G.P.I. Textiles Limited vs Sekhsaria Impex Ltd. and Others

Dharam Chand Chaudhary, J.

BACKGROUND IN BRIEF.

The plaintiff, a Company registered under the Companies Act, under the name and style M/s. Gontermann Peipers (India) Limited, renamed as M/s. G.P.I. Textiles Limited, has filed the present suit for recovery of Rs. 1,04,77,010/- alongwith interest at the rate of 21.5% per annum against the defendants jointly and severally.

The plaintiff is a Company registered under the Companies Act, 1956, having its registered office at P.O. Pailan Diamond Harbour Road 24 Parganas, West Bengal. On the merger of the plaintiff Company, its registered office is now on Nalagarh-Bharatgarh Road at Nalagarh in District Solan, HP.

Defendant No. 1 is also a Company registered under the Companies Act, having its registered office at Ahmadabad in Gujarat with head office at Mumbai in Maharashtra. Defendant No. 2 Mr. Arun Sekhsaria is the Director of the Company.

CLAIMS OF THE PLAINTIFF COMPANY.

The plaintiff Company is dealing with the business of textile and having its textile division at Nalagarh in District Solan, H.P. The plaintiff Company used to purchase cotton from Maharashtra State Cooperative Cotton Growers Marketing Federation Limited, 198 J.T. Road, Church Gate, Mumbai (in short Federation) through defendants for its textile division at Nalagarh. On 19th December, 1998 the defendants communicated the terms and conditions prevalent on which the cotton could have been purchased from the Federation. The defendants agreed to act as an agent on behalf of the plaintiff Company on commission basis. On 6.1.1999, the defendants informed the plaintiff Company that the price of the cotton to be purchased would be as per the price list of the Federation displayed on 29th December, 1998 and that the broker would be Arun Cotton Company. Also that the representatives of the plaintiff Company would approve the cotton to be purchased through the defendants Company. Consequently, on 8th January, 1999, the plaintiff Company placed an order for supply of 15000 bales of cotton. A sum of Rs. 75 lacs was remitted to the accounts of the defendants towards Earnest Money Deposit (EMD) with the Federation. The defendants deposited the same with the Federation on 12th January, 1999. Consequently, the Federation allotted 11000 bales of cotton to the plaintiff Company on 25th January, 1999 through defendants. The Federation, however, informed that Earnest Money Deposit would be at the rate of Rs. 500 per bale.

On 28th January, 1999, the defendants informed the plaintiff Company that minimum 5000 bales of cotton were required to be lifted from the godown of the Federation on or before 7th February, 1999, failing which carrying charges as per the terms of the Federation to be paid by the plaintiff Company. The plaintiff Company, however, was not satisfied with the quality of the cotton. As per further case of the plaintiff, 6200 bales of cotton selected, were sought to be delivered by the defendants upto May, 1999. Of course, the quality of such selected bales of cotton was below the expectation of the plaintiff Company. The plaintiff Company, therefore, asked the defendants to take up the matter with the Federation about the poor quality of cotton offered for selection and also that until better lots are not offered the plaintiff Company will not be in a position to lift further lots of bales of cotton. However, again on 4th February, 1999, the defendants informed the plaintiff Company that the delivery of 5000 bales will have to be taken every month failing which the carrying charges to be borne by the plaintiff. On 5th February, 1999, the defendants written a letter (Ext.PB/X) to the Federation that irrespective of the EMD of Rs. 1.05 crores paid on 12th January, 1999, the quality of cotton matching with the samples sent in December, 1998 has not been offered for selection by the representatives of the plaintiff. The defendants requested the Federation that out of the purchase of 21000 bales of cotton, the plaintiff-Company will purchase only 15000 bales. The defendants further sought permission qua the adjustment of the deposits so made viz-a-viz the quantity of the cotton so proposed to be purchased. The plaintiff Company again took stand on 6th February, 1999 qua the poor quality of cotton received in their plant at Nalagarh as compared to the samples shown to its representatives. On 23rd February, 1999, the plaintiff Company expressed its inability to complete the selection of cotton in view of the poor quality of the cotton lots to the defendants and Federation.

The correspondence continued to be exchanged between the defendants and Federation on one side and the plaintiff on the other and ultimately on 23rd March, 1999 the defendants wrote to the Federation that for want of good quality of cotton lots offered, the plaintiff Company could approve only 9650 bales of cotton with a further request qua cancellation of balance quantity, i.e., 5350 bales of cotton. On 3rd April, 1999 the defendants informed the plaintiff Company that the Federation does not agree for the cancellation of the unapproved bales of cotton. The defendants once again approached the Federation for cancellation of the contract, but of no avail and to the contrary the defendants informed that the Federation had extended the date of acceptance of payment till 15th June, 1999 and in case the buyer failed to take the delivery before 15th June, 1999 then the bales would be sold in the open mark at the risk and cost of the defendants and loss, if any, caused to the Federation to be recovered from them. The defendants informed the plaintiff Company accordingly and advised them to negotiate the matter with the authority of the Federation personally. In December, 1999, the plaintiff Company had taken a stand that the contract was between the defendants and the Federation and that the plaintiff is not at all involved in the transaction with the Federation.

