Trg Industries Pvt. Ltd. One Of The ... vs Chzk-Dormash Services And Ors.
2007 Latest Caselaw 1873 Del

JUDGMENT

Sanjay Kishan Kaul, J.

1. The plaintiff company incorporated and registered under the Companies Act, 1956 has filed the present suit for recovery of Rs. 59,98,866/-. It is the case of the plaintiff that a joint venture named and styled as BRA-TRG-BHARAT was formed for execution of the work of construction of 44 to 59.5 km Lucknow-Kanpur Road, near Unnao, UP. The contract was awarded by National Highway Authority of India to the consortium with the award value of the work of Rs. 43 crore with stipulated period of twenty months for completion of the project. The plaintiff through its Chairman cum Managing Director is stated to have been authorized by the other two constituents of the Joint Venture to incur expenses, execute the work and do all the other acts and deeds including the legal proceedings relating to and connecting with execution of the work on behalf of the said Joint Venture vide Power of Attorney dated 07.02.2002.

2. The plaintiff made enquiries for obtaining the requisite equipment and one such equipment required was a motor grader. Defendant No. 3 representing itself as an authorized dealer in Russian make Motor Grade DZ 180 fully hydraulic manufactured by defendant No. 1 and to be supplied by defendant No. 2 as an agent of defendant No. 1 approached the plaintiff with the specifications, efficiency, performance and quality brochure as well as the terms and conditions for supply. The quotation/information dated 20.02.2002 was submitted to the plaintiff and defendant No. 3 is said to have been acting and representing both defendant Nos. 1 and 2.

3. The plaintiff claims that Mr. M. Khemka of defendant No. 3 assured and promised that the grader intended to be supplied to the plaintiff was the most suitable for road work in India and was manufactured with the best accessories and services. The motor grader was, however, stated to be with the mechanical gear box but it was assured that keeping in view the urgent need of the machine, mechanical gear box would be replaced by hydrostatic transmission free of cost except a lump sum payment of Rs. 1.5 lakh towards customs etc. at the time of arrival of transmission from defendant No. 1. The time period for supply was stated to be about three to four months. In order to assure the plaintiff, defendant No. 3 is stated to have obtained affidavit from defendant No. 1 dated 23.02.2002 and the same was delivered to the plaintiff under the cover of the letter of the even date. The plaintiff placed a detailed Purchase Order dated 23.02.2002 for supply, commissioning and servicing of one Motor Grader Model DZ- 180 with spares and accessories as per specifications, terms and conditions contained therein. An advance payment of Rs. 15 lakh was made by the plaintiff with the Purchase Order and the supply had to be effected at the site by 06.03.2002 failing which there was a penalty of Rs. 10,000/- per day. The warranty period for the grader and accessories was twelve months from date of commission at site for any manufacturing defect. The mechanical gear box had to be replaced by the defendants by a hydrostatic transmission (complete conversion kit) free of cost at site within four months of the date of commission at site. Services of an engineer were also to be provided for the said purpose and the operators of the plaintiff also had to be trained on the machine.

4. The plaintiff states that the balance price of the grader was paid vide pay order dated 02.03.2002 for Rs. 27,08,469/- by the plaintiff and thus the total amount paid was Rs. 42,08,469/- to the defendants. Since the grader was not supplied on the due date, penalty of Rs. 60,000 was imposed which at the request of the defendants was reduced to Rs. 30,000/- in view of the explanation given by defendant No. 3 in its letter dated 13.03.2002.

5. The grievance of the plaintiff arises in respect of the said grader supplied at site on 20.03.2002. The supply is stated not to be as per the work order. Complete spares and accessories were not supplied and thus the plaintiff in terms of the letter dated 22.03.2002 brought these facts to the notice of the defendants.

6. One Mr. K.H. Babu, Sr. Engineer Dormash Russia of defendant No. 1 is stated to have visited the site of the plaintiff on 23.03.2002 to attend to the complaints, but he could not make it operational or commission the same. Thereafter, Sh. Satinder Singh, foreman of the defendant No. 3, was deputed to commission the grader and make it operational, but even he could not do the needful and is stated to have gone back with the promise to come back with the service engineer. The needful was not done.

