Hindustan Tin Works Ltd. vs Himalaya International Ltd.
2005 Latest Caselaw 639 Del

JUDGMENT

A.K. Sikri, J.

1. The petitioner is in the business of processing, printing tin plates and making containers thereof. The respondent approached the petitioner some time in October 1998 for supply of cans of different sizes. These cans were supplied by the petitioner to the respondent from time to time as per the requirement and specifications. According to the petitioner, substantial sum is due and the said debt is not paid by the respondent inspite of statutory notice and, therefore, this petition is filed seeking winding up.

2. It is the case of the petitioner that during January, 2001 and March, 2001 total cans supplied were of the value of Rs. 29,07,000/-. Goods worth Rs. 72,656.22 paise were returned by the respondent. Net supply was, therefore, for Rs. 28,34,343.78 paise. The bills of these supplies were raised, details whereof are given in para 7 of the petition. Since payment was not made in time, the respondent also became liable for payment of interest at the rate of 18 per cent per annum. In order to liquidate the liability, the respondent issued 7 cheques for a total amount of Rs. 31,64,640.48 paise. When these cheques were presented for encashment, some were returned unpaid with the remarks `funds insufficient'. Notice under Section 138 of the Negotiable Instruments Act (for short `the NI Act') was also given but no payment was made and, therefore, the petitioner filed proceedings against the respondent under Section 138 of the NI Act which are pending before Mr. S.S. Malhotra, Metropolitan Magistrate, Delhi. The petitioner further discloses that after filing of the complaint under the NI Act, the respondent for the first time got legal notice served alleging defects in the goods supplied by the petitioner from 16th September, 2000 onwards although no such plea was taken earlier. The respondent also lodged claim against the petitioner for Rs. 4,42,50,646/-. According to the petitioner, this was an after thought plea as in the earlier communications, the respondent had accepted the liability but expressed financial difficulty in releasing the payment. The petitioner, therefore, sent statutory notice dated 10th June, 2002 calling upon the respondent to pay Rs. 38,63,052.95 paise which was an admitted liability of the respondent towards the petitioner on account of goods received for non-furnishing of Forms H and C as well as interest on the amount due. Since the demand was still not made, the petitioner has filed this petition.

3. The defense of the respondent in the reply is substantially the same which was the subject matter of legal notice of the respondent. It is alleged that no debt is payable and the present petition is a pressure tactic. It is reiterated that the goods supplied were defective. In fact, according to the respondent, the petitioner company deliberately and intentionally and knowingly supplied absolutely defective cans which did not meet the required standards and quality control test at all and these goods were earlier rejected by many other buyers. The petitioner has, therefore, defrauded the respondent for supplying inferior and bad quality packing tin cans which were expressly ordered for canning and preserving required food stuffs specially fresh gown and picked mushrooms to be exported to USA as the respondent is 100% export oriented company. It is stated that the respondent is one of the largest market and is known for its quality of its products. Its food canning facility and process is approved by Food and Drugs Administration of USA. The petitioner knew that the tin cans to be supplied by the petitioner were to meet these standards as they were meant for packing mushrooms and other food stuffs and vegetables and, therefore, had to be of 100 excellent quality without any error. It is explained that the respondent has been placing orders with the petitioner since 1998 and payments have always been made. The dispute arose for supplies made from September, 2000 to December, 2001as many supplies made during this period were defective. It is stated that for those supplies which were in order the respondent made full payments. However, out of total supplies of 615420 cans the petitioner supplied 171360 defective cans which were earlier rejected by another customer of the petitioner, namely, M/s Agro Dutch Industries Limited. It is stated that the respondent used to purchase `flattened' cans but this time the petitioner compelled the respondent to buy built up cans on the pretext that the petitioner was not having flattened cans available. The petitioner is the only supplier of cans to the respondent. On the aforesaid representation of the petitioner, the respondent purchased these cans. It is also explained in the reply that the respondent thus carried out its food processing and canning of food stuffs as usual for exports to USA in the cans supplied by the petitioner and the respondent being 100% export oriented company, exported the food stuff mushroom cans to USA. Upon consignment reacting the US shores, the respondent received serious complaints regarding the quality of cans. The complaints pertained to leakage of the cans and the resultant loss at the arrival of these goods in US ports. Several complaints were made to the petitioner and the petitioner's representative and their quality analyst made various visits. In these meetings, the petitioner's representative agreed that there were quality deficiency in the cans, which had resulted in total loss of the consignment. While complaints from the US warehouse was that the leaked cans were emitting foul smell and container after container started blowing up. All these facts were brought to the knowledge of the petitioner. For the first time on 26th March, 2001, it was admitted by the petitioner that the cans supplied to the respondent were made for M/s Agro Dutch and were being diverted to respondent due to commercial reasons. Even then the petitioner never informed that M/s Agro Dutch had serious problem with these cans and had actually rejected and returned these cans to the petitioner. It is further stated that the fact that the petitioner had admitted to the inferior and defective quality of the cans supplied to the respondent can be gathered from the minutes of the meeting held between the respondent and the petitioner on various dates, which have jointly been signed by all the parties concerned. The minutes of the meetings held on 1st November, 10th November, 3rd December, 6th December, 2000, 14th February, 5th February, 5th April, 10th July and 19th July, 2001 would indicate the following:

(a) Tine plat hardness leading to poor beading of cans.

