Inspiration Clothes & U vs Colby International Limited
2000 Latest Caselaw 1079 Del

JUDGMENT

Devinder Gupta, J.

1. This appeal has been preferred against the order passed on 7.1.2000 by learned Single Judge allowing the respondent's application (IA.6510/99) for rejection of plaint and thereby dismissing the suit of the plaintiff/appellant.

2. Facts in brief are that on 17.5.1999 the appellant filed a suit claiming decree against the respondent for specific performance of the contract or in the alternative for recovery of damages. The prayer clause reads:-

"pass a decree in favour of the plaintiff and against the defendant directing the defendant to specifically perform the contract in the purchase order bearing No. 2093 dated 16.11.1998 for purchase of 6060 pieces of ladies garments of style No. 5523-RY 3D and further direct the defendant to take delivery of the same from the plaintiff against payment of US $ 40.299 (US Dollar Forty thousand two hundred and ninety nine), or in the alternative if this Hon'ble Court comes to the conclusions that specific performance is not to be decreed, to pass a decree against the defendant for damages in lieu of specific performance of US$ 40.299 (US Dollars Forty thousand two hundred ninety nine) together with interest at 24% per both pendente lite and future till satisfaction.

(2) In the alternative, in the event not decreeing specific performance pass a decree in favour of the plaintiff and against the defendant for recovery of damages agreeing to Rs. 11.50 lakhs (Rupees Eleven Lakhs fifty thousand) as detailed in para 27 of the plaint together with interest at 24% both pendente lite and future till satisfaction."

3. After the defendant was served in the suit, an application (IA.6510/99) was filed by the respondent/defendant seeking rejection of the plaint under Order 7 Rule 11 of the Code of Civil Procedure (for short "C.P.C.") on the ground that the plaint does not disclose any cause of action against the respondent. The application was vehemently opposed by the appellant. By the impugned order, learned Single Judge held that the plaintiff has no locus standi and cause of action to file the suit against-the defendant. The suit against the defendant as an agent of its principal, who is a foreign buyer is not maintainable. The suit accordingly was dismissed as not maintainable against the defendant/respondent.

We have heard learned counsel for the parties at length.

4. Learned counsel for the appellant vehemently Contended that learned Single Judge lost sight of the important principle of law that at the stage when the defendant had not yet filed written statement, learned Single Judge ought and could not have gone into the merits and proceeded to record its finding on the question whether the plaintiff had a cause of action against the defendant or not. Jurisdiction of learned Single Judge at this Stage was only to ascertain and find out whether the facts, as alleged in the plaint, did not disclose any cause of action against the defendant. Instead of doing that learned Single Judge proceeded to examine the defense of the respondent as disclosed in its application under Order 7 Rule 11 C.P.C. coupled with the accompanying documents and thereby finally fulminated the suit holding that it is not maintainable against the respondent/defendant.

5. Learned counsel for the respondent on the other hand contended that a frivolous suit had been filed by the plaintiff against the defendant and the Court was not powerless in having gone to the root of the case which was done with a view to avoid unnecessary harassment to the respondent, who had nothing to do with the transactions in question. In support of his submissions he placed reliance on the decision of the Supreme Court in T. Arivandandam v. Satyapal and Anr., AIR 1977 SC 2421.

6. In order to appreciate the respective contentions of the parties, it will be necessary for us to examine critically the plaint and thereby the basis of the plaintiffs claim against the defendant. The plaintiff alleged that it is a partnership firm duly registered under the Partnership Act; in or about the first week of November, 1998 the defendant approached it for manufacture of garments as per its designs and specifications so as to enable it to export the same to its principal M/s. Fritzi. situate at Califronia. United States of America; representative of the defendant along with the representative of Fritzi visited the plaintiffs unit at Gurgaon on 12.11.1998 and after having been satisfied with the samples of the fabric, its quality, design and specifications confirmed about placing orders for supply of required number of pieces; five purchase orders dated 16.11.1998 were placed by M/s. Fritzi through its agent, the defendant upon the plaintiff for manufacture of specified quantity of Ladies Garments; the defendant acted as an agent by and on behalf of the buyer and is independently and severally liable for all acts and omissions of its principal; on 19.12.1998 the defendant revised the specification of fabric; letter of credit was opened on 18.12.1998 on Standard Chartered Bank by Colby International Ltd; first beneficiary being Colby International Ltd; Hong Kong and second, beneficiary being the plaintiff; the letter of credit was to expire on 7.3.1999 in Hong Kong; date of shipment initially was 20.2.1999 and the date of negotiation was 19.3.1999 the date of letter of credit was extended till 17.3.1999; on 9.3.1999 the plaintiff confirmed having despatched 3215 pieces towards execution of the purchase order dated 16.11.1998 after working round the clock; delay had been caused on account of the defendant; enormous expenditure had been incurred by the plaintiff to expedite discharge of its obligation within a short time; the plaintiff had indicated the estimated date of delivery of 6060 pieces as on 13.3.1999; the defendant accepted part shipment against letter of credit for 3215 pieces and the said part of the transaction was completed; the defendant also agreed to extend the date of shipment in respect of balance 6060 pieces; the buyer also informed the defendant that date of delivery had been extended to 15.3.1999; on 12.3.1999 the defendant informed its principal through a fax that all pieces were off machine and only finishing touches had remained; in response to this letter of the defendant, the buyer replied the same day that the last date for delivery would stand extended to 15.3.1999; the entire consignment was ready for shipment on 15.3.1999; Special Custom Invoice was also made ready; the defendant did not depute the QA to visit the plaintiffs office for inspection of the goods and did not issue the certificate of inspection; as per the earlier report of QA dated 12.3.1999 every thing else had been completed except for washing pressing and any person in the trade would have no hesitation to admit that the remaining work was hardly of two or at the most three days; the entire consignment was thus ready for despatch; 13th and 14th were Saturday and Sunday. The plaintiff further alleged that the defendant in order to resale from the contract and with malafide motive did not come on Monday, the 15.3.1999 for inspection and taking delivery of goods. The acts of omission and commission on the part of the defendant are alleged in paras 15 to 17 of the plaint as under:-