7. The plaintiff claims that since the work was urgent and had to be performed for NHAI, the plaintiff was left with no alternative but to arrange for another grader on payment of Rs. 2,25,000/- per month since May, 2002 with the expectation that the defect would be rectified and the grader would be made operational by the defendants. If the plaintiff had not done this, it would have resulted in losses for the plaintiff apart from the labour and staff remaining idle. The grader was still not made workable.

8. The foreman is stated to have again visited the site of the plaintiff on 12.05.2002 for commissioning of the grader when it was pointed out by him that there was a bend in the lift cylinder and it was due to this defect that the grader was not functioning properly. The defect was not rectified. The plaintiff addressed a letter dated 25.05.2002 bringing the earlier minutes of the meeting and complaint on record but instead of complying with its obligations, defendant No. 3 is stated to have prepared false and concocted minutes of the meeting dated 24.05.2002 to escape its liability. The allegation of mis handing of the grader by the employees of the plaintiff was denied. The replacement of cylinder assembly was provided on 03.06.2002 as recorded in the minutes of the meeting dated 24.05.2002 but grader was still not made operational. The plaintiff claimed heavy losses vide its letter dated 14.06.2002 and called upon the defendants to remove the defective machinery and re-compensate the plaintiff with price paid along with interest at the rate of eighteen per cent per annum.

9. Defendant No. 3 is stated to have admitted it inability to cure the defects vide letter dated 24.06.2002 in response to the plaintiff's letter dated 18.06.2002 and assured that it would make an endeavor in consultation with defendant nos.1 and 2 to remove the defects. Defendant No. 2 vide its letter lated 26.06.2002 informed that defendant No. 3 had not made full payment to the defendant No. 2 and the spare parts and accessories had been withheld by defendant No. 3. Defendant No. 2 refused to assist the defendant No. 3 till full payment towards supply was made by defendant No. 3. Further reminders were sent by the plaintiff but to no avail.

10. The plaintiff has thus filed the present suit for recovery of costs of the machinery paid along with interest from 02.03.2002 till date of payment. The plaintiff also claims loss on account of higher charges of the grader arranged for the work at the rate of Rs. 2.25 lakh per month. The amount calculated till 10.11.2003 as claimed in the suit amounts to Rs. 12,58,065/-.

11. The suit has been resisted by all the defendants. Defendant No. 3 seeks to wash its hands off of the liability as it is neither the manufacturer nor the supplier of the machinery but only a sales agent of the manufacturer-defendant No. 1. It is the case of defendant No. 3 that it was required to provide only after sales service to the plaintiff. Warranty of the machinery is stated to be given by defendant Nos. 1 and 2 as twelve months against manufacturing defects.

12. It is not disputed that some of the spare parts of the machine were not supplied vide challan dated 11.04.2002 but it is stated that the machine was made operational to the satisfaction of the engineers of the plaintiff. An allegation is made about mishandling of the machine by the engineers of the plaintiff with the result that the cylinder assembly of the machine had become defective/damaged. This cylinder assembly was agreed to be replaced and it was in fact so replaced. It is thus claimed that the machinery was commissioned on 23.03.2002. Defendant No. 3 claims to have released the full payment to defendant No. 2.

13. Defendant No. 2 on the other hand claims that the quotation was placed by defendant No. 3 to the plaintiff firm, Purchase Order was placed by the plaintiff company on defendant No. 3 and the machinery was supplied by defendant No. 2. The payments were also made to defendant No. 3 who exchanged communications. The other averments made in the written statement are of mere denial.

14. Defendant No. 1 entered appearance only on 05.05.2003 and then the counsel disappeared from the scene. There was no representation on behalf of the said defendant and defendant No. 1 was formally proceeded ex parte on 22.08.2007.

15. On the pleadings of the parties, the following issues were framed on 06.07.2006:

1. Whether the suit has been instituted, filed and verified by a duly authorized person on behalf of the plaintiff? OPP

2. Whether the grader supplied to the plaintiff was not up to the specifications and failed to perform? Additionally whether any spares and other supplies were required to be made under the contract? OPP

3. Whether the plaintiff arranged for an alternate grader? OPP

4. If issue No. 3 is decided in favor of the plaintiff, to what amount is the plaintiff entitled to on the said account and from which defendant? OPP

5. Whether the plaintiff is entitled to refund of the amount paid for purchase of the grader? If yes, from which defendant? OPP

6. To what interests is the plaintiff entitled to an from which defendant? OPP

7. Relief.

16. The plaintiff led the evidence of Sh. Harish Mahajan, PW 1 while defendant No. 2 filed the affidavit of one Mr. Anurag Singh and defendant No. 3 of Mr. Mridul Khemka.