(b) Sid welding leakage.

(c) Development of cracks at the joints.

(d) Lids without lacquer inside.

(e) Defective lacquer coating.

(f) Kurling of lids are damaged.

(g) Dented and damaged flange.

(h) Variation in body hook.

(i) Puffed cans.

(j) Signs of rusting.

(k) Bulging of cans.

In the meeting held on 14th February, 2001 the petitioner admitted that the leakage was due to technical flaw of cans at the manufacturing level and that they would take steps to rectify the same, which was not done. The sample of these damaged goods was perused by the Central Food Technological Research Institute, Government of India, Mysore which gave its report dated 28th September, 2001. Perusal of the report would indicate that the cans supplied to the respondent, were defective. The said report reads as under:

(a) Lining compound is not uniform. Small holes were seen on the inside of the curl.

(b) With regard to lacquer porosity, it was found that streaks along with the entire weld length and further spots were also seen.

It is further submitted that New Jersey State Department of Health, USA vide its notice dated 10th January, 2001 has found that the articles which were stored at the warehouse are considered dangerous and had accordingly detained the same in accordance with the laws of the land. These were 4 consignments stored at one of the warehouses used by respondent. Under these circumstances, because of unfair trade practice of petitioner, the respondent had to file a complaint with the Monopolies and Restrictive Trade Practice Commission, New Delhi which is pending disposal. According to the respondent, therefore, it has suffered huge losses because of the aforesaid rejection of its goods and thus nothing is payable and in fact it is the respondent who has to recover the amount from the petitioner.

4. It is not in dispute that food stuffs packed in these cans supplied by the petitioner were exported and the consignment has been rejected. The dispute is about the cause which led to the packed food stuffs being contaminated. According to the respondent, when the tin cans are of inferior quality, they start leaking or if the lacquer spray of inner coating of cans are not proper or defective or of inferior quality, it reacts and gives way to acid conditions and this starts reacting with the inside meal surface of the cans and this being toxic begins to emit toxic gases which exert pressure inside the can and the can begins to puff and blows on account of formation of moulds/fungus and thereby becomes unfit for human consumption.

5. On the other hand, learned counsel for the petitioner submitted that cans supplies were in perfect condition and the cause of failure was not attributed to the quality of cans. Whenever any problem was raised in respect of the cans by the respondent, it was only to a negligible quantity of cans, the same were returned and were taken back by the petitioner. According to the petitioner the cause of rejection of the consignment was poor quality of mushrooms filled in these cans as when the same was got tested, it was found that there was microbiological problem in the mushroom filled in the said cans as in fact the processing was not properly done which would be clear from FRAC, CFTRI and Strasburger and Siegal reports. The goods when filled in the cans were under processed, which resulted in the survival and multiplication of thermophiles leading to spoilage of the goods filled in the cans. Thus cause was not related to the quality of cans which were supplied in excellent condition. It is further stated that leakage in cans occurs due to improper seaming of the ends as most of the cans supplied were flattened, seaming of the goods at both sides was done by the respondent itself. Even with respect to built up cans supplied by the petitioner, the lid on the upper side was to be seamed at the end by the respondent. It is also stated that after seaming either the flattened cans (both ends) or build up cans (upper side), the filled cans are subject to delivery inspections. It is only when the supplies of the goods is fully satisfied that the goods have been properly filled, seamed, processed and approved by their quality department, the same are dispatched. Any leakage thereafter is possible only because of the following factors:-

(a) Can to can contract during transit;

(b) mishandling and cans abuse during shipment.

Both these factors cannot be attributed to the petitioner, was the argument.

6. Supplies for which the payments are not made are of the period from 20th January to 10th December, 2001 as payments of the supplies for prior period have been made.

7. It has come on record that as and when the cans were supplied by the petitioner, the same were subjected to the quality assurance test by the respondent. On the respondent finding some defects in the cans supplied, the petitioner used to take remedial measures. This is clear from two letters placed on record by the respondent itself. One is letter dated 1st November, 2000 of the respondent to the petitioner wherein quality problems in the cans supplied were highlighted. The points of concern which were stated were :

"1. Tin Plate hardness variation leading to poor beading of cans.

2. Side welding leakage. Frequency of such cans getting processed and subsequently leaking is high. So far 8-10 cans have puffed and had to be disposed off.

