Scantel (P) Ltd vs Latham India Ltd.
2010 Latest Caselaw 1487 Del

     *   IN THE HIGH COURT OF DELHI AT NEW DELHI

%                    Judgment Reserved on: 09.03.2010
                    Judgment Delivered on: 17.03.2010


+                       CS(OS) No.2274/1994

SCANTEL (P) LTD.                                  ......Plaintiff
                           Through:    Mr.Neeraj Kumar Singh &
                                       Mr.Deepak Rikhari,
                                       Advocates.
                     Versus

LATHAM INDIA LTD.                                 ......Defendant
                           Through:    Mr.Sanjeev Behl,
                                       Ms.Rajeshwari Shukla,
                                       Mr.Siddharth & Mr. Rajiv
                                       Kumar Dubey, Advocates.

CORAM:
HON'BLE MS. JUSTICE INDERMEET KAUR

1.       Whether the Reporters of local papers may be allowed to
         see the judgment?

2.       To be referred to the Reporter or not?

3.       Whether the judgment should be reported in the Digest?


INDERMEET KAUR, J.

1. The plaintiff i.e. Scantel (P) Limited has filed the present

suit for recovery of Rs.1,78,68,819.13. Plaintiff pursuant to a

technical collaboration agreement dated 18.6.1991 with Ricoh

Co.Ltd. Tokyo, Japan had imported components of 500 Fax 82

machines in two lots of 250 machines each. On 18.2.1992

plaintiff and the defendant had entered into a Memo of

Understanding (hereinafter referred to as „the MOU‟) whereby

defendant had offered to market, distribute and sell the Fax 82

machines assembled/manufactured by the plaintiff. In terms of

this agreement, defendant had assured the plaintiff that he

would purchase 100 fax machines upto 31.3.1992 and 800/1000

fax machines during the financial year 1992-93. The purchase

of machines for subsequent years i.e. for the year 1993-94 and

1994-95 was subject to further negotiations. This MOU of

18.2.1992 was valid till 31.3.1995.

2. On the assurance and commitment of the defendant that

he would market and distribute the said fax machines, plaintiff

pursuant to and in term of this MOU dated 18.2.1992 imported

components for additional 500 fax machines. Plaintiff made

heavy investments in this regard. He incurred a liability of

Rs.4,32,95,771/-. Plaintiff performed all his obligations in terms

of this MOU. The defendant failed to honour his commitment.

He purchased 5 machines short of the target up to 31.3.1992.

For the financial year 1992-93, there was a substantial default

on his part; there was a shortfall of 550 machines.

3. Defendant having committed a breach of the said MOU is

liable to pay damages and compensate the plaintiff for the

losses suffered by him. Amounts claimed by the plaintiff have

been detailed in para 8 of the plaint and which are as follows:

           a)     Loss on market value of sale
                  price at the rate of Rs.18,350/-
                  on 550 machines                        ....       Rs.1,00,92,500.00

           b)     Interest at the rate of 21%
                  per annum on the blocade of
                  capital/interest payable on
                  advances received from the
                  bank for one year as detailed
                  in Annexure „D‟ attached hereto ....              Rs. 21,94,025.00
                                                                    __________________
                                Total:-                             Rs.1,22,11,925.00
                                                                    __________________

4. Defendant is liable to pay interest for the losses suffered

by the plaintiff which amount is calculated at Rs.13,52,156/-.

5. Further the defendant was negligent in making the

payment of the bills pertaining to the purchases already made

by him. In para 10, the details of the two bills raised by the

plaintiff upon the defendants have been given:

Intt. as up to Bill No. Dated Principal 15.9.94 Total (Rs.) (Rs.) (Rs.) Bank‟s DABP 13.1.93 8,16,000/- 6,12,053.89 14,28,053.89 No.35

Bank‟s DABP No.36 28.1.93 21,16,000/- 7,60,684.24 28,76,684.24 ____________ Total:- 43,04,738.13 ____________

6. There has been a total failure and negligence on the part

of defendant in not adhering to the terms and conditions of the

MOU. The price of the machines initially targeted for a higher

sum; in terms of a second understanding dated 21-23.12.2002

the price of the machine was reduced to Rs.50,000/- per

machine. Plaintiff was also forced to take back 40 machines

which have been wrongfully and illegally forced upon him by the

defendant. Plaintiff has claimed the following amounts :

       a)     Loss/damages to which the plaintiff
              is entitled to as stated in para 8
              of the plaint                      ....        Rs.1,22,11,925.00

       b)     Amount due to the plaintiff
              towards the value of the
              machines supplied as per
              para 10 of the plaint               ....       Rs. 43,04,738.13

       c)     Overdue interest on the value
              of the sales made by the
              plaintiff to the defendant
              as detailed in para 9 of
              the plaint                          ....       Rs. 13,52,156.00
                                                             ___________________

