Vanashthali Textiles Industries ... vs Regency Exports Private Ltd.
2011 Latest Caselaw 6149 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

%                       Date of Decision : 15th December, 2011

+      RFA (OS) No.62-63/2011 &
       CM No.10747/2011 (Stay)


       VANASHTHALI TEXTILES INDUSTRIES LTD. ....APPELLANT
               Through: Mr.A.K.Mishra, Advocate

                                  versus


       REGENCY EXPORTS PRIVATE LTD.       ...Respondent
                Through: Mr.Sandeep Khurana, Advocate

       CORAM:
       HON'BLE MR. JUSTICE PRADEEP NANDRAJOG
       HON'BLE MR. JUSTICE S.P.GARG

S.P.GARG, J. (Oral)

1. Appeal has been preferred by the appellant against the judgment and decree dated 20.04.2011 passed by learned Single Judge whereby the suit filed by the respondent for recovery of `25,10,716/- was decreed for a sum of `14,82,601/- with interest @ 9% p.a. from the date of institution of the suit till realisation. In brief, facts of the case are as under:-

2. Respondent filed suit for recovery of `25,10,716/- claiming that it had given advance of `17,00,000/- to the appellant in January 1996 in relation to supply of 40,360 pieces of beach towels, which were to be delivered in four distinct lots during April to June 1996. As per the respondent, the foreign

buyers could not translate their quotation into an Order by 15 th March, 1996 and therefore, the offer made by the respondent to the appellant for supply of the aforesaid towels was withdrawn. The appellant was requested to refund `17,00,000/- paid by it as advance for the supply of goods. The appellant, however, failed to return the advance money on the plea that he had incurred losses more than `17,00,000/- due to cancellation of the order.

3. The appellant contested the suit and pleaded in the written statement that upon negotiating the price and the delivery schedules, the respondent had paid 20% of the total value of the work order in question putting it under legal obligation to book the „production space‟ for them. As per the appellant, normal practice in textile trade/industry was that if work order is placed with scheduled time bound delivery, then advance non-refundable money was to be paid for covering the expenditure of the manufacturing company during the interregnum period. The manufacturing company thus remained under duty not to accept any other order which could affect the execution of the earlier order for which advance was taken and this arrangement was known as "Booking of Production Space."

4. Further plea of the appellant was that it was in the knowledge of the respondent that advance money paid by it was non-refundable as the time period for the delivery of the consignments in question was tight and the necessary peripheral specifications were being awaited by that time, the pressure was being put by the respondent on the appellant to

start with the execution part of the work order by booking the production space besides taking all other steps which were required to be taken for ensuring time bound delivery of the consignments in question. The respondent did not perform its part of the contract and caused huge loss to the appellant by cancelling the order placed upon it. The appellant had booked the production space on the basis of confirmation order. It was nearly impossible for the appellant to substitute any order in place of the cancelled order in a short period of time. The appellant had refused to accept orders at higher rates from other concerns.

5. After settlement of issues, the respondent examined Rajesh Kaura, its Director as PW-1. The appellant examined Abhinay Rathi, its authorized representative, as DW-1. On appraisal of evidence adduced on record, the learned Single Judge passed the impugned judgment and decree dated 26.04.2011 observing that appellant had failed to prove any loss and was not entitled to retain `15,00,000/-. Aggrieved by the said orders the appellant has come up in appeal.

