M/s. ABB Limited vs Bhagwandas Metals Limited

M. Chockalingam, J.—This appeal has arisen from the judgment of the learned Single Judge made in C.S. No. 1192/94 a suit for money

decree. The case of the plaintiff is as follows:

The plaintiff had discussion with the defendant for the purchase of two medium frequency induction furnace type ITM K4/2000, with three

mechanicals and other accessories. As per the minutes dated 21.7.1992, the defendant had agreed for the same, for which the plaintiff paid a sum

of Rs. 11,35,000/- by two cheques. This was subject to the execution of a written contract with detailed drawings to be furnished by the defendant

after clearance of the plaintiff''s then intended public issue. No drawing was sent by the defendant. Hence, the plaintiff''s intended public issue did

not materialise. The plaintiff received a letter from the defendant in the third week of November 1992, and he was unable to agree with the terms

and conditions found therein. In view of the same, there was no concluded contract between the parties, and that is why, the defendant returned

back the cheque dated 30.11.1992, for Rs.5 lakhs. But, the defendant refused to return the advance amount despite repeated demands. Even

assuming that there was any concluded contract, as the defendant failed to send drawings, it is to be held that the defendant alone had committed

breach of contract, and therefore, the defendant is liable to refund the advance amount of Rs. 11,35,000/- with interest.

The suit was resisted by the defendant by filing a written statement stating that there was no condition that the advance was subject to the

execution of written contract; that the minutes inter alia provided that the total price for supply of the equipment would be Rs. 109 lakhs inclusive

of Central Excise Duty, but exclusive of Central Sales Tax, Freight, Insurance, etc.; that according to Clause 2(i) of the Minutes, 15% of the

contract value i.e., Rs. 16,35,000/- was to be paid as interest free advance; that out of this, Rs.5 lakhs was to be paid as deposit along with the

order, and the balance advance of Rs. 11,35,000/- was payable in two instalments; that the defendant sent a letter on 4.11.1992 along with a

detailed layout and foundation drawings for enabling the plaintiff to commence their civil work; that the defendant also accepted the offer by the

letter dated 3.11.1992; that under the circumstances, there was a concluded contract between the parties; that the contract cannot be cancelled

without the defendant''s written consent; that the defendant had already spent substantive sum and had manufactured the furnace partially; that in

view of the same, the defendant had agreed to refund a sum of Rs.6,35,000/- to the plaintiff after deducting Rs.5 lakhs; that the interest claimed at

30% is not maintainable; that the defendant had actually suffered a damage of Rs.55 lakhs and if at all, after deducting a sum of Rs.11,35,000/-,

the plaintiff is still liable to pay Rs.43,65,000/- with interest at 18%; that the plaintiff is also bound to pay Rs.1,10,00,000/- towards liquidated

damages; that the defendant is not only entitled to set off, but also entitled to a decree for a sum of Rs. 1,10,00,000/- as counter claim, and hence,

the suit was to be dismissed and a decree for the counter claim be granted.

The plaintiff in the written statement for the counter claim has alleged that the defendant had not taken any steps to arrange loan from IDBI

within the stipulated period; that subsequently, there was no written contract; that the plaintiff is not liable to pay any amount as claimed by the

defendant; that the counter claim is vexatious, and the same is liable to be rejected.

On the above pleadings, the trial Court framed 9 issues. The parties went on trial. The plaintiff examined one Murarilal Sonthalia as P.W.1 and

marked 18 exhibits. On the side of defendant, one Deepak was examined as D.W.I, and no document was marked. The learned trial Judge after

hearing the submissions made and looking into the materials available, has decreed the suit in favour of the plaintiff. Hence, this appeal at the

instance of the defendant.

The points for consideration in this appeal are:

(i) Whether there was a concluded contract?

(ii) Whether the plaintiff is entitled for the relief asked for?

