M/S Spr Sales Pvt.Ltd vs M/S Ojas Industries Pvt Ltd
2013 Latest Caselaw 1148 Del

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*      IN THE HIGH COURT OF DELHI AT NEW DELHI

+      CS(OS) 762/2009 & I.As. 10172/2009, 2567/2011, 4186/2012

       M/S SPR SALES PVT.LTD          ..... Plaintiff
                      Through         Mr. P.V. Kapur, Senior Advocate
                                      with Mr. Aman Anand and
                                      Mr. Sidhant Kapur, Advocates

                          versus

       M/S OJAS INDUSTRIES PVT LTD ..... Defendant
                     Through   Mr. Alok Aggarwal with Mr. Sanjeev
                               Kumar Singh and Mr. Naveen
                               Chawla, Advocates

%                              Date of Decision: 7th March, 2013

CORAM:
HON'BLE MR. JUSTICE MANMOHAN
                             JUDGMENT

MANMOHAN, J (Oral):

1. Present summary suit has been filed under Order 37 of Code of Civil Procedure, 1908 (for short 'CPC') for recovery of Rs. 33,96,804. While application being I.A. 10172/2009 has been filed by the defendant under Order 37 Rule 3(5) CPC seeking leave to defend the suit, I.A. 2567/2011 has been filed by the defendant to raise additional grounds and to place additional documents in support of leave to defend and I.A. 4186/2012 has been filed by the plaintiff to place on record documents to show that the plaintiff supplied material for fifth and sixth bottling line prior to the cancellation of the supply order.

2. Briefly stated the relevant facts of the present case are that the defendant vide its letter dated 9th January, 2005 placed a Letter of Intent for supply of eight bottling lines for manufacture of 240 bottles per minute (bpm) of 180 ml. The relevant portion of the said letter reads as under :-

"4. You will supply the Bottling Lines as per following schedule:

(a) 1st Line by 15.01.2005

(b) 2nd Line by 20.01.2005

(c) 3rd Line by 26.01.2005

(d) 4th Line by 06.02.2005

(e) 5th Line by 13.02.2005

(f) 6th Line by 20.02.2005

(g) 7th and 8th by 05.03.2005 The lines are to be delivered at neemrana as per our schedule strictly.

5. We shall make you advance payment @25% of the basic value on per line basis for which you will give us the advance bank guarantee.

6. The detailed Purchase Order along with specifications of the machines, length of conveyor, etc. etc. according to layout will be given to you within 2-3 days time and the payment will be made accordingly.

The letter is being issued to you in duplicate. You are advised to return us one copy of the letter duly signed by you in token of your acceptance of the same."

3. In response to the Letter of Intent, plaintiff wrote a letter dated 10 th January, 2005 stating that it would not be practically possible to manufacture complete 240 bpm line in five to seven days. The relevant portion of the plaintiff's letter is reproduced hereinbelow:-

"But please believe us that it will be practically quite difficult to manufacture complete 240 BPM line in only 5-7 days as desired by you (and asked in the valued LOI).

As requested during earlier mutual discussions regarding delivery schedule, we once again confirm earliest possible delivery schedule of first six lines as under:-

     Ist Line and IInd Line (Consisting one line            25.01.2005
     of Uniblock Machine)
     IIIrd Line                                             10.02.2005
     IVth Line                                              24.02.2005
     Vth Line                                               15.03.2005
     VIth Line                                              31.03.2005

The 7th and 8th line will be possible by 15th April and 30th April only."