                                   Total:-                   Rs.1,78,68,819.13
                                                             ___________________

7. Written statement filed by the defendant has disputed

these claims. It is not in dispute that a MOU dated 18.2.1992

had been entered into between the parties. Under the said

MOU, the plaintiff had appointed the defendant as the plaintiff‟s

principal distributer in India for the sale, supply, installation,

servicing and maintenance of the said Fax machines and except

for the Ministries, Government departments, public sector

undertakings and the MTNL located within the Union Territory

of Delhi; in all other locations within India as also in Delhi, the

defendant was free to promote as sole distributor the sales and

services of the said machines to all categories of customers.

8. Defendant had only agreed to try/attempt to lift 100

machines in two lots by 31.3.1992 and 800/1000 machines in

the year 1992-93. There was no commitment or assurance

given by the defendant. It was agreed that in terms of the MOU,

if the price was found to be high the same could be reduced.

There was no market for the said machines. Plaintiff was also

not cooperating and extending support to the defendant for

marketing the said machines. Plaintiff had committed a breach

of terms and conditions of the MOU; he had offered to sell the

said machines to the Inspector General of Police, Bhopal at a

quoted price of Rs.52,762/- per machine, whereas the defendant

had submitted a corresponding quotation for the said machine

at a price of Rs.88,000/-. In dealing with the DIG, Bhopal the

plaintiff had clearly committed a breach of the terms and

conditions of the MOU. Other examples of the plaintiff offering

for sale the said machines to other customers have been

detailed in para 24 of the plaint. It is submitted that these

dealings were a breach of the terms of the MOU which provided

that the defendant would be the principal distributor of the said

machines. It is denied that the defendant had purchased 5

machines short of the alleged target of 100 by 31.3.1992 or

there was a shortfall of 550 machines in lieu of which the

defendant is liable to compensate the plaintiff. The plaintiff,

guilty of breaches of the MOU, no damages/compensation is

payable to him. There was no enforceable or conclusive

contract between the parties.

9. The price of the product had been reduced from

Rs.88,000/- to Rs.50,000/- even as per the admission of the

plaintiff. Defendant has rightly returned 40 machines to the

plaintiff; they were not forced upon him. Defendant is not liable

to pay the amount of Rs.43,04,738.13/- as claimed.

10. Replication filed by the plaintiff has reiterated averments

in the plaint and denied the defence as set up by the defendant.

11. On 12.5.1999, following issues were framed:

"1. Whether the suit has been instituted and the plaint has been signed and verified by a duly authorized person? OPP

2. Whether the defendant committed any breach of the Memorandum of Understanding dated 18.2.1992? If so, its effect? OPP

3. Whether the defendant held out any assurance to the plaintiff to purchase a minimum number of fax machines? If so, its effect? OPP

4. Whether the plaintiff did not discharge its obligations on the Memorandum of Understanding dated 18.2.1992 as set out in the written statement? OPD

5. Whether the defendant failed to make payment of any fax machines sold by the plaintiff? If so, what amount is due and payable to the plaintiff? OPP

6. What amount, if any, the plaintiff is entitled to? OPP

7. Whether the plaintiff is entitled to any interest and if so, at what rate and for which period? OPP

8. Relief."

12. The plaintiff in support of his claim has examined two

witnesses. PW-1 B.K.Sharma is the Branch Manager of the

Indian Bank who has produced the statement of account of the

plaintiff company. PW-2 T.D.Mittal was authorized

representative of the plaintiff. In defence, two witnesses have

been produced. DW-1 S.S.Bhatia was the erstwhile employee of

the company. DW-2 S.Raghunathan was also an earlier

employee of the defendant having worked in the company as

vice-president.

13. Arguments have been heard. Record has been perused.

Issue-wise findings are as follows:

14. ISSUE NO.1

PW-2, director of the plaintiff company has produced the

minutes of the company Ex.PW-2/1. He has deposed that the

plaint has been signed and verified by Mr.Anil Mittal, another

director of the company. The original minute books of the

company Ex.PW-2/1 have been placed on record; the signatures

of Anil Mittal were duly identified. There is no cross-

examination on this count.

15. This issue is decided in favour of the plaintiff and against

the defendant.

16. ISSUE NOs.2 to 5:

The aforenoted issues will be decided by a common

discussion. MOU dated 18.2.1992 is Ex.D-1. It is an admitted

document. It is running into seven pages and signed by the

authorized representatives of the plaintiff and the defendant.