Advancing arguments on behalf of the appellant, the learned Counsel would submit that the learned trial Judge had not looked into the evidence

both oral and documentary in its proper perspective; that while acknowledging the receipt of the two cheques, the appellant sent a letter dated

2.11.1992, stating that the order was subject to the general terms and conditions of sale printed overleaf; that the fact remains that by signing the

minutes dated 21.7.1992, and confirming the same by their letter dated 12.10.1992, the respondent had accepted the contract and acted upon the

terms and conditions of the contract; that under the circumstances, there was a concluded contract; that the respondent was also given an

opportunity to cancel the contract; but, they failed to exercise that option; that as the appellant had spent considerable amount and time for

preparation of engineering work, drawing and designs, he had agreed to refund the advance after deducting a sum of Rs.5 lakhs; that the

respondent did not agree for that proposal; that actually, the defendant had suffered damages; that the finding of the learned trial Judge that the

contract cannot be classified as a concluded contract is erroneous; that in fact, the contract is a concluded one; that Ex.P3 document is only an

extension of the concluded contract stipulating the terms; that the appellant is entitled to compensation, and hence, the judgment of the trial Court

has got to be set aside.

In answer to the above, it is contended by the learned Counsel for the respondent that the learned trial Judge only on consideration of the

evidence both oral and documentary, has come to the conclusion that the contract was not a concluded one; that the plaintiff at no point of time has

agreed for the subsequent conditions imposed by the defendant; that as the defendant failed to submit drawings, he has committed breach of

contract; that there was no concluded contract at all; that the defendant had not taken any steps to arrange loan from IDBI as agreed; that the

appellant is not entitled for compensation as claimed by him, and hence, the appeal has got to be dismissed, and the cross objection made by the

plaintiff be ordered.

As could be seen above, it was a suit for recovery of advance of Rs. 11,35,000/-along with interest totalling to Rs.16,61,270/-along with

subsequent interest on the advance amount.

The admitted factual events could be stated thus:

Both the plaintiff and the defendant are public limited companies. Pursuant to Ex.P1, Minutes, dated 21.7.1992, two Medium Frequency Induction

Furnace Type ITM K4/2000 with three mechanicals and other accessories as described in the document, were to be supplied by the defendant to

the plaintiff. Following the same, two cheques were Issued totalling to Rs. 11,35,000/- which were encashed by the defendant, for the supply of

the said furnaces. Since the transaction did not materialise, the plaintiff demanded the said advance of Rs. 11,35,000/-. At one stage, the defendant

was prepared to return a sum of Rs.6,35,000/- retaining a sum of Rs,5 lakhs, which also did not fructify. There was exchange of notices. The

plaintiff issued Ex.PS, notice, calling upon the refund of advance. Initially, there was a reply dated 20.1.1994 under Ex.P17. The suit was filed on

11.4.1994, A detailed reply was sent by the defendant on 14.4.1994 as could be seen from Ex.P18. Under such circumstances, the suit came to

be filed.

The bone of the contentions and also the decision in the appeal would rest upon the question whether there was a concluded contract between

the parties. The consistent stand of the plaintiff, who is the respondent herein and also who has made a cross objection, is that the contract was not

concluded; that the same was a contingent one and depended upon two contingencies namely the public issue of the shares and also the financial

assistance from the IDBI; that those contingencies did not happen; that the contract could not be performed, and under the circumstances, the

defendant was liable to pay the admitted advance of Rs. 11,35,000/- with interest. On the contrary, the stand of the appellant before the trial

Court and equally here also is that the contract between the parties was concluded; that the plaintiff who could not perform its part by making the

payment of the remainder namely 85% of the agreed amount, has forfeited the advance; that apart from that, pursuant to the contract, the

defendant has also commenced the manufacturing process; that the same was to the knowledge of the plaintiff; that under such circumstances,

there was no justification for demanding the refund of the advance originally made; and that on the contrary, the plaintiff was to make good the loss

sustained by the defendant by paying the remainder of the agreed amount. The learned trial Judge agreed with the contentions put forth by the

plaintiff''s side and also recorded a finding that the contract was a contingent one; that the contingencies did not happen, and under the

circumstances, the defendant should be directed to pay back the advance of Rs. 11,35,000/- along with interest which, in the considered opinion

of the Court, was not correct in the face of the documentary evidence adduced before the trial Court.

