Delhi District Court
Sanjeevani Tradecorp vs Spraystream India Pvt. Ltd on 3 August, 2024
IN THE COURT OF MS. SAVITA RAO
DISTRICT JUDGE (COMMERCIAL COURTS)-01
SOUTH DISTRICT: SAKET : NEW DELHI
CS (Comm) No. : 500/23
CNR No. DLST01-008295-2023
In the matter:
1. Sanjeevani Tradecorp
Through its partner: Prasant Kumar Mishra
Regd. Add: 1st Floor, Sanatan Bhumij Complex,
Brahmani Tarang, Rourkela, Odisha-769004
Email: [email protected]
2. Sh. Prasant Kumar Mishra
(Partner in Sanjeevani Tradecorp)
S/o Sh. Ashok Mishra
Add: Near St. Mary's Convent, Main Road,
China Town, Birmitrapur, Sundergarh,
Odisha-770033
3. Mrs. Avani Shukla
W/o Abhishek Shukla
R/o Plot No. KK/41, Civil Township
P.O. Rourkela-4, Sundargarh, Odisha
... Plaintiff
Versus
1. Spraystream India Pvt. Ltd.
Through Director Sh. Naveen Ranjan
Registered Add: Khasra No-58/9/2,
Near Lalita Devi College,
Village Mandi, New Delhi-110047
2. Sh. Naveen Ranjan
Director in Spray Stream India Pvt. Ltd.
Add: Khasra No- 58/9/2,
CS (Comm): 500/23 1/29
Near Lalita Devi College,
Village Mandi, New Delhi-110047
......... Defendants
Date of Institution : 26.08.2023
Date of Arguments : 11.07.2024, 30.07.2024 & 02.08.2024
Date of Judgment : 03.08.2024
JUDGMENT
1. This is suit for recovery of Rs. 7,66,499/- (Seven Lacs Sixty Six Thousand Four Hundred Ninety Nine only) filed by plaintiffs against the defendants on the facts that plaintiff no.1 is a partnership firm which is engaged in the business of trading and plaintiffs no. 2 & 3 are its partners. Plaintiffs were willing to take distributorship of Dust Control Systems Equipments, for which communications were made between plaintiff and defendants. On 22.01.2020, defendants raised a proforma invoice amounting to Rs. 14,54,350/- in favour of plaintiff firm for purchase of one unit of Dust Control System. Distributorship Agreement dated 27.01.2020 was signed between defendant company and plaintiff firm. As per terms of the Agreement, plaintiffs were required to sell, promote and market defendant's products in state of Odisha and in turn defendants were under obligation to provide the Dust Control System units to plaintiffs alongwith brochures, technical know-how, test reports etc.
2. Plaintiff firm, in order to show its bonafide to perform the obligations of the Agreement, made advance payment of Rs. 2,54,350/- to the defendant company vide cheque bearing no. 893542 drawn on State Bank of India dated 29.01.2020 which CS (Comm): 500/23 2/29 was cleared on 05.02.2020. On 05.03.2020, plaintiff firm was asked by defendant company vide email to immediately deposit Rs. 2,00,000/- and the balance amount be deposited by 18.03.2020. Defendants also committed to dispatch the unit. In pursuance to the same, on 06.03.2020 plaintiff firm paid further amount of Rs. 2,00,000/- (Rs. Two lacs only) to defendants vide NEFT. Thus, out of the total value of Rs. 14,54,350/- of the product, sum of Rs. 4,54,350/- was paid to defendant company and plaintiffs, as stated, were diligently arranging funds to pay the balance amount.
3. By March 2020, due to spread of covid-19 pandemic, plaintiffs could not pay further payment and it became impossible for them to perform the condition precedent to the agreement. Consequently, defendants did not dispatch the product unit over incomplete payments and the obligations under the Agreement could not come into force. Plaintiffs conveyed to defendants with regard to withdrawal of distributorship and sought refund of Rs. 4,54,350. Defendant company stated its inability to cancel the product unit as duty had been paid and plaintiffs were asked to make balance payment. Plaintiff was constrained to issue Legal Notice dated 24.10.2020. Defendants neither dispatched the product unit to the plaintiffs nor the advance money was refunded and the agreement automatically terminated on 10.12.2020.
4. Plaintiff initiated "Pre-Institution Mediation" proceedings and filed an application for Mediation before the competent authority under Rule 2 (c) of The Commercial Courts (Pre- Institution) Mediation and Settlement Rules, 2018 wherein Non-
CS (Comm): 500/23 3/29Starter Report dated 01.07.2022 was issued by the concerned authority and plaintiffs were constrained to file the instant suit.
5. In written statement filed on behalf of defendants, objection was taken with regard to status of defendant no.3 Mrs. Avani Shukla as partner of plaintiff's firm. It was stated that upon request of plaintiffs and willingness to perform as distributor of defendant's products, defendant no.2 had visited plaintiff no.2 at Rourkela, Odisha during the year 2020 and had to incur expenses around Rs. 1,00,000/- including visits to intended customers, which were borne by defendants. Thereafter Proforma Invoice dated 22.01.2020 amounting to Rs. 14,54,350/- for one unit Spraystream Dust Control Systems SS50i with remote and rotation, was raised in the name of plaintiffs only after discussing the terms and condition of distributorship agreement with plaintiffs. Plaintiffs had to pay full payment for the unit purchased at the time of executing distributorship agreement i.e. 27.01.2020 as per proforma invoice dated 22.01.2020 but just after entering into distributorship agreement, plaintiffs started re- negotiations and requested defendants to provide Trolley+ 3 tyres free of cost for first unit purchased and assured that full payment will be made by 06.02.2020. Resultantly one extra condition was added to the distributorship agreement in that aspect.