17. Learned Counsel for the parties were heard and the findings on the issues are as under:

Issue No. 1: Whether the suit has been instituted, filed and verified by a duly authorized person on behalf of the plaintiff OPP.

18. The suit has been instituted, filed and verified by Mr. T.R. Gupta, CMD of the plaintiff in pursuance to the General Power of Attorney dated 08.12.2001 (Ex. P. W1/1) which in turn has been in issued in pursuance to the Board Resolution dated 05.9.2001. Mr. Harish Mahajan, PW 1 has affirmed that he is familiar with the signatures of the Directors of the plaintiff and also Sh. T.R. Gupta and has identified the same.

19. The order for the purchase of the grader was placed by the Joint Venture of the three companies and the same was placed on defendant No. 3. It is the case of defendant No. 3 that the power of attorney dated 07.02.2002 (Ex PW 1/4) has been executed only by two partners of the JV and not by the third partner M/s TRG Industries Pvt. Ltd. The plaintiff has relied upon the power of attorney (Ex. P. W1/1) issued by M/s TRG Industries Pvt. Ltd. A query did arise about the Minutes books of the Board Meeting of the two Joint Venture partners on account of the allegation that the complete resolution should be produced but on a subsequent occasion when the complete minutes book was produced no further questions really arose out of it.

20. It is important to notice that the Apex Court in United Bank of India v. Naresh Kumar and Ors. AIR 1997 Supreme Court 3 came to the conclusion that a technical approach should not be taken in this behalf when the transaction is really not in dispute.

21. In the present case, the transaction is not in dispute. The power of attorneys have been produced. A copy of the Board Resolution was also filed. In view thereof, I am of the opinion that there is sufficient material on record to show that the plaint has been signed and verified and suit instituted by duly authorized person. Issue No. 2 : Whether the grader supplied to the plaintiff was not up to the specifications and failed to perform Additionally whether any spares and other supplies were required to be made under the contract OPP Issue No. 3 : Whether the plaintiff arranged for an alternate grader OPP

22. The plaintiff was the JV carrying out work of construction of the highway and the grader was an equipment required for execution of work. A particular task had to be performed by the plaintiff herein and that is why the agreement for supply of the grader was executed between the plaintiff and defendant No. 3. It is also not in dispute that the machinery was manufactured by defendant No. 1, imported and supplied by defendant No. 2 to defendant No. 3 who in turn entered into an agreement with the plaintiff. The quotation (Ex PW1/7) was sent by defendant No. 3. All discussions took place between the representatives of the plaintiff and defendant No. 3. The agreement being one for sale of goods, there is undisputedly implied condition of warranty as to good quality. As per the law laid by the Privy Council in Dhanu Lal Suchanti v. Hukum Chand and Ors. , which was followed and reiterated in Harnarian v. Firm Radhakisan , National Traders v. Hindustan Soap works ('/citation/crosscitations.asp','','1');">, Menon v. Kuttapan Nair , Ranbir Singh Shankar Singh v. Hindustan General Elect. Corporation 1971 Bom 97, Board of Trustees Port of Calcutta v. Bengal Corporation , Shivllingapa Shankarappa v. Joint family of CK Balkrishna Chettiar AIR 1962 Mad 426, A.V. George v. STC 1995 AIHC 6272, Indochem Electronic v. Additional Collector of Customs , there is an implied condition that the goods (in the present case, the grader) would be reasonably fit for the purpose for which it is required by the buyer, as is expressed to the seller. Also, that the doctrine of Caveat Emptor is more of an exception these days than a rule. The invoice (Ex. PW 1/7) has been raised by defendant No. 3 on the plaintiff. This is a pro forma invoice dated 20.02.2002 containing along with the specifications of the graders. Defendant No. 3 also forwarded to the plaintiff a letter dated 23.03.2002 (Ex. P. W1/8) enclosing a letter of the principals for supply of the transmission assembly in lieu of mechanical gear box already fitted in the motor grader for a lump sum payment of Rs. 15,00,000/-. 23.A letter was thus issued by defendant No. 1 (Ex. P. W1/9) confirming that the motor grader with a mechanical gear box would be replaced by hydrostatic transmission free of cost and the custom duty would not be the liability of defendant No. 1. The Order was placed vide letter dated 23.02.2002 of the plaintiff (Ex. P. W1/10) which stipulated the price of Rs. 40,50,000/- inclusive of excise duty, custom clearance and handling charges along with CST of four per cent payable extra against Form 'C'. The delivery was to be effected by 06.03.2002 failing which the penalty of Rs. 10,000/- per day was leviable. The equipment carried a warranty of twelve months. A provision had been made for replacement of the mechanical gear box. A cheque of Rs. 15,00,000/- was forwarded along with this letter which bears the endorsement of defendant No. 3 for receipt of cheque in order. The terms and conditions of the Purchase Order are re- produced hereinas under:

