Escorts Ltd. vs SHIVAJI TUKARAM PATIL

THE issue in these cases is that the first respondents who were the complainants before the District Forum had paid full amount or part amount towards purchasing of Escorts Tractors were neither given the tractors nor their amount was refunded. Facts in brief :

THE complainants in all the cases are farmers and they have paid money to M/s. Sai Tractors for buying tractors of various specifications from the manufacturer i.e. M/s Escorts Ltd. but the tractors were not delivered to them. THE following are the details of payments made : (a) RP No. 1547/2002 - Shri Shivaji Tukaram Patil - DD of Rs. 2,35,000 was given to Shri Sai Tractors. (b) RP No. 1588/2002 - Shri Pandurang Ramchandra Agale - Issued DD for Rs. 2,90,700 on 24.12.1996 payable to M/s. Escorts at Pune. Refund cheque of Rs. 2,96,300 given by Shri Sai Tractors was dishonoured. (c) RP No. 1806/2002 - Shri Chandrakant Baburao Jadhav - Paid Rs. 33,700 on 20.12.1996 and also gave DD for Rs. 2,00,700 on 23.12.1996 payable to Escorts, totalling to Rs. 2,33,700. (d) RP No. 2358/2002 - Shri Annaso Tatboa Malgave - Draft of Rs. 2,86,232 payable to Escorts Ltd. at Pune given on 7.10.1996. On 3.10.1996 Shri Sai Tractors issued a refund cheque to the complainant for Rs. 2,95,034 which was dishonoured. (e) RP No. 2360/2002 - Shri Pandurang Nagoji Patil had issued a DD for Rs. 2,22,160 on 13.11.1995, cash of Rs. 30,000 on 3.10.1995 and cash of Rs. 5,000 on 15.3.1996. THE total payment made is Rs. 2,57,160. (f) RP No. 2362/2002 - Sou Suman Shivajirao Kadam - Made payment of only Rs. 50,000 on 21.10.1996. (g) RP No. 2361/2002 - Nemanna Balappa Vaskoti and others - Made payment of Rs. 4,11,284 on 4.10.1996 and Rs. 30.000. THE total payment made is Rs. 4,41,284. (h) RP No. 2359/ 2002 - Pandurang Namdeo Dalvi and others - Made payment of Rs. 3,14,573. (i) RP No. 1699/ 2002 - Hausabai Narayan Ghatage and others - Made - payment of Rs. 1,20,000.

The complainants approached the dealer Shri Sai Tractors several times. Some of them had even taken up the matter with the manufacturer for delivery of tractors or for refund but there was no positive response. Cheques given by Shri Sai Tractors towards repayment of money were also dishonoured by the bank.

In their version before the District Forum Shri Sai Tractors admitted acceptance of the money but they contended that whatever money was taken for booking was sent to M/s. Escorts Ltd., from time-to-time, hence they were not responsible for the non-delivery of the tractors. M/s. Escorts Ltd., in their version have produced the Dealer''s Sale Agreement signed by the Escorts Ltd., and Shri Sai Tractors which gives them principal to principal status and that M/s. Shri Sai Tractors is not their agent but an approved dealer, he was buying the tractors from them and selling the same to the buyers, accordingly they were not liable.

AFTER hearing the parties in great detail and analysing the agreement the District Forum held the opponents M/s. Escorts Ltd., and Shri Sanjay Balasaher Patil, Proprietor of Sai Tractors jointly and severally liable to compensate each complainant and they were directed to refund the amount paid by the complainants/farmers with 20% interest from the date of payment till the date of refund along with compensation of Rs.5000 and cost of Rs. 5,000 in each case. Aggrieved by the order of the District Forum M/s. Escorts Ltd. and M/s. Shri Sai Tractors have filed a batch of appeals which were heard together and were dismissed by the State Commission with costs of Rs. 1,500 in each case to be paid to each one of the complainants. Dissatisfied with the order of the State Commission M/s. Escorts Ltd. has filed a batch of revision petitions before us.