It is pertinent to point out that the plaintiff has examined one Murarilal Sonthalia as P.W.I through whom 18 documents were marked. As far

as the defendant''s side was concerned, D.W.I was examined; but, no documents were marked. From his evidence, it would be quite clear that he

had no personal knowledge about the transaction between the parties, and he was able to give evidence only from the available record. It is also

pertinent to point out that it is not a case where the documents were not filed by the defendant along with the written statement. As could be seen

from the written statement, number of documents were filed, and there is no endorsement in the written statement that those documents were not

filed at the time of filing the written statement. But, it would be quite clear that the documents could not be marked through D.W.I since the

documents were not available for marking at the time when the case was tried. However, this Court is of the considered opinion that even from the

documents filed and relied on by the respondent/plaintiff, it would be quite clear that there was a concluded contract between the parties.

Ex.P1 is the earliest document which has come into existence. It reads ""Minutes of meeting held between M/s Bhagwandas Metals Ltd., and

M/s ABB Ltd., and on 21st July, 1992"". This itself would clearly indicate that it was a meeting in which both the parties have participated, and the

minutes were drawn. Further it reads ""PRICE : The price mutually agreed upon by the Seller and Buyer for the supply of 2 Electricals and 3

Mechanicals of ITMK4/2000 KW on 11 Kv Supply to Rs. 1,09,00,000/- (Rupees One Crore and Nine Lakhs Only) inclusive of Central Excise

Duty at the prevailing rate but exclusive of Central Sales Tax, Freight, Insurance, Taxes, Levies etc. This price is valid up to 30.09.92 and subject

to Buyer honouring clause 2 of this minutes of meeting......The balance 85% of the contract value to be covered under the IDBI deferred payment

cheque subject to approval from IDBI. A letter of undertaking from the Buyer''s banker''s along with acceptance bills duly signed by buyer and

buyer''s bankers will be furnished within 30 days from the date of IDBI approval. A confirmation is to be taken from buyer for IDBI financing."" It

also reads ""CANCELLATION OF ORDER : I) In the event of the order being cancelled the deposit and advance payments made by buyer shall

be returned by the supplier immediately without any deduction in the deposit and advance and without any interest charges. However, this shall be

intimated to the supplier latest by 30.09.92. The advance amount will be returned within Fifteen days from the date of intimation."" From the reading

of these minutes, it would be quite clear that the price of the two electricals and three mechanicals which were to be supplied by the seller namely

the defendant to the buyer namely the plaintiff, was mutually agreed at Rs. 1,09,00,000/-. From the very reading of this document Ex.P1, it would

also be quite clear that the goods to be supplied, the price, terms of payment, price variation, delivery, scope of supply and mode of cancellation

were all found and agreed between the parties. While the minutes passed under Ex.P1 was between both the parties where the price has also been

agreed, and subsequently it has also been accepted by the defendant, all legal requirements for a concluded contract are noticed. Under the

circumstances, it would be quite clear that there was a concluded contract.

The case of the plaintiff seeking refund of the advance was based on the main contention that there was no concluded contract. This contention

was accepted by the learned trial Judge pointing to two circumstances. Firstly, under Clause 2(H) of the minutes dated 21.7.1992, there was an

obligation put forth on the part of the defendant, but it was not complied, and further, under Ex.P1, there is a provision for cancellation of the

order, and even if the order being cancelled, the deposit and advance payments made by the buyer should be returned by the supplier immediately

without any deduction in the deposit and advance and without any interest charges also. Secondly, under Ex.P3, dated 2.11.1992, certain terms

and conditions and also arbitration clause as well as change in the type of equipment originally intended, were included. These circumstances relied

on by the plaintiff and pointed out by the learned trial Judge, in the considered opinion of the Court, cannot be a reason to term the contract, as

could be seen concluded under Ex.P1, as a contingent contract. It is evident from Ex.P1 that the contract became concluded since the necessary

ingredients for a contract as envisaged in law, were found, and thus, the contract became concluded and complete.

