Bombay High Court
Corporation Ltd. A Government vs The Cotton Corporation Of on 16 March, 2009
Author: S.C.Dharmadhikari
Bench: S.C.Dharmadhikari
1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
SUIT NO.938 OF 1981
Anglo French Textiles
(A Unit of Pondechery Textile
Corporation Ltd. A Government
of Pondechery undertaking) .. Plaintiff
Versus
The Cotton Corporation of
India Ltd. .. Defendants
Mr.Milind More, A.G.P. for plaintiff
Mr.Rishabh Shah with Ms.Samita Karnik i/b.
Divekar and Co. for defendants.
CORAM : S.C.DHARMADHIKARI, J.
DATE : 16th/17th March 2009.
ORAL JUDGEMENT
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2
. The suit was earlier dismissed in default
by me but on oral request of plaintiffs' Counsel, which is not opposed by the defendants, it was restored to file on the same day.
2. The Original plaintiff was a company incorporated under the Companies Act, 1956 carrying on business of manufacturing of cloth.
However, during the pendency of the suit, by the Amendment to the plaint, the Anglo French Textiles Ltd. (Acquisition and Transfer of Textile Undertaking) Act, 1986 (for short Acquisition Act) came to be enacted was the plea raised and it was urged that the claim can be recovered by the substituted plaintiff. This act provided for acquisition and transfer of right, title and interest of the original plaintiff by the Government of Pondicherry. Hence, in terms of this enactment, the plaintiffs are a unit of Pondicherry Textile Corporation. This textile ::: Downloaded on - 09/06/2013 14:24:50 ::: 3 Corporation is in turn a Government of Pondicherry undertaking. Hence, it is stated by the plaintiffs that they are Government of Pondicherry undertaking.
3. The defendant is a Government Company registered under section 617 of the Companies Act, 1956.
It is fully controlled by Government of India but has been established as a company under section 617 of the Companies Act.
4. When such are the state of affairs, I expected that both sides being Government/ Statutory undertakings would amicably resolve their dispute in terms of the decision of the Supreme Court pronounced more than a decade ago.
However, it is reported to me that no such settlement is possible and, therefore, arguments were advanced and the matter is today posted for judgement.
::: Downloaded on - 09/06/2013 14:24:50 ::: 45. The claim in the suit arises in the following manner.
6. On or about 17th March 1977, the plaintiff entered into a contract with the defendants for the purchase of diverse types of cotton to be imported into India by the defendants.
There may be some dispute with
regard to the inter se obligations but execution
of this contract has not been disputed. It is
stated that in terms of this contract, part
deliveries of cotton came to be made and
particulars of such deliveries are set out in
para 3 of the plaint. However, it is alleged by
the plaintiffs that the supply was not complete,
there was a shortfall in quantity, but the
plaintiff having paid full amount, they are
entitled to recover the loss from the defendants.
It is stated that defendants admitted and acknowledged their liabilities to refund the amount and that is how they issued a credit note ::: Downloaded on - 09/06/2013 14:24:50 ::: 5 in favour of the plaintiffs on 27th December 1977.
7. In the supplies made, there was also a dispute for quality. The claim of plaintiffs in that regard came to be referred to Arbitration of East India Cotton Association. This was an arbitration between the defendants and their suppliers. In terms of the contractual obligations, plaintiffs allege that the award amount became due and payable by the defendants to the plaintiffs. Even this liability is admitted and a credit note dated 24th January 1979 is issued in favour of the plaintiff.
8. It has been stated in para 3 of the plaint that the claim pertains to deliveries of certain type and quality of cotton. The delivery was by a Named vessel. In paras 4, 5 and 6 identical pleas with regard to other type of cotton delivered by distinct vessels are set out ::: Downloaded on - 09/06/2013 14:24:50 ::: 6 and in para 7 it is stated that in terms of the Contract dated 17th March 1977 bearing No.G-405 a sum of Rs.2,65,050.08 is due and payable.
9. In para 8 of the plaint, it is alleged that in July 1977, the defendants offered 3013 bales of Mexican Raw Cotton to the plaintiff under the very contract. They were bound and liable to supply 4375 bales of Nicaraguan cotton as contracted earlier. Therefore, the plaintiffs pointed out that the defendants were seeking to replace Mexican cotton with Nicaraguan cotton, and, therefore, they were not bound to take delivery. Plaintiffs pointed out that not only the cotton was of different variety and quality but even the shipment was delayed. Therefore, they were not bound to take delivery. In any event, it was contended that this was an excuse to delay the legitimate claim under the contract.
Once again the amount of Rs.9,53,627.70 under contract bearing No.G-405 dated 17th March 1977 ::: Downloaded on - 09/06/2013 14:24:50 ::: 7 and G-552 dated 29th March 1977 was claimed.
