Bagrodia Machinery Stores And ... vs National Air Products Ltd.
2007 Latest Caselaw 1216 Del

JUDGMENT

A.K. Sikri, J.

1. Respondents herein had filed the suit impleading appellants as the defendants therein. The suit was for recovery of Rs. 63,400/-. The respondents had placed the order for the supply of a transformer upon the appellant for which respondents had paid Rs. 40,000/- as advance by means of two cheques of Rs. 15,000/- and Rs. 25,000/- respectively. The respondents alleged that the goods were not supplied. Therefore, it filed the suit for refund of amount of Rs. 40,000/-. As interest on this amount @18% was also demanded, total amount claimed in the suit was Rs. 63,400/-. Case set up in the plaint was that the order dated 28th September, 1976 was placed followed by another order dated 9th October, 1976. The items were to be supplied, under these two purchase orders, by the appellant to the respondents by 30th November, 1976 and 7th December, 1976 respectively. Period of supply was extended by mutual consent of the parties from time to time. Rs. 25,000/- was paid by way of a Cheque dated 28th September, 1976 and second cheque of Rs. 15000/- dated 12th October, 1976 was also given. It was alleged that initially the appellants failed to supply the equipments in spite of repeated requests and reminders. Thereafter, vide letter dated 27th December, 1976 the respondents had advised the appellant not to dispatch the equipment in the absence and without receiving the written instructions from the respondents. Appellant wrote another letter dated 13th January, 1977 asking the respondent to give instructions within seven days failing which advance money would be forfeited by him. Vide letter dated 24th January, 1977, the respondent took the plea that there is no provision for cancellation of the orders placed by the respondents. Vide letter dated 14th February, 1977, the appellants again asked the respondents to take delivery within seven days failing which order would be treated as cancelled. No correspondence was exchanged between the parties thereafter. However, more than 2 " years of the last order, respondents sent communication dated 11.10.1979 informing the appellant to supply the equipment and in case appellant was not in a position to supply the said equipment, advance of Rs. 40,000/- given by the respondents to the appellant was demanded back with interest @18% per month. This letter was not replied to. Delivery of the equipment was also not effected. In these circumstances, suit for recovery was filed.

2. There is no dispute that the respondents had placed the aforesaid two orders upon the appellant for the supply of the equipment mentioned therein. There is also no dispute that respondents had made advance payment of Rs. 40,000/- in two cheques against those orders. It is also not in dispute that the equipment was not supplied. However, in the written statement filed by the appellant, it took the plea that time was the essence of the contract. The appellant had requested the respondents time and again to take the delivery of the equipment ordered, but it is the respondents who delidelayed and did not want the equipment at that time even when final letter and reminder dated 14.02.1977 was sent by the appellant to the respondents, asking them to take the delivery of the equipment within seven days, failing which order would be treated as cancelled and advance forfeited.

3. The respondents slept over the matter for about three years and in October, 1979, it asked the appellant to supply the equipment or refund the advance money. By that time, the market rates of the equipment had increased tremendously and the appellant had shown their willingness to supply the goods at the prevalent market rate. It was pleaded on the basis of these averments that there was no default or breach on the part of the appellant. It was rather the respondents who had failed to lift the material though offered, and thus, forfeiture of the advance money paid by the respondents to the appellant was justified. It was also pleaded that in any case suit for recovery filed by the respondents was barred by time.

4. The learned trial Court framed as many as seven issues on the basis of pleadings. Issue No. 2 was as to whether the plaint had been signed and verified by a duly authorised person which was decided in favor of the respondents. Since findings on this issue were not challenged at the time or arguments, it is not necessary to refer to this aspect of the matter. All other issues were taken up together for discussion. The genesis of these issues was two fold : whether the suit was within limitation and whether the time was the essence of the contract and thus, it was obligatory on the part of the respondents to take the delivery of the material within seven days of the final notice dated 14.02.1977 given by the appellant to the respondents.

5. These issues are decided in favor of the respondents/plaintiff and, therefore, decree for Rs. 40,000/- in favor of respondents is passed with property cost. No pre-suit or pendente lite interest is granted. However, interest from the date of judgment till recovery is allowed @12% per annum.