As far as Clause 2 in Ex.P1 was concerned, it was contended that Ex.P1 would reveal that there was only a proposal, and the same was also

subject to certain contingencies, and since those contingencies had not occurred, there was no concluded contract, but a contingent contract,

Clause 2 of the Minutes under Ex.P1 clearly discloses that a letter of undertaking from buyer''s banker''s along with the acceptance bills duly

signed by the buyer and the buyer''s bankers to be furnished within 30 days from the IDBI approval and confirmation order to be taken from the

buyer for IDBI financing. The trial Court has proceeded on the footing as if the financial assistance from the IDBI was to be arranged by the

defendant seller. It was not correct. The very reading of this clause would clearly re-veal that nowhere the defendant seller agreed to arrange for

the finance from the IDBI. On the contrary a letter of undertaking from the plaintiff''s banker along with the acceptance bills duly signed by the

plaintiff and the plaintiff''s banker had to be furnished within 30 days from the IDBI approval and the confirmation order to be taken from the

plaintiff, Thus, it would be quite clear that the first part of the clause would indicate that it was an obligation on the part of the plaintiff and the

second part namely the confirmation, was to be taken from the buyer namely the plaintiff for the IDBI financing. In such circumstances, at no

stretch of imagination, it could be taken that the finance for the purchase of the machinery by the plaintiff from the defendant should be arranged by

the defendant from the IDBI. This clause was misconstrued.

Apart from the above, the learned trial Judge relied on the evidence of P.W.2, a self serving and interested testimony. Ex.P1 spelt out a

concluded contract whereby it was agreed that the advance which represented 15% of the consideration of Rs. 1.09 crores, was to be paid within

the stipulated time. As far as the remainder was concerned, it has got to be paid later by making public issues by the plaintiff and also arranging

finance from the IDBI. Hence, this clause would indicate the arrangement of finance for making further payment by the plaintiff in which the

defendant had no role. It can be well stated that this cannot be a clause which would disturb a concluded contract. That apart, the plaintiff has

averred that the said advance was paid subject to the execution of a written contract with detailed drawings to be furnished by the plaintiff after the

clearance of the plaintiff''s then intended public issue. But, nowhere it is found in Ex.P1, document.

As far as Ex.P3 letter was concerned, it is true that certain conditions which were not Priginally available under Ex.P1, are noticed. If is to be

pointed out that once a contract between the parties became concluded under Ex.P1 document, and it was also acted Upon by making payment of

advance, these conditions which emanated under Ex.P3, might not be binding on the parties. Merely because certain terms and conditions were

imposed under Ex.P3, which were originally not found under Ex.P1, contract, it cannot be stated that Ex.P1 contract was a contingent contract. In

the opinion of the Court, what are all found in Ex.P3, would not in any way affect the contract originally concluded under Ex.P1. Thus, from the

available materials, it would be quite clear that there was a concluded contract between the parties, pursuant to which the plaintiff has made the

advance payment of Rs. 11,35,000/- which is the suit claim before the Court. In such circumstances, it has got to be held that there was a

concluded contract between the parties, and there was no contingent contract as held by the trial Court.

It is not in controversy that the plaintiff has given two cheques one dated 27.7.1992 for Rs.5 lakhs and the other dated 31.10.1992 for

