M/S J.J. Trade Links Pvt. Ltd. vs M/S. Linkmark International (Hk) ...
2010 Latest Caselaw 5376 Del

         THE HIGH COURT OF DELHI AT NEW DELHI

%                    Judgment Reserved on: 24.11.2010
                     Judgment Pronounced on: 26.11.2010

+           CS(OS) No. 2055/2007

M/s J.J. Trade Links Pvt. Ltd.               .....Plaintiff

                           - versus -

M/s. Linkmark International (HK) Ltd. & Ors.
                                         .....Defendant

Advocates who appeared in this case:
For the Plaintiff: Mr Jasbir Singh, Adv.
For the Defendant:

CORAM:-
HON'BLE MR JUSTICE V.K. JAIN

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

2. To be referred to the Reporter or not?               Yes

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

V.K. JAIN, J.

1. This is a suit for recovery of Rs.33 Lacs as

damages. The plaintiff is a company incorporated under the

Companies Act and the plaint has been signed and verified

and the suit has been instituted by Sh. Kesar Singh, who is

the Director of the plaintiff company and is stated to have

been duly authorized vide resolution dated 29 th March 2007

to sign and verify the pleadings and institute the suit on

behalf of the plaintiff company. It is alleged that the

defendant approached the plaintiff in the month of April

2006 at Delhi and placed various purchase orders for

manufacturing various types of shoes. It is further alleged

that defendant No.1 through defendant No.2 also opened an

irrevocable Letter of Credit in favour of the plaintiff on 20 th

May 2006 and the defendants also specified the dates by

which the goods were to be dispatched. The case of the

plaintiff is that against purchase orders No. 21688869 and

21688870, goods worth Rs30 Lac were to be shipped by 27 th

October 2006 and production of the goods in respect of the

aforesaid two purchase orders was started by it on August

22, 2006. It has also been alleged that the defendants were

fully aware of the progress in manufacturing of goods and

Mr. M.G. Khan of defendant No.1 had been regularly visiting

the factory of the plaintiff. The goods, according to the

plaintiff, were ready for shipment well in time and only price

tickets were left to be affixed on the shoes. Those price

tickets were to be supplied by the defendant. Despite

repeated requests by the plaintiff, the defendant failed to

supply the price tickets, as a result of which, the goods

could not be shipped even by the last date stipulated for

their shipment. The plaintiff, therefore, was saddled with

unsold stock of 24,000 pair of shoes/chappals. It has also

been alleged that the plaintiff tried its best to mitigate the

loss by selling the aforesaid goods in the open market and

contacted various buyers for this purpose. However, the

best price offered to the plaintiff for those goods was about

Rs.50,000/-. The plaintiff has now claimed Rs.30 Lacs

towards price of the goods, which could not be shipped on

account of failure of the defendants to supply the price

tickets and Rs.3 Lacs towards compensation for losses and

demurrage charges, etc.

2. Written statement purporting to be on behalf of

both the defendants, though signed by Mr. Abhishek Gupta,

Admn. Manager of defendant No.1, was filed on 10 th

February 2008. It has been admitted in the written

statement that defendant No.2 is the associate main

company of defendant No.1 company. The defendants have

taken a preliminary objection that this Court has no

territorial jurisdiction to entertain the suit. On merits, it is

alleged that defendant No.2, which is engaged in the

business of facilitating import/export of goods is working as

commission agent for buyers and suppliers. It is further

alleged that defendant No.1 is a liaison office of defendant

No.2 and it has no dealing with respect to the payment. It

has also been alleged that defendant No.2 through

defendant No.1, which is its liaison office, had been placing

various orders with the plaintiff company for supply of

shoes for exporting the same to foreign buyers. It has been

stated that the defendant had placed purchase orders No.

21688869 and 21688870 with the plaintiff company for

24,000 pair of shoes of J type style, which were to be

exported to EDGARS, a buyer of international repute and for

that purpose, defendant No.2 opened a Letter of Credit on

20th May 2006. It is further alleged that in the month of

July, 2006 this style was cancelled by EDGARS after the

goods sent to the stores were returned back on account of

their poor quality. It is further alleged that in April 2006,

the defendant company had received orders from a buyer

called JET for the same JJ style and had placed two

purchase orders No. 21688869 and 21688870 for 24,000

pair of shoes with the plaintiff company and for that

purpose defendant No.2 opened the aforesaid Letter of

Credit on 20th May 2006.

