Arinits Sales Pvt. Ltd. vs Rocklite Resins and Chemicals Pvt. Ltd. and Others

Badar Durrez Ahmed, J.—By this order, I propose to dispose of the above mentioned two applications filed on behalf of the defendants. IA No. 15/2007..is an application seeking leave to defend under Order 37 Rule 3 (5) read with Section 151 of the Code of Civil Procedure, 1908 (hereinafter referred to as ''the CPC). IA No. 16/2007 has been filed by the defendants under Order 7 Rule 10 (1) read with Sections 20 and 151 CPC seeking the return of the plaint by this court on the ground that this court does not have the territorial jurisdiction to entertain the present suit. Since this application pertains to the territorial jurisdiction of this court, I shall deal with it first. IA No. 16/2007. The plaintiff has instituted this suit under Order 37 CPC for recovery of Rs. 20,37,684/- alongwith interest @ 18% per annum till 30.04.2006 (i.e., Rs. 12,94,651/-) amounting to Rs. 33,32,335/-. The plaintiff has also claimed future interest @ 18% per annum till realisation. The plaintiff has alleged that it was earlier known as Arinits Sales Corporation and that it was subsequently incorporated as a private limited company on 23.10.2003 under its present name Arinits Sales (Pvt.) Ltd. The plaintiff, inter alia, trades in and supplies various raw materials and chemicals, including phenol. The defendant No. 1 had been dealing with the plaintiff for a number of years by purchasing phenol from it. The defendants 2, 3, 4 and 5 are the directors in the defendant No. 1 company. The present suit is concerned with the alleged supply of phenol by the plaintiff to the defendants having a value of Rs. 20,37.684/-. The said supplies were allegedly made between 01.04.2002 and 31.03.2003. The same were allegedly made against ST-15 Forms for the purposes of sales tax.

According to the plaintiff, the supplies were made on the basis of six invoices as set out in paragraph 5 of the plaint. The plaintiff has alleged that the order for supply of goods was received in the office of the plaintiff at New Delhi and the goods were supplied by the plaintiff from New Delhi. The cheques were given by the defendants to the plaintiff at New Delhi. It was also alleged that the money due to the plaintiff in respect of the said supplies was recoverable by the plaintiff from the defendants at New Delhi. The cheques were presented for encashment at New Delhi. It may be pointed out that there were 11 cheques, each of Rs. 1 lakh which had been issued by the defendants in favour of the plaintiff on various dates beginning 27.08.2003 and ending on 10.09.2003. All the said cheques were towards part payment of the amount outstanding against the total amount of Rs. 20,37,684/- represented by the said six invoices. All the cheques were drawn on State Bank of Bikaner and Jaipur, Delhi-Rohtak Road, Bahadurgarh, District Rohtak (Haryana) - 124507. It is alleged that the cheques were presented by the plaintiff to its bankers - Union Bank of India, Connaught Place, New Delhi - for collection. The cheques were dishonoured inasmuch as the defendants had issued instructions of stopping payment. The dates on which the cheques were dishonoured are set out in the chart in paragraph 8 of the plaint. Thereafter, the plaintiff issued notices. Despite such notices, it is alleged, the defendants have not paid the amount represented by the cheques nor have they made any payment towards the principal amount of Rs 20,37,684/-. Consequently, the present suit has been filed by the plaintiff.