Rs.6.35 lakhs. The case of the plaintiff was that it was a contingent contract since the contingency did not happen, and hence, the parties could not

perform their respective obligations, and the plaintiff has also made clear by means of letters on 1.12.1992 and 5.12.1992 that the plaintiff was not

ready to accept the terms and conditions stipulated therein, and hence, the advance was to be repaid. It is not in controversy that there was

exchange of notices between the parties. From the notices between the parties and also from the evidence adduced through Exs.P1 and P2, it

would be quite clear that on the strength of Ex.P1, the defendant actually commenced manufacturing of the furnaces. The plaintiff having entered

into a contract and having made an advance amount and also having allowed the defendant to commence the manufacturing process of furnaces,

would not be justified in demanding the entire sum of advance. The plaintiff cannot plead that he had no knowledge about the commencement of

the manufacturing process of furnaces by the defendant. From the available materials, it is quite clear that the manufacturing process was actually

on at the time when the above two letters were written by the plaintiff that it could not accept the terms and conditions stipulated in Ex.P3. As

could be seen from Ex.P1, the total price of the materials was agreed at Rs. 1.09 crores. The execution of the contract could not materialise in

view of the aforesaid circumstances. But, at the same time, it would be quite clear that the manufacturing process of the furnaces were commenced

and it was also known to the plaintiff. The trial Court has pointed out that after the demand of the advance of Rs. 11,35,000/-, the defendant had

agreed to return a sum of Rs.6,35,000/- retaining Rs.5 lakhs, to which course the plaintiff was not amenable. It is true that the defendant has not

produced evidence what was the actual amount spent by the defendant for the manufacturing process. At this stage, what is to be seen is that

whether the defendant is entitled for compensation. Now, at this juncture, this Court is of the view that the decision of the Apex Court rendered in

Oil & Natural Gas Corporation Limited v. SAW Pipes Limited in Civil appeal No. 7419 of 2001, dated 17.4.2003, 2003-4-L.W. 482 is squarely

applicable to the present facts of the case. The Supreme Court has held thus:

From the aforesaid discussions, it can be held that:-

(1) Terms of the contract are required to be taken into consideration before arriving at the conclusion whether the party claiming damages is

entitled to the same;

(2) If the terms are clear and unambiguous stipulating the liquidated damages in case of the breach of the contract, unless it is held that such

estimate of damages/compensation is unreasonable or is by way of penalty, party who has committed the breach is required to pay such

compensation and that is what is provided in Section 73 of the Contract Act.

(3) Section 74 is to be read along with Section 73 and, therefore, in every case of breach of contract, the person aggrieved by the breach is not

required to prove actual loss or damage suffered by him before he can claim a decree. The Court is competent to award reasonable compensation

in case of breach even if no actual damage is proved to have been suffered in consequences of the breach of a contract.

(4) In some contracts, it would be impossible for the Court to assess the compensation arising from breach and if the compensation contemplated

is not by way of penalty or unreasonable, Court can award the same if it is genuine pre-estimate by the parties as the measure of reasonable

compensation.

In the instant case, the interest of justice would require that once on the strength of the concluded contract, the defendant was allowed to

commence the manufacturing process of furnaces whose price was Rs. 1.09 crores, the defendant has got to be compensated by the plaintiff. In

the considered opinion of the Court, fixing Rs.3 lakhs as compensation payable by the plaintiff would be reasonable, and hence, out of the total

advance of Rs. 11,35,000/-, the defendant has got to be directed to make a refund of Rs.8,35,000/- which should carry interest at 30% per

annum from 31.10.1992 till date of plaint and thereafter at 9% per annum till realization.

The plaintiff has now come forward with the cross objection in respect of the interest part stating that he is entitled to get 30% interest till the

date of payment. In view of the circumstances noticed, this Court is of the considered opinion that the interest awarded by the trial Court at 9%

per annum from the date of plaint till date of payment is found to be reasonable, and hence, the cross objection has got to be dismissed. In the

result, this original side appeal is partly allowed modifying the judgment and decree of the trial Court. The defendant is directed to make a refund of

Rs,8,35,000/-along with interest at 30% per annum from 31.10.1992 till date of plaint and thereafter 9% per annum till realization. The plaintiff is

entitled to proportionate costs in the suit. Accordingly, the suit is decreed to that extent. Time for payment 2 months. Cross objection is dismissed.

The parties will bear their costs. Consequently, connected MP is closed.