(i) In terms of clause 1 (page 2) defendant had been

appointed as the principal distributor in India for the sale,

supply, installation, servicing and maintenance of 'Sanricoh‟

Fax 82 machines manufactured by Scantel. Except for the

ministries, government departments, public sector undertaking

and the MTNL located within the union territory of Delhi,

defendant was the principal distributor of these machines all

over India.

(ii) The period of this agreement would be for three years i.e.

up to 31.3.1995.

(iii) Clause 4 stipulated that the defendant will try to lift 100

fax machines upto 31.3.1992 and 800/1000 fax machines during

the financial year 1992-93. For the period of 1993-94 and

1994-95 the offtake would be negotiated between the two

parties before the commencement of the year.

(iv) Terms of payment were contained in clause 5; under

clause 6 if the Fax machines cannot be sold because of high

price; both parties would consult each other and reduce the

selling price by re-fixing their margins.

(v) Under clause 8-A plaintiff was to supply to the defendant

sufficient quantities of brochures and marketing literature to

promote the sale of the said machines. Warranty clause was

contained in clause 8-b; plaintiff had agreed to give one year‟s

manufacturer‟s warranty and to replace all defective parts

within that period.

(vi) Under clause 9 plaintiff would advertise and make press

announcements about the appointment of the defendant as the

principal distributor for Sanricoh Fax Machines.

(vii) The termination clause was contained in clause 15; either

party may terminate this agreement by giving 180 days prior

notice. Under clause 15 (c ) the termination of the agreement

would not relieve the parties or affect their rights to claim

damages for breach; under clause 15 (d) in the event of

termination of the agreement defendant would forthwith return

to the plaintiff all materials belonging to the plaintiff.

17. Plaintiff has contended that in terms of this agreement

between the parties, the defendant had undertaken to lift fax

machines in two lots by 31.3.1992 and thereafter another

800/1000 machines in the year 1992-93. Defence of the

defendant is that this was only an understanding to try and do

so; the word used is „try‟; the MOU was only at the level of an

understanding; the document itself recites it as an MOU.

18. Perusal of the MOU Ex.D-1 shows otherwise. The

document has to be read in totality and no one clause can be

read in isolation or divorced from the other. "Agreement" has

been mentioned in several clauses of the said document. Under

Section 2 (h) of the Indian Contract Act, 1872, a contract has

been defined as:

"An agreement enforceable by law is a contract".

Under Section 2 (e) of the said Act:

"Every promise and every set of promises, forming the consideration for each other, is an agreement."

19. It is thus clear that an agreement become a contract if the

promise is accompanied by a consideration. This consideration

may be in cash or in kind; the parties had in terms of Ex.D-1

agreed to perform certain inter se obligations; in consideration

of the defendant having been appointed as the principal

distributor of the said Fax 82 Ricoh machines in India; he had

agreed to lift the said machines initially in two lots i.e. 100

machines by 31.3.1992 and thereafter a minimum second lot of

800 machines in the year 1992-93. Further for the subsequent

years of 1992-93 parties would renegotiate. Price of the

machine had been fixed with liberty to the parties to have it re-

fixed in certain contingencies. Plaintiff had in lieu thereof to

abide by certain conditions i.e. to supply sufficient brochures

and literature for advertisements to promote the sale of the

machines and to replace defective parts in the one year

manufacturer warranty period. These terms and conditions had

been finalized by the parties in Ex.D-1 which was a concluding

and binding contract between the parties. Plaintiff had also

undertaken to impart training to the staff of the plaintiff.

20. PW-2 T.D.Mittal director of the plaintiff company was

dealing with the defendant company from the very beginning.

He has reiterated the averments made in the plaint; the

defendant would be the distributor of the machines and in terms

of the MOU Ex.D-1 defendant would lift the machines in the

manner described therein. Up to 31.3.1992 defendant was

required to lift 100 machines but he had lifted only 95

machines. In the year 1992-93 defendant was supposed to lift a

minimum of 800 machines but he had lifted only 155 machines

in the said year. Defendant had lifted only 250 machines out of

the total agreed lot. PW-2 has further deposed that only 650

machines could be sold to other buyers leaving a balance of 231

machines during this period of the MOU; 120 machines were

again sold but 170 machines were still in their stock. Further

550 machines had been sold to DOT at a price of Rs.40,000/-

plus the excise duty and sales tax per machine. He has further

deposed that the plaintiff has suffered a substantial loss and has

approximated it to about Rs.20,000/- per machine.