3. The defendants have further alleged that the buyer

JET discovered that problem faced by EDGAR and this was

brought to the notice of the plaintiff company, which was

informed that the buyers were not willing to take the shoes

on account of their bad and substandard quality. It has

however been admitted in the written statement that the

goods pertaining to purchase orders No. 21688869 and

21688870 were to be shipped by 27th October 2006 and

were worth US$6200 (Rs.30Lac). The defendants have also

alleged that in July 2006 itself they had informed the

plaintiff that the buyer intended to cancel the order, but,

the plaintiff did not pay any heed to this communication.

They have also claimed that the goods made by the plaintiff

in respect of aforesaid purchase orders were not of the

ordered quality and could not be exported. The defendants

have alleged that the loss, if any, suffered by the plaintiff is

due to its own fault and in not meeting the specified quality

of goods and manufacturing goods of rather low and

dubious quality, which, if exported, would have certainly

have been rejected by the buyers and would have brought a

bad name to the reputation and goodwill of the defendant

company in the trade market.

4. The following issues are framed on the pleading of

the parties:-

(i) Whether the defendants failed to lift the goods ordered on the plaintiff in spite of the plaintiff having complied with its part of the order? OPP

(ii) Whether the goods not so lifted by the defendants were of no other value and were wasted? OPP

(iii) Whether the plaintiff is entitled to claim any damages, if so, from which of the defendants and in what amount?

(iv) Whether this court has no territorial jurisdiction to try the suit? OPD

(v) Whether the defendants had cancelled the order placed on the plaintiff and if so, to what effect? OPD

(vi) Whether the plaintiff is entitled to claim any interest, if so, on what amount, at what rate and for what period?

(vii) Relief.

Issue No.4

5. The plaintiff has filed affidavit of its director Sh.

Kesar Singh by way of evidence. In his affidavit Sh. Kesar

Singh has stated that defendant No.1 is an associate

company of defendant No.2 in India and is having a liaison

office at Delhi. He has further stated that defendant No.2,

through defendant No.1 approached the plaintiff company

in April 2006 at Delhi and placed orders for manufacture of

various types of shoes and the discussions and negotiations

in this regard took place in the office of defendant No.1 at

38, Okhla Industrial Estate, Phase-III, New Delhi. There is

no evidence produced by the defendant in rebuttal. I,

therefore, have no hesitation in holding that defendant No.1

was having an office in Delhi when orders in question were

placed with the plaintiff. If defendant No.1 was having an

office in Delhi when the negotiations took place between the

parties and the orders were placed with the plaintiff

company, that by itself will not confer jurisdiction on this

Court to try the present suit, if the office at Delhi had been

closed down before this suit was filed. There is no evidence

to prove that defendant No.1 continued to have an office in

Delhi till this suit was filed. A perusal of the record shows

that the summons issued to defendant No.1 at Delhi

address were received back with the report that the

company had shifted from the given address. This clearly

indicates that the office which defendant No.1 was

maintaining in Delhi at the time the negotiations took place

between the parties had been closed down before this suit

was filed. Therefore clause (a) of Section 20 of the Code of

Civil Procedure read with the explanation to the aforesaid

Section does not apply. I also find from the deposition of

PW-1 Sh. Kesar Singh that the negotiations between the

parties took place in the office of defendant No.1 at New

Delhi and the orders were also placed at New Delhi. Thus,

the cause of action also partly arose in Delhi as the

negotiations were held and the orders were placed at New

Delhi. Section 20(c) of the Code of Civil Procedure to the

extent it is relevant provides that a suit shall be instituted

in a Court within whose jurisdiction the cause of action

wholly or in part arises. Since the negotiations and

discussions took place at New Delhi and the orders for

supply of shoes were placed with the plaintiff company at

New Delhi, it cannot be disputed that the cause of action

arose partly in Delhi. The Delhi Courts, therefore, does

have jurisdiction to try the present suit. The issue is

decided against the defendant and in favour of the plaintiff.