6. Plaintiff sought further time to process the remaining amount i.e. Rs. 12,00,000/-, subsequent to which vide email dated 05.03.2020 sent by defendants, plaintiffs were asked to pay Rs. 2,00,000/- till they were equipped with the final payment to dispatch the unit. However, delay in performance of distributorship agreement was caused by plaintiffs. Till date CS (Comm): 500/23 4/29 plaintiffs have not paid full payment for the dust control machine as agreed, and have withheld the payment under the false pretext of unforeseen circumstances. It was rather the defendant company who suffered losses on the product imported for plaintiffs, which is lying unsold at the office of defendants as well as defendants suffered loss of business prospect in Odisha state due to being dragged into litigations by the plaintiffs and due to that reason, defendants could not enter into distributorship agreement with any other party since 2020 and have also suffered loss of reputation and goodwill.
7. In rejoinder, contents of written statement were denied and those of plaint were reiterated and reaffirmed.
8. Following issues were framed vide order dated 02.04.2024:
(1) Whether suit of the plaintiff is not maintainable in view of para 2 of preliminary objections and para 2 of reply on merits? OPD (2) Whether the plaintiff is entitled for recovery of suit amount, as claimed? OPP (3) Relief
9. Plaintiffs in support of their case, examined plaintiff no.2 Sh. Prasant Kumar Mishra, as PW1 who filed his evidence by way of affidavit Ex. PW/1A and relied upon following documents:-
1. Copy of Non-Starter report dated 01.07.2022 is Ex. PW1/1
2. Copy of Aadhar Card of AR/partner of plaintiff no.1 firm as Ex.
PW1/2 (OSR) CS (Comm): 500/23 5/29
3. Copy of registered Partnership Deed dated 14.09.2016 of plaintiff no.1 firm as Ex. PW1/3 (OSR)
4. Copy of Master Data of defendant no.1company as Ex. PW1/4
5. Copy of Proforma Invoice dated 22.01.2020 issued by defendant no.1 to plaintiff no.1 as Ex. PW1/5 (OSR)
6. Copy of Distributorship Agreement dated 27.01.2020 as Ex. PW1/6 (OSR)
7. Copy of Bank Account Statement of plaintiff no.1 in State Bank of India showing Rs. 2,54,350/- payment paid to defendant no.1 on 05.02.2020 as Ex. PW1/7
8. Emails dated 02.03.2020, 03.03.2020 and 05.03.2020 exchanged between defendant no.1 and plaintiff no.1 as Ex. PW1/8.
9. Copy of Bank Account Statement of plaintiff no.1 in State Bank of India showing Rs. 2,00,000/- paid to defendant no.1 on 06.03.2020 as Ex. PW1/9.
10. Copy of email dated 29.05.2020 sent by plaintiff no.1 to the defendants as Ex. PW1/10.
11. Copy of emails dated 07.07.2020 exchanged between plaintiff no.1 and defendant as Ex. PW1/11
12. Copy of Legal notice dated 24.10.2020 issued by plaintiffs to the defendants as Ex. PW1/12
13. Copy of order dated 09.12.2021 passed in CS DJ No. 596/2021 by ADJ-01, South District, Saket, New Delhi as Ex. PW1/13
14. Copy of order dated 14.12.2021 passed in CS DJ No. 596/2021 by District Judge (Comm Court-02) South Distt., Saket, New Delhi as Ex. PW1/14
15. Copy of order dated 10.01.2022 of Hon'ble Supreme Court as Ex. PW1/15
16. Copy of retirement cum reconstitution of Partnership dated 22.03.2022 as Ex. PW1/16 (OSR) CS (Comm): 500/23 6/29
10. Defendants did not lead any evidence in defence.
Issue wise findings are as under :-
11. Issue no. 1 :- Defendants submitted in written statement that Sanjeevani Tradecorp/ plaintiff no.1 firm was originally constituted with Sh. Prashant Kumar Mishra/ plaintiff no.2 and Sh. Abhishek Shukla/husband of plaintiff no.3 and got duly registered under the Partnership Act, 1932 vide Partnership Deed dated 14.09.2016 before Registering Officer, Panposh, Odisha. Thereafter, the alleged retirement cum re-constitution deed dated 22.03.2022 through which Mrs. Avani Shukla/ plaintiff no.3 wife of former partner Sh. Abhishek Shukla became partner in the firm, was not registered and alleged reconstitution was never intimated to the Registrar of Firms. As further stated in written statement, in case of duly registered partnership firm, a new partner cannot step into the shoes of retiring partner unless his/her name has been in the register of firms as a partner in the firm.
12. Per contra, it was submitted by Ld. Counsel for plaintiff that plaintiff no.1 is a partnership firm registered under the Partnership Act, 1932 vide Partnership Deed dated 14.09.2016. Plaintiff firm was reconstituted through a Retirement cum Re-constitution Deed dated 22.03.2022. Plaintiffs no. 2 & 3 had instructed their local counsel in Odisha to submit the Retirement cum Re-constitution Deed to the Registrar for necessary action and compliance. However, due to unforeseen circumstances, their local lawyer could not submit the Retirement cum Reconstitution Deed to the Registrar within 90 days period. Since the defect was curable in nature in view of section 69-A of the Partnership Act, 1932, plaintiffs no. 2 & 3 took immediate steps to submit the Retirement cum Re-
CS (Comm): 500/23 7/29constitution Deed before the Registrar and the same is under process. It was further submitted that non submission of Retirement cum Reconstitution Deed to the Registrar does not invalidate a registered partnership for the time being and the Registrar is empowered to take on record such document on a belated stage with or without penalty. Moreover, plaintiff no.2 has been a Partner in the plaintiff firm since inception and is also the representative of plaintiff firm in the instant proceedings. Therefore, no irregularity can be attributed to the plaintiffs in filing of the present suit.