Thereafter, in para Nos.11 to 14 details of the contract dated 29th March 1977, the shipment, vessels and the type of cotton are set out.
10. It is stated that even in this contract plaintiffs suffered losses on account of quality and weight being deficient. Defendants took up some of the claims of the plaintiffs with the suppliers Abroad and the matter was referred to arbitration. The claims between the defendants and the suppliers were adjudicated and award was rendered. The award amount under this contract also ought to have been made over.
11. In such circumstances, under both contracts, the plaintiffs are entitled to recover from the defendants the sum of Rs.18,05,477.40 along with interest at 22%. The suit is filed on these allegations.
::: Downloaded on - 09/06/2013 14:24:50 ::: 812. After the writ of summons was served a written statement is filed on 2nd September 1986, in which, the principal contention raised is that the defendants are the sole agent for import and supply of foreign cotton to Indian textile mills.
In the course of this business, they used to
enter into contracts with foreign suppliers for
import of
foreign cotton for the purpose of
selling the same to the Indian Textile mills and
the defendants used to notify to all the mills by circulars that certain types of cotton would be imported. Even the quality was also specified in the circular and on the basis of such circular orders were placed by Indian Mills for quantity of cotton. It is in pursuance of such circulars that the contract dated 17th March 1977 and 29th March 1977 have been entered into. Relying upon the various clauses of the contract it is admitted that certain credit notes were issued.
However, the credit notes were issued in the reservation that payment thereunder was subject ::: Downloaded on - 09/06/2013 14:24:50 ::: 9 to realisation and extent to which it was received from the shipper. Therefore, the payment of amounts of credit notes was subject to the realisation from foreign suppliers. Thus, the defendant's liability was not absolute or unconditional but depending upon the claims raised with the foreign suppliers. In such circumstances, ig the defendants deny their liabilities.
13. In para 4 of the written statement, while raising dispute with regard to the quality and cotton and contending that Nicaraguan and Mexican cotton are of the same variety and quality and alleging that the plaintiffs wrongfully refused to take delivery, it is stated that the defendants have filed a suit in this Court being Suit No.1607 of 1980 to recover a sum of Rs.1,16,88,472.22 from the Plaintiffs. The rest of the written statement merely raises denials and disputes liabilities on the basis of the ::: Downloaded on - 09/06/2013 14:24:50 ::: 10 above set out pleas.
14. After the plaint was amended pursuant to the order in the chamber summons moved by the plaintiffs being Chamber Summons No.1389 of 2001, an additional written statement has been filed.
In the additional written statement reference is made to an order dated 16th August 2002 delivered by a Division Bench of this Court in an Appeal.
That appeal was directed against the order of amendment of the plaint. That appeal was by the defendants. Relying upon the appellate order, it is stated that the additional written statement is filed questioning the maintainability of the suit and the right of plaintiff to proceed with the same.
15. In para 7 of the additional written statement, legal pleas are summarised. One of the plea is that the Acquisition Act has extra territorial operation. If it is construed to be ::: Downloaded on - 09/06/2013 14:24:50 ::: 11 operating extra territorially i.e. outside the State of Pondicherry, then, sections 3 and 4 of the Acquisition Act are ultra vires Article 245 of the Constitution of India and liable to be so declared. In these circumstances, the claim in the suit itself cannot proceed at the instance of the present plaintiffs and, therefore, the suit should be dismissed.
16. Upon these pleas, additional issues were framed. The issues as framed earlier and the additional issues read thus:-
(1) Whether the plaintiffs prove that the defendants are liable to pay to the plaintiffs Rs.18,05,477.40 ps. with interest thereon under the Credit notes issued by the defendants to the plaintiffs?
(2) Whether the defendants prove that ::: Downloaded on - 09/06/2013 14:24:50 ::: 12 the defendants are not liable to pay the said amount with interest under the Credit Notes as per the terms of the contract and other contentions raised in the Written Statement?
(3) What reliefs?
Additional issues:-
(1) Whether the provisions of
sections 3 and 4 of Anglo French Textiles Ltd. (Acquisition and Transfer of Textile Undertaking) Act are ultra vires Article 245 of the Constitution of India as stated in para 7(i) of the Additional Written Statement?
(ii) Whether the plaintiffs prove that the suit is not maintainable for the reasons stated in para 2, 7(ii), (iii) ::: Downloaded on - 09/06/2013 14:24:50 ::: 13 and (iv) of the Additional Written Statement?
17. Both sides have led oral evidence. On behalf of the plaintiffs Mr.Nandkumar, Manager stepped into the box. He confirmed the plaint averments and stated that the contract is proved so also all documents, including correspondence.