21. DW-1 S.S. Bhatia was the erstwhile Deputy General

Manager of the defendant company. He has reiterated that no

commitment was made by the defendant to lift a particular

number of machines from the plaintiff company. DW-2

S.Raghunathan has also been reiterated this.

22. From this evidence gathered it is apparent that even as

per the case of the plaintiff the defendant had lifted 250

machines. Ex.D-1 required the defendant to liquidate 100

machines in the first lot and thereafter another lot of 800

machines. Even going by the admission of the plaintiff,

defendant had to lift a total of 900 machines in terms of the

MOU. He had however taken only 250 machines. Balance thus

would be 650 machines. PW-2 has further admitted that they

were able to sell 650 machines to other buyers of which 550

machines had been sold to the DOT at a price of Rs.40,000/-

which is exclusive of the excise duty and the sales tax; 120

machines were also sold. From this version it is apparent that

the entire balance lot of 650 machines which were left with the

plaintiff was sold to other buyers.

23. PW-2 has not given the exact amount for which these 550

machines were sold to DOT, however as per his version they

were sold at a sum of Rs.40,000/- plus sales tax and excise duty.

In the plaint it has been admitted by the plaintiff that initially

the price of the machines had been fixed at Rs.78000/- which

was inclusive of the excise duty; thereafter it was reduced to

Rs.65000/- and further to Rs.50,000/-. Submission of the

defendant that these 650 machines sold to other buyers would

roughly estimate to Rs.50,000/- per machine is forceful as sales

tax and excise duty were yet to be added on this principal figure

of Rs.40,000/-. Reduced price of the machines was Rs.50,000/-.

Plaintiff does not have appear to have suffered any loss on this

count.

24. DW-1 has deposed that the plaintiff had failed to honour

the terms and conditions of the MOU and had not imparted

training of man power, supply of spare parts and advertising of

its products in terms of the said MOU. Plaintiff had in fact

started competing with the sale of its product and one such

example was the sale effected by the plaintiff to a police

headquarter at Bhopal.

25. The MOU Ex.D-1 recites that the plaintiff would be sole

distributor of the Ricoh Fax 82 machines in India, subject to the

rider that in the union territory of Delhi, the plaintiff would have

direct dealing with the government departments, public sector

undertaking and the MTNL. In his replication the plaintiff has

admitted that he was dealing with the DIG police, Bhopal. This

was a clear breach of the terms and conditions of the MOU

Ex.D-1. Ex.D-7 is the letter dated 15.6.1992 addressed by the

defendant to the plaintiff pointing out that the plaintiff has

committed a contradiction of the MOU as he had made sales to

the IOC, Bombay as per which defendant alone was to sell these

machines to all departments outside Delhi. On 14.7.1993 vide

Ex.D-19 the defendant again brought to the notice of the

plaintiff that he was directly dealing with the customers of the

plaintiff i.e. DIG, Bhopal, the DOT at Nanded, IOC, Calcutta,

Indian Bank, Madras which was against the terms of the MOU

pursuant to which the defendant was losing business as the

plaintiff was competing with him.

26. PW-2 has admitted that in terms of the MOU the plaintiff

company had an understanding with the defendant that the

plaintiff would provide training to the employees of the

defendant company. On 13.8.1993 vide Ex.D-21 the defendant

wrote to the plaintiff informing them that in spite of the

representatives of the defendant having reached the office of

the plaintiff for their scheduled training programme the same

could not be held as the representative of the plaintiff

Mr.G.Sigh was not available.

27. On 24.8.1992, vide Ex.D-9 defendant wrote to the plaintiff

asking him to dispatch all essential spare parts for the machines

which had not have been done since the last three months

against their indents. In this letter it had been reiterated that

the spares of fax 82 machines have in spite of reminders not

been supplied to the defendant leading to a severe breakdown

in their service operation. On 14.9.1993 vide Ex.D-22 defendant

again reiterated his request that spares be supplied for the fax

82 machines; further there had been no cooperation from the

plaintiff side. This was again reiterated on 30.9.1993 vide

Ex.D-23.

28. This documentary evidence establishes that during the

period of the MOU which was valid and subsisting up to

31.3.1995 serious disputes and misunderstandings had arisen

between the parties. Defendant had attributed non-cooperation

on the part of the plaintiff; plaintiff had in spite of an agreed

undertaking not imparted training to the staff of the defendant;

plaintiff further continued to deal with customers including

government agencies even outside the union territory of Delhi

which was harmful to the interest of the defendant whereby the

defendant suffered losses. The defendant in these circumstances

was not permitted to act as an exclusive distributor of the fax 82

machines. Spare parts of the Fax 82 machines in spite of

repeated reminders and requests by communications as also by

indents were not supplied to the defendant. The

documentary evidence discussed supra has amply established

this.