As per further case of the plaintiff, the defendants had to supply 15000 bales of cotton, however, supply of only 2800 bales of cotton that too of not good quality as agreed upon, could be received by it in its plant at Nalagarh. The plaintiff Company allegedly made payment of Rs. 3.55 crores (Ext.PW4/A, statement of account), whereas the value of the cotton received was Rs. 2,51,48,796/-. The amount due and payable to the plaintiff Company against the defendants has been claimed as Rs. 1,03,53,919/-. Besides, the plaintiff Company claims a further sum of Rs. 1,23,091/- towards over charges. In total the plaintiff Company has claimed Rs. 1,04,77,010/- against the defendants.

CASE OF THE DEFENDANTS IN THEIR DEFENCE.

The defendants in their written statement had repudiated all the claims as alleged in the plaint. A preliminary objection that this Court has no territorial jurisdiction to entertain and try the suit has also been raised on the ground that the defendant is a Mumbai based Company and working there for profit and gain. Its registered office is at Ahmadabad in Gujarat. Also that the defendants were appointed as agents of the plaintiff for the purchase of cotton from the Federation. The cotton offered for sale by the Federation under the agreement was to be inspected and approved by the representatives of the plaintiff Company at its various collection centres of the Federation in the State of Maharashtra. The defendants thereafter to take the delivery of the cotton for onward transmission to the plaintiff at its factory in Nalagarh, District Solan. No part of the transaction, therefore, allegedly took place at Nalagarh or at any other place within the State of Himachal Pradesh.

On merits, it is alleged that the defendants had only to act as a middle man between the representatives of the plaintiff Company and the representatives of the Federation to see that the delivery orders were issued to the representatives of the plaintiff at the earliest after the payment of the sale price to the Federation. It was also an obligation on the part of the defendants to ensure that the plaintiff Company gets maximum rebates/incentives as offered by the Federation from time to time. The cotton was to be purchased as per the said terms and conditions between the parties. Since on a bulk order discount of Rs. 400/- per bale was available and in order to avail this discount with the consent of the plaintiff, the defendants placed a firm order for supply of more than 20000 bales by combining the demand of 15000 bales of the plaintiff with that of M/s. Welspum India Limited of 6000 bales thereby making the order for supply of 21000 bales in order to obtain the maximum rebate at the rate of Rs. 400/- per bale. It is denied that the price of the cotton was to be paid as per the list dated 29th December, 1998 and rather as per price list No. 11/98-99/6323 dated 7th January, 1999, a firm order for supply of 21000 bales of cotton was placed on 8th January, 1999. It is admitted that the plaintiff paid security deposits to the tune of Rs. 75 lacs at the rate of Rs. 500/- per bale for 15000 bales by depositing the same in the account of the Federation. This fact goes to show that the plaintiff was bound to purchase 15000 bales of cotton as per the delivery programme circulated by the Federation in its price list dated 7th November, 1999. The relations between the plaintiff and the defendants were that of principal and agent, whereas between the defendants and the Federation that of buyer and seller. The fax messages dated 19th December, 1998 and 8th January, 1999 contain the terms and conditions between the plaintiff and the defendants pertaining to the transaction in question. Some of the salient features thereof have been reproduced in para-6 of the written statement, which read as follows:

"(i) Final approval and weighment of cotton will be to be done at the spot and thereafter no claim of any kind will be entertained. We can have the samples tested on HVI but officially they will not allow to change the lots if the results are not satisfactory.

(ii) Bargain will be Pucca Sauda and cannot be cancelled on any grounds. You will have to approve full quantity of cotton purchased of any quality that is suitable.

(iii) Deposit of Rs. 500/- per bale payable within 3 days of confirmation of bargain. The above amount will be adjusted by the Federation in the last month of delivery.

(iv) We will charge commission at 0.75% and spot expenses at Rs. 25/- per bale. Any expenses incurred for approval of cotton will be extra and only payable after approval from you."