13. Ld. Counsel for plaintiff also referred to Clause 16 and 20 of Registered Partnership Deed dated 14.09.2016, which reads as under:
" Clause 16 - The duration of the partnership shall be " AT WILL". However, any partner willing to retire from the partnership may do so, by giving to the other partner at least three calendar months notice in writing to that effect, and the expiry of such period of notice, the partnership shall stand dissolved so far as the retiring partner is concerned. But the retiring partner shall be held liable for the losses if any on the business at hand, on the date of the notice of retirement. The remaining partner shall have the right to continue the business of partnership with or without taking new partner into business".
" Clause 20 - The death, retirement or insolvency of any partner shall not dissolve the business but the remaining partners can carry on the said business or may take the legal heir of the deceased partner in the partnership business".
14. As brought on record, plaintiff firm was registered partnership firm. One of the partners retired and was substituted by another partner vide Ex. PW1/16. As per the justification furnished, plaintiff firm was reconstituted through a Retirement cum Re-constitution Deed dated 22.03.2022 Ex. PW1/16 which was not submitted by the local CS (Comm): 500/23 8/29 lawyer to the Registrar for necessary action and compliance. As further submitted, the defect was curable, therefore, plaintiffs submitted the Retirement cum Re-constitution Deed before Registrar which is stated to be under process. As submitted by Ld. Counsel for plaintiff during the course of arguments that the registration of retirement cum reconstitution deed is still under process. The suit filed by plaintiff firm is held maintainable, considering that the partnership firm was duly registered and the retirement cum reconstitution is pending registration with the authority concerned. This issue is answered in favour of plaintiffs and against defendants.
15. Issue no.2:- Plaintiff has claimed recovery of amount of Rs. 4,54,350/- which was given pursuant to execution of distributorship agreement Ex. PW1/6 dated 27.1.2020 between plaintiff and defendant. Plaintiff was required to sell, promote and market defendant's products in state of Odisha and in turn defendants were under obligation to provide the Dust Control System units to plaintiffs alongwith brochures, technical know-how, test reports etc. As submitted on behalf of plaintiff, the agreement expressly stated that the Distributor will have to maintain one product unit as stock and its spare parts at all times for supply in Odisha. The obligations under the Agreement were bound by a condition precedent that until and unless plaintiff firm purchases at least one product unit and makes complete payment for it to defendant company, the obligations under the Agreement would not come into force. Clauses of Agreement further entitled defendant company to terminate the Agreement at any point of time by giving three months prior notice and the Agreement was to be automatically CS (Comm): 500/23 9/29 terminated on 10.12.2020, to be renewed as per mutual consent of the parties. The Agreement, though was silent on the question of right of Distributor to terminate it but it nowhere expressly barred the right either. Further, plaintiff firm, in order to show its bonafide to perform the obligations of the Agreement, made advance payment of Rs. 2,54,350/- to the defendant company vide cheque bearing no. 893542 drawn on State Bank of India dated 29.01.2020 which was cleared on 05.02.2020.
16. On 05.03.2020, plaintiff firm was asked by defendant company vide email to immediately deposit Rs. 2,00,000/- and the balance amount to be deposited by 18.03.2020. Defendants also committed to dispatch the unit. In pursuance to the same, on 06.03.2020 plaintiff firm paid further amount of Rs. 2,00,000/- (Rs. Two lacs only) to defendants vide NEFT. Thus, out of the total value of Rs. 14,54,350/- of the product, sum of Rs. 4,54,350/- was paid to defendant company and plaintiffs, as stated, were diligently arranging funds to pay the balance amount. By March 2020, due to spread of covid-19 pandemic, business worldwide suffered major setbacks. Plaintiff firm faced immense liquidity crunch and hardships in maintaining its status as a going concern. Construction work had come to a standstill since outbreak of the pandemic and hence, mining and quarrying industry, which was the key business area of plaintiffs started functioning at a slack pace and the demand for expensive commodities witnessed a sharp decline as the consumers no more had surplus funds to dispense with. Therefore, there was no demand in the market for expensive equipment such as Dust control System. Owing to the aforementioned unforeseeable CS (Comm): 500/23 10/29 adversities, plaintiffs could not pay beyond Rs. 4,54,350/- to the defendants and it became impossible to perform the condition precedent to the agreement. Consequently, defendants did not dispatch the product unit over incomplete payments and the obligations under the Agreement could not come into force. Till date, plaintiffs have not received the product from defendants.
17. On 29.05.2020, plaintiffs sent email to defendants thereby intimated to withdraw from defendant's distributorship due to increasingly poor market conditions and falling demand. Refund of Rs. 4,54,350 was also sought but no response was received from defendants. Plaintiffs again sent email dated 07.07.2020 to defendants requesting refund of the amount of Rs. 4,54,350/- which was replied by defendants stating its inability to cancel the product unit under any circumstances, as duty had been paid on that product unit and plaintiffs were asked to make balance payment. Defendants neither dispatched the product unit to the plaintiffs nor did they refund the money taken as advance.