Issue No.1

6. It has been admitted in the written statement that

orders No. 21688869 and 21688870 were placed with the

plaintiff company for supply of 24000 pairs of shoes. This is

not the case of the defendants that the goods for which

orders were placed by them with the plaintiff were actually

lifted by them. PW-1 Sh. Kesar Singh has specifically stated

in his affidavit that the defendants did not lift the goods

ordered by them even till November 2006. Thus, it is an

undisputed fact that the goods were not lifted by the

defendants. The goods of the plaintiff were ready and were

also inspected by the defendants vide certificate Ex.PW1/4

and Ex.PW1/5 and the same were to be dispatched from

Delhi by 17th October 2008 and shipped from Bombay by

27th October 2006. The price tickets which were required to

be affixed on the shoes were not supplied by the defendants

despite repeated requests in this regard. Vide E-Mail dated

August 26, 2006, September 27, 2006 and September 21,

2006, which are Ex.P-2, a document which was admitted by

the defendants on 28th July 2008, Director of the plaintiff

company Sh. Kesar Singh requested Sh. M.G. Khan of

defendant No.1 to send the price tickets in respect of

purchase orders No. 21688869 and 21688870. This request

was repeated vide E-Mail Ex.PW-1/12 and subsequent E-

Mails dated October 08, 2006 and October 11, 2006, which

are Ex.PW1/4. Similar request was made vide E-Mail sent

on October 28, 2006, which is Ex.PW 1/15 and E-Mails

sent on November 06, 2006, November 08, 2006 and

November 09, 2006, which is Ex.PW1/16. This is not the

case of the defendants that the price tickets were not

demanded by the plaintiff or were supplied by them to it.

Their case is that since the goods, manufactured by the

plaintiff, were not as per agreed specifications and similar

goods which the plaintiff had supplied to another buyer

EDGARS through them were found to be of inferior quality

and coming to know of this, the JET, for which the goods

were ordered vide purchase orders No. 21688869 and

21688870, cancelled the order. Even in the e-mail dated

15th November, 2006, sent by Mr M.G. Khan to Mr Kesar

Singh, Director of the plaintiff-company, which is Ex.PW-4,

Mr Kesar Singh, he stated that they could not send the price

tickets unless they received it from the buyer. In his

affidavit, PW-1 Mr Kesar Singh has stated, on oath, that the

defendants also did not agree to allow them to ship the

goods without affixing the price tickets on them. Vide e-

mail dated November 13, 2006 which is Ex. PW-1/19, Mr

M.G. Khan informed Mr Kesar Singh, Director of the

plaintiff-company, that they had not received the price

tickets which they normally used to receive from Pipeline

service. He also confirmed that the plaintiff wanted them to

ship the goods without price tickets, but claimed that they

were not authorized to do so without specific approvals from

the buyers and when they requested for price tickets, they

came to know that the buyer wanted to cancel these styles.

7. Vide e-mail dated 10th November, 2006 sent to Mr

M.G. Khan by Mr Kesar Singh, it was specifically conveyed

to the plaintiff that the goods were cancelled and they were

free to do whatever they wanted. Vide e-mail dated

November 13, 2006 sent to Shri Kesar Singh, Mr M.G. Khan

reproduced the reply received by them from the buyer. This

reply which JET has given to Mr M.G. Khan made it clear

that JET had cancelled the order for the reason that the

goods supplied by them to EDGARS were of a better quality.

Vide this communication Mr M.G. Khan also questioned the

plaintiff for producing the goods, despite cancellation of the

order. Thus, there can be no dispute that the orders which

were placed with the plaintiff for supply of 24000 pair of

shoes were cancelled. The issue is therefore decided

against the defendants and in favour of the plaintiff.

These issues are inter-connected and can be

conveniently decided together. As noted earlier, it is an

admitted case of the parties that order No. 21688869 and

21688870 were placed with the plaintiff-company for supply

of 24000 pair of shows and the value of the order was Rs 30

lac. The defence taken by the defendants is two-fold. Their

first contention is that that the goods which the plaintiff

manufactured pursuant to the purchase orders placed with

it were not as per the agreed specification and were not of

export quality. No evidence, however, has been led by the

defendants to prove that the goods manufactured by the

plaintiff, pursuant to the order placed on it, were not as per

the agreed specification or were of inferior quality. In fact,

the written statement does not even indicate in what

manner the goods manufactured by the plaintiff were not in

consonance with the agreed specifications or were of inferior

quality. In the e-mails sent to the plaintiff, nowhere did the

defendants claim that the goods manufactured by the

plaintiff were of inferior quality or were not as per the

specifications agreed between the parties. In the e-mail

Ex.PW-1/19 which was sent by Mr M.G. Khan of defendant

No.1-company to Mr Kesar Singh of the plaintiff-company

on November 13, 2006, the stand taken by him was that the

buyer wanted to cancel these two styles since she had come

to know that they had supplied the same style to EDGARS

also.

9. The plaintiff-company had nothing to do with the

agreement/arrangement between the defendants and JET

for which the goods manufactured by the plaintiff were

meant. There was no privity of contract between JET and

the plaintiff-company. Unless the quality of the goods

manufactured by the plaintiff was inferior or the

specification of the goods were below the agreed

specifications, defendant No.2 was bound to accept the

goods from the plaintiff-company and pay the price of those

goods to it, irrespective of cancellation of order placed with

it by JET.

