Regency Export Pvt. Ltd. vs Vanasthali Textiles Industries ...
2011 Latest Caselaw 2103 Del

*                HIGH COURT OF DELHI : NEW DELHI

                 Judgment reserved on: March 23, 2011
                Judgment pronounced on: April 20, 2011

+                        C.S. (OS) No. 39/1999

%     Regency Export Pvt. Ltd.              ...         Plaintiff
                       Through:       Mr. Sandeep Khurana, Advocate.

                                  versus

      Vanasthali Textiles Industries Ltd.   ...    Defendant
                         Through:     Mr. A. K. Mishra, Advocate.

CORAM:
HON'BLE MR. JUSTICE SUNIL GAUR

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

2.       To be referred to Reporter or not?             No.

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

SUNIL GAUR, J.

1. Plaintiff's suit for recovery of Rs. 16,82,601/- is based upon advance

funding of Rs.17,00,000/- (Rupees Seventeen Lacs only) made by the

plaintiff to the defendant in January, 1996 in relation to supply of 40,360

pieces of beach towels, which was to be delivered in four distinct lots

during April to June 1996. As per the plaintiff, the overseas buyers could

not translate their quotation into an Order by 15th March, 1996 and

therefore, the offer made by the plaintiff to the defendant for supplying of

the aforesaid towels was withdrawn and this was communicated to the

defendant vide final Notice of Demand of 19th December, 1988 but the

defendant refused to pay back the aforesaid advance money to the plaintiff

on the specious plea of keeping its production potentials idle for the

C.S. (OS) No. 39/1999 Page 1 plaintiff and so being entitled to retain the aforesaid advance money and

so, this suit.

2. The defendant- Company contested this suit for recovery of principal

suit amount of Rs.16,82,601/-, while asserting in the written statement that

upon negotiating the price and the delivery schedules, plaintiff-Company

had paid 20% of the total value of the Work Order in question and thereby

putting the defendant- Company under obligation to book the production

space for them. As per defendant, the normal practice in textile trade /

industry is that if work Order is placed with scheduled time bound delivery,

then advance non-refundable money is paid for covering the expenditure

(fixed cost) of the manufacturing company during the interregnum period,

during which the minute specifications were awaited and the

manufacturing company remained under duty not to accept any other

Order which can affect the execution of the earlier Order for which

advance has been taken and this arrangement is known as "Booking of

Production Space".

3. Defendant claims that it was well within the knowledge of the plaintiff

company that the advance money i.e. 20% of the Work Order, being given

by them to the defendant-Company was non-refundable money, as the

time period for the delivery of the consignments in question was very tight

and the necessary peripheral specifications being awaited by that time and

the pressure was being put by the plaintiff-Company on the defendant-

Company to start with the execution part of the work Order by booking the

production space besides taking all other steps which are required to be

taken for ensuring the time bound delivery of the consignment in question.

Thus, according to the defendant, vide fax message of 19th December,

C.S. (OS) No. 39/1999 Page 2 1995, plaintiff- Company was informed regarding booking of the production

space by the defendant-Company for them and thereafter only non-

refundable advance money was given by the plaintiff-Company to the

defendant-Company. It is vehemently denied by the defendant that

quotation was sought by the plaintiff-Company in October, 1995 to get

reconfirmation/ negotiation and reduction of price before placing the Order

and the Agreement between the parties stood concluded on 26th

December, 1995.

4. As per the Defendant - Company, it books the production space on

the basis of confirmed Order and in this case also, it was so done and any

cancellation of the Order at the last stage and that too, after booking the

production space, creates problems, as it becomes nearly impossible to

substitute any Order in place of the cancelled Order in a short period of

time and so, the entire production planning gets affected, which causes

heavy loss. According to the Defendant - Company, when advance is

received against an Order, it amounts to acceptance of an Order and the

details of the Order are generally finalized in due course of time and in the

instant case, Plaintiff - Company was repeatedly asked to finalise the

design/color of the product in question. It is Defendant's case that

cancellation of the Order in question by the Plaintiff vide fax message of

25th March, 1996 was responded to on 9th April, 1996, thereby informing

the Plaintiff that since the production facility was blocked for execution of

the Plaintiff's Order and because further valuable orders for beach towels,

which is a seasonal item, were refused and on 3rd March, 1997, Defendant

had informed the Plaintiff that on tabulating they had found that their losses

were much higher than the amount advanced by the Plaintiff and so, the

C.S. (OS) No. 39/1999 Page 3 suit amount cannot be returned.