18. Defendants maintained that it was upon the willingness of the plaintiff to enter into the business of distributorship of defendant's products, that defendant no.2 had visited plaintiff no.2 at Rourkela, Odisha during the year 2020 and had to incur expenses around Rs. 1,00,000/- including visits to intended customers. Thereafter, Proforma Invoice dated 22.01.2020 amounting to Rs. 14,54,350/- for one unit of Spraystream Dust Control Systems SS50i with remote and rotation, was raised in the name of plaintiff firm only after discussing the terms and condition of distributorship agreement with plaintiffs. Plaintiffs had to pay full payment for the unit purchased at the time of CS (Comm): 500/23 11/29 executing distributorship agreement i.e. 27.01.2020 as per proforma invoice dated 22.01.2020 but just after entering into distributorship agreement, plaintiffs sought time for further payment by 06.02.2020 and also requested to provide trolley + three tyres free of cost. Resultantly one extra condition was added to the distributorship agreement in that respect. The term of payment was 100% against Proforma Invoice which was already mentioned in the distributorship agreement. Vide email dated 03.03.2020 part of Ex. PW1/8, plaintiffs sought another 15 days to process the remaining amount i.e. Rs. 12,00,000/-, subsequent to which vide email dated 05.03.2020 part of Ex. PW1/8 sent by defendants, plaintiffs were asked to pay Rs. 2,00,000/- till they were equipped with the final payment for dispatch of the unit. It was also submitted that defendants had to incur losses as the product was imported for plaintiffs which is lying unsold at the office of defendants as well as defendants have suffered loss of business prospect in Odisha. Defendants could not enter into distributorship agreement with any other party since 2020 and have also suffered loss of reputation and goodwill.
19. Ld. Counsel for plaintiffs made the following submissions:
a. That, plaintiffs are entitled to recovery of sum paid in advance since the agreement never materialized owing to Covid-19 pandemic and also for non fulfillment of conditions precedent in the distributorship agreement.
b. That, distributorship agreement terminated by efflux of time on 10.12.2020 and hence the plaintiffs are entitled for refund of advance amount paid since the defendants have till date not dispatched the product unit.CS (Comm): 500/23 12/29
c. That, defendants have admitted the receipt of Rs. 4,54,350/- from plaintiff firm in their email dated 07.07.2020 as well as in their written statement.
d. That, termination of Distribution Agreement did not incur any losses on the part of defendants as they had imported the product unit around February 2019 i.e. at a time when plaintiffs and defendants were total strangers. This proves that the product was not exclusively imported for the plaintiffs and could be sold to any other party after the plaintiffs were constrained to back out on 29.5.2020 due to covid-19 pandemic.
e. That, plaintiffs requested termination of the distributorship agreement in accordance with the clauses of the said agreement. The Distributorship Agreement entitled the defendants company to terminate at any point of time by giving three months prior notice. Further, the Agreement would automatically terminate on 10.12.2020 as per its clauses, to be renewed as per mutual consent of the parties. Though the Agreement was silent on the question of right of Distributor (plaintiffs) to terminate it, but it nowhere expressly barred the right either.
f. That, defendants are not entitled to unjust enrichment arising out of an agreement which never materialized due to Covid-19 Pandemic. The retention of advance amount paid by plaintiffs by the defendants is an unjust enrichment because the Distributorship Agreement never materialized due to onset of Covid-19 pandemic and the defendants never performed their part of obligations as well. It is admitted position that defendant company received an amount of Rs. 4,54,350/- under the Agreement. It is also undisputed CS (Comm): 500/23 13/29 that plaintiffs do not have the possession of the Dust Control System.
g. That, import bills/documents shows that the product unit was bought way back before the parties even conceived of meeting each other. The bill of Entry of Product annexed as Document no.4 at page no. 41 of written statement of defendants is dated 08.02.2019, whereas the first proforma invoice in the name of plaintiff firm was raised by the defendants on 22.01.2020. Further, it nowhere mentions that the product is Dust Control System imported for plaintiff firm under the Agreement . Even if it is assumed for a moment that the Bill of Entry pertains to the Dust Control System, then attention must be paid to the fact that the Bill of Entry is dated 08.02.2019, whereas the plaintiff met defendant no.2 only in December 2019 in the Excon Event.
h. That, defendants have carved out a false narrative that the unit of Dust Control System (Product) was imported exclusively for the plaintiffs. In reality, defendants had imported the product much prior to coming in contact with plaintiffs and thus, the same was imported with the intent to sell to any interested party and not to the plaintiff firm in particular.
i. That, the alleged Bill of Entry neither discloses the details of the items for which the bill has been raised/issued, nor the name of entity importing the item/product. The authenticity of the said document is also not verified.
j. That, the receipt of customs duty paid by defendant no.1 annexed to the written statement is dated 25.03.2019 i.e. much prior to coming in contact with plaintiff firm. Further, the receipt mentions the description of imported good as " Electrical Cabinet CS (Comm): 500/23 14/29 Spraystream Z4VDC" which is not the Dust Control System as claimed by the defendants.
k. That, based on the alleged Bill of Entry and Custom Duty receipt, the defendants cannot claim that the product was imported exclusively for the plaintiff firm and when the Agreement could not materialize, the defendants were prevented from selling it to third parties.
L. That, defendants have not placed any document on record to prove that the Dust Control System has not been sold to any third party till date and is lying in custody of the defendants. The defendants have not placed on record any document to show that they are prevented from selling the Dust control System to any other party. The incapability of defendants in selling one of their machinery cannot be blamed upon the plaintiffs.
20. Undisputed facts on record are that both the parties to the suit agreed to execute the Distributorship Agreement. As per the email communication placed on record by plaintiff, vide email dated 22.1.2020, defendant had informed plaintiff with regard to his proposed visit to plaintiff's office with intimation that their management had agreed to start a co-operation with plaintiff and they shall be signing a agreement on the same day. It was preceded by raising of the proforma invoice by defendant company amounting to Rs. 14,54,350/- for purchase of unit of Dust Control System dated 22.1.2020. Plaintiff was told vide email communicated dated 22.1.2020 to revert if it was acceptable and also to inform about availability. In pursuance thereof, Distributorship Agreement dated 27.1.2020 Ex. PW1/6 was executed between the parties. With the execution of the CS (Comm): 500/23 15/29 Distributorship Agreement, plaintiff made payment of Rs. 2,54,350 vide cheque dated 29.l.2020. In terms of case of plaintiff, the agreement expressly provided that the plaintiff shall have to maintain one product unit as stock and its spare parts at all times for supply in Odisha . As also mentioned, defendant also voluntarily offered to provide trolley plus three tyres to plaintiff for first product unit subject to payment to be done within 8 days. Plaintiff sought 15 days time to process the remaining amount vide email communication dated 03.03.2020. Plaintiff was further informed by defendants vide email dated 05.03.2020 to immediately deposit Rs. 2 lacs and balance to be deposited by 18.3.2020. Payment of Rs. 2 lacs was made by plaintiff firm vide NEFT, thereby sum of Rs. 4,54,350/- was paid out of the total value of Rs. 14,54,350/-.