The defendants have filed this application under Order 7 Rule 10(1) CPC requesting this court to return the plaint to the plaintiff for filing in an appropriate court on the ground that this court does not have the territorial jurisdiction to entertain the present suit. It is submitted that the plaintiff made the supply of phenol from Faridabad (Haryana) to the defendant at Bahadurgarh, District Jhajjar (Haryana). It is further alleged that the cheques had been handed over to the plaintiff by the defendants at Bahadurgarh. Admittedly, the cheques were drawn on State Bank of Bikaner and Jaipur, Delhi-Rohtak Road, Bahadurgarh, District-Rohtak (Haryana). Therefore, it was contended by the learned counsel appearing on behalf of the defendants that no part of the cause of action had arisen in Delhi. It was submitted that the mere presentment of the cheques at New Delhi by the plaintiff would not constitute part of the cause of action inasmuch as the proper presentment is at the place of the drawee bank. In the present case, the drawee bank is the State Bank of Bikaner and Jaipur it is situated at Bahadurgarh. This submission was made on the basis of a decision of this court in the case of Mountain Mist Agro India (Pvt.) Ltd. and Another Vs. Mr. S. Subramaniyam, where this court held that in the case of a cheque, the money is payable at the drawee bank. Therefore, the place of dishonour of the cheques would also be the place of the drawee bank, which in this case was situated at Bahadurgarh.

The learned counsel for the plaintiff submitted that the invoices which had been raised on the defendants themselves constituted contracts and the terms and conditions of sales were imprinted on the reverse of those invoices. Condition Nos. 2 and 4 stipulated as under:-

All disputes are subject to Delhi Jurisdiction only.

xxxxx xxxxx xxxxx xxxxx xxxxx

All cheque/drafts are to be drawn in the name of the company-ARINITS SALES CORPORATION marked "A/C PAYEE" payable at Delhi only unless otherwise specified to be made through our branch office."

The said invoices also bear the signature and stamp of the defendants which is necessary for the purposes of sales tax which indicates that the defendant No. 1 had purchased the goods from the plaintiff and that it was the last purchaser of the goods until the same was sold by it in the State. It was, therefore, contended on behalf of the plaintiff that the invoices which in themselves were contracts between the parties clearly give exclusive jurisdiction to the courts at Delhi and the moneys were also payable at Delhi. The acceptance of the invoices, evidenced by the signature and stamp on the part of the defendant clearly indicates that the conditions of the contract of sale were acceptable to both the parties. Consequently, the defendants cannot now object to the territorial jurisdiction of this court. The learned counsel for the plaintiff also submitted that this court would also have jurisdiction in view of the provisions of Section 20 (b) CPC inasmuch as the defendant also carries on business at Delhi and apart from this, the learned counsel reiterated that part of the cause of action arose in Delhi inasmuch as the defendants had placed the orders on the plaintiff at Delhi.

Reliance was also placed on a decision of a learned single Judge of this court in the case of M/s KLG Systel Ltd. Vs. M/s Fujitsu ICIM Ltd., In that case, the plaintiff had, inter alia, asserted in the plaint that the order was accepted in Delhi. The learned single Judge was of the view that it was immaterial whether the dealings between the parties were through the defendant''s Madras office or that delivery of the software was to be effected at Cochin. He concluded that Delhi would have jurisdiction. It was observed that cause of action may arise at different times and at different places and any of these would be a legitimate venue for suing. The said decision also noted that "it is no longer res integra that Invoices/Bills are written contracts within the contemplation of this order" (Order 37 CPC). Therefore, it was contended by the learned counsel for the plaintiff that the orders were placed by the defendants on the plaintiff in Delhi and the same were accepted by the plaintiff in Delhi. The invoices which constituted contracts, though issued from Faridabad, clearly restricted jurisdiction to the courts at Delhi. Therefore, this court would have jurisdiction to entertain the present suit.

It is a settled position of law that when more than one court has jurisdiction in a particular matter, the parties may by agreement confer exclusive jurisdiction on any one of them to the exclusion of all other courts, but, the parties by agreement cannot confer jurisdiction upon a court which inherently lacks it. The conditions of the contract between the parties in the present case as evidenced by the invoices clearly restrict jurisdiction to the courts at Delhi. This condition would be legally enforceable if and only if the courts at Delhi otherwise have jurisdiction. If the courts at Delhi do not have jurisdiction, then the condition stipulated in the invoices would be without any legal effect. Therefore, the only question to be examined in the present case is whether the courts at Delhi have jurisdiction in respect of the subject matter of the present suit.