He relies upon the admission of the defendants that the claims are settled by arbitration. He states that once they are settled and the amounts received by the defendants, then, they must pay the sums as per the contractual obligations and, there is no question of any denial or dispute in that behalf. He has produced the documents referred to in a list and has proved the contents thereof.
18. His detailed cross examination by the defendants results in his stating that he is working since 1994 in the plaintiffs' unit at ::: Downloaded on - 09/06/2013 14:24:50 ::: 14 Pondicherry. He was not connected with the original plaintiff. He has no personal knowledge of transaction but his affidavit is based upon the record. He was cross examined with regard to clauses of the contract and the credit notes. In his cross examination itself, a suggestion is given with reference to each of the credit notes and he is asked as to whether they pertain to loss in weight or otherwise and he states that they pertain to loss in weight (shortage in quantity) and in view of clause 24 defendants are responsible for loss of weight.
19. With regard to other set of credit notes also he states that they are in respect of quality claim. Thereafter, the usual suggestions are given to him with regard to liability of the defendant and he confirms his statements in the affidavit in examination in chief and gives denials to the contrary.
::: Downloaded on - 09/06/2013 14:24:50 ::: 1520. As far as oral evidence on behalf of defendant is concerned, one Anil Kumar Jain working in their Finance Department steps into witness box. In para 2 of his examination in chief this is what is stated:-
"2. I say that I have carefully gone through ig the records of the said Anglo French Textiles Ltd. maintained by the defendants in the ordinary course of business from the year 1977-78 and I find that out of amount of Rs.12,28,177.78 claimed by the plaintiffs towards the credit notes, a sum of Rs.11,78,110.51 was received by the defendants from time to time from the foreign shippers.
Hereto annexed and marked as Exh.1 is a statement prepared by me from the records of the said Anglo French Textile Ltd.
maintained by the defendants showing that Rs.11,78,110.51 was received by the ::: Downloaded on - 09/06/2013 14:24:50 ::: 16 defendants."
21. However, he confirms that the cross claim of the defendant corporation vide Suit No.1607 of 1980 has now been referred to the Commissioner for payment and is pending before him. In other words, he states that the suit has been withdrawn by the defendants ig but with liberty to pursue their claim before the Commissioner. In such circumstances, he denies the liability to pay any sums much less with interest. He has produced certain documents.
22. In his cross examination he has specifically been asked as to whether he has made the above referred statement in para 2 of his affidavit and he states YES, He has made them.
He states that the contents of the said para are correct and they are based on the record maintained by the defendant Corporation. He has confirmed the statements in this very para in ::: Downloaded on - 09/06/2013 14:24:50 ::: 17 answer to question Nos. 2 to 4 of his cross examination. However, he states that the defendants have not admitted the claim of Rs.11,78,110.51. The rest of the cross examination revolves around the statements made in para 2 of the affidavit in evidence and, therefore, need not be referred to in details.
23. Upon his oral and documentary evidence, the parties made their submissions.
24. Since the issue of maintainability of the suit was raised, on account of coming into effect of the subject enactment, I permitted Mr.Shah appearing for defendants to open the arguments.
In all fairness, he states that the defendants do not press the issue of constitutional validity of the Act but he would urge that the Acquisition Act cannot operate outside the State of Pondicherry. The said Act has no extra territorial operation. The said Act, cannot be ::: Downloaded on - 09/06/2013 14:24:50 ::: 18 said to be an act which would take within its purview any claims raised outside the State of Pondicherry. If they are out of purview of the Act, then, the Government of Pondicherry Undertaking, substituted in place of original plaintiff cannot proceed with the suit. The suit must be dismissed.
25. Alternatively and without prejudice it is argued that the plaintiff company is not taken over but only the undertaking is covered by the Acquisition Act. Hence the company remains and or survives. Therefore, Government of Pondicherry cannot proceed with the suit.
26. Further alternatively, it is contended that the credit notes pertain to quality, quantity and interest realisation. If the contract clauses are perused it would be apparent from reading of the same and more particularly clauses 24 to 26(2) that there is no ::: Downloaded on - 09/06/2013 14:24:50 ::: 19 responsibility or obligation on the defendant to make payment. There is no dispute about the clauses. They are binding on everybody.
Deposition of P.W.1 is contrary to the contract clauses. In these circumstances, the defendants cannot be said to be liable to pay the sums as claimed.
27. It is contended by Mr.Shah that admittedly defendants are channelising agents.
They facilitate shipment. They get the goods imported in India and supplied them to the plaintiffs. The relationship is not, therefore, of principal to principal but that of agency. In these circumstances and when the Advocates notice on behalf of plaintiffs is clear, then, the short fall/ loss can only be recovered from the Principal which is a foreign supplier.