4. On 19th January, 2005, defendant issued a purchase order for supply of six 240 bpm 180 ml bottling lines. The relevant portion of the said purchase order is reproduced hereinbelow:-

Terms & Conditions 1 That the price of the each line will be Rs. 66.50 lacs (Rupees Sixty Six Lacs Fifty Thousand only) inclusive of all Government taxes, excise, duties, other levies, freight etc. etc. xxxx xxxx xxxx xxxx

3. You will supply the bottling Lines as per following Schedule

a) 1st Line by 31.01.2005

b) 2nd Line by 31.01.2005

c) 3rd Line by 05.02.2005

d) 4th Line by 10.02.2005

e) 5th Line by 20.02.2005

f) 6th Line by 28.02.2005

4. The lines are to be delivered at Neemrana as per our schedule strictly.

5. Liquidated Damages: Since time is the essence in this Purchase Order, therefore in the event of any type of delay in execution and supply of machines/lines, a sum equivalent to 10% of total value of the machines will be deductible as liquidated damages. You are specifically advised to note the same.

6. Confidentiality Clause: You will not divulge the content of the subject P.O. especially rates etc. to third person/party, failing which you will be responsible for any kind of damages caused to us as a result of such divulgence by you.

7. Payment Terms: We shall make you payment per line as under:

 25% of the Basic Price i.e. 13,39,225/- for which you will give us the advance bank guarantee.  65% of total value after adjusting the advance and retention i.e. Rs.47,75,085/- against Proforma Invoice prior to despatch after inspection of machines by our Engineer at your site.

 Balance 10% of basic value i.e. Rs.5,35,690/- after installation and commissioning of machines for which you will give Performance Bank Guarantee for one year.

Kindly sign and return duplicate copy of this Purchase Order as a token of your acceptance."

5. On 27th January, 2005, plaintiff once again pointed out that delivery schedule confirmed by the defendant is practically impossible to implement and the liquidated damages clause is not acceptable to the plaintiff. The relevant portion of the said letter states "You have released the P.O. without considering the delivery schedule confirmed by us and demanded to supply the six lines before 28.02.2005, which is practically impossible and

moreover you have mentioned "liquidity damages" on point no.5 of your subject purchase order and the term for 10% of the total value of the machines is not acceptable to us at all as the same was not mentioned in your Letter of Intent No.47 dated 09.01.2005."

6. Thereafter the plaintiff admittedly supplied by way of individual invoices four complete bottling lines and some parts of two bottling lines.

7. On 12th March, 2005, defendant asked the plaintiff to withhold dispatch of plant and machinery till further intimation. Subsequently, on 14th March, 2005 defendant wrote another letter to the plaintiff stating that it was cancelling its order for fifth and sixth lines on the ground that supply schedule had not been adhered to by the plaintiff. In the said letter it was, however, admitted that the supplies of four bottling lines had been accepted by the defendant.

8. Thereafter some correspondence was exchanged between the parties in which the plaintiff sought payment of its outstanding arrears.

9. On 26th September, 2005, a C-Form was issued by the defendant wherein the defendant admitted supplies of goods worth Rs. 2,94,59,825/-.

10. Mr. Alok Aggarwal, learned counsel for the defendant submits that present summary suit under Order 37 CPC is not maintainable as the same is neither based on any negotiable instrument nor on the basis of a written contract. He states that the documents referred to by the plaintiff as invoices are not invoices in law as they do not contain all terms and conditions of the contract.

11. In the alternative, Mr. Aggarwal submits that if there is any written contract between the parties then it is the purchase order dated 19 th January, 2005. He states that even the invoices filed by the plaintiff refer to the

aforesaid purchase order. Mr. Aggarwal points out that the invoices placed on record are not signed by the defendant.

12. Mr. Aggarwal further submits that the present summary suit under Order 37 CPC is not maintainable as it is based upon a running account between the parties. He states that there is no acknowledgement of debt by the defendant. In support of his submission, Mr. Aggarwal relies upon judgments of this Court in Saveena Enterprises Pvt. Ltd. Vs. Kalatex & Ors., I.A. No. 13552/2007 in CS(OS) 1802/2001 decided on 20th November, 2008 and Halcyon Asia Management Vs. Hotel Blue Stone, RFA No. 240/2012 decided on 30th May, 2012.