As was observed by the Supreme Court in the case of Begum Sabiha Sultan Vs. Nawab Mohd. Mansur Ali Khan and Others, , at the stage of consideration of the return of the plaint under Order 7 Rule 10, CPC, what is to be looked into is the plaint and the averments made therein. Furthermore, it is also necessary to read the plantain a meaningful manner to find out the real intention behind the suit. Consequently, the submissions of the defendants in defence contended in the application cannot be looked into. What is to be seen are the averments made in the plaint and the documents accompanying it. For the purposes of considering whether a plaint is or is not to be returned under order 7 Rule 10, CPC, the averments made in the plaint would have to be regarded as being correct. The plaintiff has made several averments with regard to jurisdiction. They are mostly contained in paragraphs 4 and 17 of the plaint which have been referred to above. Insofar as the presentment of cheques for encashment at New Delhi are concerned, the same by itself would not confer jurisdiction in the courts at Delhi. This is so because of the ratio in Mountain Mist Agro India (Pvt.) Ltd (supra) that in case of dishonour of cheques, jurisdiction would relate to the situs of the drawee bank which, in this case, happens to be Bahadurgarh. However, the plaintiff has stated that the defendants placed orders for supply of chemicals upon the plaintiff at New Delhi. This statement, at this stage, would have to be deemed to be correct. Consequently, on the basis of the averments made in the plaint, this court would have territorial jurisdiction to entertain the present suit. It is another matter that upon evidence, if leave to defend is granted, the defendants are able to show that, in fact, the order for supply of goods was not received by the plaintiff at New Delhi, then the court may hold that it did not have jurisdiction to entertain the present suit. But, at this stage, in view of the specific averments made in the plaint with regard to jurisdictional facts, the plaint cannot be returned under order 7 Rule 10, CPC. This application filed on behalf of the defendant is, therefore, liable to be rejected. It is ordered accordingly.

IA No. 15/2007

By way of this application, the defendants have sought leave to defend. It has been stated that the defendant No. 1 had been placing orders on the plaintiff for the supply of solid phenol. The plaintiff had also been making supplies against such orders from time to time. It is alleged that all such supplies were made to the defendants against undated blank cheques issued by the defendants to the plaintiff well in advance. It is alleged that the plaintiff in respect of the subject matter of the invoices/bills referred to in the plaint, in stead of supplying solid phenol, supplied liquid phenol and the goods were not upto the specification and were, therefore, substandard. It is alleged that the finished products of the defendants were rejected by the purchasers of the defendants. The defendant No. 1 company is said to have immediately informed the plaintiff about the inferior quality of the material supplied by the plaintiff and cancelled further orders. It is alleged that the plaintiff assured the defendants that it shall take back the finished goods rejected by the parties of the defendants and also take back the unused material and would thereafter settle the accounts with the defendants. In this context, it is further alleged, the defendants directed the plaintiff company not to present the cheques for clearing till such time the dispute was settled. As a corollary to this, the defendants instructed their bankers to stop the payment of the aforesaid cheques. It is further alleged that the cheques were issued by the defendant No. 1 company which always had a cash credit limit on its account and, therefore, had sufficient funds on the given day to have honoured the said cheques. It is alleged that the said cheques were legally stopped from being honoured by the defendants only for the reason of the dispute between the parties.

The defendants have also alleged that the parties did try to resolve their disputes, but the plaintiff was not interested in taking back the substandard material from the defendants. It is alleged that the plaintiff, against all business ethics, filled in the cheques and presented the same for encashment. It is also alleged that a mere perusal of the cheques would show that all the cheques were presented approximately one year from the day of supply of the material and all the cheques were filled in the handwriting of the representative of the plaintiff and were all dated between 27.08.2003 to 10.09.2003. It is also denied that the order of supply of goods was placed on the plaintiff at New Delhi and that the goods were supplied by the plaintiff from New Delhi. It is stated that the goods were supplied by the plaintiff from Faridabad to the defendants at Bahadurgarh. This is also evident, according to the defendants, because the sales were made against St-15 Forms representing an intra-State sale in the State of Haryana. Had the sale been inter-State, then the sales would have been made against C-Forms.