5. On the aforesaid pleadings, the Issues claimed are as under:-

(i) Whether the plaint is liable to be rejected under Order VII Rule 11 CPC? (OPD)

(ii) Whether the suit is within limitation? (OPP)

(iii) Whether the suit is bad for non-joinder of necessary parties? (OPD)

(iv) Whether this Court has no jurisdiction to try the present suit? (OPD)

(v) To what amount the Plaintiff is entitled as principal interest? (OPP)

(vi) Relief.

6. The evidence led is of PW-1 - Shri Rajesh Kaura, Director of the

Plaintiff - Company and that of DW-1 - Mr. Abhinay Rathi, authorized

representative of the Defendant - Company. When this matter was finally

heard, learned counsel for the parties had advanced their respective

submissions and had meticulously referred to the evidence on record.

Upon scrutiny of evidence on record, in the light of the submissions made,

the findings returned on the Issues framed are herein as after.

Issue No.: (i) & (iii)

7. These two Issues were rightly not pressed by Defendant's counsel at

the hearing in this matter, as there is no tangible basis to assert that the

plaint suffers on account of non-joinder of necessary parties or lacks cause

of action.

Issue No.: (ii) & (iv)

8. Since Defendant's head office is located within the jurisdiction of this

Court and the advance money was paid by the Plaintiff to the Defendant in

Delhi, therefore, this Court certainly possesses territorial jurisdiction to

C.S. (OS) No. 39/1999 Page 4 entertain this suit. The cause of action to seek refund of the advance

money arose on 25th March 1996, when the Agreement (Ex.P1) in question

was cancelled by the Plaintiff and this suit has been filed on 2nd January,

1999 and is thus, clearly within limitation. Both these Issues are

accordingly answered.

Issue No.(v):

9. The entitlement of the Plaintiff to recover the advance money upon

cancellation of the Work Order, is refuted by the Defendant's counsel by

asserting that when Work Order with scheduled time bound delivery is

cancelled, then advance money is not refundable as per normal practice in

Textile Trade/Industry. Defendant's counsel asserts that since production

space was blocked by the Defendant for the Plaintiff, for the Order in

question, so its cancellation entailed losses which were beyond the

advance money. According to the Plaintiff's counsel, no evidence has been

led by the Defendant to show that the Defendant had suffered any loss on

account of being idle for the period in question and no details of the fresh

Orders refused during the period in question is forthcoming and because

there was no concluded contract between the parties, therefore, Defendant

is not entitled to retain the advance money. Whereas, according to

Defendant's counsel, Communication (Ex.PW-1/2) was a concluded

contract and the follow-up Communications - (Ex.P3, Ex.P4, Ex.PW-1/3,

Ex.PW-1/6) as well as the Fax - Ex.P6 (Ex. PW-1/7) cancelling the Order

clearly indicates that the default is on the part of the Plaintiff and so the

Defendant is well within its right to forfeit the advance money.

10. The basic Communication of 26th December 1995 - Ex.P1 (Ex.PW-

1/2) is an admitted document. What is to be seen is whether it constitutes

C.S. (OS) No. 39/1999 Page 5 the concluded contract or not. A bare perusal of this Communication

clearly reveals that the offer made by the Defendant to the Plaintiff is

definite and is time bound. On this very document, there is clear cut

affirmation of the acceptance of this offer by the Plaintiff. I do not find any

substance in Plaintiff's plea of this Communication of 26th December 1995

- Ex.P1 (Ex.PW-1/2) being not a concluded contract as there is a specific

and definite offer by the Defendant which stands unequivocally accepted

by the Plaintiff. Not only this, the subsequent admitted Communications

(Ex.P2, Ex.P3 and Ex.P4) leave no manner of doubt that upon acceptance

of minimum advance, Defendant had undertaken to supply the Beach

Towels in time bound four distinctive lots, as disclosed in the

Communication of 4th January, 1996 (Ex.PW-1/3). Undisputedly,

Defendant had received advance money of Rs.15 lakhs in pursuance to

the Agreement (Ex.P1) and in addition thereto, a sum of Rs.2 lakhs, which

according to the Plaintiff, was to satisfy the Defendant's need for funds.

This is seriously disputed by the Defendant's counsel and it is pointed out

that there is unchallenged evidence of Mr.Abhinay Rathi (DW-1) to the

following effect:-

"The amount of Rs.2 lakhs was paid to the Defendant - Company for booking the production space and not for satisfying its needs for funds."