13. Mr. Aggarwal submits that time was the essence of the contract and the plaintiff was to complete the supplies for lines one and two by 31st January, 2005, for line three by 5th February, 2005, for line four by 10th December, 2005, for line five by 20th February, 2005 and for line six by 28th February, 2005. He states that as there was admitted delay in effecting supplies, in accordance with the Clause 5 of the purchase order plaintiff is liable to pay liquidated damages. Mr. Aggarwal reiterates that it was only due to delay in supplies that the purchase order for the remaining two bottling lines had been cancelled by the defendant on 14 th March, 2005. According to him, defendant has suffered production losses and loss of profit due to breach on the part of the plaintiff for which the defendant reserves its right to make a counter claim.

14. Mr. Aggarwal states that no performance bank guarantee in accordance with Clause 7 of the purchase order was furnished by the plaintiff.

15. On the other hand, Mr. P.V. Kapur, learned senior counsel for the plaintiff submits that the present summary suit is based upon unpaid invoices raised and accepted by the defendant for goods supplied. He states that a bare perusal of the affidavit filed along with the application for leave to defend reveals that the defendant, in fact, clearly understood that the plaintiff's suit is based on invoices raised. According to Mr. Kapur, present recovery suit squarely falls within Order 37 Rule 1(2)(b)(i) & (ii).

16. Mr. Kapur specifically denies that no break-up of the amount claimed is available on record. Mr. Kapur states that it is clear from a bare perusal of the plaint that plaintiff is claiming a sum of Rs. 19,74,886/- as principal and a sum of Rs. 14,21,918/- as interest calculated @ 24% per annum from 5th May, 2006 till institution of the suit on 22nd April, 2009. He points out that each and every invoice under which supplies had been made by the plaintiff contains a stipulation to pay interest @ 24% per annum. He submits that C- Form issued under the Sales Tax Act undisputedly establishes that the goods had been supplied and accepted by the defendant.

17. Mr. Kapur denies that time was ever agreed by the parties to be essence of the contract. He contends that the stipulation making time as the essence of the contract was never agreed to by the plaintiff. In support of his submissions, he lays considerable emphasis on the letter dated 27th January, 2005 written by the plaintiff. Mr. Kapur states that, in fact, letter dated 27th January, 2005 tantamounts to a counter offer to the purchase order dated 19th January, 2005. According to him, all the parties acted upon the counter offer dated 27th January, 2005. Mr. Kapur states that no issue was ever raised by the defendant with regard to delayed supplies prior to defendant's letter dated 8th April, 2005.

18. Mr. Kapur also states that defendant never called upon the plaintiff to furnish any performance bank guarantee and thus the said requirement was waived by the defendant. He also states that this is not one of the grounds set up by the defendant in its leave to defend application.

19. Mr. Kapur lastly submits that the defendant never prior to its leave to defend application stated that it was entitled for liquidated damages for delayed supplies. He states that defendant having accepted delivery beyond the alleged stipulated schedule, without putting the plaintiff to notice to claim damages, is precluded from levying any liquidated damages in respect of supply of four lines. In this connection, he relies upon Section 55 of the Contract Act, which reads as under :-

"55. Effect of failure to perform a fixed time, in contract in which time is essential-

xxxx xxxx xxxx xxxx

Effect of acceptance of performance at time other than agreed upon: If, in case of a contract voidable on account of the promisor's failure to perform his promise at the time agreed, the promisee accepts performance of such promise at any time other than agree, the promisee cannot claim compensation of any loss occasioned by the non-performance of the promise at the time agreed, unless, at the time of acceptance, he give notice to the promisor of his intention to do so."