It is submitted that lifting of 15000 bales in three monthly equal installments of 5000 bales per month was one of the conditions of the sale transaction. The price of the cotton started falling down after 15th January, 1999, it is for this reason the plaintiff allegedly started making excuses for not lifting the requisite quantity of the cotton from the Federation. The plea of the plaintiff that poor quality of cotton was being offered for inspection, was an excuse to avoid the contract. As desired by the plaintiff, the defendants arranged a meeting of the Managing Director of Federation with Mr. K. Raj Gopalan, a representative of the plaintiff, however, the Federation did not agree to deal directly with the plaintiff which insisted for completion of the transaction in the name of the defendants. The letters dated 23rd February, 1999, 26th February, 1999 and 1st March, 1999 were allegedly written by the plaintiff merely to wriggle out of the binding contract at the false pretext of poor quality of cotton. There was no privy of contract between the plaintiff and the Federation. The plaintiff was acting through the defendants and at no stage it purchased against such arrangement.

The allegations that the defendants started dealing with the Federation directly have already been made only to avoid contract or the consequences of non-adherence thereto. It is further submitted that sufficient quantity of good quality of cotton was available in various markets and the representatives of the plaintiff had been approving the same. They never complained to the defendants that good quality of cotton was not available for selection. The plaintiff was informed that the purchase of unapproved bales of cotton could not be cancelled with an assurance that efforts would be made to cancel the order qua such quantity of bales of cotton which could not be approved for purchase in the open market by the representatives of the plaintiff. The plaintiff lifted only 2800 bales of cotton against its order of 15000 bales. The defendants had lifted 6000 bales of cotton on behalf of other purchaser, therefore, the dispute was with regard to the supplying of left out bales of cotton, which were ordered to be supplied by the plaintiff. Since the entire quantity of 21000 bales could not be lifted, therefore, the Federation raised a debit note to the tune of Rs. 8,52,600/- on account of reduction in the bulk discount. On behalf of the plaintiff, defendants had placed order for supply of 15000 bales of cotton as per own admission of the plaintiff. The plaintiff, however, defaulted in performing its part of the contract. Not only this, but out of the approved 9650 bales of cotton the plaintiff received only 2800 bales. The defendants with great difficulty were able to prevail upon the Federation to sell only approved bales of cotton, i.e., 9650 at the risk of the plaintiff and on the unapproved quantity of cotton b ales token penalty of Rs. 20/- per bale may be charged. It is only for this reason the Federation had raised a debit note of Rs. 2,34,33,006.93 paise inclusive of Rs. 1,00,000/- on account of penalty with regard to unapproved bales of cotton. Had the Federation not accepted the plea of the defendants much more damages would have been caused to the defendants and consequently to the plaintiff, as contracted quantity of the cotton sought to be purchased was 15000 bales.

It has further been claimed that the plaintiff is not entitled to recover any amount from the defendants. It is rather the plaintiff Company itself liable to pay Rs. 1,59,33,006.93 after deduction of Rs. 75 lacs from Rs. 2,34,33,006.93 paise debited by the Federation to the account of the defendants. The defendants allegedly are making all out efforts to make the Federation to reduce this amount and as such the defendants reserved their right to file the suit for recovery thereof or any other amount from the plaintiff as and when the matter is finally settled with the Federation. The suit has, therefore, been sought to be dismissed.

REPLICATION

In replication while denying the contents of the preliminary objections being wrong, on merits the plaintiff Company has reiterated its entire case as set out in the plaint.

PRELIMINARY ISSUE & ITS ADJUDICATION

In view of the objection qua territorial jurisdiction raised, this Court has framed the following preliminary issue on 31st October, 2002:

"1. Whether this Court has jurisdiction to hear the suit? ... OPP."

On behalf of the plaintiff Shri I.P.S. Sethi, one of the authorised signatories has stepped in the witness box as PW-1 in support of its case on the preliminary issue so framed, whereas on behalf of the defendants Shri Brij Mohan Sekhsaria, the Chairman of defendant No. 1 Company as DW-1.

A Co-ordinate Bench of this Court on appreciation of the pleadings of the parties and also the evidence produced on the issue so framed, vide judgment dated 28th October, 2005, has held that no part of cause of action arose within the jurisdiction of this Court and as such this Court has no jurisdiction to hear and try the suit. The plaint, therefore, was ordered to be returned to the plaintiff Company in terms of Order 7 Rule 10 of the Code of Civil Procedure.

In an appeal registered as OSA No. 8 of 2005 against the judgment ibid, a Division Bench of this Court has quashed the same and remanded the suit to the Single Bench for trial in accordance with law.

ISSUES ON MERIT

On the remand of the suit, following issues came to be framed on 30th November, 2009:

Whether the plaintiff is entitled to a decree for the suit amount or any other sum as pleaded? OPP.

Whether the plaintiff is entitled to interest on the suit amount, if so at what rate? OPP.

Whether defendant No. 1 was to act as an agent of the plaintiff for purchasing cotton from the Maharashtra Cotton Grower Marketing Federation Ltd. on payment for the services rendered, if so what were the terms of the agency and its effect? OPP.