6. There is no dispute on facts as narrated and the correspondence which was exchanged between the parties or on the contents of those letters. As per the two orders, the equipments were to be supplied by the appellant to the respondents by 30th November, 1976 and 7th December, 1976. The material was not supplied by the stipulated dated. However, vide letter dated 15th December, 1976, the appellant offered the respondents to take the delivery within seven days. It was also mentioned in this letter that one Krishan Mohan of the respondents side had advised the appellant to withhold the dispatch of the material ordered by the respondents in respect of the aforesaid two orders. But M/s Kirloskar Ltd., Bangalore did not agree to withhold the dispatch of the consignment and they had diverted the same to another client.

7. It was also stated in this letter that appellants were ready for dispatch and keeping in view the huge demand and tight market conditions, it was difficult to keep the material for indefinite period, although they had been keeping the same since last three weeks. In reply to this letter, the respondents vide communication dated 27th December, 1976 indicated that the material should not be supplied without receiving written instructions from the respondents. Two letters were written by the appellant thereafter i.e. letter dated 14.01.1977 and 14.02.1977, giving seven days' time to the appellant to receive the goods failing which orders would be treated as cancelled and the advance amount forfeited. The respondents did not reply to letter dated 14.02.1977. However, after a gap of two years and eight months, respondents wrote letter dated 11th October, 1979 asking the appellant to supply the material.

8. In view of above, the learned trial Court has held that time was the essence of the contract and there was breach of contract on the part of the respondents.

9. Notwithstanding the above, the learned trial Court has still directed refund of the amount on the ground that there is no mention in any of the orders about the forfeiture of the advance payment. In the absence of any such provision, it was not open to the appellants to forfeit the amount for not taking the delivery of the material of the respondents. It is further held that in case respondents did not take the delivery of the material and were in breach, appellant had right to claim damages or damerage charges on account of loss suffered but the appellant did not prefer any such claim. On the contrary, even in the year 1979, after appellant received letter dated 11th October, 1979 from the respondent to supply the material, it showed its willingness to supply the articles but at the prevalent market rate. Therefore, the respondents were entitled to get the refund of the advance amount which they paid to the appellant, the trial Court ruled.

10. In so far as limitation is concerned, the learned trial Court held that vide letter dated 14.02.1977, period of performance was extended by seven days till 22.02.1977, since letter was received on 15.02.1977. The suit was filed on 29th January, 1980 and, therefore, it was within three years from the date by which contract was to be performed and does not time barred.

11. Mr. Adarsh B. Dial, learned senior counsel for the appellant. challenged the conclusion and finding of the learned trial Court on both counts. In respect of forfeiture of the advance money, though he conceded that there was no such stipulation in the contract/purchase orders, his submission was that the contract stipulated payment of 10% as advance, pursuant to which aforesaid amounts were given. This advance had to be construed as "earnest money" and when this characteristic is attributed to the advance given and it is treated as earnest money, law permitted the appellant to forfeit the earnest money in the even of default by the respondents in not taking the delivery of the goods offered. He refered to the judgment of Kunwar Chiranjit Singh v. Har Swarup AIR 1926 Privy Council 1, Shri Hanuman Cotton Mills and Ors. v. Tata Air Craft Limited , Grandhi Subramanayam v. Vissamsetti Visweswara Rao AIR 2002 Andhra Pradesh 71. In these cases, Courts have held that earnest money is part of the purchase price when the transaction goes forward and it is eligible for forfeiture when the transaction falls through by reason of fault or failure of the Vendee.

12. There is no quarrel about the legal proposition namely, earnest money can be forfeited in case of breach of contract on the part who paid the said earnest money. Question is as to whether in the instant case, the amount of Rs. 40,000/- paid, can be treated as earnest money. It is stipulated in the order that "10% advance " 90% to be drawn by document can be through Punjab and Sind Bank,Naraina Banch, New Delhi". The purchase order was dated 28th September, 1976. This purchase order reveals that rate of two transformers were Rs. 75,500/-, each of which discount of 7" % was given. After discount, the cost of two transformers worked out to Rs. 1,43,245/-, on which 1% Excise Duty was also payable. This purchase order also included supply of slipring induction motor, price of which was Rs. 1,16,000/- net. Total purchase order was, therefore, for Rs. 2,59,245/- + 1% Excise on two transformers. Against this, cheque of Rs. 25,000/- was given, which is not 10% of the purchase price.