6. It is not in controversy that in June, 1995 the respondent had approached the appellant for supply of beach towels. The appellant had quoted the price to the respondent in June 1995. On 16.10.1995 the respondent transmitted a specific inquiry for 60,000/- pieces of beaches towels for delivery from January to April 1996. The appellant quoted the price which was at 15% higher than the rates offered in June 1995. Negotiations and discussions took place between the parties and finally the appellant agreed to maintain the June

1995 price rates subject to the condition that 25% amount of the value of the total order was paid in advance. Vide communication dated 26.12.1995, Ex.P-1, the appellant finally agreed to reduce the advance funding to 20% of the value of the goods and the offer was valid if the amount was received by 31.12.1995. Thereafter the respondent advanced `15,00,000/- to the appellant. The appellant gave details of the delivery schedule vide FAX message dated 04.01.1996. On the basis of communication dated 04.01.1996 Ex.P-2 giving the delivery schedule, the respondent paid additional amount of `2,00,000/- on 10.01.1996 to the appellant. It is also not in dispute that there was delay on the part of the respondent in giving confirmation of designs and colours. The appellant asked the respondent to make available the designs and colour to enable it to start the production. On 22.02.1996 vide letter Ex.P-4 the respondent reduced the work order to 36,000 pieces and request was made to adjust the amount of `2,00,000/-.

7. Appellant declined the request of the respondent vide letter Ex.P-5 dated 08.03.1996. On 25.03.1996 vide Ex.P-6 the respondent wrote to the appellant that the foreign buyer had failed to finalize the order hence the offer made for supply of said towels was being withdrawn. Appellant thereafter sent letters dated 25.03.1996 Ex.P-8 and 09.04.1996 Ex.P-9 to the respondent in which he claimed that due to cancellation of the order, he had suffered losses more than `17,00,000/-.

8. Main plea of the learned counsel for the appellant is that the appellant was under no legal obligation to return `17,00,000/- to the respondent as the payment received was

non-refundable as per the custom/usage prevalent in textile industry. There was a concluded contract between the parties. There was breach of the contract on behalf of the respondent. The appellant had already incurred huge expenses for executing the work order. Advance money was in fact given for booking of production space, so the amount of `17,00,000/- paid was non-refundable. Production of towels of export quality required many phases and the information regarding design/colour to be made available was at the last phase of the production schedule. The appellant company was put under great pressure to meet the delivery schedule at any cost. It was well within the knowledge of the respondent that money being paid to the appellant was for booking of the production space and in case of any failure by the respondent to provide the necessary details it was open to him to recover the money from overseas buyers and not from the appellant. Due to inaction of the respondent, it became very difficult for the appellant to accept any alternative order for using the facilities which were booked exclusively for the order confirmed by the respondent. The appellant company suffered losses arising out of cancellation of the entire order as well as arising out of the loss of the opportunity cost and fixed cost.

9. Scanning the documents on record and the evidence led by the parties, it reveals that there was no formal written agreement executed between the parties regarding the transaction in question. The letters exchanged between the parties Ex.P-1 to P-4 contained terms and conditions on which 60,000 towels were to be supplied by the appellant to the

respondent. Admittedly these documents do not contain any clause whereby the appellant was given any right to forfeit the amount of `17,00,000/- advanced by the respondent towards placing the work order. Appellant has emphasized that as per custom/usage in the textile industry, appellant was entitled to forfeit the advance amount paid by the respondent for booking the space.

10. Appellant, however, miserably failed to prove on record any such custom or usage. No such custom or usage was mentioned in the letters exchanged between the parties whereby the respondent was informed about the existence of any such custom in the industry. The appellant failed to prove relevant facts to show existence of custom i.e. (a) any transaction by which the right or custom in question was created, claimed, modified, recognized, asserted, or denied, or which was inconsistent with its existence and (b) particular instances in which the right or custom was claimed, recognized, or exercised or in which its exercise was disputed, asserted or departed from as contained in Section 13 of the Indian Evidence Act, 1872.

11. The appellant examined sole witness DW-1 Abhinay Rathi who mentioned above any such custom or usage in the affidavit containing his evidence. The appellant failed to give any instance to establish existence of any such custom and if so since when. The appellant did not examine any witness from the mercantile community to prove such custom/usage. In the cross-examination of PW-1 Rajesh Kaura, nothing was suggested to this witness if any such custom was in existence

in the textile industry. In the absence of any positive proof, it cannot be inferred that any such custom or usage existed in the textile industry whereby the advance amount paid by the customer for booking of space was non-refundable.