21. Contention of Ld. Counsel for plaintiff is not tenable that the distribution agreement had not come into force as the condition precedent i.e. the purchase of at least one product unit had not been completed. In terms of record, at the time of execution of distribution agreement, plaintiff had agreed for purchase of one Dust Control System, following the terms of agreement. Plaintiff had also made part payment . Further, it was the plaintiff who repeatedly asked for further period to make the payment, whereas defendant kept insisting for the complete payment so that the product could be dispatched to the plaintiff. The onset of covid-19 pandemic at the subsequent stage and the alleged liquidity crunch with the plaintiffs shall not make the agreement un-enforceable nor the concession permitted by defendants to make the complete payment for purchase of Dust Control System.
CS (Comm): 500/23 16/2922. Ld. Counsel for plaintiffs submitted that plaintiffs had always been willing and ready to purchase the unit and pay the balance amount. The same was not possible owing to the turn of events that had come up and which plaintiff could not have anticipated in advance. Therefore, the contract between plaintiffs and defendants stood discharged as per provisions of section 56 of the Contract Act, 1872 due to impossibility to perform and applicability of Doctrine of Frustration. Relevant section was reproduced as under:
" Section 56: Agreement to an impossible act An agreement to do an act impossible in itself is void. Contract to do act afterwards becoming impossible or unlawful: A contract to do an act which, after the contract is made, becomes impossible or, by reason of some even which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.
Compensation for loss through non-performance of act known to be impossible or unlawful: When one person has promised to be something which he knew or, with reasonable diligence, might have known, and which the promisee did not know to be impossible or unlawful, such promisor must make compensation to such promise for any loss which such promisee sustains through the non-performance of the promise".
23. It was further submitted by Ld. Counsel for plaintiffs that a bare perusal of the section would reveal that a contract to do an act, which afterwards becomes impossible or unlawful by reason of some event which the promisor could not prevent or foresee, becomes void when the act becomes impossible or unlawful. The section further states that the promisee must be compensated by the promisor in the event the promisor knew with reasonable diligence that such act might become impossible in future and the promisee was not aware of such possibility. However, in the present scenario, it was not within plaintiff's competence to have predicted or foreseen the outbreak of a global pandemic and the resultant economic meltdown. Therefore, not only the contract stood CS (Comm): 500/23 17/29 discharged but also compensation is not payable. As further submitted, section 56 is governed by Doctrine of Frustration which elucidates that any act which was to be performed after the contract is made, becomes subsequently unlawful or impossible to perform, and which the promisor could not prevent, then such an act which becomes impossible/unlawful and contract will become void. It lays down a rule of positive law and does not leave the matter to be determined according to the intention of the parties. Certainly, the case of plaintiffs is squarely covered under the Doctrine of Frustration, thus leading to impossibility to perform.
24. Whether Covid-19 pandemic justifies non-performace or breach of agreement shall depend upon several factors including the specific terms of contract, local laws and court interpretation. 'Force Majeure' Clause in contract can excuse non performance due to extraordinary events. If the contract includes the 'force majure' clause that covers Pandemic, it may justify non performance. If the main purpose of contract is thwarted and it becomes impossible or impractical to fulfill the cotractual terms due to 'force majeure', this could be the defence for non performance. In the instant matter, 'force majeure' clause, admittedly is not part of the agreement between the parties. Whether COVID -19 would justify non performance or breach of contract has to be examined in the facts and circumstances of each case and also depending upon the conduct of the parties prior to the outbreak of COVID-19.
25. In Hallilliburton Offshore Services Inc Vs. Vedanta Ltd. O.M.P(1) (CMM) No. 88/2020), it was noted that:
CS (Comm): 500/23 18/29"62. The question as to whether COVID-19 would justify non- performance or breach of a contract has to be examined on the facts and circumstances of each case. Every breach or non- performance cannot be justified or excused merely on the invocation of COVID-19 as a Force Majeure condition. The Court would have to assess the conduct of the parties prior to the outbreak, the deadlines that were imposed in the contract, the steps that were to be taken, the various compliances that were required to be made and only then assess as to whether, genuinely, a party was prevented or is able to justify its non- performance due to the epidemic/pandemic".
26. Section 56 of the Contract Act deals with impossibility of performance which would apply in case where 'force majeure' event occurred outside the contract as was noted in Ramanand & Ors. V. Dr. Girish Soni & Anr., RC. REV. No.447/2017 that :
" 15. In the absence of a contract or a contractual term which is a force majeure clause or a remission clause, the tenant may attempt to invoke the Doctrine of Frustration of contract or `impossibility of performance', which however would not be applicable in view of the settled legal position set out below. The said doctrine of `impossibility of performance' is encapsulated in Section 56 of the ICA, which reads as under:
"56. Agreement to do impossible act. -- An agreement to do an act impossible in itself is void. Contract to do an act afterwards becoming impossible or unlawful. -- A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful".