20. Having heard learned counsel for the parties, this Court is of the view that it is first essential to outline the principles which have to be kept in mind by a court while granting leave to defend. The Supreme Court in M/s Mechelec Engineers & Manufacturers Vs. M/s. Basic Equipment Corporation, (1976) 4 SCC 687 has held as under:-

"8. In Kiranmoyee Dassi Smt v. Dr J. Chatterjee [ AIR 1949 Cal 479 : 49 CWN 246, 253 : ILR (1945) 2 Cal 145.] Das, J., after a comprehensive review of authorities on the subject, stated the principles applicable to cases covered by Order 17 CPC 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, shows such a state of facts as leads to the inference that at the trial of the action be 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."

21. This Court is in agreement with the view of learned senior counsel for the plaintiff that a summary suit under Order 37 CPC can be based upon written invoices incorporating all the essential terms of sale. It is pertinent

to mention that an agreement in writing between the parties as contemplated by Order 37 of CPC, does not necessarily refer to documents having signatures of both the parties. In BOI Finance Ltd. v. Padma Alloy Casting Pvt. Ltd. & Others AIR 1999 Bombay 340, a learned Single Judge of Bombay High Court has held that documents accepted or exchanged by and between the parties by themselves can be construed as an agreement in writing. This Court in Bharat Forge Ltd. V. Onil Gulati AIR 2005 Delhi 369 has held that a contract for sale need only specify the description of the seller, the purchaser, the goods in question and the agreed price, besides the expression of intent to sell and transfer.

22. Sections 37(2) and 42 of the Sale of Goods Act, 1930 also undoubtedly stipulate that the purchaser is bound to pay for the excess goods delivered at the contractual rate provided the purchaser has not rejected and/or returned the excess goods. Sections 37(2) and 42 of the Sale of Goods Act, 1930 are reproduced hereinbelow:-

A.     Section 37(2) of the Sale of Goods Act, 1930
      "37. Delivery of wrong quantity-
              xxx                       xxx                      xxx

(2) Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer may accept the goods included in the contract and reject the rest, or he may reject the whole. If the buyer accepts the whole of the goods so delivered, he shall pay for them at the contract rate.

B. Section 42 of the Sale of Goods Act, 1930

42. Acceptance.- The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, or when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the

seller, or when, after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them."

23. Further, as held by this Court in M/s. Dura-Line India Pvt. Ltd. V. M/s. BPL Broadband Network Pvt. Ltd. AIR 2004 Delhi 186 mere maintenance of a running account does not dis-entitle the plaintiff from filing the suit under Order 37 CPC based on a written contract and acknowledgement in writing.

24. But in the present case, as all the plaintiff's invoices refer to the defendant's purchase order dated 19th January, 2005 and it is only the price of each bottling line that was agreed between the parties, this Court is of the opinion that at the stage of trial, the defendant may be able to establish a defence to the plaintiff's claim. Further as the invoices produced by the plaintiff do not bear the signatures of the defendant, it cannot be said at the present stage that the defendant had agreed to pay interest on outstanding payment at the rate of 24 per cent per annum. Accordingly, the defendant is directed to deposit the alleged principal sum of Rs.19,74,886/- with simple interest at the rate of 4 per cent per annum from 05th May, 2006, till date that means totalling to Rs. 25,15,463.19/-.

25. Consequently, conditional leave to defend upon deposit of Rs. 25,15,463.19/- with the Registry of this Court within eight weeks, is granted in accordance with para 8(c) of M/s. Mechelec Engineers & Manufactures (supra). Upon deposit of aforesaid sum, Registry is directed to keep the same in an interest bearing fixed deposit receipt initially for a period of one year. However, the said FDR shall be extended from time to time till the suit is finally disposed of.

26. With the aforesaid observations, applications being I.As. 10172/2009, 2567/2011, 4186/2012 are disposed of.

CS(OS) 762/2009 Defendant is permitted to file a written statement along with original documents in support of its claim within four weeks. Replication, if any, be filed before the next date of hearing.

List before Joint Registrar on 19th July, 2013 for completion of pleadings and admission and denial of documents.

MANMOHAN, J MARCH 07, 2013 rn/ng