10. Though the defendants have not produced any

evidence to prove that the goods which the plaintiff had

manufactured for EDGARS were rejected on account of their

quality being inferior, assuming the same to be true, that by

itself not give any right to the defendants to cancel the order

which was placed by defendant No.1 with the plaintiff-

company for and on behalf of defendant No.2. The quality

and the specifications of the goods which the plaintiff was to

manufacture of JET were required to be in consonance with

the quality and specifications agreed between the plaintiff

and defendant No.1 at the time orders were placed with the

plaintiff-company and could not have been linked with the

quality and specifications of the goods which were supplied

to EDGARS and were rejected by that buyer. Moreover, a

perusal of the certificates Ex.PW-1/4 and PW-1/5 issued

by defendant No.1 would show that a random checking of

the merchandise was carried out by its representative and it

was certified that the goods fully complied with the quality

and standard of execution required by the order and/or

sample shown. Similar certificate was given vide Ex.PW-

1/5. Thus, not only the defendants have failed to produce

any evidence to prove that the goods manufactured by the

plaintiff pursuant to the order placed with it by defendant

No.1 on behalf of defendant No.2, were inferior or were not

as per the agreed specifications, the evidence on record

shows that in fact the goods were manufactured as per the

agreed specifications and/or the sample which was shown

to the defendants.

11. It is an admitted case of the parties that the value

of the order placed by defendant No.1 with the plaintiff-

company for or on behalf of defendant No.2 was for Rs 30

lac. The case of the plaintiff is that it has not been able to

find any buyer for these goods and consequently, despite all

efforts made in this regard, he was compelled to dispose

them off for Rs 50,000/- which also have not been paid to

him so far. In this regard, PW-1 Mr Kesar Singh has

specifically stated in his affidavit that the plaintiff-company

tried its best to mitigate the losses by calling upon the

defendant to lift the goods and there was no domestic

market for those shoes as the name of the foreign buyer JET

was engrossed on the upper sole. According to him, the

goods, therefore, became a complete waste and the plaintiff-

company suffered additional loss of Rs 6 lac on account of

demurrage and loss of business due to crunch of funds in

the absence of availability of Rs 30 lac which the defendants

were to pay for those goods. According to him, they also

tried to approach the domestic market, but could not find

buyer for this particular type of shoes and ultimately one Mr

Lavi Kumar, a small retail shoe dealer agreed to lift the

entire stock at Rs 50,000- in the month of April, 2007 on

the condition that he would make payment only when he

was able to sell the goods in the market through hawker or

petty retailers. He further stated that on receipt of the offer

of Rs 50,000/-, they again informed defendant No.1 on

telephone as well as vide letter dated 10th April, 2007 that if

they failed to lift the stock, they would sell the same in the

market for Rs 50,000/- and that sum would be adjusted

form the claim of damages. He further stated that since the

defendant failed to respond to their letter, they had no

option, but to beg Mr Lavi Kumar to have a mercy on them,

lift the stock and pay for the same as and when he received

money from the market. The purpose was to avoid further

demurrage charges. A perusal of the e-mail dated February

27, 2007 sent by Shri Kesar Singh of the plaintiff-company

to Maarten M.Company, which is Ex.PW-1/33 shows that

the aforesaid goods were offered by them to that company.

Similar offer was made by the plaintiff-company to GIANNIS

FLOURIS, as is evident from the e-mail dated October 13,

2006 which is Ex.PW-1/34. Thus, it cannot be said that

the plaintiff-company did not make any effort to mitigate the

losses by trying to sell the goods which it had manufactured

for defendant No.2, to other buyers. The letter dated 10th

April, 2007 referred in the affidavit to Mr Kesar Sing is

Ex.PW-1/35 and it shows that the defendants were

informed that if the ordered goods were not taken by them

within seven days, the same will be disposed of at US$ 1200

to a local clearance person. Thus, all possible efforts were

made by the plaintiff-company to dispose of these goods,

but it was able to sell them only for Rs 50,000/-. The

defendants could have, if they so wanted, paid the plaintiff,

lifted those shoes, sell them at the best price offered to

them. But, they did not adopt that course, despite repeated

requests from the plaintiff and on being informed that the

plaintiff was getting only Rs 50,000/- for them. The

defendants, therefore, are not entitled to adjustment of any

amount exceeding Rs 50,000/-

12. Since the plaintiff-company was to receive Rs 30

lac from the defendants towards price of the shoes which it

had manufactured for defendant No.2 and had to later

dispose them off for a paltry sum of Rs 50,000/-, it is

entitled to recover the balance of Rs 29,50,000/- from

defendant No.2.

