Charlie Creations Pvt. Ltd. vs Chahat Creations Pvt. Ltd.

Manmohan Singh, J.—This appeal has been filed by the appellant (defendant in the suit) against the judgment and decree dated 22nd May, 2007 passed by the learned ADJ, Delhi in Civil Suit No. 294/2005 whereby the suit of the plaintiff herein the respondent was decreed in his favour in the sum of Rs. 2,53,405.78 with interest thereon @ 12% from 1st June, 2004 till payment. Brief facts leading to filing of the present appeal are that there was a contract between the plaintiff and defendant for the supply of fabrics namely 100% cotton dyed linen and other fabrics of various classes and qualities.

The goods were supplied by the plaintiff to the defendant vide bills No.0001 dated 1.4.2004 for a sum of Rs. 11,67,775.13; 0002 dated 12.4.2004 for Rs. 8013.00; 0003 dated 12.4.2004 for Rs. 4,51,293.15; 0004 dated 12.4.2004 for Rs. 7681/-; 0006 dated 22.4.2004 for Rs. 1,92,030.30; and 0007 dated 28.4.2004 for Rs. 94380/-. The total amount of six bills as per the plaintiff comes to Rs. 19,21,180.78 out of which it had allegedly received a sum of Rs. 6,67,775/- through cheque from the defendant leaving a sum of Rs. 12,53,406 which is still due and payable by the defendant with interest @24% per annum from the date of delivery of goods. The plaintiff filed a suit against the defendant for the recovery of Rs. 16,85,450/- as balance amount on the basis of six bills and interest.

From the pleadings of the parties, the following issues were framed:-

(1) Whether the suit has been instituted by a duly authorized person as alleged by the defendant? OPP

(2) Whether the plaintiff is entitled to recover the amount as claimed by it from the defendant? OPP

(3) Relief.

On the first issue, the defendant put his case before the trial court that merely because one is a subscriber to the memorandum and articles of association does not ipso facto make such person an authorised person under any provision of law. No minute book has been produced by the plaintiff. No other document on record has been filed to prove authority of the plaintiff to file the suit, therefore, the judgment of the learned trial court is liable to be set aside as the suit is not instituted by the proper person.

On this issue, it was observed by the learned trial court that under Order 29 Rule 1 CPC, a suit for and on behalf of a corporation can be filed by Secretary, Director, and/or Principal Officer thereof. This issue was decided in favour of the plaintiff and against the defendant and we agree with the finding given by the learned Single Judge on Issue No. 1.

On the second issue, the defendant contended that the bills on the basis of which the suit has been filed by the plaintiff had already been paid after deductions made at the bill stage itself against the infirmities in the goods supplied and the plaintiff had already received the said amount without any demur from the defendant in full. No amount was due to the plaintiff. The plaintiff never disputed the averments of the defendant regarding defects in the goods supplied, neither filed any replication on this point despite several opportunities being given to him and thus deemed to have admitted the same. No issue was framed by the trial court as there was no dispute regarding the same. At no point of time, the plaintiff established supply of goods without infirmities. Since there was no denial, there was no issue and thus the defendant was at no point called upon to prove infirmities.

The trial court on Issue No. 2 observed that the liability of six bills came to Rs. 19,21,180.78. The payment of Rs. 16,67,775/- was made by the defendant therefore, only a sum of Rs. 2,53,405.78 was due and payable by the defendant. It was observed by the learned trial court that under the Sales of Goods Act, the presumption is that if there did not exist any defect in the goods, no counter claim has been set up by the defendant claiming damages to supply defective goods, it cannot be presumed that deductions are made on the ground of infirmities in the goods. Till filing of the suit, no notice was given by the defendant to the plaintiff specifying the defects and the quantity of the defective goods and the like. The trial court passed the decree in favour of the plaintiff and against the defendant in the sum of Rs. 2,53,405.78 with proportionate costs and interest @ 12% per annum from 1st June, 2004 till the amount is paid by the defendant.

Against the judgment and decree passed by the trial court, the present regular first appeal has been filed by the appellant/defendant.