27. In Rashmi Cement Ltd. Vs. World Metals & Alloys (FZC) & Anr O.M.P.(1)(COMM) 117/2020, it was noted that:
" 27. It is well settled that the question regarding applicability of a Force Majeure clause cannot be decided in the abstract and has to be decided after an examination of the facts and circumstances of each case. Mere difficulty in performing the contractual obligations cannot be a ground for invoking a Force Majeure Clause. In the present case, the petitioner has claimed that as a result of COVID-19 and the consequent lockdown, the Force Majeure clause is squarely applicable. I am unable to agree with this contention. This question will be required to be determined in the arbitration proceedings after considering the stand of both sides, and keeping in view the well settled principle that a Force Majeure clause cannot be applied at the mere asking of a party.CS (Comm): 500/23 19/29
28. In the instant matter, agreement between the parties did not contain any ' Force Majeure' clause. Plaintiff was required to maintain one unit as stock and its spare parts for the supply in Odisha at all times and the payment for this unit was also required to be done with execution of the agreement vide cheque/RTGS/Transfer as per proforma. Plaintiff made payment of Rs. 2,34,350/- vide cheque dated 29.01.2020 with endorsement on agreement for balance payment of Rs. 12 lacs in eight days starting from 29.01.2020. Plaintiff with the execution of the agreement as on 27.01.2020 itself had sought time to make the further payment which was prior to onset of Covid-19 pandemic. Further, the balance payment was not made within 08 days as per the endorsement, as noted above. Plaintiffs thereafter also repeatedly sought time to make the payment and on insistence of defendants, further made payment in sum of Rs. 2,00,000/- on 06.03.2020. Defendants in the written statement had stated that bank statement annexed by plaintiffs suggests that even prior to March 2020, plaintiffs were availing overdraft facility and had negative balance as on 05.03.2020 which suggests that plaintiffs had no financial capacity to pay and it was not ready and willing to perform its obligation under the contract/distributorship agreement. Entries in bank statement Ex. PW1/9 suggest the correctness of plea raised in written statement.
29. Plaintiff vide email dated 29.05.2020 Ex. PW1/10, conveyed to defendant with regard to withdrawal of dealership due to poor market conditions and falling demand and sought refund of the amount of Rs. 4,54,350/- towards purchase of SS50i, followed by another email dated 07.07.2020. Vide email of even date Ex.CS (Comm): 500/23 20/29
PW1/11, defendant conveyed to plaintiff which is reproduced hereunder:
" We met in EXCONN in Bengaluru and you agreed for dealership at our booth. We asked you to take another day to confirm the association and on the second dat you again confirmed. We agreed to visit you place in Rourkela and sign the association with 1 unit as stock and sale model.
I visited your placed and we signed the agreement on 27 Jan 2020 with a advance token of Rs. 2,54,350/- as advance cheque dated 29.01.2020.
We held the imported unit for the balance fund and again in March you transferred Rs. 2,00,000/- but still did not clear the amount paving way for dispatch of the held unit.
You again negotiated for the Tralley of value Rs. 80,00,000/- saying that you are sending balance payment only if PI mentioning this as per of the unit is mentioned.
We agreed to your asking and mentioned this as well and sent it via mail.
Still we are waiting for the balance amount as per the PI to ship the unit. Therefore, we would like to inform you that this unit cannot be cancelled under any circumstances and we request you to kindly release the balance amount pending and do not negotiate any further. All duties have been paid on this unit.
As you know that confirmed orders cannot be cancelled midway on imported parts/units where duties are per paid".
30. Plaintiffs thereafter sent reminders for refund of the amount followed by legal notice. Apparently, the doctrine of Frustration is not applicable in the instant case. It was the plaintiff who kept asking the time for performance of the contract. It is the settled position in law that 'Force Majeure' clause is to be interpreted narrowly and not broadly. Parties ought to be compelled to adhere to contractual terms and conditions and excusing non- performance would be only in exceptional situations. It is not in the domain of Courts to absolve parties from performing their part of the contract. It is also not the duty of Courts to provide a shelter for justifying non-performance. (M/s Halliburton Offshore Services Inc Vs. Vedanta Ltd. O.M.P(1) (CMM) No. 88/2020).
CS (Comm): 500/23 21/2931. As was noted in Energy Watchdog v. Central Electricity Regulatory Commission, (2017) 14 SCC 80.:
a) Force Majeure would operate as part of a contract as a contingency under section 32 of the Indian Contract Act 1872.
b) Independent of the contract sometimes, the doctrine of frustration could be invoked by a party as per Section 56, ICA.
c) The impossibility of performance under Section 56, ICA would include impracticability or uselessness keeping in mind the object of the contract.
d) If an untoward event or change of circumstance totally upsets the very foundation upon which the parties entered their agreement it can be said that the promisor finds it impossible to do the act which he had promised to do.
e) Express terms of a contract cannot be ignored on a vague plea of equity.
f) Risks associated with a contract would have to be borne by the parties.
g) Performance is not discharged simply if it becomes onerous between the parties.
h) Alteration of circumstances does not lead to frustration of a contract.
i) Courts cannot generally absolve performance of a contract either because it has become onerous or due to an unforeseen turn of events. Doctrine of frustration has to be applied narrowly.
j) A mere rise in cost or expense does not lead to frustration.
k) If there is an alternative mode of performance, the Force majeure clause will not apply.
l) The terms of the contract, its matrix or context, the knowledge, expectation, assumptions and the nature of the supervening events have to be considered.
m) If the Contract inherently has risk associated with it, the doctrine of frustration is not to be likely invoked.
n) Unless there was a break in identity between the contract as envisioned originally and its performance in the altered circumstances, doctrine of frustration would not apply".CS (Comm): 500/23 22/29
32. Ld. Counsel for plaintiff contended that the bill of entry dated 08.02.2019 neither discloses the details of the items for which the bill had been raised nor the name of entity importing the same. Besides that, first proforma invoice raised in name of plaintiff by defendants was 22.1.2020 which was much prior to the distribution agreement between the parties. Therefore, defendants cannot claim that product was imported exclusively for the plaintiff or when the agreement did not materialize, defendants were prevented from selling it to third parties.