Whether the defendants without approval, consent, knowledge and authority wrongly, illegally and without taking the plaintiff into confidence, of their own, have entered into contract with the Federation directly instead of being an agent of plaintiff, thereby causing serious prejudice to the plaintiff, if so its effect? OPP.

Whether bales of cotton which reached the plaintiff''s factory at Nalagarh were of poor quality and not of the quality selected by the plaintiff? OPP.

Whether the plaintiff has desired the defendants to place a firm order for more than 20000 bales by combining his demand of 15000 bales with the demand of other party to avail a discount of Rs. 400/- per bale, as alleged, if so, its effect? OPD.

Relief.

EVIDENCE PRODUCED BY THE PARTIES IN BRIEF

The parties have been put to trial on all the issues supra. Shri I.J.S. Sethi, Assistant Vice President (Human Resource Development and General Services) when initially at the time of producing evidence on preliminary issue stepped into the witness box as PW-1, has produced the copy of Resolution Ext.PW-1/A, whereby he was authorised by the Board of Directors to file the suit in this Court, has also proved the invoices Exts.PW-1/B-1 to PW-1/B-32 received for supply of cotton bales from the defendants and also the bills Exts.PW-1/C-1 to PW-1/C-30 in respect of these invoices. He has also proved the legal notice Ext.PW-1/D served upon the defendants.

On settlement of issues he again appeared in the witness box and stated that a sum of Rs. 75 lacs was given to the Maharashtra State Cooperative Cotton Growers Marketing Federation Limited by way of advance through the defendants. The plaintiff Company received only the supply of 2800 bales of cotton. The quality thereof being inferior led to cancellation of the orders. Besides, the sum of Rs. 3.55 crores including Rs. 75 lacs hereinabove was paid to the defendants and as according to him on adjustment of the price of 2800 bales of cotton the plaintiff is entitled to the recovery of Rs. 1.04 crores from the defendants.

PW-2 Govind Singh, Record Keeper, State Bank of India, SCB Branch, Sector-17, Chandigarh, has proved Ext.PW-2/A, the certificate qua withdrawal of amount under cheques bearing No. 00505058, 00505088, 00505137, 00505151 and 00505168 from the accounts of the plaintiff Company. PW-3 is Shri Harish Kataria. In the year 1998-99, he was working as Executive, Raw Material in the plaintiff Company. According to him, in November, 1998, the plaintiff-Company decided to purchase cotton from Maharashtra Cooperative Cotton Grower Marketing Federation Limited and placed order before the Federation through its agents, the defendants for supply of 15000 cotton bales. However, when the supply made, was not as per the samples approved, the plaintiff-Company purchased only 2800 bales of cotton in a sum of Rs. 2.51 crores against the payment of Rs. 3.55 crores made in advance to the Federation through the defendants was Rs. 3.55 crores. The total amount recoverable from the defendants, according to him, is Rs. 1.04 crores. He has also proved the invoices Exts.PW-1/B-1 to PW-1/B-32 and bills Exts.PW-1/C-1 to PW-1/C-30. PW-4 is Shri Yogesh Khosla, dealing with the accounts work in the plaintiff-Company. The statement Ext.PW-4/A pertaining to the accounts of the plaintiff and defendants has been prepared by him.

On the other hand, Shri Brij Mohan Sekhsaria when appeared at the time of production of evidence qua preliminary issue, has stated that the supply was made by the defendants to the plaintiff through invoices Exts.PW-1/B-1 to PW-1/B-32 and the bills Exts.PW-1/C-1 to PW-1/C-30 were issued. He admits in his cross-examination that only 2800 bales of cotton could reach at Nalagarh. DW-2 Shri Ramesh Ramakrishna Mordade is the Senior Assistant in the Federation. He has produced the record pertaining to the price lists Mark-A, Mark-B and Mark-C.

DW-3 Arun Sekhsaria claims himself to be the Managing Director of defendant No. 1-Company and admits that defendant No. 1- Company acted as an agent of the plaintiff in the matter of purchase of cotton from Maharashtra State Cotton Marketing Cooperative Federation. He has proved the price lists (Marked A, B and C in the statement of DW-2) Exts.DW-3/A, DW-3/B and DW-3/C. He further deposed about the order of the plaintiff-Company for supply of 15000 cotton bales, which according to him, in order to avail the discount of Rs. 400/- per bale, was clubbed with the order for supply of 6000 cotton bales of M/s. Welspun India Limited. He has further stated that the plaintiff Company could select only 9650 bales of cotton for purchase and against that also received the delivery of only 2800 bales of cotton. He admits the receipt of Rs. 3.55 crores from the plaintiff and also that the price of 2800 cotton bales was Rs. 2.51 crores. As per his further version, the plaintiff Company has failed to take delivery of remaining cotton bales, therefore, the Federation slapped the defendants with debit note of Rs. 2.34 crores on account of price difference and carrying charges of the un-lifted approved bales of cotton by the plaintiff Company.