It is argued by the learned counsel for the defendant that the bills mentioned by the plaintiff stands already paid inasmuch as the defendant had paid Rs. 10 lacs in advance vide cheque No. 122876 dated 6.11.2003 and cheque No. 122877 dated 8.11.2003 drawn on Punjab and Sind Bank for Rs. 5 lacs each for the said supplies. The bill number 001 for Rs. 11,67,774/- was passed for the full amount and was cleared by adjustment of half amount of above advance i.e. Rs. 5 lacs and the balance of Rs. 6,67,774/- was paid by the defendant vide cheque No. 126598 dated 6th May, 2004 for Rs. 3 lacs and cheque No. 126599 dated 8.5.2004 for Rs. 3,67,774/- which have been duly received and cleared by plaintiff. The balance five bills numbers 002, 003, 004, 006 and 007 for the amount of Rs. 8013/-, Rs. 4,51,293.15, Rs. 7681/-, Rs. 1,92,030.30 and Rs. 94380/- respectively were passed for a total amount of Rs. 5 lacs due to infirmities in the goods and paid vide adjustment against the balance advance of Rs. 5 lacs given to the plaintiff.

It is submitted that no notice is needed to be given to the plaintiff specifying any defects because the deductions had been made at the bill stage itself and amounts were paid by adjustment of the balance advance amount of Rs. 5 lacs which is not disputed by the plaintiff. The plaintiff himself has got the adjustments confirmed in cross.

It is further submitted that the defects are of two kinds one apparent like in the instant case where deductions are made at the bill stage itself. While other defects are those which erupt and/or are noticed later like those concerning bleeding of lining which can be known only after the garment is washed which stage comes after the fabrication and stitching and in such cases the bills get cleared for the full amount at the outset and claims are made later on as mentioned in the written statement.

It is stated that though no defects have been pointed out by defendant to the plaintiff but the defendant has made deductions and passed the bills for lesser amount which are duly accepted by the plaintiff and the said bills containing deductions has not been dislodged by the plaintiff in any manner.

Per contra, the learned counsel for the plaintiff has argued that the learned trial court wrongly allowed Rs. 10 lacs as payment received by the plaintiff on the pretence of showing two vouchers of Rs. 5 lac each as in the cross-examination the amount was agreed to be received from the defendant but it is overlooked that this amount does not pertain to this case. The plaintiff has never received the amount of the bills as alleged in regard to this case. The deductions of Rs. 10 lacs was wrongly allowed by the learned trial court which is actually been received by the plaintiff in some other transaction with the defendant. He claims that the decree passed by the learned trial court was bad in law.

It is further submitted that the amount of Rs. 10 lacs are the part of another suit bearing Suit No. CS-178/2005 which is pending adjudication before the court of ADJ. This amount was wrongly allowed because it relates to the abovesaid case wherein the defendant was specifically allowed the deductions of the same amount of Rs. 10 lacs. Therefore, the defendant has mislead the court, and got the amount adjusted i.e. amount of Rs. 10 lakh at two places.

Regarding the contention of the defendant that non-filing of replication with regard to infirmities in the stock supplied by him never gives any right to the defendant to mislead the court, it is submitted that the Sale of Goods Act provides that the delivery once accepted and if no claim was made thereafter, the next consignment consequently ordered and accepted, infirmity cannot be alleged at the stage when the payments are demanded, hence learned trial court has rightly given its finding.

Section 4 of the Sales of Goods Act, 1930 provides that the contract of sale may be made in writing or by word of mouth, or partly in writing or partly by word of mouth or may be implied from the conduct of the parties. It is true that in business transactions the work contracts are frequently not recorded in writing setting out all the covenants and conditions thereof, and the terms and incidents of the contract have to be gathered from the evidence and attendant circumstances. The question in each case is one about the true agreement between the parties and the terms of the agreement must be deduced from a review of all the attendant circumstances. Where goods delivered under the contract are not the goods contracted for, the purchaser has got a right to reject them, or to accept them and claim damage for breach of warranty. This proposition where the goods were accepted by the buyer or not is to be determined in view of Section 42 of the Sales of Goods Act which provides for acceptance.

Section 41 and 42 of the Sales of Goods Act is relevant for this purpose which reads as under:-

Section 41 Buyer''s right of examining the goods -

(1) Where goods are delivered to the buyer which he has not previously examined, he is not deemed to have accepted them unless and until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract.

(2) Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound, on request, to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract.

Sec.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.