33. Defendants have not led any evidence in the matter. Bill of entry as referred by Ld. Counsel for plaintiff has been perused, which was filed alongwith written statement, though not proved on record for the failure of the defendants to lead evidence or prove the documents as per law. It was also mentioned in written statement that one unit of spraystream dust control system SS50i was manufactured/assembled in pursuance of distributorship agreement dated 27.1.2020. It was also mentioned that the manufactured/assembled product i.e. spraystream dust control systems is still lying, in as-it-is condition with the defendants and once assembled/manufactured, the said machine attracts 25% depreciation per year as per Industry Standards. It was also mentioned that as the machine was imported in CKD (complete lockdown) condition and assembled as per distributorship agreement for plaintiffs, no other purchaser will purchase four years old Dust Control System. This document i.e. Bill of Entry seems to be pertaining to Electrical Cabinet Spray stream spare parts for Control Spraying Machine in sum of Rs. 19,30,168/-. Apparently, CS (Comm): 500/23 23/29 the bill of entry is not pertaining to the import of machine 'Dust Control System' but of spare parts which seems to be corroborating the contents of email dated 07.07.2020 Ex. PW1/11 sent by defendants informing that defendants had held the imported unit. Defendants had also placed on record General Conditions pertaining to sale of products with reference to "origin of the goods" as "Machine Parts are imported from Belgium, assembled in India" . This document though was not proved on record and was also denied by plaintiff in affidavit of Admission/Denial of documents as it was part of communication between defendants and third parties and plaintiffs were not privy to any such document or communication. Nevertheless, communication from defendants vide email dated 07.07.2020 also does not suggest that the unit had been imported for the plaintiff but only suggests that it was held for plaintiff awaiting the dispatch against balance payment.
34. Plea of plaintiff does not find favour with this court that distribution agreement was terminated by efflux of time on 10.12.2020, hence the plaintiffs are entitled for refund of advance amount since the defendants till date have not dispatched the product. At the cost of repetition, it may be mentioned that in terms of the documents brought on record by the plaintiffs themselves , complete payment was not made by plaintiffs, whereas defendant company was constrained to withhold the product and could not dispatch the same to the plaintiffs for want of complete payment from plaintiff.
35. Ld. Counsel or plaintiff also submitted that the product could be sold to any other party after plaintiffs backed out and requested termination of the distributorship. Retention of advance amount CS (Comm): 500/23 24/29 paid by plaintiffs by defendants, therefore, was unjust enrichment. In written statement, it was mentioned that the defendants had been dragged into litigations by plaintiffs. Defendant no.2 had visited plaintiff no.2 at Rourkela, Odisha during the year 2020 and had to incur expenses around Rs. 1,00,000/- including visits to intended customers, which were borne by defendants. They could not enter into distributorship agreement with any other party even after the termination of distributorship agreement by efflux of time. Further, defendants suffered the losses on the product which is still lying unsold at the office of defendants. Defendants are still facing loss of business prospects in Odisha state and loss of reputation and goodwill due to conduct of plaintiffs. None of the above was proved by defendants on record.
36. Nevertheless, in terms of own documents of plaintiff, the position which has emerged on record, leads to the inference of breach of contract by the plaintiffs themselves. Section 73 of Contract Act speaks about compensation for loss or damage caused by breach of contract. Defendants in their wisdom seem to have not claimed compensation for breach of contract from the plaintiffs and at the same time have also not proved on record their efforts to mitigate the losses at least after plaintiffs had intimated them about withdrawal/termination of the distributorship agreement and its inability to make further payment seeking refund of the payment made in advance. In the facts and circumstances of the case, it is the plaintiff firm which turns out to be guilty for breach of contract and at the same time it is failure of defendants to prove on record the quantum of damage/loss caused due to such breach of contract by plaintiff.
CS (Comm): 500/23 25/2937. In Tower Vision India Private Limited Vs. Procall Private Limited 2012 SCC Online Del 4396, with reference to observation in E-City Media Private Limited a Private Limited Company Vs. Sadhrta Retail Limited a Public Limited Company, (2010) 153 Comp. Cas 326 (Bom.), it was noted that :
"(ii) In regard to a claim for damages (whether liquidated or unliquidated), there is no "existing obligation" to pay any amount. No pecuniary liability in regard to a claim for damages, arises till a court adjudicates upon the claim for damages and holds that the defendant has committed breach and has incurred a liability to compensate the plaintiff for the loss and then assesses the quantum of such liability. An alleged default or breach gives rise only to a right to sue for damages and not to claim any "debt". A claim for damages becomes a "debt due", not when the loss is quantified by the party complaining of breach, but when a competent court holds on enquiry, that the person against whom the claim for damages is made, has committed breach and incurred a pecuniary liability towards the party complaining of breach and assesses the quantum of loss and awards damages. Damages are payable on account of a fiat of the court and not on account of quantification by the person alleging breach.
(iii) When the contract does not stipulate the quantum of damages, the court will assess and award compensation in accordance with the principles laid down in Section 73. Where the contract stipulates the quantum of damages or amounts to be recovered as damages, then the party complaining of breach can recover reasonable compensation, the stipulated amount being merely the outside limit.
(iv)...
(v) Even if the loss is ascertainable and the amount claimed as damages has been calculated and ascertained in the manner stipulated in the contract, by the party claiming damages, that will not convert a claim for damages into a claim for an ascertained sum due. Liability to pay damages arises only when a party is found to have committed breach. Ascertainment of the amount awardable as damages is only consequential."