Plaintiffs cannot recover money from the defendants who are agents. My attention is invited to Clause 27 and it is contended that the ::: Downloaded on - 09/06/2013 14:24:50 ::: 20 same is an exception.
28. Alternatively, it is contended that the particulars of claim are not proved and in any event the claim for interest at 18% p.a. has not been substantiated by leading oral and documentary evidence. In these circumstances, the suit deserves to be dismissed.
29. On the other hand, Mr.More appearing for plaintiffs contended that the defendant has clearly acted as a Nodal agency. The claim is under credit notes. The claim has been admitted.
When there is no question of the Act being ultra vires as the said challenge is not pressed, then, it cannot be said that Government of Pondicherry is proceeding to recover the amounts under the Statute which has an extra territorial operation.
It is contended that under the Acquisition Act every right has been taken over. The right in this case is to proceed with the pending suit.
::: Downloaded on - 09/06/2013 14:24:50 ::: 21This is not a case where the Act having any extra territorial operation. It is only that the plaintiffs stand substituted by the acquiring authority and since it has taken over the undertaking, with all rights and obligations, then, the pending suit can be proceeded with and there is no question of the Act having any extra territorial igoperation. The suit was filed originally in this Court and outside the State of Pondicherry. Once the suit is filed out of the State by an undertaking or a company based in Pondicherry and there is no challenge to the territorial jurisdiction of this Court, then, the substituted plaintiff can proceed with the suit and have an adjudication on merits. In these circumstances, there is no substance in any of the contentions of the defendants. The suit must be accordingly decreed. However, as far as the claim for interest is concerned, the argument of Mr.More is that the claim for interest has also been substantiated on the basis of the documents ::: Downloaded on - 09/06/2013 14:24:50 ::: 22 including the credit notes. However, the transaction being commercial the Court must not exercise its discretion even when awarding interest. It should not be Awarded at a lesser rate. Alternatively, however, the suit claim must be awarded in full as far as principal amount is concerned.
30. For properly appreciating these contentions, it would be advantageous to refer to the Acquisition Act. The Acquisition act is an Act to provide for acquisition of right, title and interest of Anglo French Textiles Ltd. for the purpose of continuing and increase in production of goods essential to the needs for the community and matters connected therewith or incidental thereto. The preamble to the act indicates as to why the Pondicherry Legislative Assembly thought it fit to enact the Act and acquire the textile undertaking. The term "Company", "Government", "Owner" and "Textile ::: Downloaded on - 09/06/2013 14:24:50 ::: 23 Undertaking" have been defined. It has been stated in section 3 that on the appointed date the Anglo French Textile Ltd. and the right, title and interest of the owner shall stand transferred to and shall vest absolutely in the Government.
31. As to what is the effect of such vesting and what is the ambit and scope of such a provision fell for consideration of the Hon'ble Supreme Court in the decision reported in A.I.R.1986 S.C. 2030 (Minerva Mills Ltd. Vs. Union of India & Ors.) and in the context of identical provision this is what the Hon'ble Supreme Court has observed:-
"15. The Nationalisation Act has been enacted to give effect to the policy of the State towards securing the principles specified in Cl.(b) of Art.39 of the Constitution. Indeed, a declaration in ::: Downloaded on - 09/06/2013 14:24:50 ::: 24 that regard has been made in Section 39 of the Nationalisation Act. It was, however, open to the petitioners to challenge this declaration, for, in Keshvananda Bharti Vs. State of Kerala, (1973) Suppl.SCR 1: (A.I.R. 1973 S.C. 1461), this Court by a majority struck down the Second Part of Art.31C of the Constitution, namely "and no law containing a declaration that it is for giving effect to such policy, shall be called in question in any court on the ground that it does not give effect to such policy." No contention has, however, been advanced before us on behalf of the petitioners that the Nationalisation Act does not give effect to the policy of the State towards securing the principles specified in Cl.(b) of Art.39 of the Constitution. The reason why no such contention has been made is obvious in ::: Downloaded on - 09/06/2013 14:24:50 ::: 25 view of the objectives the Nationalisation Act seeks to achieve. It cannot be gainsaid that textile industries constityute material resources of the community and any set back or fall in the production of textile goods will hae adverse effect on the national economy ig and also cause hardship to the people. It is with a view to reorganising and rehabilitating the sick textile undertakings so as to subserve the interests of the general public by the augmentation of the production and distribution, at fair prices, of different varieties of cloth and yarn, and for matters connected therewith or incidental thereto, as stated in the preamble, that the Nationalisation Act has been enacted. We have considered the different provisions of the Nationalisation Act and are satisfied ::: Downloaded on - 09/06/2013 14:24:50 ::: 26 that it gives effect to the policy of the State towards securing the ownership and control of the marterial resources of the community, which are so distributed as best to subserve the common good. In the circumstances, as the Nationalisation Act comes under the protective umbrella of Art.31C, the petitioners are not entitled to challenge the constitutional validity thereof on the ground of violation of the provisions of Arts.14 and 19 of the Constitution."