THE lower Fora have held that both the manufacturer and the dealer are jointly and severally liable to refund the money with interest to the complainant as the tractors were not supplied to these poor farmers, some of them have taken loans to finance these tractors and their properties were attached. , It is not disputed that in three cases i.e. (i) RP No. 1588 of 2002, (ii) RP No. 1806 of 2002 and (iii) RP No. 2358 of 2002 the Demand Drafts were directly issued in favour of M/s. Escorts Ltd., and the Revision Petitioner cannot escape from the liability of paying back these amounts to the concerned complainants along with interest as ordered by the lower Fora. Then the dispute boils down to the issue pertaining to six other farmers wherein the dealer has accepted the money in his own name. M/s. Shri Sai Tractors has not disputed that they had collected the money on behalf of M/s. Escorts and sent the same to M/s. Escorts Ltd. and that they were having a running account with M/s. Escorts Ltd., is also not in dispute. Whether M/s. Shri Sai Tractors is an agent of M/s. Escorts Ltd., is to be decided by us.

CLAUSE 4 of the Dealer Sale Agreement is quoted below : ''''Agreement to purchase and sale - The company agrees to sell and the dealer agrees to purchase company products from the company upon the terms and conditions hereinafter specifically set forth. The company products constituting this franchise agreement will consist of products itemised on the attached annexure under item ''B''."

BY reading the above clause one feels that M/s. Escorts Ltd. sells the tractors to the dealer and the dealer buys the same for resale. Clause 19(a) is quoted below : This agreement does not in any way create the relationship of principal and agent between the company and the dealer and under no circumstances shall the dealer be considered the agent of the company. The dealer shall not act or attempt to act, or represent himself directly or by implication, as an agent of the company or in any manner assume or create, or attempt to assume or create, any obligation on behalf of or in the name of the company. All dealings between the company and the dealer shall be as principal to principal.

Similarly reading the above clause this gives us a feeling that all the dealings between the company and the dealer are as principal to principal. But this misconception vanishes into thin air when we go into other clauses of the agreement, viz. Clause 3, Clause 10(b), (c), (d), (e), (f) and (h), (i) and Sections 190, 211, 212, 213 and 226 of the Indian Contract Act which leads us to the irresistible conclusion that Clause 19(a) is only facade and that M/s. Escorts Ltd. was the principal and Shri Sai Tractors was the agent of the company.

LEARNED Counsel for the respondents Shri Atul Sharma submitted that the respondents who are the farmers were lured by the big advertisement issued by the Escorts Tractor Company wherein the authorised dealers'' name, address were given in small letters. They were all impressed by the reputation of the Escorts Tractor and that its capacity to help farming operations. Though in one of the clauses it is mentioned that dealership agreement is between principal to principal, it is very clear from the perusal of the various clauses of the agreement that the dealer was the authorised distributor and he acted as an agent of M/s. Escorts Tractors. He quoted several clauses of the Dealer Sales Agreement. Clause 3. "Appointment - The company hereby appoints the dealer as a non-exclusive authorised dealer in company products in and for the area defined on the attached Annexure Item ''A'' (hereinafter called ''dealer''s area'') and the dealer hereby accepts such appointment and agrees to fulfil the responsibilities of such a dealer as herein provided in the dealer''s area."

Clause 10(b). "Standard Provision - The dealer agrees, not without the consent in writing of the company, to engage in or promote the sale of any products manufactured or marketed by any other person, firm or company which are identical to or in any manner either directly or indirectly, compete with the company products."

Clause 10(c). "The dealer shall render prompt, workmanlike, courteous and willing service on all company products in the dealer''s area, including all services specified by the company in warranty and policy instructions issued from time-to-time by the company." Clause 10(d)(ii). "Tools, special service tools, machinery and equipment therein of such variety, quality and efficiency, as will meet standards for premises and equipment established by the company from time-to-time and will enable the dealer to fulfil his sales and service responsibilities under the agreement. The dealer shall remain open for business during normal business hours according to general practice in the dealer''s area. Once the dealer''s premises have been approved by the company, the dealer shall not enlarge, reduce or move from them, nor shall the dealer or any person named in paragraph 7 establish any new or additional premises for the sale or service of company products, without the prior written consent of the company."