38. In Manju Bagai Vs. Magpie Retail Ltd, MANU / DE / 2913/2010, it was observed that :
" Even otherwise the claim for liquidated damages is not sustainable. The distinction between liquidated and un-liquidated damages is well settled. Mere use of the term liquidated damages in a document cannot be the criteria to determine and decide whether the amount specified in the agreement is towards liquidated damages or un-liquidated damages. Amount specified in an agreement is liquidated damages; if the sum specified by the parties is a proper estimate of damages to be anticipated in the event of breach. It represents genuine covenanted pre-estimate of damages. On the other hand, un-liquidated CS (Comm): 500/23 26/29 damages or penalty is the amount stipulated in terrorem. The expression penalty is an elastic term but means a sum of money which is promised to be paid but is manifestly intended to be in excess of the amount which would fully compensate the other party for the loss sustained in consequence of the breach. Whether a clause is a penalty clause or a clause for payment of liquidated damages has to be judged in the facts of the each case and in the background of the relevant factors which are case specific."
39. As observed in Judgment supra (Tower Vision India Private Ltd), when it is not possible to calculate accurately or in a reasonable manner, the actual amount of loss incurred, the quantum of loss can be considered on notional basis. The general principle to be borne in mind is that the injured party may be put in the same position as that he would have been if he had not sustained the wrong.
40. It has been made clear by Hon'ble Courts in judgments (supra) that the party cannot be held liable to pay the loss which the opposite party could have avoided or which arises out of the neglect and failure to take such steps and mitigate losses. Damages are compensation for the wrong suffered by the plaintiff and loss incurred by him but this is subject to the rule that plaintiff must take reasonable steps to avoid their avoidable accumulation. The onus in this regard is on the plaintiff to show that quantum of damages and losses which could not have been prevented. Thereby the duty is casted upon the plaintiff to take all reasonable steps to mitigate losses consequent on the breach and debars him from claiming any part of the damage which is due to his neglect to take such steps.
41. In instant matter, the position is just reverse. Defendants have not filed any claim for damages/compensation for the alleged losses suffered due to breach of contract by the plaintiff nor defendants themselves have proved the amount of losses or their efforts to CS (Comm): 500/23 27/29 mitigate the losses due to breach of contract by plaintiff. Hence, considering the facts and circumstances of the case, in considered opinion of this court, it would be appropriate if the defendants are directed to refund half of the amount for their failure to prove on record the quantum of losses /damages and their efforts to mitigate the losses. Plaintiff firm accordingly is awarded refund of half of the amount i.e. Rs. 2,27,175/- (Rs. Two lacs Twenty Seven Thousand One Hundred and Seventy Five Only). In the peculiar circumstances of the case, no interest is awarded nor any amount towards mental agony and harassment. However, if defendant no.1 company fails to clear the payment within one month, decreetal amount shall entail the payment of interest @ 9% p.a. after one month of the Judgment till realization.
42. Perusal of the record reveals that two defendants have been impleaded in this matter. Defendant no.1 is company and Defendant no. 2 is stated to be its Director. Director has been impleaded as separate party in the matter but there are no specific allegations of his being personal guarantor or fraud or misfeasance on his part, necessitating his separate impleadment or joint liability in the instant matter. Reliance is placed upon Sanuj Bathla and Anr. Vs. Manu Maheswhari & Anr. CRP 166/2018 and CM Appeal No. 32378/2018 and 10441/2021, wherein it was noted that :
" 17. ....11. The effect of the registration of a company under section 34 of the Companies Act is that it is a distinct and independent person in law and is endowed with special rights and privileges; a person distinct from its members. Consequently, the company is enabled to contract with its shareholders also, to use commons seal and acquire and hold property in its corporate name. The company is distinct from its shareholders and its directors. Neither the Shareholders nor the director can treat the companies assets as their own. Directors of Company are liable for misappropriation of company's funds and other misfeasance, but not for an ordinary contractual liability of the company. The liability of the members or the shareholders or CS (Comm): 500/23 28/29 the directors is limited to the capital invested by them. So long the liability is not unlimited under section 322 and 323 of the Companies Act and no special resolution of the limited company making liability of the directors or the managing directors unlimited is alleged. The doctrine of lifting of the corporate veil could be applied in cases of tax evasion, or to circumvent tax obligation or to perpetuate fraud or trading with an enemy are concerned........
19. It is well settled that fraud, if alleged, must be pleaded meticulously and it detail and proved to the hit. A mere assertion that fraud has been committed is neither here nor there. Precisely and in what manner fraud has been committed, is required to be delineated by the party alleging the same plea of fraud is to be made the basis of a decree against the other party. Bald assertions and vague allegations will not be countenanced by the Courts. Rule 4 of Order VI specifically lays down that the particulars of the fraud alleged (with dates and items, if necessary) shall be stated in the plaint".
43. Consequently, it is held that defendant no.2 is not necessary party in the matter and decree is passed only against defendant no.1 company. This issue is answered accordingly.
44. Relief (Issue no.3) :- Instant suit is accordingly decreed with cost in favour of the plaintiffs and against the defendant no.1 company for an amount of Rs. 2,27,175/- (Rs. Two lacs Twenty Seven Thousand One Hundred and Seventy Five Only). If defendant no.1 company fails to clear the payment within one month, decreetal amount shall entail the payment of interest @ 9% p.a. after one month of the Judgment till realization.
45. Decree sheet be prepared accordingly. After completion of formalities, file be consigned to record room.
Announced in the open (SAVITA RAO)
court on this 3rd day DISTRICT JUDGE
of August 2024 (COMMERCIAL COURT)-01
(SOUTH) SAKET COURTS,DELHI
CS (Comm): 500/23 29/29