The learned counsel for the plaintiff, however, submitted that the defence that is sought to be raised by the defendants is illusory. The goods were accepted by the defendants without any demur. He referred to Section 42 of the Sale of Goods Act, 1930 which deals with acceptance. The said provision stipulates that 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. It is clear that the goods had been supplied by the plaintiff to the defendant No. 1. The goods had been accepted and the defendants retained the goods without intimating to the plaintiff that the defendants had rejected them. It is only subsequent to the defendants'' purchasers allegedly raising some objections with regard to the quality of the goods, that a dispute was sought to be raised on behalf of the defendants. The cheques which had been handed over by the defendants to the plaintiff were towards part payment of the said supplies. The defendants sought to raise a dispute that the plaintiff had presented the cheques despite the defendants requesting the plaintiff not to do so till the purported dispute regarding the quality of the goods was sorted out.

The legal position with regard to grant of leave of defend has been settled and re-stated in several decisions of the Supreme Court Mechelec Engineers and Manufacturers Vs. Basic Equipment Corporation, ; M/s. Sunil Enterprises and Another Vs. SBI Commercial and International Bank Ltd., Defiance Knitting Industries Pvt. Ltd. Vs. Jay Arts, and Uma Shankar Kamal Narain and Another Vs. M.D. Overseas Ltd., as under:-

(a) If the defendant satisfies the Court that he has a good defence to the claim on merits, 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 possibly good defence, 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, if the affidavit discloses that at the trial he may be able to establish a defence to the plaintiffs claim, the Court may impose conditions at the time of granting leave to defend the conditions being as to time of trial or made of trial but not as to payment into Court or furnishing security.

(d) If the defendant has no defence, or if the defence is sham or illusory or practically moonshine, the defendant is not entitled to leave defend.

(e) If the defendant has no defence or the defence is illusory or sham or practically moonshine, the Court may show mercy to the defendant by enabling him to try to prove a defence but at the same time protect the plaintiff imposing the condition that the amount claimed should be paid into Court or otherwise secured.

Considering the facts and circumstances of the present case, I am of the view that it falls under category (e) above. The defendants have set up an illusory defence. The admitted position is that the defendants had been doing business with the plaintiff for several years. It was the practice of the defendants to make payments in advance by issuing cheques for supplies to be made by the plaintiff on orders being placed from time to time. It is an admitted fact that the purported value of the goods supplied by the plaintiff to the defendant was to the extent of Rs 20,37,684/- and not a single rupee had been paid by the defendants to the plaintiff. The 11 cheques referred to above merely represented a total sum of Rs 11 lakhs which was only towards part payment of the goods supplied by the plaintiff. The bogey of inferior goods that is sought to be raised by the defendants appears to be illusory because the total value of the cheques barely covered a little over 50% of the value of the goods supplied. Even if the payment against the cheques had not been stopped, a sufficient balance would have remained with the defendants so as to settle any dispute with regard to inferior quality of goods. Though the defence appears to me to be illusory, in view of the modality mentioned in category (e) above, I am enabling the defendants to try to prove a defence and consequently grant leave to defend on the condition that the amount of Rs. 20,37,684/- which is the principal value of the goods be deposited in court. The said deposit be made within four weeks, and shall be placed in a fixed deposit for an initial period of one year. In case the said deposit is not made within four weeks, then the leave to defend hereby granted would be deemed to be cancelled.

Both the applications (I.A 15/2007 & I.A 16/2007) stand disposed of.