NATIONAL SMALL INDUSTRIES CORPORATION vs MADHO SINGH

THE facts of the case as stated by the appellant, National Small Industries Corporation (NSIC) are that it was approached by Shri Madho Singh (complainant) for assistance in purchasing a Wheel Balancing and Wheel Alignment Machine. A formal application was made which was registered as Application No. 6492 dated 24.5.1989. NSIC has been set up to encourage and assist small industries in various ways. The complainants application was formally accepted by a letter dated 19.12.1990. The complainant had actually wanted the machine alongwith Side Sleep Testor. The complainant wanted to import the machinery from Japan. The NSIC was approached not only to provide the funds but also to arrange importation of the machines. The machinery wanted by the complainant could only be imported with prior permission of D.G.T.D. NSIC applied to D.G.T.D. for permission to import the machinery. D.G.T.D., however, declined to grant permission and the machinery could not be imported. The complainant thereupon requested NSIC to supply a locally manufactured machinery.

THIS background of the facts is important to be borne in mind for the purpose of deciding the case. When the machinery was purchased from a local supplier, the complainant had to satisfy himself about the quality and the usefulness of the machinery for his purpose. In the instant case, an order was placed with M/s. Neptune Equipments (P) Ltd. for supply of the machinery. The case of the appellant is that the supplier was chosen by the complainant. Even if we do not accept that contention, there was a clear term in the Agreement that was entered into by and between the complainant and the NSIC that the NSIC will pay the supplier only after the complainant was satisfied about the quality, specifications, suitability and fitness of the machine. In the Hire Purchase Agreement dated 23.3.1992, it was specifically recorded as under : ''2. The hirer hereby covenants with the owner as follows : (i) Before execution of these presents the hirer has thoroughly satisfied himself about the quality, specifications, suitability, fitness, etc. of the above property selected by him and shall not at any time hereafter make any complaint to the owner in that behalf. xxx xxx xxx xxx (v) If the hirer makes default in payment of any sum herein provided as and when the same shall have become due or shall fall to observe and perform any of the terms and conditions of this agreement or if the hirer shall be adjudicated insolvent or has any receiving order or any other order under an Insolvency Act and made against him or be wound up whether voluntarily or otherwise or if execution shall be levied or threatened to be levied upon the said property or upon any premises where the said property may be or upon the hirers effect for rent, rates or taxes or if the execution shall be levied upon the hirers or if the hirer shall allow any judgment against him remain unsatisfied then and in each and every such case the owner shall forthwith become entitled to immediate possession of the hired property, (the ''de jure'' possession shall always remain with the owner and the hirer being only entitled to work the said property in terms of this agreement) and the owner may - (a) Without prejudice to any claim for arrears of hire rent of damages for breach of this agreement forthwith and without notice or demand terminate the hiring and retake possession of the property, and/or (b) By written notice either served personally on the hirer or sent by post or otherwise to the hirer or to his last known address forthwith for all purposes absolutely determine this agreement and the hiring hereby constituted and thereupon the hirer shall no longer be in possession of the property with the owners consent nor shall either party thereafter have any rights under this agreement, but such determination shall not discharge any pre -existing liability of the hirer to the owner, and the Hirer shall not be entitled to claim any damages, compensation for such termination of the agreement and taking over of the possession of the property by the owner or for any loss, damage, inconvenience that the hirer may directly or indirectly incur, as a result of such termination of a agreement or taking over the said property by the owner.''

The case of the appellant is that the appellant paid 90% of the price of the machinery to M/s. Neptune Equipments (P) Limited, the supplier, only after the complainant informed them in writing that the machinery was working satisfactorily. There is a letter on record dated 25.6.1992 written by Mr. Madho Singh on behalf of Madho Automobiles which is reproduced hereunder : ''No. DLH (769 -1) Dated : 25th June, 1992 The Joint Manager (ROD), National Small Industries Corporation Ltd., Laghu Udyog Bhawan, Okhla Industrial Estate, New Delhi -110 020. Subject : Order No. ROD/2028/91 dated 27.11.1991. Dear Sir, Kindly refer to your letter No. NSIC/ROD/ DLH(769 -1) on the subject mentioned above. I am to inform you that the needful as desired by the suppliers in their letter No. NEP/DLH/056/3254 dated 22.5.1992 has since been done and the demonstration of the machines has been carried out. You are requested to make 90% payment to the supplier immediately and 10% remaining may be made later as per agreement. Yours truly, Sd/ - (Madho Singh) for Madho Automobiles''

It is clear from this letter that Madho Singh was satisfied with the machine and requested the NSIC to make the payment of 90% of the price to the supplier which was done. After this, it is not open to Madho Singh to hold NSIC responsible for any defect in the machine. Moreover, the agreement between Madho Singh and the NSIC specifies that Madho Singh had to be satisfied about the suitability and fitness of the machine supplied and will not make any complaint to NSIC about that.

THE original complaint against NSIC on account of defective machine did not succeed before the State Commission. No order was passed on the ground of defective machine against NSIC and Neptune Equipments Pvt. Ltd. (respondent No. 2) by the State Commission at all.