"15. That the defendant did not come for approval of the finished material on 15.3.99 inspite of the buyer having granted an extension till 15.3.1999. In this manner the defendant prevented the plaintiff from despatching the goods which were ready for despatch on March 15,1999 as in the absence of the certificate of inspection, which was a condition of the Letter of Credit, the shipment would have not been in compliance of the Letter of Credit, the shipment would have not been in compliance of the terms of the Letter of Credit and the Bankers would not have negotiated the documents lodged under the Letter of Credit. In this manner the defendant by its wilful inaction forced the plaintiff into a position whence the goods could not be despatched on March 15,1999. That the plaintiff had got all the documents such as Special Customs Invoice and other necessary documents ready, but on account of Inspection Report not being given by the defendant, the goods could not be despatched.

16. That the plaintiff on making enquiries on 15.3.1999 was informed by the defendant for the first time that the buyer was not ready to accept the material and to contact the buyer directly. That on 19.3.99, the plaintiff was informed by its Bankers that the buyer had unilaterally asked its bankers to cancel the purchase order.

17. That on 10.12.98 i.e. to say after 26 days to the purchase order, a unilateral revision of the specification was made by M/s. Fritzi through its agent the defendant above named. Due touch unilateral change in the specification as well as quality of the material as was ordered by the said purchase order, the plaintiff incurred severe loss and prejudice. However, in order to maintain its commitments, credibility, reputation and goodwill, the plaintiff repurchased the fabric as per revised specification and made available the fresh materials for lab dip test. The plaintiff categorically intimated the defendant on account of its acts and conducts of the above of the defendant enter its principal as aforesaid, it would not be possible to-adhere to the schedule date of delivery specified in the purchased order. That the defendant once again caused delay in approving the lab dip test."

7. The plaintiff further alleged that there was a unilateral change of specification and the quality of the fabric long after the approval, the defendant on behalf of its principal could not have insisted on supply of the materials within the time as was stipulated in the purchase order and the purported termination of the purchase order was illegal, wrongful; the plaintiff was entitled to have the contract dated 16.11.1998 in respect of 6060 pieces declared to be valid and subsisting. On the basis of the other allegation made in the plaint, the plaintiff claimed that it was entitled to a decree for specific performance calling upon the defendant to take delivery of the same. For this prayer, it is alleged that the defendant, who is an agent of a foreign principal had entered into contract for sale with the plaintiff is severally and personally liable to the plaintiff and is liable to take delivery of the goods under the said purchase order. In the alternative, the plaintiff also claimed damages from the defendant for its acts of omission and commission that on 15.3.1999 when the entire goods were ready for despatch, the defendant failed and neglected to depute A to have the goods inspected and failed to issue the necessary certificate of inspection due to which the plaintiff suffered a loss.

8. Thus in nutshell, on the narration of the facts as alleged in the plaint, the plaintiff claimed a decree on the basis of the purchase order and the terms of letter of credit coupled with the other correspondence, which was exchanged between the parties as regards extension of time. Instead of looking at the allegations of the plaint, learned Single Judge proceeded to analyse the terms of the contract dated 3.12.1998 between M/s. Colby International Ltd., Hong Kong and M/s. Fritzi. Since according to the defendant, the plaintiff was a party to the contract and was bound by its terms and on that basis it was alleged in the application by the defendant, seeking rejection of the plaint, that this Court has no jurisdiction to entertain the suit and the terms of the contract specifically provided that the defendant as Buying Agent shall have no liability to the seller in respect of any claim that the seller may have, which arise or are in any was related to the goods of the contract. Learned Single Judge also observed that the suit has been instituted only against M/s. Colby International Limited, New Delhi, which was a Liaison Officer of M/s.Colby International Ltd., Hong Kong. There was no cause of action against the defendant. The suit, if any, would be maintainable only against M/s. Fritzi or in any case against M/s. Colby International Limited and not against the defendant.

