Delhi High Court

M/S. Aar Ess And Co. And Anr. vs M/S. Rathi Udyog Ltd. on 19 April, 2012

Author: Valmiki J. Mehta

*            IN THE HIGH COURT OF DELHI AT NEW DELHI


+                             RFA No. 658-59/2006


%                                                            19th April, 2012


M/s. AAR ESS AND CO. AND ANR.                    ..... Appellants
                   Through : Mr. J.P. Gupta, Advocate.

                     versus


M/s. RATHI UDYOG LTD.                                       ..... Respondent
                   Through :             Mr. Shiv Khorana, Advocate.


CORAM:
HON'BLE MR. JUSTICE VALMIKI J.MEHTA

To be referred to the Reporter or not?


VALMIKI J. MEHTA, J. (ORAL)

1. The challenge by means of this Regular First Appeal (RFA) filed under

Section 96 of Code of Civil Procedure, 1908 (CPC) is to the impugned

judgment of the trial Court dated 20.07.2006 decreeing the suit of the

respondent/plaintiff filed under Order 37 CPC for recovery of ` 10,41,945/-.

The suit was filed for recovery of moneys on account of appellants/defendants

failing to make payments of the goods namely Tor Steel Bars supplied to it by

the respondent/plaintiff.

2. The facts of the case are that the appellants/defendants placed orders

dated 15.03.2002 and 18.03.2002 upon the respondent/plaintiff for supply of

Tor Steel Bars. Appellant No. 2/defendant No. 2 is the sole proprietor of

appellant No. 1/defendant No. 1. The respondent/plaintiff supplied the

requisite Tor Steel Bars under its invoices dated 22.03.2002. Since the

payment with respect to the two invoices of `5,49,739/- and `4,09,416.50/-

were not made, and consequently, the subject suit for recovery under Order 37

CPC came to be filed.

3. In the leave to defend application, the appellants/defendants contended

that the respondent/plaintiff is not entitled to the amount under invoices dated

22.3.2002, inasmuch as, the invoices were not accompanied by the requisite

test certificates which were specified in para 5 of the orders dated 15.03.2002

and 18.03.2002. It was also stated that though the appellants/defendants had

given post dated cheques, which were dishonoured, however, payment under

the cheques were not to be made, inasmuch as, the goods which were supplied

did not meet the requisite quality specifications. To the stand of the

respondent/plaintiff, that the appellants/defendants had written its letter dated

21.06.2002 admitting to the issuing of cheques and requesting time for

payment, it was contended that though the letter dated 21.06.2002 contained

the signatures of appellant No. 2/defendant No. 2, however, that letter was a

letter signed in blank given to an employee of the appellants/defendants and

who had misused that letter and gave the same to the respondent/plaintiff.

4. Trial court has rejected the application for leave to defend by making

the following observations:-

"7. The defence raised by the defendant in the application is certainly moon shine defence which required no evidence as there is no triable issue raised in the application for leave to defend filed by the defendant. Basically, leave to defend is sought on the basis of alleged representation by the plaintiff company about procurement of raw material from Steel Authority of India (SAIL) which has been emphatically denied by the plaintiff. No documents or correspondence to that effect is relied upon by the defendant in his affidavit. There is no such clause pointed out in the orders as were placed by the defendant wherein only pre condition was that goods be suppied by the plaintiff while confirming the standards laid down as per IS: 1786 of 1985 and supply of test certification. The test certificates were supplied by the defendant along with the bills which were acted upon by the defendant as they consumed the goods supplied as also admitted by the defendant. The defendant falsity is apparent with regard to allegations of non supply of test certificate as in the case test certificates were not supplied, the defendant should not have consumed the materials supplied by the plaintiff to the defendant. The position is further clear from the letter dt. 21-6-02 relied upon by the plaintiff wherein the defendant admitted issue of cheques for the payment of steel purchased from the plaintiff which a regret information that due to unavoidable circumstances, they were unable to get the

check cleared as the payments from the various clients have been delayed. The defendants further expressed that payment would be cleared in July, 2002 and plaintiff may charge the bank rage interest for the delayed period in addition to payment amount. The plea of the defendant that letter dt. 21-6-02 was procured by the plaintiff cannot be accepted as no action to that effect against the alleged ex employee of the defendants whose service has since been terminated is taken by the defendant. The defendant did not even allege any criminal action taken against such ex employee name is also not declared in the affidavit filed in support of application for leave to defend when the letter was manufactured with aid of said ex employee. The concocted story that the letter was manufactured by the aid of ex employee on blank signed letter head of defendant no. 1 which was entrusted to that ex employee by defendant no. 2 for using the same in case emergency arises is not believe worthy in the absence of supporting evidence which is concealed by the defendant from the court as even name of the ex employee is not given in the affidavit while the authorities referred to by the defendant/applicant in their written submissions are of no avail in the facts and circumstances as discussed above.

