Festo Controls Pvt. Ltd. vs Numero Uno Pneumatics Pvt. Ltd.
2005 Latest Caselaw 953 Del

JUDGMENT

A.K. Sikri, J.

1. An agreement dated 2nd February, 1998 was arrived at between the petitioner and the respondent company (hereinafter referred to as `the company'). As per this agreement, the petitioner was to supply pneumatic products manufactured by it to the company which was to be sold by the company in the area of its influence.

2. The terms and conditions of the supply were enclosed with this agreement.

3. The petitioner made various supplies under the aforesaid agreement. It is stated in the petition that in order to encourage timely payment the petitioner gave 2% discount on these payments which were made by the company against proforma invoices or deliveries or within reasonable period of delivery of products. However, this discount was not given to the company on payment made after the expiry of the credit period. It is also stated that the discount was given by the petitioner at its own discretion though it was under no obligation to do the same. However, later this discount offer was revoked as the company failed to make payments on time. Vide letters dated 20th November, 1999 and 6th March, 2000 this position was clarified to the company.

Last consignment of the product was delivered somewhere in July, 2000 against the company's purchase order dated 13th June, 2000. Thereafter, vide notice dated 14th August, 2000 the company served three months' time on the petitioner for termination of the agreement. In order the settle the account, the petitioner informed the company vide letter dated 9th October, 2000 that a sum of Rs. 10,72,341.80 paise is payable by the company to the petitioner. It also requested the company to issue C Forms for the period 1998-99 to 2000-01 against the total sales of Rs. 6,60,51,938.02 paise. However, the company vide its reply dated 17th October, 2000 admitted that as per its record the outstanding amount was Rs. 8,17,956.70 paise. It also assured to issue C For is shortly. On receipt of this letter, the petitioner reconciled the accounts again and replied vide letter 7th November, 2000 informing the company that the total amount payable was Rs. 10,15,752.93 paise. However, the amount was not paid and six month after, vide letter dated 19th May, 2001 the company for the first time stated that it was entitled to 2% discount on sales for the period from April to December, 1999 and thus a sum of Rs. 3,04,261.09 paise was required to be deducted on this account.

The petitioner denied any such discount payable and demanded the amount by subsequent correspondence along with interest at the rate of 24% per annum and ultimately even issued statutory notice dated 27th July, 2001 under Section 434 of the Act.

4. In the reply submitted by the company to notice, it tried to set off the liability to an extent of Rs. 7,13,388.95 paise which, according to the petitioner, was on totally filmsy grounds and thus another demand notice was served. The company, however, issued C forms but failed to make any payment and, therefore, present petition for winding up was filed on 11th January, 2002.

5. In the reply filed by the company to this petition, its defense is same which was in reply to the statutory notice. It is clear that as per the petitioner, a sum of Rs. 10,15,752.93 paise was outstanding and payable. The company has not disputed the supplies to this extent. However, according to the company, adjustment from the aforesaid amount is required to be made on the following two counts:

(a) The petitioner was to give 2 per cent discount on sales as agreed to by the petitioner. This discount was given up to March, 1999 and again from January, 2000 and for the supplies from April to December, 1999 the petitioner did not give this discount. A sum of Rs. 4,69,725 is, therefore, to be adjusted towards this discount.

(b) The company informed the petitioner vide same letter dated 19th May, 2001 that stock of Rs. 2,43,663.95 paise was lying with the company and the petitioner was requested to take back this stock and give the adjustment of this amount.

After adjusting the aforesaid amounts, the company has made payment of Rs. 3,04,261.09 paise during the pendency of these proceedings.

6. When the matter was heard on 1st February, 2005 this defense of the company was noted and as far as the claim of the company for 2% discount on sales, counsel for the petitioner sought time to verify the statement of the company as to whether 2% discount was given for the supplies made after December, 1999 as well. However, in respect of the second set off sought to be claimed by the company, following observations were made in the order dated 1st February, 2005:

"In so far contention of the respondent regarding rejection of stock worth Rs. 2,43,663.95 paise is concerned, in the letter dated 19th May, 2001, it is only stated that the stock is lying with the respondent. There is not even a whisper that the supplies were defective or were rejected by the respondent. When the supplies were made by the petitioner to the respondent against the orders placed by the respondent and the respondent had accepted the material, on what ground the respondent wanted the petitioner to take back the material, is not even disclosed. Moreover, admittedly the last supply was made in July, 2000 and no document is produced on record by the respondent rejecting this material. Therefore, I am of the prima facie opinion that a justment sought by the respondent on this count is not tenable. Learned counsel for the respondent wants to seek instructions on this aspect."

7. Although thereafter the matter was adjourned on 3-4 days but the counsel for the petitioner could not make a statement about any instructions having received from his clients. On the other hand, the counsel for the company could not point out that any letter was written by the company to the petitioner rejecting the material worth Rs. 2,43,663.95. Arguments were heard on 27th May, 2005 and judgment reserved.

8. The only aspect which is to be considered is the propriety of the adjustment sought by the company. The company has produced on record the statement as per which discount of 2% is not given only on the supplied made between April to December, 1999 although such a discount is again given from January, 2000. As already mentioned above, although the petitioner was given time to obtain instructions but has failed to elucidate this aspect. Therefore, prima facie statement of the company is to be believe on this aspect. If that is correct, the stand of the petitioner that discount of 2% was within the petitioner's discretion and was withdrawn on 20th November, 1999 cannot be treated as correct because discount is given for the supplies made in January, 2000. Furthermore, if it is withdrawn in November, 1999 the discount was payable up to this date and 2% discount is not given for the supplies made from April to November, 1999. The petitioner has also not been able to demonstrate that discount of 2% was given only when the payment was made within time as discount of 2% is given across the board, except for the period April to November, 1999 irrespective of as and when payments were made. Prima facie, therefore, the defense of the company that it is entitled to 2% discount on sales cannot be treated as moonshine or sham.

9. In so far as adjustment of Rs. 2,43,663.95 paise on account of alleged rejection of stock is concerned, as pointed out in the order dated 1st February, 2005, nothing is produced on record to show that there was rejection of this material. Even in the letter dated 19th May, 2001 it is not stated that the material supplied was defective or rejected by the company. If it was simply lying with the company and the company wanted it to give back, such a course is not permissible for the company as on supplying the material, ownership therein in the goods would pass as per Section 19 readwith Sections 20 to 24 of the Sale of Goods Act, 1930 and the amount in question has become payable. Therefore, the company shall not be entitled adjust this amount.

10. In view of the aforesaid discussion, I give the following directions:

(i) The petitioner may, if it so chooses, file suit for recovery of Rs. 4,69,725/- and once such suit is filed it would be for the company to defend the same on the ground that it was entitled to discount at the rate of 2% on the sales and, therefore, the amount is not payable. It would also be entitled to pursue other defense available to it under the law.

(ii) As the defense in respect of the rejected material is not bona fide, the company is to make payment of Rs. 2,43,663.95 paise to the petitioner. The company has already made the payment of balance amount of Rs. 3,04,261.09 paise during the pendency of these proceedings. On Rs. 5,47,925.04 paise, the company is also liable to pay interest which is determined at the rate of 9 per cent per annum and it shall be calculated with effect from 7th November, 2000 when the demand of interest was made by the petitioner and the amount shall be calculated on reducing balance. Interest component as well as sum of Rs. 2,43,633.95 paise shall be deposited in this court within a period of six weeks by the company to the petitioner. If the amount is not paid, the petition would be treated as admitted and direction shall be given for publication of citations.

11. List on 23rd August, 2005.