Motor Grader DZ 180 fully Hydraulic with following attachment, as per standard specifications:

1. Buldozer Blade 1 No.

2. Scarifire/Riper 1 No.

3. Driver Cabin Assembly 1 No.

4. Part Catalogue 1 Set

5. Free spares suitable for running of machine for 1000 hrs

Price : Rs. 40,50,000.00 (Rs.Forty Lacs Fifty Thousand Only). The said rate is inclusive of Excise Duty, Custom Clearance and Handling Charges of Machine up to loading of machine on trailer.

CST : 4% payable extra against Form 'C' Delivery : Latest by 06.03.2002 failing which a penalty of Rs. 10,000/- per day will be levied on you.

Freight and Transit Insurance : To be arrange by M/s BRA-TRG-BHARAT J.V. And machine to be delivered to M/s BRA-TRG-BHARAT at site 51 Km. Lucknow-Kanpur Road,near Unnao, UP. Warranty : The equipment will be warranted for a period of 12 months from the date of commissioning at site for any manufacturing defects.

Replacement of Transmission:

The motor grader being supplied now with mechanical gear box shall be replaced by a hydrostatic transmission (complete conversion kit) free of cost (fort site) within four months of date of commissioning at site and for this the services of a service engineer shall also be provided free of cost (for fitting and trial with hydrostatic transmission). For this hydrostatic conversion, we will pay a total sum of Rs. 1,50,000.00 (one Lac Fifty Thousand Only) at the time of arrival of the components at the Indian Port. Erection and Commissioning:

You will depute at your cost, your Engineer for erection, commissioning and trial of the above Machine at site immediately after the Receipt at worksite.

Your engineer will train our operator suitably till our operator gets familiar with its operation.

Payment : We are enclsoing herewith cheque No. 304657 dated 23.02.2002 for Rs. 15,00,000/- payable at the Jammu and Kashmir Bank Ltd. Connaught Circus, New Delhi-01 in your favor and balance payment along with CST will be made at the time of delivery of machine at Mumbai in the shape of pay order.

24. Since the delivery was delayed, defendant No. 3 requested the plaintiff vide letter dated 13.03.2002 (Ex. P. W1/11) for waiver of penalty. The grader was thereafter delivered but certain shortfalls were found which were communicated to defendant No. 3 by the plaintiff vide Ex. PW. 1/12.

25. The plaintiff put the defendant No. 3 to notice about the following shortfalls:

1. Tube of front tyre found burst.

2. Rear tyre had one deep cut.

3. Hydraulic Oil Gauge Indicator found broken with the result that heavy leakage of Hydraulic Oil from the Motor Grader flown over from the Motor Grader.

4. As per our Order you had to supply, spares along with the Motor Grader suitable for operation of machine for 1000Hrs but we have not received any such spares along with the machine except 2/3 filters.

5. Parts catalogue also has not been received.

6. List of loose accessories/tools have also not been sent with the machine in order to tally with the item of dispatch.

26. The plaintiff requested defendant No. 3 for the service engineer to commission the grader at site. Some spare parts were supplied vide Ex. PW. 1/13 and Ex. PW. 1/14 dated 11.04.2002.

27. The Minutes of the Meeting of 21.05.2002 have been filed on record as Ex. PW. 1/15 which records that the grader had become out of order.