8. In case the plaintiff used raw material from sub- standard manufacturers and supplies the same to the defendant and hence, were not in accordance with specifications as laid down with the supply order placed by defendant, the defendant should not have consumed the supply made by the plaintiff of the Tor Steel Bars. Similarly, had the defendant not received the test certification, they should have not consumed the supply of the Tor Steel Bards and should have either returned the goods or written to the plaintiff about the supply of the goods not in accordance with specifications as laid down in the supply order.

9. The admitted signatures on letter dt. 21-6-02 further makes it crystal clear that plaintiff did not present the cheque as per advice of the defendant and not because of the plea taken in the leave to defend application/affidavit that till such time, the test certificates are issued by the plaintiff company to the defendant, the plaintiff is not entitled to receive any payment from the defendant inas much as pre condition of the supply order has not been complied with by the plaintiff‟s company. Nowhere in the affidavit filed along with leave to defend application, the defendant has denied specifically receipt of the test certificates. As such, the presentation of the cheques in terms of language of that letter dt. 21-6-02 by the plaintiff was in order which were dishonoured by the banker of the defendant. Acceptance of the goods and consummation of the goods supplied by the plaintiff to the defendant though in part without any objection till filing of the suit by the plaintiff and no response to the legal notice of the plaintiff dt. 5-8-02 bely the defence of the defendant‟s liability of payment of the due amount as claimed in the suit.

10. Defence taken for dishonour of the cheque is not a plausible defence. The supply order is dt. 18-3-02 and the bill in question are dt. 22-3-02 for the material supplied to the defendant. The cheques dishonoured are dt. 7-4-02 which were dishonoured on presentation for encashment on 1-8-02 as were presented after receipt of letter dt. 21-6-02. For this period, there is no deposition in the affidavit filed along with leave to defend application that defendant ever raised the objections against the goods supplied about their quality as also no document referred to in the affidavit. In the given facts, the defendant‟s plea cannot be accepted that the goods supplied were not in accordance with the specifications especially when same is consumed by the defendant. It has been so observed by their Lordship in the case of M/s Lohmann Rausher Gmbh. Vs. M/s Medisphere

Marketing Private Limited reported in 2005 II AD (Delhi) 604 observed as under:-

„Rejection of the goods predicated on a stand that the goods were sub standard and defective on 31st December, 2001 is not within a reasonable period of time considering the fact that the goods under the first invoice were received in the month of May, 2000 and under the second invoice were received in the month of September, 2000. Rejection indicated on 31st December, 2001 was after one year and three months after receipt of goods under the second invoice. Defendant, as per mandate of Section 42 of the sale of Goods Act is, therefore, deemed to have accepted the goods.‟ In the given facts, the letter issued by HPCL received by defendant on 11-2-03 as relied upon in the written submissions is of no consequence on which basis test certificates filed by plaintiff are stated to be fabricated.

10. The facts as brought on record by the parties and as discussed above leads me to the conclusion that there is no triable issue to be decided on the basis of the evidence so as to be a ground for grant of leave to defend to the defendant. The defence raised by the defendant in the leave to defend application is frivolous, baseless and moon shine defence as is clear from the letter dt. 21-6-02 which admittedly bears signatures of the defendant.

11. Reference made to the case of Province of Madras vs C.A. Galia Kotwala & Company Limited reported in AIR (33) 1946 Madras 6, Shah Mohanlal Manilal v. Firm runnine in the name and style of Dhirubhai Bavajibhai reported in AIR 1962 Gujarat 56, Beacon Electronics vs. M/s Sylvania & Laxman Limited reported in 1998 III AD (Delhi) 141, M/s Reliance Industries VS M/s Imperial Pigments Private Limited reported in 2003 III AD (Delhi) 278 and K.L.G. Systel Limited vs. Fujitsuicim

Limited reportedin 92, (2001) Delhi Law Times 88 also comes to the aid of the plaintiff for getting judgment signed by this court in their favour being the defence illusionary, fake, sham and without any substance and plausible so as to accept the same for grant of leave to defend to the defendant."

(underlining added)

5. A reference to the aforesaid paras show that the trial Court arrived at

the following conclusion for dismissing leave to defend application:-

(i) That the goods were in fact supplied to the appellants/defendants, is not

disputed.

(ii) It is also not disputed that the cheques were issued to the

respondent/plaintiff for the amount of the invoices.

(iii) As per Section 42 of the Sale of Goods Act, 1930 since the

appellants/defendants did not intimate the rejection of goods within the

reasonable period of time, the goods are deemed to have been accepted.

(iv) The case of the letter dated 21.06.2002 being signed in blank and given

to an employee who misused the same is not believable, inasmuch as, neither

the name of the so-called ex-employee has been given and nor has it been

specified as to what action was taken against the alleged ex-employee for

misusing the blank letter dated 21.06.2002 signed by the appellant

No.2/defendant No. 2.