Clause 10(e)(i). "The dealer may, and at the request of the Company, shall at appropriate locations within the dealer''s area, appoint sub-dealer or establish depots or branches for the sale and service of the company''s products provided that each appointment or establishment is first approved by the company in writing which approval shall not be unreasonably withheld."

Clause 10 (i) The dealer shall furnish each month to the company, on the dates and forms specified by the company, orders for company products for such succeeding months as the company shall designate, and estimates of requirements for such subsequent months as the company may request."

THE learned Counsel for the respondents quoted extensively from the Indian Contract Act, 1872 which deals with agents and sub-agents. He quoted Section 190 relating to sub-agents : "When agent cannot delegate - An agent cannot lawfully employ another to perform acts which he has expressly or impliedly undertaken to perform personally unless by the ordinary custom of trade a sub-agent may, or, from the nature of the agency, a sub-agent must, be employed."

So in this case, the company has directed the sub-agent be appointed which means authorised dealer becomes an agent. Further he relied upon Section 211 - Agent''s duty to principal : "Agent''s duty in conducting principal''s business - An agent is bound to conduct the business of his principal according to the directions given by the principal, or in the absence of any such directions according to the custom which prevails in doing business of the same kind at the place where the agent conducts such business. When the agent acts otherwise, if any loss be sustained, he must make it good to his principal, and if any profit accrues, he must account for it." Section 212. "Skill and diligence required from agent - An agent is bound to conduct the business of the agency with as much skill as is generally possessed by persons engaged in similar business unless the principal has notice of this want of skill. The agent is always bound to act with reasonable diligence, and to use such skill as he possesses; and to make compensation to his principal in respect of the direct consequences of his own neglect, want of skill, or misconduct, but not in respect of loss or damage which are indirectly or remotely caused by such neglect, want of skill, or misconduct." Section 213. "Agent''s accounts - An agent is bound to render proper accounts to his principal on demand." Section 226. "Enforcement and consequences of agent''s contracts - Contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner, and will have the same legal consequences as if the contracts had been entered into the acts done by the principal in person."

ACCORDINGLY he argued that the above clauses of the agreement and the sections of the Contract Act quoted by him clearly indicates that OP No. 2 Shri Sai Tractors was the agent of Escorts Company Ltd., and the relationship was not between principal and principal.

OUR attention was invited to following clauses of standard provisions of dealer''s sale agreement by learned Counsel for the respondents Shri S.K. Sharma : Clause 10(h). "The dealer shall employ and train a sufficient number of competent personnel of good character, including without limitation, department managers, salesmen and mechanics to fulfil all of the dealer''s responsibilities under this agreement; and shall cause representatives, employees of the dealer to attend such schools for dealership personnel as the company may conduct from time-to-time. All persons named in paragraph 7 should normally reside in the dealer''s area."

Clause 10(i). "The dealer shall instal and use for all dealership operations and accounting system in accordance with standard procedures for dealer accounting established by the company from time-to-time. He also invited our attention to Clause 10(f)(i) - the dealer shall deposit with the company in cash a sum of money as detailed in the attached Annexure Item ''D'' as Fixed Advance against orders. The dealer, thereupon shall be entitled to interest as mentioned on the attached Annexure Item ''D'' for the period of validity of this agreement and shall immediately comply for the due fulfilment of this agreement."

These clauses indicate that Shri Sai Tractors was the agent and he has got no freedom in appointing personnel of his own choice and he has to train sufficient number of them. Further the dealer shall follow the accounting system as dictated by principal from time-to-time.

In view of the above analysis the following citations quoted by the learned Counsel for the revision petitioner do not offer any assistance to support his case : (i) In Hero Honda Motors Ltd. v. K.B. Murleedharan and Anr., II (1994) CPJ 27 (NC)=(1996) 4 CTJ 199 (CP) (NCDRC), an extract of which is given below - "According to the agreement arrived at between the manufacturer and the dealer, copy of which has been filed on record, it is clear that the transactions between the manufacturer and the dealer were as principal to principal. Thus the dealer did not accept the amount from the customers as agent of the manufacturer. He used to accept the amount on his own behalf and then used to place the order with the manufacturer for the supply of the motor cycle against payment. In the present case it is not case that the amount deposited by the complainant with the dealer had been passed on by the latter to the manufacturer. As noticed above, the dealer was not acting as agent of the manufacturer."