32. Once the acquisition of rights of company in relation to the textile undertaking is in widest terms and if that is perused in the context of the general effect of vesting, then, I have no doubt in my mind that the Government of Pondicherry can proceed with this pending suit which is instituted by the Company. There is no substance in the contention of Mr.Shah that the ::: Downloaded on - 09/06/2013 14:24:50 ::: 27 term "Company" must be seen in the context of the undertaking and it is only the undertaking which is taken over and not the company. In this behalf, if one carefully peruses all definitions, it would indicate that the term "owner" means the immediate proprietor or lessee or occupier of the Textile undertaking and, thereafter, includes any agents or manager of such owner. In the present case, the enactment provides for acquisition and transfer of right, title and interest of the company which is the owner of the undertaking for the purpose indicated in the preamble. The Textile undertaking means the undertaking of the company and the term company means Anglo French Textile Ltd. In such circumstances and when the effect of sub-section 1 and 2 of section 3 read with section 4 is that the entire undertaking vests in the Corporation, means the Pondicherry Textile Corporation Ltd., then, it will be futile to urge that what is taken over is not the company but merely the undertaking. The argument ::: Downloaded on - 09/06/2013 14:24:50 ::: 28 overlooks the object and purpose of the acquisition and the wide phraseology in sections 3 and 4. In this behalf, a reference can usefully be made to the observations of a Division Bench of this Court in the case of National Textile Corporation (Maharashtra North) Ltd. Vs. Khushalchand Bissessardas Daga, reported in A.I.R. ig 1982 Bom.539.
"12. .....According to the trial Court, it is only the types of suits mentioned in S.4(6) which could be maintained and continued by the National Textile Corporation. In our opinion, sub-section (6) of Section 4 was designed for a very different purpose. As will be seen on a perusal of sub-sections (1) and (2) of Section 5, every liability of the owner of a sick textile undertaking, other than the liability specified in Section 5(2), in respect of a period ::: Downloaded on - 09/06/2013 14:24:50 ::: 29 prior to April 1, 1974 is to be the liability of such owner and is to be enforceable against him and not against the Central Government or the National Textile Corporation. The only liabilities which could be enforced against the Central Government or the National ig extile Corporation are the liabilities set out in sub-section 2 of Section 5. These are the liabilities for repayment of loans advanced by the Central or State Government to a sick textile undertaking after the management of such undertaking had been taken over by the Central Government, amounts advanced to the undertaking by the National Textile Corporation or by a State Textile Corporation after the management of such undertaking had been taken over by the Central Government and wages, salaries and other dues of ::: Downloaded on - 09/06/2013 14:24:50 ::: 30 employees of the undertaking in respect of any period after the management of such undertaking had been taken over by the Central Government. Now the taking over of the management by the Central Government in sub-section (2) of section (5) refers to taking over the management inter ig alia under Section 18A of the Industries (Development and Regulation) Act, 1951. Under Section 5(2) the liabilities to repay loans given by the Government or by the National Textile Corporation or a State Textile Corporation after the management of the undertaking was so taken over and to pay the wages and salaries and other dues of employees of the undertaking in respect of a period after the management was so taken over is not to be the liability of the previous owner of the undertaking but is to be the liability of the Central ::: Downloaded on - 09/06/2013 14:24:50 ::: 31 Government and is to be discharged on behalf of that Government by the National Textile Corporation. All other liabilities are however to be those of the owner of the undertaking and become enforceable against him and not against the Central Government or the National Textile ig Corporation. Sub-section 6 of Section 4 was specially enacted to provide that if in respect of liability mentioned in Section 5(2) a suit, appeal or other proceedings instituted or preferred by or against the Textile Company was pending. The same was not to abet or to be discontinued or be in any way prejudicially affected by reason of the transfer of the sick textile undertaking but it could be continued, prosecuted and enforced by or against the National Textile Corporation. Now a question might well arise as to what are ::: Downloaded on - 09/06/2013 14:24:50 ::: 32 the suits of the nature specified in Section 5(2) which the National Textile Corporation can mention by reason of the provisions of Section 4(6) of the Act.