(v) In spite of a legal notice being served, no response was given to the

legal notice and the defence which was raised, was raised for the first time in

the application for leave to defend.

6. Learned counsel for the appellant, before this Court, very strenuously

argued that the trial Court has arrived at a wrong finding of fact that the goods

have been consumed by the appellants/defendants. It is also argued that since

the respondent/plaintiff did not furnish the requisite tests certificates, the

respondent/plaintiff was not entitled to payment.

7. I, during the course of arguments, put a query to learned counsel for the

appellants/defendants as to whether any letter was written as per Section 42 of

the Sale of Goods Act, 1930 intimating the rejection of goods and to which

counsel for the appellants/defendants admitted that no such letter was written.

Thus, in law the goods are deemed to be accepted and no objection can now

be raised. To the argument of learned counsel for the appellants/defendants

that no tests certificates were supplied, I once again put a query as to whether

the appellants/defendants at all wrote a letter or a legal notice that the test

certificates were not supplied, learned counsel for the appellants/defendants,

once again, conceded that no such letter was ever written. On a third query

being put to learned counsel for the appellants/defendants that if the cheques

which were given for payment under the invoices, being the post dated

cheques, the same ought not to have been presented and were wrongly

presented, whether the appellants/defendants ever wrote any letter to the

respondent/plaintiff not to present the cheques, inasmuch as, the goods

supplied were not in accordance with the contract as they were not

accompanied by the tests certificate, it was again conceded by learned counsel

for the appellants/defendants that no communication whatsoever was

addressed to the respondent/plaintiff that the cheques should not be presented

because the invoices were not accompanied by the test certificates.

9. The law with respect to grant of leave to defend is now well settled.

The basic judgment of the Supreme Court in this regard is the judgment in the

case of M/s Mechelec Engineers & Manufacturers v. M/s Basic Equipment

Corporation, 1976 (4) SCC 687. Para 8 of the said judgment adopts tests laid

down in the case of Sm. Kiranmoyee Dassi v. Dr. J. Chatterjee, AIR 1949

Cal. 479 in order to decide whether or not leave to defend should be granted

and these tests are as under:-

"8. In Smt. Kiranmoyee Dassi and Anr. v. Dr. J. Chatterjee, Das. J.,after a comprehensive review of authorities on the subject, stated the principles applicable to cases covered by order 17 C.P.C. in the form of the following propositions (at p. 253) :

(a) If the Defendant satisfies the Court that he has a good defence to the claim on its merits the

plaintiff is not entitled to leave to sign judgment and the Defendant is entitled to unconditional leave to defend.

(b) If the Defendant raises a triable issue indicating that he has a fair or bona fide or reasonable defence although not a positively good defence the plaintiff is not entitled to sign judgment and the Defendant is entitled to unconditional leave to defend.

(c) If the Defendant discloses such facts as may be deemed sufficient to entitle him to defend, that is to say, although the affidavit does not positively and immediately make it clear that he has a defence, yet, shews such a state of facts as leads to the inference that at the trial of the action he may be able to establish a defence to the plaintiff's claim the Plaintiff is not entitled to judgment and the Defendant is entitled to leave to defend but in such a case the Court may in its discretion impose conditions as to the time or mode of trial but not as to payment into Court or furnishing security.

(d) If the Defendant has no defence or the defence set up is illusory or sham or practically moonshine then ordinarily the Plaintiff is entitled to leave to sign judgment and the Defendant is not entitled to leave to defend.

(e) If the Defendant has no defence or the defence is illusory or sham or practically moonshine then although ordinarily the Plaintiff is entitled to leave to sign judgment, the Court may protect the Plaintiff by only allowing the defence to proceed if the amount claimed is paid into Court or otherwise secured and give leave to the Defendant on such condition, and thereby show mercy to the

Defendant by enabling him to try to prove a defence."

10. In the present case, in my opinion, applying the aforesaid tests it is

clear that the defence was a moonshine and the leave to defend application

has rightly been rejected by the Court below, inasmuch as, the goods were

received, and no objections in terms of Section 42 of the Sale of Goods Act,

1930 were ever raised by the respondent/plaintiff of the goods being defective

and that no letter was ever written that the test certificates which ought to

have been supplied were not supplied. Further, no letter was ever written that

the cheques should not be presented, inasmuch as, the goods supplied were

defective or were not accompanied by the requisite test certificates. Finally,

an important fact also is that no reply was sent by the appellants/defendants to

the legal notice issued by the respondent/plaintiff. Even assuming that the

trial Court has given a wrong finding that the goods were consumed, the same

cannot have any effect, inasmuch as, what is relevant is that in terms of

Section 42 of the Sale of Goods Act, 1930 unless objection is raised within a

reasonable time the goods are deemed to be accepted.