13. Though the plaintiff-company has also claimed Rs

3 lac towards demurrage charges and compensation, no

evidence has been produced by it to prove the demurrage

charges alleged to have been incurred by it. The plaintiff,

therefore, has failed to make out a case for payment of any

demurrage charges. The plaintiff has also not produced any

evidence to prove any other loss to it on account of failure of

defendants to lift the goods which the plaintiff-company had

manufactured for defendant No.2. The plaintiff-company

would rather have earned some profit, had the goods been

actually lifted by the defendants. Therefore, I hold that the

plaintiff is not entitled to any compensation or demurrage

charges. The issues are decided accordingly.

The plaintiff has not claimed any interest for the

pre-suit period. The pendente lite and future interest,

however, is in the discretion of the court. Since the

transaction between the parties was of a commercial nature,

there is no reason why the plaintiff-company should not get

pendente lite and future interest at a reasonable rate which

I feel should be 12% per annum. The issue is decided

accordingly.

15. Issue No.7

In view of my findings on the other issues, the plaintiff is

entitled to recover a sum of Rs 29,50,000/- alongwith

pendente lite and future interest at the rate of 12% per

annum on the amount of Rs 29,50,000/-.

The case of the plaintiff before this Court is that

defendant No.1 was an agent of defendant No.2 and had

placed order with the plaintiff-company for and on behalf of

defendant No.2. Defendant Nos. 1 and 2 are two separate

companies and, therefore, two separate legal entities. The

Letter of Credit in favour of the plaintiff-company was

issued by defendant No. 2 Linkmark Development (BVI)

Limited as is evident from the L.C. which is Ex.PW-1/3.

Thus, plaintiff-company was the seller, whereas defendant

No.2 was the buyer of the goods which was manufactured

by the plaintiff-company, pursuant to the order placed with

it by defendant No.1 on behalf of defendant No.2.

Defendant No. 1 does not become liable to pay to the

plaintiff merely because it was the agent of defendant No.2

and had placed order with the plaintiff-company on its

behalf. Section 230 of Contract Act provides that in the

absence of any contract to that effect, an agent cannot

personally enforce contract entered in by him on behalf of

his principal nor is he personally bound by them. Since,

unless he agrees to the contrary, the agent is not personally

bound by the contract, the plaintiff cannot recover the price

of the goods from him. This proposition of law is well-

settled and has consistently been recognized by our Courts.

In Prem Nath Motors Ltd. Vs. Anurag Mittal (2009) 16

SCC 274, Supreme Court held that Section 230 of the

Contract Act categorically makes it clear that an agent is

not liable for the acts of a disclosed principal to a contract

to the contrary. In Khushi Ram-Behari Lal vs. Mathra Das

and Anr. AIR 1917 Lah 404, it was held that since the

defendants were merely the agents and had not admitted

their personal liability, they were not liable for the price of

the goods which the plaintiffs had purchased at the request

of a certain Ludhiana firm and had sent to them. In Hamid

Hasan and Anr. vs. Shahzad Khan and Anr. AIR 1919

Patna 143(1), the Court reiterated that an agent cannot

personally enforce a contract entered into by him on behalf

of his principal nor is he personally bound by such contract.

16. The learned counsel for the plaintiff has, however,

referred to Babulal & Ors. vs. Jagat Narain and Ors. AIR

1952 Vindhya Pradesh 51, it was held that in the aforesaid

case that every agent, who undertakes personal

responsibility for payment is personally liable and can be

sued in his own name on the contract unless the other

contracting party elects to give exclusive credit to the

principal. There is no quarrel with the proposition of law

which is otherwise evident from a bare perusal of Section

230 of Contract Act. The agent will be personally liable if he

has undertaken a personal liability under the contract

entered into by him on behalf of the principal and in the

case before this Court, there is no evidence or even an

allegation that defendant No.1 had undertaken to be liable

for payment of the price of the goods which the plaintiff-

company was to manufacture for defendant No. 2. The case

of the plaintiff-company is that defendant No.1 was acting

as an agent of defendant No.2 and had placed the order on

behalf of defendant No.2. The Letter of Credit in favour of

the plaintiff-company was opined by defendant No.2. Since

no personal liability was agreed by defendant No.1, the

plaintiff cannot recover the suit amount from it.

ORDER

17. In view of my findings on the issue, a decree for

recovery of Rs 29,50,000/- with proportionate cost and

pendente lite and future interest at the rate of 12% per

annum on the amount of Rs 29,50,000/- is passed in favour

of the plaintiff and against defendant No.2. The suit against

defendant No.1 is dismissed, without any order as to costs.

Decree sheet be prepared accordingly.

(V.K. JAIN) JUDGE

NOVEMBER 26, 2010 BG