It is not possible to categorise all such suits, but a suit that immediately strikes one is a suit for redemption of a mortgage ig in respect of a secured loan advanced to the sick textile undertaking by the Government. Further, it is pertinent to bear in mind that Section 4(6) does not speak only of suits. It also speaks of appeals and other proceedings of whatever nature. Thus, it may be that a decree might have been passed against the sick textile undertaking might have gone in appeal.
Such an appeal could be continued by the National Textile Corporation. Other examples would be applications in execution. From this subsection, ::: Downloaded on - 09/06/2013 14:24:50 ::: 33 however, it does not follow that if the sick textile undertaking had assets to recover in respect of which it had filed a suit, the suit could not be continued by the National Textile Corporation. To take an example, supposing a sick textile undertaking owned an immovable property and was wrongfully deprived of the possession of such property by trespass and had filed a suit to recover it, on the appointed day the suit property being an asset of the undertaking would vest forthwith in the Central Government and thereafter immediately vest in the National Textile Corporation and the owner of the undertaking would cease to be the owner of the suit property and would have no right to obtain possession of the said property. If the construction placed by the trial Court upon Section 4(6) were correct, the ::: Downloaded on - 09/06/2013 14:24:50 ::: 34 result would be startling. The owner of the undertaking could not continue the suit because he is no more the owner of the property. The person in whom the property had become vested, namely, the National Textile Corporation, could not bring itself on the record of the suit because ig it was not a suit of the type referrd to in sub-section (2) of Section
5. The astounding result would be that the trespasser would continue to remain in possession of and enjoy for all time the property which belonged to the National Textile Corporation. Neither Parliament could have intended nor the ordinary canon of construction of statutes permit such an interpretation to be placed upon the provisions of the Act above referred to. What we have said with respect to an immovable property would apply equally to recovery of ::: Downloaded on - 09/06/2013 14:24:51 ::: 35 moveable property belonging to the Undertaking. The trial court was not right in law in holding that the National Textile Corporation can prosecute only the suits mentioned in section 5(2) and not other types of suits. In our opinion the National Textile Corporation and its subsidiary Corporation when any sick textile undertaking is transferred to it is entitled to continue all suits filed by such undertaking to recover any of its assets or properties or to enforce any of its rights......".
33. Equally untenable is the argument that what the plaintiffs are seeking to do is to recover a claim against the defendant in a suit filed outside the State of Pondicherry and, therefore, the Act is being extended outside the territory of Pondicherry which is constitutionally and legally impermissible. This ::: Downloaded on - 09/06/2013 14:24:51 ::: 36 is not a case of the Act having any extra territorial operation. It is not as if the Pondicherry Textile Corporation which is an undertaking of the Government of Pondicherry is seeking to do something under the Act which means that the rights/ obligations not envisaged by the Act are sought to be either taken over or dealt with.
This is a case where the company had filed a suit in this Court in the year 1981. During the pendency of the suit the acquisition came into force. The question arose as to how the pending suit can now be proceeded once the right, title and interest of the company who is the owner of the undertaking has been taken over and vests absolutely in the Government of Pondicherry through its undertaking, viz., Pondicherry Textile Corporation Ltd. The act itself provides that ownership, possession, power or control of Textile undertaking which are within or outside India and all books of accounts, registers and all other documents shall be deemed to be ::: Downloaded on - 09/06/2013 14:24:51 ::: 37 included and shall, therefore, be covered by vesting provisions i.e. section 3. In such circumstances merely enacting such a provision does not mean that the Act has an extra territorial operation. Then, I fail to understand as to how by merely proceeding with the pending suit through Government of Pondicherry undertaking that the Act is being operated extra territorially.
34. The concept has to be understood in the context of an extra territorial operation. The very decision which has been relied upon by Mr.Shah (A.I.R. 1993 S.C. 2094 - R.S.D.V. Finance Co.Pvt.Ltd. Vs. Shree Vallabh Glass Works Ltd.) would explain this concept clearly.
The portions that are relied upon by Mr.Shah are paras 17 to 19 of this decision. The argument of the plaintiff appellant before the Supreme Court was that the ratio of the Supreme Court decisions relied upon on behalf of the defendant respondent ::: Downloaded on - 09/06/2013 14:24:51 ::: 38 has no application. In para 19, the Supreme Court observes that Legislature of a State is competent to make laws for the whole or any part of the State. It has exclusive power to make law with respect to any of the matters enumerated in List II of 7th Schedule to the Constitution.