ISSUEWISE FINDINGS.

For the reasons to be recorded hereinafter, findings on the above framed issues in the suit are as under.

ISSUES No. 3 & 4:

Both these issues being inter-linked and interconnected and the findings thereon shall have bearing on the remaining issues, have been proposed to be answered first together in order to avoid repetition of the evidence and also findings.

Although, as per the plaintiff''s case, the defendants had to act only in the capacity of agents on behalf of the plaintiff-Company in the matter of purchase of cotton from the Federation, yet they at their own entered into a contract with the Federation qua supply of cotton through them to the plaintiff instead of acting in the capacity of its agent and thereby put the plaintiff to a huge loss.

No documentary proof such as execution of an agreement between the defendants and the Federation in this regard is produced in evidence. Shri I.J.S. Sethi while in the witness box on 30th June, 2003 has admitted in his cross-examination that the plaintiff had engaged the defendants to purchase the cotton from the Federation on its behalf. He on being recalled when again stepped into the witness box on 20th April, 2011 has stated that the defendants were required to work only agents of the plaintiff Company to facilitate the process of procuring cotton and supply thereof to it. PW-3 Harish Kataria, Executive Raw Material also tells us that the defendants-Company was appointed as sole agent to purchase cotton from the Federation on behalf of the plaintiff. No suggestion has been put to him in his cross-examination that defendant No. 1 did not act as an agent of the plaintiff but started dealing with the Federation in its own capacity. This is the only evidence produced by the plaintiff qua this aspect of the matter.

On the other hand, as per admitted case of the defendants, defendant No. 1-Company has acted in the capacity of an agent of the plaintiff. It is stated so by Shri Brij Mohan Sekhsaria, the then Chairman of the defendant-Company which in the witness box as DW-1 on 22nd August, 2003. Another material witness is DW-3 Shri Arun Sekhsaria, Managing Director of defendant No. 1-Company. According to him, the plaintiff used to purchase cotton from the Federation through defendant No. 1. Suggestion that defendant No. 1 did not work as an agent but started dealing with the Federation directly has been denied, being wrong. He has further denied the suggestion that draft in the sum of Rs. 75 lacs prepared in favour of the Federation was deposited in the account of defendant No. 1-Company and rather the same according to him, was deposited in the account of the Federation. The plaintiff''s claim that had the draft in the sum of Rs. 75 lacs been deposited by the defendants with the Federation in the name of the plaintiff, the former would have agreed to deal with latter directly, has been denied by this witness being wrong and stated that at the instance of the plaintiff the defendants made a request to the Federation to deal directly with the plaintiff, but the Federation declined their request at the pretext that first the plaintiff to approve the balance quantity of cotton and it is thereafter the request so made could be considered.

The evidence so come on record demonstrates that the defendants though acted in the capacity of agents of the plaintiff, however, draft in the sum of Rs. 75 lacs in favour of the Federation got deposited in the name of defendant No. 1-Company. This to my mind cannot be taken to believe that the defendants did not act in the capacity of agents of the plaintiff and rather started dealing with the Federation directly for the reason that as per the admitted case of the parties, the plaintiff had agreed to purchase the cotton from the Federation through the defendants.

Now if coming to the terms and conditions of the agency and its effect, the plaintiff did not aver anything in this regard in the plaint nor produced any evidence. As regards the defendants, they made reference to some fax messages dated 19th December, 1998 and 8th January, 1999, which allegedly contain the terms and conditions of the agency. The salient features thereof find mention in para-6 of the written statement, which read as follows:

"(i) Final approval and weighment of cotton will be to be done at the spot and thereafter no claim of any kind will be entertained. We can have the samples tested on HVI but officially they will not allow to change the lots if the results are not satisfactory.

(ii) Bargain will be Pucca Sauda and cannot be cancelled on any grounds. You will have to approve full quantity of cotton purchased of any quality that is suitable.

(iii) Deposit of Rs. 500/- per bale payable within 3 days of confirmation of bargain. The above amount will be adjusted by the Federation in the last month of delivery.

(iv) We will charge commission at 0.75% and spot expenses at Rs. 25/- per bale. Any expenses incurred for approval of cotton will be extra and only payable after approval from you."

