 O.S.No.8599/2004
Ex.P.27 Software development status prepared by
KSFC and given to management.
Ex.P.28 Copy of Notice dated 28.11.2001 issued to
the defendant.
Ex.P.29 Letter dated 03.03.1998 written by the
defendant.
Ex.P.30 Letter written by the defendant dated
13.03.1998.
Ex.P.31 One more Letter written by the defendant
dated 25.02.1999.
Ex.P.32 Copy of Letter dated 09.07.1999.
Ex.P.33 Copy of another Letter dated 27.08.1999
written to the defendant.
Ex.P.34 Copy of one more Letter written to
defendant.
Ex.P.35 to Certified copy of Letters written to Ex.P.39 defendant issued by the Consumer Forum authorities.
Ex.P.40 Authorization Letter issued by the plaintiff Corporation.
Ex.P.41 Certified copy of order dated 05.01.2004 passed in Complaint No.384/2003 by the Consumers Disputes Redressal Forum, Bengaluru Urban District on the complaint of the plaintiff against the present defendant.
WITNESSES EXAMINED ON BEHALF OF DEFENDANT:
DW.1 - Satish Holla S/o. Sri.M.Subramhanya.
DOCUMENTS PRODUCED ON BEHALF OF
DEFENDANT:
Ex.D.1 Authorization Letter.
Ex.D.2 Letter dated 22.12.1997 written by the
plaintiff to the defendant.
52 O.S.No.8599/2004
Ex.D.3 Letter dated 10.02.1998 written by the
plaintiff to the defendant.
Ex.D.4 Letter dated 17/18.11.1998 written by the
plaintiff to the defendant.
Ex.D.5 Certificate given by the plaintiff to the
defendant.
Ex.D.6 Letter issued by the plaintiff to the
defendant dated 03/04.05.1999.
Ex.D.7 Letter issued by the plaintiff to the
defendant dated 21.09.2000.
Ex.D.8 Letter issued by the plaintiff to the
defendant dated 15.01.2001.
Ex.D.9 Copy of Letter addressed to the plaintiff
dated 20.01.2001.
Ex.D.10 Letter of the plaintiff written to the defendant dated 13.03.2001.
Ex.D.11 Letter of the plaintiff to the defendant dated 14.06.2001.
(JINARALAKAR. B.L.) XL Addl. City Civil & Sessions judge, Bengaluru.53 O.S.No.8599/2004