Subject to any law made by Parliament, the State Legislature can also make law in respect of any of the matters with respect to Schedule III. In para 20, the Supreme Court, thereafter, refers to this settled legal position. The Supreme Court, then makes a reference to it and holds that the Legislature of the State of Gujarat cannot say that obligations and liabilities incurred by relief undertaking outside the State of Gujarat shall remain suspended during the period of notification. In other words, the issue was whether the relief undertaking which has been given protection by the Government of Gujarat as it is based in the State of Gujarat, can be said to be protected in a suit filed against it and ::: Downloaded on - 09/06/2013 14:24:51 ::: 39 proceeded with outside the State of Gujarat. In the case before the Supreme Court obligations and liabilities were created outside the State of Gujarat and the suit was filed, therefore, in that State/ Territory. To such a State or territory the notification under the Relief Undertaking Act can have no application.
35. I fail to see as to how this decision is of any assistance to Mr.Shah. Far from assisting him, it is clear from a perusal of the same that on the basis of such an enactment, the proceedings against the relief undertaking initiated and proceeded with outside the State of Gujarat cannot be suspended is the conclusion.
In the present case, the plaintiffs are suing the defendants on the basis of a cause of action arising within the territorial jurisdiction of this Court. That this Court has territorial jurisdiction is undisputed. In these circumstances, mere pending suit is being ::: Downloaded on - 09/06/2013 14:24:51 ::: 40 proceeded with by the authority who has acquired the textile undertaking. That cannot be said to be a case of enactment having extra territorial operation.
36. In these circumstances, I am of the opinion that there is no force in the argument that the Act igis having any extra territorial operation. Once the Constitutionality and vires of the Act is not questioned, then, the enactment must be taken as it is and read as a whole. It is apparent that the argument on operation of the Act is nothing but an attempt to delay the inevitable.
37. As far as the merits are concerned, it is clear from para 2 of the affidavit in evidence of the defendant that the contract obligations are fully appreciated and, thereafter, the statements are made. The contract clearly states that the defendant Corporation is Government of India ::: Downloaded on - 09/06/2013 14:24:51 ::: 41 undertaking and is a channelising Agent for Import and supply of foreign cotton to Indian Textile Mills. In the course of such business, the defendants used to enter into contracts with foreign suppliers for importing foreign cotton for the purpose of supplying or selling the same to the Indian Textile Mills through the Corporation under the policy and rules and regulations of the Government of India. It is in this context and when the agreement postulates that the plaintiff mill has approached the Corporation with a request to have the quantity of cotton imported into India, then, obligations of both sides so also the rights must be seen in the context of the contract clauses. Clauses 21, 22, 24 and 26 are widely worded and advisedly.
It is not as if that the chanellising agency has brought together the foreign supplier and the mills located in India so as to facilitate import for the mills. The Corporation is the public enterprise and is performing public duty. It ::: Downloaded on - 09/06/2013 14:24:51 ::: 42 does not leave the matters merely at the stage of shipment but ensures that in case of any shortfall or quality complaints, matters will be taken up with the foreign suppliers and when the foreign suppliers do not agree with the claim then, the remedy of arbitration will be resorted.
After the arbitration proceedings concluded,
benefits
thereof have to be passed on to the
Mills. Clause 27 reads thus:-
"27. Dispute with regard to quality or non supply of contracted goods of cotton and disputes of similar nature shall be referred by the Corporation on behalf of the Mills to Arbitration of the ICA/EICA as the case may be. In case of disputes as to the quality, application for arbitration is to be made to the President of the said Association within 30 days of the last date of landing of the steamer and samples for arbitration ::: Downloaded on - 09/06/2013 14:24:51 ::: 43 must reach the said Association within 90 days from the last landing date and such dispute shall be against Foreign Suppliers only and not against the Corporation. The claim for quality allowance will be settled by the mills with the foreign suppliers and amounts, if any, received from the shippers will be paid over to the mills to the extent the amount is actually received from the foreign suppliers."
38. A bare perusal of Clause 27 together with other clauses would make it apparent that in case of disputes as to quality, application for arbitration is to be made to the President of East India Cotton Association within 30 days from the last date of landing of the steamer and such dispute shall be against the foreign suppliers only and not against the Corporation. The claim for quality allowance will be settled by the ::: Downloaded on - 09/06/2013 14:24:51 ::: 44 mills with the foreign suppliers and amounts, if any, received from the shippers will be paid over to the mills to the extent the amount is actually received. If the contents of para 2 of the affidavit in evidence are perused in this light, then it is apparent to me that the defendants do not dispute that once they received the claim amount from the foreign supplier, then, they are obliged to make over the same to the plaintiffs.
Admittedly, they have failed to make over the same to the plaintiffs and that is how the suit has been filed. In such circumstances, I fail to understand as to how the defendants can avoid their liability, more particularly, when they do not dispute any of the contract clauses or the execution of the credit notes. In these circumstances, there is much substance in the contentions of Mr.More and the argument to the contrary canvassed by Mr.Shah cannot be accepted.