Although, in the written statement it is averred that the terms and conditions of agency settled between the parties are annexed thereto, however, the fax messages supra have not seen the light of the day being not produced in evidence nor proved. DW-3 Shri Arun Sekhsaria has stated while in the witness box that the price of bales of cotton used to be fixed by the Federation from time to time and that the cotton was agreed to be purchased for the plaintiff-Company in terms of the prices thereof prevalent at that time. He has also produced in evidence the price lists Ext.DW-3/A, DW-3/B and DW-3/C. However, in the absence of cogent and reliable evidence qua the existence of an agreement governing the terms and conditions of agency, the above salient features find mention in the written statement are hardly of any help to the case of the defendants. The fact, therefore, remains that the plaintiff-Company had appointed the defendants its agents for the purchase of cotton from the Federation through them. It is not established that the defendants started dealing with the Federation in its capacity and not for and on behalf of the plaintiff-Company for the reason that as per the evidence available on record the representatives of the plaintiff remained associated with defendant No. 1-Company in the State of Maharashtra with respect to selection of the cotton to be purchased and the plaintiff-Company even received the supply of cotton bales through the defendants. Therefore, irrespective of the terms and conditions of the agency not proved on record and the impact thereof left open to be considered while returning findings on the remaining issues, I answer both the issues against the plaintiff and in favour of the defendants.

ISSUE No. 6.

This issue is also proposed to be answered first because the findings thereon will also have bearing on remaining issues.

The onus to prove this issue lies on the defendants. The defendants'' case in this regard, as disclosed from the written statement, is as under:

"....It may be submitted here that on a bulk order exceeding 20000 bales, a discount of Rs. 400/- per bale was available and in order to avail of this discount, the plaintiff had desired the defendants to place a firm order for more than 20000 bales by combining his demand of 15000 bales with the demand of any other party. The demand of 6000 bales of M/S Welspun India Ltd. was combined with the requirement of the plaintiff so that the total order could be for 21000 bales and the maximum rebate of Rs. 400/- per bale could be availed of."

In replication the stand of the plaintiff reads as follows:

"...The defendant-1 was to act as an agent of the plaintiff for purchasing cotton from Federation. It is denied that plaintiff had desired the defendants to place a firm order for more than 20000 bales by combining their demand of 15000 bales with the demand of other party. It is denied that defendants combined the demand of 6000 bales of M/s Welspun India Ltd. on the asking of the plaintiff so that the total order could be for 21000 bales, in order to claim rebate of Rs. 400/- per bale, as alleged. Para 3 of the plaint is correct, which is reiterated."

As per admitted case of the parties, the plaintiff-Company had placed an order to the Federation through the defendants for supply of 15000 bales of cotton. As noticed supra, the defendants in order to avail the discount at the rate of Rs. 400/- per bale clubbed the demand of 15000 bales of the plaintiff with that of 6000 bales of M/s. Welspun India Limited allegedly with the oral consent of the plaintiff. There is no dispute so as to the rebate at the rate of Rs. 400/- per bale was being given at the relevant time on a supply of cotton more than 20000 bales because even it is the case so pleaded by the defendants also in the written statement. PW-3 Harish Kataria, Executive Raw Material of the plaintiff-Company has admitted so in his cross-examination. Pw-1 Shri I.J.S. Sethi also tells us that there was a settled procedure for grant of rebate on the quantity of the cotton purchased, however, he expressed his ignorance that the rebate at the rate of Rs. 300/- was admissible in case of supply of less than 20000 bales of cotton. He also expressed his ignorance that 6000 bales were clubbed with 15000 bales ordered to be supplied to the plaintiff in order to earn the rate at the rate of Rs. 400/- per bale. In view of the case of the defendants and also admission on the part of PW-3 while in the witness box and also that PW-1 did not deny or admit the provision of rebate at the rate of Rs. 400/- per bale on the supply of 20000 bales and above, it would not be improper to conclude that the rebate at the rate of Rs. 400/- was available in a case of supply of cotton bales 20000 and above. Therefore, the clubbing order of supply of 60000 bales with the order of 15000 bales of the plaintiff-Company was in the interest and for the benefit of the plaintiff and not in that of the defendants and as such the possibility of the plaintiff-Company having agreed to such clubbing cannot be ruled out. Otherwise also, the clubbing order of the plaintiff-Company has not resulted in any harm to it because it has to lift only 15000 bales of cotton ordered to be supplied and was not concerned with the supply of remaining 6000 bales. DW-3 while in the witness box has categorically stated that the supply of 6000 bales of cotton ordered to be clubbed was duly received and it is the plaintiff who did not lift the entire quantity of cotton, as per the order placed. DW-3 Shri Arun Sekhsaria, the Managing Director of defendant No. 1-Company while in the witness box has categorically stated that though the order of the plaintiff was for supply of 15000 bales of cotton and on which there was a provision of rebate at the rate of Rs. 300/- per candy only, therefore, the defendants suggested the plaintiff that in case a rebate of Rs. 400/- per candy to be availed its order can be clubbed with that of another buyer. The plaintiff agreed thereto. The suggestion that the consent of the plaintiff was not sought for clubbing of its supply order with that of another buyer is denied, being wrong. In this view of the matter, it would not be improper to conclude that the plaintiff agreed orally to club its order of 15000 bales with 6000 bales of cotton of another client of the defendants in order to obtain rebate at the rate of Rs. 400/- per bail. This issue, therefore, is decided in favour of the defendants and against the plaintiff.