13. Insofar as second order dated 9th October, 1976 is concerned, it does not even mention about any such advance payment unlike the stipulation which is contained in the first order. In fact, there is no clause regarding payment terms. Moreover, as per this purchase order, three equipments were to be supplied, cost of which was Rs. 1,42,000/-, Rs. 20,500/- and Rs. 17,700/-. Total value of purchase order was thus Rs. 1,80,200/-. Against this purchase order, the respondents had made payment of Rs. 15000/-. This is again not a figure which works out to 10% of the purchase order, notwithstanding the fact that as far as this order is concerned, there is no stipulation of payment of 10% advance. This is, therefore, clear that in respect of both the purchase orders, payment of Rs. 25000/- and Rs. 15000/- respectively was not towards 10% but ad hoc advance.

14. The hollowness of the appellant's argument is exposed from yet another important fact. The case which is sought to be projected now, namely, the amount given is to be construed as earnest money and, therefore, appellant had right to forfeiture was not even the case projected by the appellant in the trial Court. There is no averment in the written statement that the amount in question given by the respondents to the appellant was earnest money. There was no reliance upon the payment terms, though contained in one purchase order only. The only plea raised in the written statement is that since the respondents failed to take the delivery of the goods, they were not entitled to refund of the advance amount paid. The plea was based on the statement made in the letter dated 14.02.1977 as per which the respondents were "duly notified forfeiture" of the advance. Therefore, the appellant cannot be permitted to take the plea that amount represented earnest money and on this basis the appellant had right to forfeit the same.

15. No doubt, there was a breach of contract on the part of the respondents. In view of this breach, appellant was entitled to claim damages from the respondents. However, as per Section 73 of the Contract Act, such damages are to be proved. The appellant neither laid the claim nor gave any evidence to show as to whether it had suffered any damages. It simply made the claim of "forfeiture" which it has not been able to substantiate or sustain.

16. Coming to the issue of limitation, the appellant could not dispute that as per its own letter dated 14th February, 1977 received by respondents on 15th February, 1977, seven days' time was given. Thus, date of performance was extended till 22nd February, 1977. From that date, suit is admittedly filed within three years.

17. Learned Counsel for the appellant, however, contended that 22nd February, 1977 cannot be treated as the date from which the limitation should count. His submission was that as per the two orders, stipulated date of supply was 30th November, 1977 and 7th December, 1976 and period of three years should be calculated from these dates when the goods ought to have been delivered. This is so provided in Article 31 and in support of this proposition, the learned Counsel had relied upon the judgment of Supreme Court in Boota Mal v. Union of India . Article 31 reads as follows:

Description of Suit Period of Limitation Time from which period begins to run.

31 Against a carrier for compensation for non-delivery of, or delay in delivering goods. One year When the goods ought to be delivered.

18. However, what the learned Counsel misses is that though the original date of supply was stipulated as 30th November, 1976 and 7th December, 1976 respectively, by mutual consent, this date was extended from time to time. The last date as per the appellant's own letter was 22nd February, 1977 and, therefore, for the purpose of Article 31, this would be the date "when the goods ought to be delivered".

19. In the aforesaid case quoted by the learned Counsel, the Supreme Court held that time would run after elapsing of reasonable time when the expired delivery ought to have been made. On this principle, some reasonable time even after the expiry of 22nd February, 1977 would be given. Therefore, this judgment does not come to the rescue of the appellant.

20. Other Judgment on which reliance was placed by senior counsel for the appellant is of Bhanwarlal v. The State and Ors. . That was a case where appellant Bhawarlal was given Liquor license by the Government. Under that license, he was required to lift every month guaranteed liquor from State Godown by paying issue price at every delivery. He lifted only portion of guaranteed quantity although, price for entire guaranteed quantity had been deposited with the Government. Appellant, thereafter, filed suit for refund of the price of liquor not supplied. The issue of limitation arose. The question that was to be determined was as to whether the amount of claim by the appellant became due from the date of expiry or whether the amount could become due only when the State decided refund of the appellant dated 28.12.1965 and subsequent reminders given on 16.01.1969 and 31.01.1969 whereby the State denied to refund the entire balance. The Court held that the right to refund, if any, accrued to the appellant after the expiry of the term of the license i.e. after 31.03.1963 since he was entitled to claim the refund. It was held that Article 13 would apply as per which limitation of three years would start running from 31.03.1963 and not from the date on which representation of the appellant was decided. We fail to understand as to how this Judgment would be applicable in the present case. Even as per this Judgment, the amount became due on the date when the term of the contract had expired. On that analogy, the limitation in the instant case would start from the date when the contract was supposed to be performed which was extended to 22nd February, 1977. This Judgment is, therefore, also not applicable. The result would be to dismiss the appeal as devoid of any merits. It is ordered accordingly.