39. The plaintiffs, therefore, are entitled ::: Downloaded on - 09/06/2013 14:24:51 ::: 45 to recover from the defendants the sum as stated in para 2 of the examination in chief of the defendants' witness. What the plaintiffs are seeking to recover in this suit is a sum of Rs.18,05,477 as per the particulars of claim, Annexure U to the plaint. If annexure U to the plaint is perused, it is apparent that principal amount due is Rs.12,28,177.78 which is identical to the sum referred to in para 2 above. Interest is claimed at 18% from respective credit notes till 31st October 1980. The witness examined on behalf of plaintiffs whose affidavits of evidence have been filed, has pointed out that the claim arises under the credit notes. However, as far as the interest is concerned, all that he states is that the plaintiffs have claimed the amount as per the particulars of claim Exh.U along with interest. He has not elaborated therein any agreement or contract to pay interest at 18% p.a. The rate of 18% of interest is not based upon any agreement or much less, the contract dated 12th ::: Downloaded on - 09/06/2013 14:24:51 ::: 46 March 1977. There is no statute brought to my notice which would enable plaintiffs to recover this sum towards interest. All that is pressed into service is section 34 of C.P.C. The said provision speaks of interest and provides that when and insofar as decree is for payment of money the Court may decree and order interest at such rate as the Court deems reasonable from the date of suit till the date of decree, in addition to any Interest Adjudged on such Principal sum for any period prior to the Institution of the suit, but further interest should not be exceeding 6% p.a., as the Court deems reasonable on such Principal sum. However, where the liability arises out of a commercial transaction, the rate of interest may exceed 6% but shall not exceed contractual rate of interest. Where there is no contractual rate, the rate at which monies are lent or Advanced by Nationalised Banks in relation to commercial transaction, should be the rate of Interest.
::: Downloaded on - 09/06/2013 14:24:51 ::: 4740. No material is shown to invoke the proviso of the said section either. Once the claim towards interest from the date of the suit till the date of judgement and decree has not been claimed on the basis of this proviso and when the plaintiffs have failed to lead any evidence to show that the parties have agreed on the rate of interest, then, it would not be proper to award interest as claimed. More so, when both parties before me are public/ statutory Corporations. The interest of justice would, therefore, be sub-served if the claim is decreed as under:-
. The plaintiffs are entitled to
recover from the defendant a sum of
Rs.11,78,110.51 together with interest at the rate of 8% from the date of institution of suit till the date of judgement and decree and, thereafter, at ::: Downloaded on - 09/06/2013 14:24:51 ::: 48 6% till payment and/or realisation;
41. At this stage, it is contended on behalf of defendants that their claim for recovery of sum covered by their suit which is withdrawn is still pending with the Commissioner for payment.
It is yet to be adjudicated. If any decree is passed against them on the basis of the material produced, then, that claim would be prejudicially affected. In my view, mere pendency of the claim before the Commissioner is no bar for proceeding with this suit and passing a judgement and decree in favour of the plaintiffs. That is not even the case of defendants either. I do not see how they would stand to be prejudiced merely because the claim raised by them is yet to be adjudicated. It is their choice and volition.
They have filed a suit. They withdrew it and went before the Commissioner. Having withdrawn their suit and, thereafter, lodging their claim before the Commissioner is no ground to urge that ::: Downloaded on - 09/06/2013 14:24:51 ::: 49 this Court cannot pass a decree and judgement in favour of plaintiffs on the basis of available evidence. That would mean that the Court is precluded from proceeding with the suit and passing any judgement. That is not the case and once the ground of mere pendency is urged, then, I see no reason to discard the entire evidence on record and not award the admitted sum. If at all the Commissioner finds merits in the case of defendants, then appropriate orders for adjustments and recovery can always be passed by him, subject to the powers conferred on him in law. That amount would include either this sum or a sum other than the one awarded by this Court. As to what would be the effect of this Decree in law is something, which must be decided after the Commissioner for payment adjudicates the claim. It is premature to now say that the claim of plaintiffs towards principal and interest cannot be awarded. On the other hand, finding that the defendant has recovered some ::: Downloaded on - 09/06/2013 14:24:51 ::: 50 amount from foreign suppliers and not made it over from the time the same has been recovered by them, amounts to unjustly and inequitably depriving plaintiffs of their legitimate dues.
Having deprived the plaintiffs of these dues, the claim in equity and in law can always be granted.
That is how the claim is awarded with interest.
42. The suit stands decreed in the above terms. However, considering the peculiar facts of this case and both parties being public bodies, no costs. All concerned to act on authenticated copy of this order.
(S.C.Dharmadhikari, J) ::: Downloaded on - 09/06/2013 14:24:51 :::