9. Having considered the submissions made at the bar and gone through the impugned order, we are of the view that learned Single Judge proceeded on erroneous assumption that he was entitled to go into the merits of the controversy that whether the plaintiff had any cause of action against the defendant or not or that whether the plaintiff's suit against the defendant was or was not maintainable. Such an approach is erroneous. The plea of the defendant that there is no cause of action does not amount to the plea that the plaint does not disclose any cause of action. A distinction must always be drawn between a plea that plaint does not disclose a cause of action and the plea that the plaintiff has no cause of action to sue. The grounds on which plaint can be rejected are enumerated in Clauses (a) to (d) of Rule 1.1 of Order 7 C.P.C. The first ground on which plaint can be rejected is that it does not disclose a cause of action. While considering the prayer to reject the plaint on ground (a) of Order 7 Rule 1.1 C.P.C. that the plaint discloses no cause of action, which is essentially a demurrer, the defendant must be taken to admit for the sake of argument that the allegations of the plaintiff in the plaint are true in manner and form. The power to reject the plaint on this can be exercised only if the Court comes to the conclusion that even if all the allegations are taken to be proved, the plaintiff would not be entitled to any relief whatsoever. A distinction must always be drawn between a case where the plaint on the face of it discloses no cause of action and another in which after considering the entire material on the record the Court comes to the conclusion that there is no cause of action. In the first case the plaint can be rejected but in the letter case the plaint cannot be rejected. The suit has to be dismissed. Learned Single Judge adopted the second approach. This was not the stage where the Court was expected to enter into this controversy that whether there was a cause of action to the plaintiff against the defendant or not. No doubt that where the plaint is based on a document, the Court will be entitled to consider the said document also and ascertain if a cause of action is disclosed in the plaint, but validity of the document cannot be considered at this stage. To enable a Court to reject a plaint on the ground that it does not disclose a cause of action, it should look at the plaint and documents accompanying the plaint only and nothing else. The Court, however, cannot look at the defense of the defendant or the documents relied upon by the defendant. See D. Ramchandran v. R. V. Janakiraman and Ors. . Learned Single Judge fell in error in placing reliance upon the material supplied by the defendant, which alone is sufficient to set aside the impugned order. Learned Single Judge instead of proceeding to reject the plaint dismissed the suit, which approach is also erroneous. The effect of dismissal of suit is altogether different and district from the effect of rejection of the plaint. In case plaint is rejected under Order 7 Rule 11 C.P.C. filing of a fresh plaint in respect of the same cause of is specifically permitted under Rule 13 of Order 7. C.P.C.Altogether different consequence follows in the event of dismissal of suit, which has the effect of precluding the plaintiff to file a fresh suit on the same cause of action. Rejection of plaint takes away the very basis of the suit rendering as if there was no suit at all or that no suit was instituted. Order of dismissal of suit while recognizing the existence of a suit indicates its termination. While deciding the application under Order 7 Rule 11 C.P.C. learned Single Judge ought not and could not have dismissed the suit. Even in the decision of the Supreme Court in T. Arivandandain's case (supra) relied upon by learned counsel for the appellant, it was held that if on a meaningful-not formal- reading of the plaint it is manifestly vexatious and meritless, in the sense of not disclosing a clear right to sue, the trial court should exercise his power under Order 7 Rule 11 C.P.C. taking care to see that the ground mentioned therein is fulfillled. In order to fulfilll that ground bare allegation made in the plaint and documents filed therewith were required to be looked into, which in the instant case clearly disclosed at least a cause of action against the defendant that defendant was liable for damages for its acts of omission and commission. It would be an altogether different situation that the plaintiff might not ultimately succeed in obtaining a decree against the defendant or that Court might come to the conclusion that suit would not be maintainable against the defendant and that plaintiff had a cause of action only against defendnat's principal and its parent unit in Hong Kong, but such aspect could not have been gone into at this stage. Three paragraphs of the plaint quoted above in our view do clearly disclose cause of action for the plaintiff to claim damages.

10. In view of the above, the impugned order cannot be sustained and is liable to be set aside. Consequently, the appeal is allowed. IA. 6510/99 filed by the respondent is dismissed and the impugned order is set aside. I.As 5460, 5267 to 5270 of 1999 are restored to their respective numbers along with the suit No. 1103.99, which learned Single Judge will proceed to dispose of in accordance with law. The parties are directed to appear before learned Single Judge on 20.11.2000