3. Lids are without lacquer in side (Food Lacquer).

4. Kurling of lids are damaged.

5. Lids meant for Agro Dutch have been sent to us in bulk. These are of no use to us."

8. It is stated in the same letter that the petitioner had agreed to send replacement of defective lids lying with the respondent which were approximately 5000 pieces. Similarly in the meeting between the parties held on 10th November, 2000 some problems in the supplies made by the petitioner were pointed out and 755 tins were found as rejected. This shows that after the supply of the material by the petitioner, the respondent used to inspect the same and whatever quantity found to be defective, the same was rejected and replacement done by the petitioner. This also becomes clear from the minutes of the meeting held between the parties on 26th March, 10th July and 19th July, 2001 wherein some of the cans, albeit, negligible in numbers as compared to total supply of cans, were rejected by the respondent and the petitioner agreed to replace the same. These minutes would also disclose that cans used to be checked by the representatives of the parties and some times they were got checked by CFTRI/Dr. Mahaevaiyya/FRAC. It may also be added at this stage that while dispatching the supplies, the petitioner used to send quality assurance report containing following certification:

"The quality of cans have been sampled against AQL standards (Ref. Military standards)

This is to certify that the above consignment conforms to the AQL standards laid down for the purpose."

9. The petitioner has also placed on record letter dated 23rd October, 2001 written by Trans Atlantic Marketing to the importer at New York which indicates that damage to the goods occurred during transit. It may also be noted that cheques were presented on 2nd November, 2001 when they were returned dishonoured. Notice under Section 138 of the NI Act was issued on 22nd November, 2001 and only thereafter the respondent lodged the complaint on 26th December, 2001.

10. While aforesaid considerations weigh in favor of the petitioner, the respondent has also been able to place some material on record which would indicate the possibility of supply of bad quality cans and there is a possibility of drawing inference that although goods were damaged during transit but cause may be attributed to the manufacturing defects in the cans. It can not be denied by the petitioner that some of the quantities supplied used to be rejected as these were of bad quality. This happened too often although the petitioner argues that such quantities were not large and used to be replaced. Fact remains that in the supplies made by the petitioner, bad quality tins were also included. The respondent has also placed on record letter written as early as on 25th October, 2001 i.e. much before the presentation of the cheques, complaining about the quality of goods supplied. In this letter, the respondent high lighted the following aspects:

(i) Heavy puffing was noticed in the cans supplied which was in almost all the lots produced in March, April, May, July and August.

(ii) The respondent was receiving numerous mails showing heavy puffing.

(iii) Four containers with large scale puffing and messy condition were seized and impounded leading to legal complications as the Federal Authorities feared that obnoxious stuff was being dumped at their ports. The matter was being looked in conjunction with scare created by terrorist attacks including biological warfare and criminal investigation in the matter was being conducted by the Federal Authorities.

(iv) There were significant puffing earlier but production of march/July and August had surpassed all limits (more than 30%) and one of the containers of July had more than 70% puffed cans and had severly affected the respondent's export market.

(v) All investigations, analysis and inputs from experts point towards abnormal behavior of tin plate being used in these cans. Other problems such as side seam leakage, non uniform being compound in ends and splitting of side weld during flanging had also been contributed to this huge spoilage of product.

11. In this letter number of other results of analysis of the cans were pointed out blaming the petitioner for supply of substandard quality cans.

12. No doubt the petitioner refuted these allegations vide leter dated 1st November, 2001. However, fact remains that there was a dispute raised by the respondent much before the presentation of the cheques. Not only this, vide letter dated 6th November, 2001, the respondent called upon the petitioner not to deposit these cheques. Even receipt of this letter is disputed by the petitioner. The respondent has also placed on record analysis reports on the basis of which the respondent submits that attraction of mushrooms and spoilage thereof could be attributed to faulty conditions of tins supplied.

13. What can be highlighted from the above is that there are serious disputes. The admitted fact is that after packing of the food stuff and dispatching the same, it got spoiled while in transit. It is also an admitted position that many such containers have been rejected by the importer and the US authorities had even seized those containers. Both the parties are trying to produce evidence blaming each other for the state of affairs. According to the petitioner, it is either because of bad quality food stuff packed or seaming of the cans. According to the respondent, it is because of the sub-standard quality of cans supplied. The respondent has filed a case before the MRTP Commission which is pending adjudication. In order to pin down a party with responsibility, not only evidence but expert evidence is required to be led by both the parties. The matter can be thrashed out only when the parties are given opportunity to lead their evidence and also opportunity to cross-examine the witnesses produced by either side. It would not be appropriate to come to a particular conclusion on the basis of material produced by accepting the version of one party or the other in these summary proceedings. It is not a case where it can be said that defenses totally sham. It would, therefore, not be appropriate to exercise discretionary jurisdiction in the matter and order winding up of the respondent.

14. The petition is dismissed. No costs.