28. In view of the non functioning of the grader, the plaintiff even addressed letters to defendant No. 1 dated 14.06.2002 (Ex. P. W1/21) and thereafter dated 18.06.2002 (Ex. P. W1/23) that non commission of the grader was causing loss.

29. The plaintiff left with no option had to subsequently hire a motor grader for which documents have been placed on record including Ex. PW. 1/16. The repeated complaints of the plaintiff are obvious from the Minutes of the discussion of 24.05.2002 (Ex. P. W1/18) where the representatives of the plaintiff, defendant No. 3 and the senior engineer of defendant No. 1 were present. The factum of the cylinder not working properly due to a bend and the requirement of its replacement are noted therein. The problem relating to cylinder was not solved.

The plaintiff addressed a letter dated 23.05.2002 (Ex. P. W1/19) pointing out the defects and in view of the failure of commissioning of the machinery necessary action was solicited from defendant No. 3 including for supply of spare parts. A reminder was also made about the supply of the hydrostatic transmission as per the terms of the Purchase Order.

30. The letter dated 14.06.2002 (Ex. P. W1/21) in fact demanded that either the defect should be rectified or replacement of the machinery given.

31. The plaintiff has also placed on record a communication dated 26.06.2002 (Ex. P. W1/26) sent by defendant No. 2 to defendant No. 3 expressing its inability to provide hydro mechanical transmission till full payment against the motor grader was made. The plaintiff sent a legal notice dated 08.07.2002 (Ex. P. W1/30), but to no avail. Number of other communications have taken place, but it is not necessary to refer to them in detail and suffice to say that the problems never got sorted out.

32. The contemporaneous documents placed on record as also the testimony leaves no manner of doubt that there were problems in the commissioning of the grader from its very inception. Repeated attempts to rectify the defect failed. There were different kinds of problems which arose including in respect of the cylinder. Spare parts as required to be supplied had not been supplied. Not only that even the terms of the Purchase Order were not adhered to by providing hydrostatic transmission. In fact this was one of the conditions put forth by plaintiff on defendant No. 3 for substitution of this part prior to placing the Purchase Order. Defendant No. 3 had obtained from defendant No. 1 a confirmation in that behalf. The plaintiff was left with no option but to requisition the grader on hire.

33. The result of the aforesaid is that the grader supplied to the plaintiff was not as per the specifications and there were deficiencies in supply of the spare parts which resulted in the plaintiff arranging for an alternative grader.

34. Issue Nos. 2 and 3 are answered accordingly.

Issue No. 4:

If issue No. 3 is decided in favor of the plaintiff, to what amount is the plaintiff entitled to on the said account and from which defendant? OPP

Issue No. 5:

Whether the plaintiff is entitled to refund of the amount paid for purchase of the grader? If yes, from which defendant? OPP

35. The next question which arises in the aforesaid two issues is a result of the faulty grader being supplied to the plaintiff. It is trite to say that the plaintiff cannot be remedyless but the question arises as to what is the remedy and against which of the defendants.

36. If a defective machinery is supplied which is not functional, the plaintiff cannot be made to pay for that. The plaintiff repeatedly asked the machinery to be replaced but to no avail and had to hire an alternative machinery.

37. In this behalf, learned Counsel for the plaintiff has brought the attention of this Court to the case of National Traders v. Hindustan Soap works (Supra), Menon v. Kuttapan Nair (Supra), Ranbir Singh Shankar Singh v. Hindustan General Elect. Corpn. (Supra), Shivllingapa Shankarappa v. Joint family of CK Balkrishna Chettiar (Supra) and Indochem Electronic v. Additional Collector of Customs (Supra), wherein it was held that in case the goods ordered for do not conform the description or the goods are not of merchantable quality the thing for which the buyer bargained for, then either of the cases the default of the seller would arise which would go to the root of the transaction and therefore the occasion would arise to the buyer to reject the goods and sue for the price if he had paid the price. In view of the supply of the defective machinery, I am of the view that the price of the machinery paid by the plaintiff is liable to be refunded to the plaintiff. However the plaintiff cannot charge for the hired grader since that was an alternative to purchase of machinery and using the same. The plaintiff could have purchased the machinery, paid the price and run the grader in which case the hiring charges would not have arisen. However in that eventuality the plaintiff would have been out of pocket of the price. Since it is being directed that plaintiff had to reimbursed the price for the machinery, the plaintiff cannot claim the hire charges for the substitute grader utilized. The total price paid by the plaintiff for the purchase of the grader and services is Rs. 42,08,046/- and the plaintiff is entitled to refund of this amount.