A new twist was given to the case after the complaint was lodged when NSIC repossessed the machine supplied to Madho Singh on the ground of its failure to pay the first instalment in repayment of the loan on 1st May, 1993. To appreciate this point, the following facts will have to be kept in view : On 7.1.1992, NSIC wrote a letter to Madho Singh, in which it was stated, inter alia, ''Enclosed please find one set(s) of agreement bond. These agreement bonds are complete as far as the details are available at present. The column left incompleted will be completed by us at the time of delivery of the machine/s. While executing these bonds the following points may please be kept in view : (a) The date of the agreement, the date of your signature, the date of signature of the witness to the hirer and the date of attestation of the 1st Class Magistrate should be same. (b) The columns provided for inserting the date of instalment will be filled by us because the actual date of instalments cannot be fixed at present. For your information we may add the 1st instalment will fall due one year in case of old and one and half years in case of new after the date of which RP/GR covering the consignment is released by us and the subsequent instalment will follow every six months thereafter. The documents delivered between the 1st of a months would be viewed as having been delivered on the 1st of that month for purpose of determining the date of instalments and calculation of interest. Similar documents delivered on the 1st of the next month. 2. You are requested to afix judicial adhesive stamp worth Rs. 2/ - on the right hand corner of the original of each set and sign on all places marked X with pencil on the pages of each set of every copy of the agreement bond. The agreement bond should be executed in the persons having legal title to sign on behalf of your firm in accordance with original application for machinery on hire purchase basis in the presence of NOTARY PUBLIC OR MAGISTRATE (1st Class) after the adhesive stamp. 3. In case of the adhesive stamps are not available at your place you may please type out the 1st portion of the Agreement Bond on non -judicial stamp paper worth Rs. 2/ - and strike out the same from the agreement bond at there and of the stamp paper you add thus containing as on Printing Agreement bond and sign on all the places corresponding to the place marked X on the printed form. Stamp papers should be attested by Notary Public or First Class Magistrate. 4. .One set of agreement bond consists of your copies. The 2nd, 3rd and 4th copies are also to be completed as in the case of original one except for the fact that adhesive stamps are not required to be affixed on these copies. 5. You are also requested to remit the following amounts by means of Bank Draft payable on Delhi/New Delhi Bank, cheques are not ACCEPTABLE. Balance Earnest Money : Rs. 26,383.00 Sales Tax recoverable @ 18% or C form : Rs. 63,401.80 Total : Rs. 89,784.00 Or in case of C Form 4% Sales Tax. NIL. 6. In case you are registered dealer for C.S.T. you may also send (if not already sent) separate C form each agreement bond duly filled and signed by you in our favour as suppliers giving Registration No. and Date. 7. The machines in your factory are to be insured for one year risk of riot, fire, strike and civil commission upto the value of Rs. ____ from the Oriental Fire and General Insurance Co. Limited (unit LIG of India) for which we have to send the proposal to them. The Insurance Policy will be taken out on the name of NSIC as owner and yourself as hirer and will be renewed by us annually, during the hire purchase period. You are requested to complete the enclosed proposal forms and send it to us in triplicate for this purpose. 8. If the machine is to be delivered to you by the suppliers locally you are also required to get the machine insured against transit risks for the value of the machine mentioned in Para 8. 9. Documents in respect of each other should be sent with separate covering letter. 10. The despatch instructions to the suppliers will not be released unless the above formalities including insurance are completed and it, therefore, impressed that you may act swiftly lest the supplier should revert the machines to some other customer on their list. 11. The machines against the above mentioned firm order are under clearance at Port and the relative R/ R is expected shortly. Therefore, it is requested that the above formalities may be completed without any loss of time, so that despatch of R/R is not withheld in this office thereby resulting in demurrage and lapse of insurance policy, etc. for which this office shall not be responsible. Your name and fathers name may please be filled in the 1st para of agreement. The terms and conditions, calculation sheets and insurance proposal form which will form a part and parcel of the agreement may be returned to us duly completed. Please send re - validated registration certificate proof of factory premises, affidavit of your property, rent receipt, electricity bill, guarantee of Lady Prop./Partner. Yours faithfully, JOINT MANAGER (R.O. DELHI) Encl : Agreement Bonds, Insurance Proposal forms, calculation sheets and terms and conditions. NB : In case despatch by Road Transport you are requested to give the name of transport Company and also confirm that you will pay the freight charged by transporters. Please send us an undertaking that you will arrange policy against theft and burglary at your own cost during the hire purchase period. Please send Photostat copies of valid SST Regn. CST Regn. Certificate, Proof of power, premises, etc.''