(ii) In Vijay Traders v. Bajaj Auto Ltd., I (1996) CLT 16 (SC)=(1995) 6 Supreme Court Cases 566, it is stated that : "It is clear from the evidence that the contract provided that the distributor will pay the price of the vehicles ordered and delivery was to be given to the plaintiffs on payment of the price. The defendant-company took no risk with regard to the damage caused to the vehicles during transit and the same had to be suffered by the plaintiff''s firm. Thus the contract between the plaintiffs and the defendants would be one of purchase and sale and not of any agency. In these facts and circumstances the view taken by the two Courts below cannot be said to be erroneous so as to call for any interference."

(iii) In Philips India Ltd. v. Collector of Central Excise, Pune, (1997) 6 Supreme Court Cases 31, it is stated that : "In Union of India v. Mahindra and Maindra Ltd., the High Court at Bombay emphasised the relationship between the parties, being of buyer and seller on principal to principal basis. The Court observed that the manufacturer and its distributor had a mutual interest in maximising the sale of the products. The provisions in the contract between them relating to advertising and the like were in furtherance of this desire on the part of both the manufacturer and its distributor and in no way affected the real nature of the transaction which appeared to be of sale on principal-to-principal basis. It is not in dispute that the agreement between the appellant and their dealers is genuine agreement entered into at an arm''s length, that they are as between principal and principal and that the payments contemplated therein are made."

(iv) In Moped India Ltd. v. The Assistant Collector of Central Excise Nellore and Others, (1986) 1 SCC 125, it is held as under : "We shall presently analyse the terms of the agreement between the appellants and the dealers but one thing is clear from the terms of the agreement that the appellants sold the Moped to the dealers on principal to principal basis and if that be so, it is not possible to say that the appellants had any interest in the business of the dealers."

(v) In II (2003) CPJ 176 (NC), RP Nos. 1916, 1917 and 1970 of 2000 the National Commission held that : "A dealer cannot necessarily be an agent. If we refer to Law Lexicon Dealer is seller of specific articles. For example in the present case of Sundaram Motors is a dealer in cars. As to what are its terms with the manufacturer-Pal Peugeot Ltd., for being its dealer of Peugeot-309 cars we have to see the terms and conditions on which the customer has booked the car. We cannot go beyond that and assume something which is not there. In the present case Sundaram Motors could well be classified as purchasers for resale. It is nobody''s case that Sundaram Motors is the agent of Pal Peugeot Ltd. Chitty on Contracts (page 31-002, 27th Edition) says ".....but the doctrines of agency are not always so well worked out beyond the main affairs of their operation and the context in which the reasoning is used and the extent of its use may, therefore, require careful consideration in each case."

IN this connection, it is worthwhile to look into the relevant portion of the order of the District Forum which reads as follows : "The term ''agent'' is defined in Section 182 of INdian Contract Act is a person employed to do any act for another or to represent another in dealings with third person. He was accepting orders on behalf of Escorts Ltd., and sending the money so collected to the Escorts Ltd., providing after sale services on behalf of Escorts Ltd., Hence, clearly the acts of Shri Sai Tractors were of the nature of an agent."

This has been affirmed by the State Commission in the following words : "Plain reading would show that there is an agreement between the manufacturer and the dealer, whereby manufacturers have engaged their Dealer to effect sales of their products namely tractors."

IT is, therefore, amply proved that the dealer was a lawfully appointed dealer and an agent of the manufacturer. Accordingly we do not see any merit in the revision petition except that the rate of interest awarded by the District Forum, confirmed by the State Commission @ 20% p.a. is clearly on a higher side. Therefore, we reduce the same to 12% p.a. The petitioner shall also pay Rs. 5,000 as cost to each one of the respondents/farmers. Accordingly, the revision petition is disposed of as per the aforesaid terms. Revision Petition disposed of.