11. Cancellation of the Agreement (Ex.P1) by the Plaintiff vide

Communication of 25th March 1996 (Ex.P6) was on account of foreign

buyers of Plaintiff not being able to finalise the design for the product in

question and refund of the advance money was sought by the Plaintiff vide

this document. Vide admitted Communication (Ex.P9), Defendant took the

stand that advance money was to block the valuable production space for

C.S. (OS) No. 39/1999 Page 6 the Work Order placed by the Plaintiff and since the Defendant had

refused other Orders at higher price, due to commitment to the Plaintiff and

because the production facilities was probably going to remain idle/

unutilized causing loss of production, loss of business and it was

expressed by the Defendant to the Plaintiff to this Communication that the

loss to the Defendant on account of this Order falling through, was far

more than Rs.17 lakhs and so question of returning the advance money

did not arise. Pertinently, what was said in this Communication (Ex.P9),

deserves attention. Its relevant portion reads as under:-

"I am in deep fix now on what to do with this production space to minimize our losses it would certainly call for sum erratic and drastic steps from our end to minimize the losses and I can assure you that your advance will not be sufficient to fulfill the opportunity cost as well as fixed cost on the looms being idle/or mis-utilized as now we are trying to fill it at ridiculous prices."

12. It is beyond dispute that the Agreement (Ex.P1) does not contain

any forfeiture clause. That is to say, in the event of either side defaulting,

this Agreement (Ex.P1) is silent about the fate of the advance money. In

such a situation, it is upon the Defendant to substantiate its plea of

sustaining heavy losses on account of cancellation of the Agreement

(Ex.P1). It is so said because except the self serving assertion of the

Defendant, there is no evidence on record to substantiate its plea of there

being any trade practice in the Textile Industry of advance money being

non-refundable. Rather, it has come in the evidence of Mr.Abhinay Rathi

(DW-1) that the turnover of the Defendant - Company for the year ending

in March 1996 was more than Rs.18 crores. The statement of production

(Ex.D4) for the period from January, to September 1996, also does not

C.S. (OS) No. 39/1999 Page 7 indicate any marked decline in the production by the Defendant - Company

or production space of Defendant being idle, during the period in question.

No instances are forthcoming to show that during the subsistence of the

Agreement in question, any other Order was received by the Defendant -

Company which was refused because of Plaintiff's booking the production

space. In the Communications (Ex.P3 and P5), Defendant has no where

disclosed about its refusing fresh orders because of Plaintiff's Order and

the delay occasioned on account of non furnishing of the designs, etc.

13. It is quite evident from the evidence on record that except for

booking the production space, for want of design, etc., the production of

the Beach Towels by the Defendant could not be commenced. Since

Defendant has failed to establish the actual loss suffered or the decline in

its production, therefore, the Defendant cannot legitimately forfeit the

advance money by baldly asserting that its losses outweigh the advance

money of Rs.15 lakhs. However, it stands established from the evidence

on record that Rs.2 lakhs was paid by the Plaintiff to the Defendant for

booking the production space and what the Plaintiff had to say in the

evidence, in this regard is as under:-

"Que: Is it true that in case of an Order is placed by any party the manufacturer will have to block its production space?

Ans.: It is true that the manufacturer has to schedule and offer capacities available for all enquiries that they quote for as happened in the present suit."

14. In the light of the evidence on record, it can be safely concluded that

the Defendant was well within its right to retain a sum of Rs.2 lakhs

received from the Plaintiff for booking the production space but was not

C.S. (OS) No. 39/1999 Page 8 entitled to forfeit the advance money of Rs.15 lakhs, because instead of

establishing sufferance of any loss on account of cancellation of the

Agreement in question, what the Defendant witness Mr.Abhinay Rathi

(DW-1) had said in his evidence is as under:-

"It is correct that profit of the Defendant - Company kept enhancing in the year 1995-96 and 1996-97."

15. Aforesaid clinching admission assume importance in view of the fact

that Defendant had undertaken to refund the advance money after

adjusting the losses suffered by the Defendant - Company on account of

the cancellation of the Agreement in question. As already concluded

above, Defendant - Company has failed to establish that any loss was

suffered by it on account of cancellation of Agreement in question. In this

view of the matter, Plaintiff succeeds in its claim to seek refund of the

advance money of Rs.15 lakhs and the Defendant is held to be justified in

retaining Rs.2 lakhs towards booking of the production space.

Consequently, it is held that the Plaintiff is entitled to recover the principal

suit amount, minus Rs.2 lakhs, i.e., Rs.14,82,601/-, with reasonable rate of

interest @ 9% per annum from the date of institution of this suit till

realization. This Issue is accordingly answered.

Issue No.: (vi)

16. Consequential to the findings returned on the aforesaid Issues, this

suit stands decreed with costs for a sum of Rs.14,82,601/- with interest @

9% per annum from the date of institution of this suit, till realization. Decree

sheet be drawn forthwith.

17. This suit is accordingly disposed of.

Sunil Gaur, J.

April 20, 2011
rs/pkb

C.S. (OS) No. 39/1999                                                       Page 9