38. It is to be examined as to which of the defendants is liable for such amount.

The machinery was manufactured by defendant No. 1 and supplied through defendant No. 2. The plaintiff had, however, placed the order on defendant No. 3. The evidence on record shows that there was difference in the price paid to defendant No. 1 by defendant No. 2 and the one paid by defendant No. 3 to defendant No. 2. The defendant No. 3 actually acted on a principal to principal basis with the plaintiff though the machinery was sourced from defendant No. 1 through defendant No. 2.

39. Defendant No. 1 had given an assurance for providing the hydrostatic transmission and a copy of the said letter had been forwarded to defendant No. 3 to be in turn forwarded to the plaintiff.

40. The engineers had also come from defendant No. 1 to remedy the defect, but to no avail.

41. Defendant No. 1 as manufacturer had to warranty the quality and the period of the said warranty was twelve months. Defendant No. 1 has failed in its obligation. Defendant No. 3 supplied the goods to the plaintiff and took the money. The machinery was sourced through defendant No. 1, but the agreement was between the plaintiff and defendant No. 3. Defendant No. 3 cannot escape its liability.

42. Insofar as the defendant No. 2 is concerned, it was only an intermediary arranging for the machinery and defendant No. 3 put a premium on the same and sold it to the plaintiff. There was no privity of contract between the plaintiff and defendant No. 2. There appears to have been some financial disputes between the defendant No. 2 and defendant No. 3 inasmuch as defendant No. 2 claimed that defendant No. 3 had failed to pay the full amount. I see no reason by which the liability can be fastened on defendant No. 2 who had no privity to the contract with the plaintiff nor had agreed to comply with the obligations. The terms of supply were settled between the plaintiff and defendant No. 3 and the Purchase Order was placed on defendant No. 3. As noticed above, the liability of defendant No. 1 arises as a manufacturer and the warranty given of twelve months. Defendant No. 1 had also deputed its engineers to remedy the defects, but to no avail.

43. I am thus of the considered view that the liability to pay to the plaintiff is both of defendant Nos. 1 and 3 and not of defendant No. 2.

Issue No. 6.

To what interests is the plaintiff entitled to an from which defendant OPP

44. The transaction between the parties is a commercial transaction. The money of the plaintiff remained blocked and the machinery never served the purpose for which it was purchased. The machinery was defective. The supply was not as per the Purchase Order as the needful was not done by defendant nos.1 and 3 neither in respect of the spare parts nor in replacement of mechanical gear box which was the condition of the Purchase Order.

45. In view of the aforesaid, the plaintiff must be paid interest on the amount paid towards the price of the machinery. The plaintiff has claimed interest at the rate of eighteen per cent per annum, but taking into consideration the market rate of interest, I deem it appropriate to grant simple interest at the rate of fifteen per cent per annum on the said amount of Rs. 42,08,469/-. Such an interest would be payable from 02.03.2002 till date of payment. Issue No. 7 Relief.

46. A decree is passed in favor of the plaintiff against defendant No. 1 and 3 for the sum of Rs. 42,08,469/- along with simple interest at the rate of 15 per cent per annum from 02.03.2002 till date of payment. Plaintiff shall also be entitled to proportionate costs.

47. The defective machinery is still in the possession of the plaintiff. The plaintiff had, in fact, filed an IA No. 9316/2002 seeking a direction from the Court for the defendants to remove the grader from the site after furnishing appropriate security or in the alternative to appoint a receiver to take charge of the grader and sell the same in the open market and deposit the sale proceeds in the Court. This application was opposed by the defendants and by an Order dated 05.10.2004, it was held that a direction for disposal of the machinery at that juncture could not be passed and the defendants were refusing to receive the machinery. This Order was upheld by the Division Bench in terms of the Order dated 07.11.2006. Now in view of the present judgment, it has been held that the machinery supplied was defective and not as per the Purchase Order and the suit has been decreed for the value of the machinery and parts thereof. The defendant No. 3 is thus entitled to remove the machinery from the premises of the plaintiff on making payment in terms of the decree as aforesaid.

48. Decree sheet be drawn up accordingly.