ISSUES No. 1, 2 AND 5.

These issues being inter-linked and interconnected are being taken for consideration together in order to avoid the repetition of evidence and findings.

The onus to prove these issues lies on the plaintiff. As per admitted case of the parties during the year 1998-99, the plaintiff decided to purchase cotton from the State of Maharashtra for its Unit at Nalagarh in District Solan. Defendant No. 1 of which defendant No. 2 is Director, was appointed as agent to arrange the supply of cotton from Maharashtra State Cooperative Cotton Growers Marketing Federation Limited. The terms and conditions governing agency though are not proved, however, keeping in view the findings recorded on issues No. 3 and 4 supra the supply of the cotton was to be made to the plaintiff by the Federation through the defendants. There is again no controversy qua the rates to be charged by the defendants as notified by it prevalent at the time of placing the order. The order for supply of 15000 bales of cotton has not been produced in evidence by the plaintiff nor is there any proof qua the date on which the order was placed. The suggestion given to DW-3 that on 19th December, 1998 the defendants have agreed to work for the plaintiff on commission and the same having been admitted to be correct by the said witness leads to the only conclusion that the plaintiff and defendants started dealing with each others on 19th December, 1998. As regards the rates, DW-3, no doubt, tells us that the rates notified vide notification dated 7th/8th January, 1999 were enforceable for the purpose of the deal of 15000 bales of cotton sought to be supplied by the Federation. Letter Ext.PA/X addressed by defendant No. 1 to the plaintiff in this regard is dated 16th December, 1998 and not 7th/8th January, 1999. This notification, however, has not seen the light of the day, being not produced in evidence by either party. The fact, however, remains that the plaintiff had placed an order for supply of 15000 bales of cotton and the defendants agreed to act as agent/broker on its behalf on commission, i.e.,.75% of the value of the cotton purchased and Rs. 25/- towards spot expenses per bale because the suggestion in this behalf given on behalf of the plaintiff to DW-3 has been admitted being correct.

There is again no dispute so as to the Earnest Money Deposit (EMD) in respect of 15000 bales of cotton was to be made at the rate of Rs. 500/- per bale. The plaintiff prepared a draft of Rs. 75 lacs in favour of the Federation and remitted the same to the defendants for deposit with the Federation. There is again no quarrel so as to this amount was duly deposited by the defendants with the Federation. This amount is still lying deposited with the Federation because as per statement made by PW-3 the Federation has refused to release the same on the request of the plaintiff.

On the other hand, DW-3 also admits that this amount is still lying deposited with the Federation. He further expressed his ignorance that the Federation refused to release the same in favour of the plaintiff consequent upon the request so made on its behalf. The fact, however, remains that a sum of Rs. 75 lacs deposited by the plaintiff with the Federation towards the EMD for supply of 15000 bales of cotton is lying deposited with the Federation. There is again no dispute qua the payment of a further sum of Rs. 2.5 crores by the plaintiff-Company to the defendants through cheques bearing No. 00505058, 00505088, 00505137, 00505151 and 00505168. The certificate Ext.PW-2/A issued by the State Bank of India, Industrial Finance Branch, Chandigarh, speaks about the payments made by the plaintiff under these cheques to the defendant-Company. A further sum of Rs. 30 lacs was paid by the plaintiff-Company from its account through cheque No. 090000 to defendant No. 1-Company. Therefore, a sum of Rs. 3.55 crores including Rs. 75 lacs deposited towards the EMD stands paid to the Federation and defendants by the plaintiff-Company. This position is fortified even from Ext.PW-4/A, the statement of account duly proved by PW-4 Yogesh Khosla. There is no cross-examination of this witness in this regard. As a matter of fact, the defendants also admitted the payment of Rs. 3.55 crores towards part payment of the supply of 15000 bales of cotton.