29. To recapitulate case of the plaintiff is based on his claims

in two categories; the first claim of Rs.1,22,11,925/- is on

account of Rs.1,00,92,500/- as the loss on the market value of

the sale price of the machines claimed at Rs.18350/- per

machine on 550 machines. This loss calculated by the plaintiff

is negatived by his own evidence. Agreed price as per the

averments made in the plaint was reduced to Rs.50,000/- per

machine. Defendant had taken a supply of 250 machines

against the agreed lot of 900 machines. The balance 650

machines as per PW-2 has been sold to outsiders at a price of

Rs.50,000/- per machine.

30. The second category of the claim made by the plaintiff is

detailed in para 10 of his plaint. This amount of

Rs.43,04,738.13 is in terms of two bills i.e. the first bill is Bank‟s

DABP no.35 dated 13.1.1993 of Rs.8,16,000/- of which interest

had been added of Rs.6,12,053.89. The second bill is Banks‟s

DABPNO.36 dated 28.1.1993 at Rs.21,16,000/- of which interest

of Rs.7,60,684.24 had been added totaling Rs.28,76,684.24.

31. PW-1 B.K.Sharma the bank witness of the plaintiff has

negatived this claim of the plaintiff. He had brought the

statement of account of the plaintiff company being the Branch

Manager of the Indian Bank. As per his version on oath the first

bill i.e. DABP no.35 stood adjusted on 7.10.1994. The second

bill DABP no.36 Ex.PW-1/2 was partly adjusted and against

which a sum of Rs.13,68,500/- was outstanding. He has proved

statement of account as Ex.PW-1/4. This statement of account is

for the period of 18.1.1993 to 24.10.1994. It is clear that even

as per the case of the plaintiff himself he was only entitled to

Rs.13,68,500/- on the second bill DABP 36 Ex.PW-1/2.

32. In his cross-examination PW-2 has admitted that he has

learnt from Ex.PW-1/4 that a sum of Rs.3 lakhs had been paid by

the defendant in September, 1994. PW-2 has further stated that

he cannot say whether defendant had made any payment of

Rs.8,16,000/- in October, 1994. Bill Ex.PW-1/4 however shows

that three payments have been made in the month of October,

1994. There are two payments of Rs.2,95,100/- and

Rs.2,,04,900/- on 7.10.1994. On 22.10.1994 there is another

payment of Rs.3,16,000/-. It is, thus, clear from Ex.PW-1/4 that

this payment of Rs.8,16,000/-has been reflected in Ex.PW-1/4

which payment has been adjusted against DABP No.35.

33. Admittedly 40 machines had been returned by the

defendant to the plaintiff. This has been mentioned by the

plaintiff in para 12 of his plaint; his case being that he was

forced to take these machines whereas the defendant has stated

that there was no such force and coercion. In terms of clause 15

(d) of the MOU if there was a breach of the agreement the

defendant was liable to return back all the materials of the

plaintiff. This was an admission by the parties that these

machines continued to belong to the plaintiff. The

correspondence i.e. the letters sent by the defendant to the

plaintiff also substantiate this submission. Vide Ex.D-17 dated

22.4.1993 plaintiff had agreed to take back the delivery of 40

number of scanricoh fax 82 machines if the defendant was not

able to sell this material within time. This was reiterated in the

communication dated 14.9.1993 Ex.D-22 while making a

reference to this letter of 22.4.1993. In his cross-examination

PW-2 has admitted that in April 1994 plaintiff had taken back

certain machines from the defendant in terms of their

agreement. Value of each machine even if sold outside in the

open market was Rs.50,000/- which was also the agreed upon

price between the parties. Value of 40 returned machines

would thus be about Rs.20 lakhs. The claim on this count also

i.e. the amount of Rs.13,68,500/- is thus not substantiated.

34. No loss has been suffered by the plaintiff. Plaintiff is also

guilty of breaching the terms and conditions of the MOU;

business losses were consequently suffered by the defendant.

Plaintiff is not entitled to any amount i.e. the either of the two

claims set up by him.

35. Issues no.2 to 5 are decided accordingly.

36. ISSUES NO.6 & 7:

Plaintiff is thus not entitled to any amount from the

defendant. Question of payment of interest also does not

therefore arise. Issues no.6 and 7 are decided in favour of the

defendant and against the plaintiff.

37. ISSUE NO.8

Suit of the plaintiff is dismissed. No order as to costs.

Decree sheet be drawn. File be consigned to record room.

(INDERMEET KAUR) JUDGE MARCH 17, 2010 rb