The effect of sub Sec. 1 of Sec. 41 is that in cases where there has been no previous examination of the goods, the mere fact that the buyer has taken delivery of them does not amount to an acceptance until he has had a sufficient period for examining them to see whether they are or are not in accordance with the contract for no acceptance can properly be said to take place before the purchaser has had an opportunity of rejection and a right of inspection to ascertain whether such condition has been complied with which is in the contemplation of both parties to such a contract and no complete and final acceptances so as to irrevocably vest the property in the buyer can take place before he has exercised or waived that right. Where however the ground of rejection is a qualitative defect, examination of the goods will be crucial.

Counsel for the petitioner has drawn my attention to Sections 41 and 42 of the Sales of Goods Act and Shah Mohanlal Manilal vs. Firm running in the name of style of Dhirubhai Bavajibhai (supra) while advancing argument that the respondent did not return the goods promptly and allowed one of the six cheques issued by him as sale consideration encashed and he also did not serve notice on the petitioner immediately regarding the defect in the goods supplied or its non-acceptance by it, therefore, the petitioner shall be deemed to have accepted the goods and now cannot turn around and plead that the goods was not accepted by him. Section 41 gives right to a buyer of goods to examine the goods in order to ascertain whether it is in conformity with the contract. Section 42 is a deeming provision which says that the goods shall be deemed to have been accepted by the buyer if the buyer does any which is inconsistent with the ownership of the seller. The judgment in Shah Mohanlal Manilal (supra) has explained the scope and ambit of these provisions. The question whether the petitioner did some act which is inconsistent with the ownership of the petitioner is a matter of evidence. The effect of Section 41 and 42 of Sale of Goods Act on the transaction between the parties may be examined only after the full facts are proved on the record in view of the pleas of respondent and documents filed in support. Therefore, the judgment cited does not help the petitioner at this stage.

In the case of Hardy & Co. vs. Hillerns & Fowler, (1923) 2 KB 490 (CA) where there was a contract of sale of wheat C.I.F., the ship arrived on 20th March and the buyers took up the documents on that day. On the next day, the discharge of the cargo began, the buyers took delivery and on the same day resold and dispatched part of the wheat to sub-buyers. On 23rd March, having discovered that the wheat was not in accordance with the contract, the buyers gave notice to the sellers that they rejected it and this notice was given within a reasonable time. The buyers, however, were held to have accepted the wheat and therefore the notice of rejection was ineffectual.

If the goods are not in accordance with the contract, the property does not pass to the purchaser upon his taking up the documents, if he has not had at that time an opportunity of ascertaining whether the goods are in conformity with the contract. Though it may be that the property passes subject to its being revested when the buyer exercises his right of rejection.

We are of the view that the plea of the defendant that no amount was due by him to the plaintiff as all the payments are made by adjustments and deductions made in the bills itself against defective supply is untenable and has no force as nothing is produced on record by the defendant to prove the fact that there was rejection of material on infirmity existing in the goods. No intimation or any kind of notice is given by the defendant to the plaintiff to give any information regarding the defective supply made by the plaintiff.

The payment for Rs. 10 lacs by two cheques dated 6.11.2003 and 8.11.2003 for Rs. 5 lacs each has been admitted by the plaintiff by Ex. PW1/X1 and Ex.PW1/X2. The contention of the plaintiff that the said amount of Rs. 10 lacs was admitted in some other transaction with the defendant cannot give any ground to the plaintiff to take the advantage and reject the impugned judgment. No particulars regarding the other suit CS(OS) No. 178/2005 has been given by the plaintiff. Even if the defendant has taken any benefit of Rs. 10 lacs in that case, it is open to the plaintiff to claim res judicata in that case and deny the above said benefit to the defendant again.

The defendant has also raised the ground that since the plaintiff has not denied the plea of defective material in the replication, it is alleged to be deemed admission on behalf of the plaintiff. We hold that the plaintiff need not prove or deny every fact/statement made by the defendant in his written statement. From evidence on record and looking at the facts and circumstances of the case, it is not necessary for the plaintiff to prove the alleged infirmity in the goods. In the case of Ajad Singh @ Ajad Vs. Chatra and Others, , it was observed in para 6 that the plaintiff can be safely assumed to have denied all the averments made in the written statement where the plaintiff has not raised necessary pleadings either in the plaint or in the replication disputing the factum and legality of the compromise. The plea of the defendant on this ground also fails and has no merit. In view of the above said discussion, we find no merit in the appeal. The appeal fails, and is therefore dismissed.