There is no quarrel so as to the samples of cotton to be supplied to the plaintiff were to be approved by its representatives, of course in collaboration with the defendants. As per admitted case of the parties, the plaintiff-Company deputed its employees to select the cotton to be supplied to it. The selectors admittedly could select 9650 bales of cotton out of 15000 bales. Not only this, but impending selection of the remaining bales of cotton by the representatives of the plaintiff the defendants even started making supply of cotton out of the cotton bales already selected. The plaintiff could receive the supply of 2800 bales only and resorted to rescind the contract at the pretext of the quality of the cotton supplied not the same as per approved samples. The reference in this regard can be made to fax message dated 20th March, 1999 sent by defendant No. 1 to the Federation which on the face of it makes crystal clear that as per own version of the defendants for want of poor quality of cotton in a period of one month only 9650 bales could be approved. Further that the defendants agreed to accept the delivery of 9650 bales so selected in order to maintain cordial business relations with the Federation. Not only this, but the Federation was also informed that in view of highly variable quality parameters in almost all the selected lots and that the quality of current arrivals has even further gone down significantly, thus the defendants expressed their inability to accept the substandard quality available with the Federation. The Federation, therefore, was requested to cancel the supply of unapproved volume of 5350 bales. A further request was made to adjust Rs. 75 lacs deposited as EMD against the delivery of 9650 bales.

If coming to the evidence qua the quality of the cotton, letter Ext.PB/X addressed by defendant No. 1 to the Federation is self-explanatory because the Federation was informed thereby that the lots of cotton offered for selection were not matching with the samples seen and approved in the month of December, 1998. In view of the letter Ext.PB/X and the fax dated 20th March, 1999 Ext.PC/X since as per own version of the defendants the quality of the cotton being offered for selection was substandard, it can reasonably be believed that the supply of 2800 cotton bales received by the plaintiff was also not of good quality and as per the samples approved in the month of December, 1998. True it is that defendant No. 1 agreed on behalf of the plaintiff to receive 9650 bales of cotton selected by the representatives of the plaintiff-Company, as is apparent from the perusal of fax message Ext.PC/X. Such commitment made by the defendants is binding on the plaintiff. The plaintiff admittedly has received only supply of 2800 bales of cotton against the selected bales of cotton, i.e., 9650 and rescinded the contract. The case of the defendants, as pleaded in the written statement though, is that efforts were made to get the order of remaining bales of cotton approved/selected/unapproved for cancellation but the Federation did not agree thereto. Also that when the plaintiff did not agree to lift the remaining cotton bales, i.e., 6850, out of 9650, Federation sold the same at the risk and cost of the plaintiff and issued a debit note for a sum of Rs. 2.80 crores including transportation charges against the plaintiff. However, on the request of the defendants with regard to the unapproved cotton of bales, i.e., 5350 only a penalty of Rs. 1 lac in lump-sum was imposed. The defendants, however, miserably failed to produce any evidence in this regard. The debit note has also not seen the light of the day. Therefore, the pleadings to the above fact in the written statement without any proof cannot be believed to be true.

In view of the evidence discussed hereinabove, the plaintiff has made the payment of Rs. 3.55 crores including Rs. 75 lacs in advance to the defendants towards the cost of cotton sought to be purchased from the Federation through them. The plaintiff received only the supply of 2800 bales of cotton, the cost thereof admittedly is Rs. 2.51 crores. Therefore, a sum of Rs. 1.04 crores of the plaintiff-Company is lying in balance with the defendants. Since there is no evidence suggesting that the Federation has issued a debit note to the tune of Rs. 2.80 crores, therefore, the version of defendants that the plaintiff is not entitled to the recovery of such amount cannot be believed to be true by any stretch of imagination. The defendants, as per averments in the written statement submit that a suit for recovery of the amount due and admissible against the plaintiff-Company will be filed in due course, that is, on settlement of issue qua debit note issued by the Federation. They may do so, of course in accordance with law.

The plaintiff, therefore, has successfully pleaded and proved that the quality of the cotton received in its plant at Nalagarh was not as per the samples approved in the month of December, 1998. It is for this reason a decision was taken by the plaintiff not to accept further supply and rather to rescind the contract.

As discussed hereinabove, a sum of Rs. 1.04 crores of plaintiff-Company is lying in balance with the defendants. It is this amount the decree for recovery whereof has been sought to be passed alongwith interest at the rate of 21.5%.

If coming to the rate of interest, the same is highly exaggerated and on excessive side, hence this much rate of interest cannot be ordered to be granted. This Court, however, deems it proper to decree the suit for the recovery of Rs. 1.04 crores together with interest pendente lite and future at the rate of 6% per annum till realization of the suit amount. All these issues are accordingly answered in favour of the plaintiff and against the defendants.

RELIEF.

In view of my findings on all the issues hereinabove, the present suit succeeds and the same is accordingly decreed for the recovery of Rs. 1,04,77,010/- alongwith pendente lite and future interest at the rate of 6% per annum till the realization of the decretal amount. The parties, however, to bear their own costs. Decree sheet be prepared accordingly.