12. It is well-settled that to prove custom it must be shown that it is certain, is in existence since time immemorial; is not in consistent with law and is widely followed by the concerned industry/trade. The person who alleges existence of custom is required to prove it beyond doubt. Since the appellant has failed to prove existence of any such custom, in our view, the appellant was having no legal right to unilaterally forfeit the advance amount paid by the respondent on breach of the contract in the absence of any such agreement.

13. We are of the opinion that the letters exchanged between the parties gave rise to a concluded contract between the parties and we confirm the findings of the learned Single Judge on that score. Since there was breach of contract on behalf of the respondent, the appellant was entitled only for the loss suffered by it due to breach of contract.

14. It was incumbent upon the appellant to plead and prove as to what were the losses suffered by him due to breach of contract. Damage, which a party alleges to have suffered must be affirmatively proved. Proof of damage is necessary to enable recoverability of damages. It is essential that a person who claims damages/compensation for breach of a promise must prove the loss suffered by it. Damages/compensation are awarded to place the injured party in the same position in which he could have been, had he not sustained the injury

complained. The damages must be commensurate with the injury sustained. Damages/compensation are compensatory and not retributive. The appellant is entitled to receive compensation for any loss which naturally arose in the usual course of things from such breach.

15. In the present case the appellant did not file any suit against the respondent for recovery of any damage/loss allegedly suffered by it for breach of the contract. Only when the respondent filed suit for recovery of `17,00,000/- the amount paid by him in advance, the appellant came up with the plea that he was not liable to refund the amount as he had suffered losses more than `17,00,000/- due to cancellation of the order by the respondent. Even then the appellant did not specify as to how and in what manner, he had suffered losses due to cancellation of the order and if so what was its quantum. The appellant also did not produce any cogent evidence on record to show if it suffered any loss due to breach of the contract by the respondent. No evidence was adduced on record to show if appellant had obtained orders from any other buyer for supply of towels and he had refused to take the orders from the other buyer due to the order already placed on it by the respondent. No evidence was adduced to show if the appellant could not utilize the machinery/infrastructure available with it due to cancellation of the order or that its profit had come down. Contrary to that DW-1 Abhinay Rathi admitted in the cross-examination that profit of the appellant company kept enhancing in the year 1995-96 and 1996-97. The appellant has filed on record the Balance-sheet and Profit

and Loss Account statement pertaining to the year ending on 31st March 1996. In this document the installed capacity of the unit for the year 1995-96 has been shown as 639 M.T. Production for „beach towels‟ in the year 1995-96 has been shown as 541.019 M.T. This document was referred by the learned counsel for the appellant to show that due to cancellation of the order the appellant was unable to produce the goods to the full installed capacity of the unit. We do not agree with this plea of learned counsel for the appellant as in this very document production in the year 1994-95 has been shown as 454.929 which means that in the year 1995-96 the appellant was able to have more production than the year 1994-95 and its production had increased as compared to the previous years. It further shows that at no stage the appellant was able to utilize the 100% installed capacity of his unit. The profit and loss account statement ending on 31st March 1996 shows that in the financial year ending on 31 st March 1995, its profit was `95,88,892 which increased to `1,59,93,583 for the financial year ending on 31st March 1996. There is thus no substance that during the year 1995-96 the appellant had suffered any loss of profit due to cancellation of the order in question.

16. For the inconvenience caused to the appellant firstly booking the order and thereafter abruptly cancelling the same by the respondent at the last moment, the learned Single Judge allowed the appellant to retain `2,00,000/ with him paid by the respondent.

17. We find no merit in the appeal and the same is dismissed.

18. No orders as to costs.

CM No.10747/2011 (Stay)

Since the appeal has been dismissed, the instant application which seeks stay of operation of the impugned judgment is disposed of as infructuous.

(S.P.GARG) JUDGE

(PRADEEP NANDRAJOG) JUDGE December 15, 2011 sa