23.3.1992 A Hire Purchase Agreement in which dates of payment were left blank was executed between Madho Singh and NSIC. The blanks were later on filled up to show that the first instalment of Rs. 83,643/ - was to be repaid on or before 15th May, 1993 as hire rent. Thereafter each of the instalments were to be paid on or before first day of May and November of each year. The second instalment was due to be paid on 1st November, 1993. A schedule of payment was annexed to the agreement. The case of the complainant which was upheld by the State Commission is that the first instalment could not have fallen due on first May, 1992 but would have fallen due 6 months thereafter in terms of the letter dated 7.1.1992. The NSIC had repossessed the machine on the ground of default of the payment of the first instalment. The agreement dated 7.1.1992 clearly stated that the first instalment will fall due after one year in case of old and after one and a half years in case of a new machine after the actual date of instalment of the machine.

NOW the question is which will be the material date for payment of first instalment. Will it be the date mentioned in the memorandum of agreement dated 23rd May, 1992 and the schedule of payment annexed with it or will it be one and a half years after release of RP/GR covering the consignment for a new machine as mentioned in the letter dated 7.1.1992 ? The contention of Madho Singh is that columns for repayment were left blank when the agreement was executed. NSIC had changed the terms of the letter dated 7.1.1992 and inserted the dates of payment of instalments after the agreement was signed. This unilateral action of the NSIC will not bind the complainant. Nor can it override the contents of the letter dated 7.1.1992.

THE letter states that ''the columns containing the dates of instalments will be filled by us because the actual date of instalments cannot be fixed at present. For your information we may add the 1st instalment will fall due one year in case of old and one and half years in case of new after the date of which RP/GR covering the consignment is released by us and the subsequent instalment will follow every six months thereafter. The documents delivered between the 1st of a month would be viewed as having been delivered on the 1st of that month for purpose of determining the date of instalments and calculation of interest.'' The other important facts to be noted in that letter are Paragraphs 5,6 and 7 which are as under : ''5. One set of agreement bond consists of your copies. The 2nd, 3rd and 4th copies are also to be completed as in the case of original one except for the fact that adhesive stamps are not required to be affixed on these copies. 6. You are also requested to remit the following amounts by means of Bank Draft payable on Delhi/New Delhi Bank, cheques are not acceptable. Balance Earnest Money : Rs. 26,383.00 Sales Tax recoverable@ 18% or C form : Rs. 63,401.80 Total : Rs. 89,784.00 Or in Case of C Form 4% Sales Tax. NIL. 7. In case you are registered dealer for C.S.T. you may also send (if not already sent) separate form C for each agreement bond duly filled and signed by you in our favour as suppliers giving Registration No. and Date.''

THIS letter does not mention any exact date for payment of the instalments nor does it say what amount will have to be paid or what is the total amount which will have to be paid on account of hire -purchase of the machinery. All these details were specifically left open. When a copy of the draft agreement was sent the columns relating to instalments were left blank. The question is when were the blank columns filled in ? Was there any other agreement by the parties about the dates of repayment ? N.S.I.C. has not produced any oral or documentary evidence on this point. The question therefore is whether N.S.I.C. went back on its statement made in its offer letter dated 7.1.1992 in which it was stated that the 1st instalment in repayment of the price of a new machine will be of one and a half years after RP/GR in respect of the new machinery. 90% of the purchase price was paid only after 25.6.1992 when the complainant stated that he was satisfied with the machine and 90% of the price may be released to M/s. Neptune, the seller.

NO evidence has been produced by the N.S.I.C. to show that the period of repayment of the loan was shortened by agreement after the letter dated 7.1.1992 was written. There is no evidence of any re -negotiation of the terms of Hire Purchase Agreement. It has been stated on affidavit before us that the letter dated 7.1.1992 merely contained a policy statement in force at that time. It could not be the basis of a contract. That may be so but what was negotiated after the letter dated 7.1.1992 between the parties which led to, the contract has not been brought out. Moreover, 90% of the price was paid by N.S.I.C. after 25.6.1992. The exact date has not been disclosed. According to N.S.I.C, the first instalment was payable in May, 1993 i.e. within less than one year of the making of payment by N.S.I.C. We are conscious of the fact that we cannot re -write the contract solemnly entered into by and between the parties. But one party cannot unilaterally impose conditions upon the other party. The parties must be ad idem on the terms and conditions of a valid contract. The contention of N.S.I.C. is that a written contract solemnly executed, signed, witnessed and notarised must prevail over any preceding document. There is nothing on record to indicate that the applicant was made aware of the terms of the schedule of repayment when he signed the contract. On the contrary, he was clearly told that repayment for a new machine will commence after one and a half years after delivery and he was induced to sign a contract with blank repayment schedule. When the contract was signed the understanding between the parties was that repayment will commence one and a half years after delivery. The machine was repossessed by the appellant on the ground that the first instalment should have been paid within one year of delivery. Filling up the blanks contrary to the earlier representation and without prior consent of the respondent will not create an enforceable contract. The State Commission was right in holding that on those facts, N.S.I.C. could not have repossessed the machine lawfully within one year of delivery of the machine. The further grievance of the complainant is that excessive amount of earnest money has been charged from them contrary to the contract. In fact an absurd claim of 18% by way of sales -tax was claimed by the respondent. The total purchase price of the machinery was Rs. 3,71,673.25. The complainant was required to pay 20% of the said amount as earnest money. Accordingly, the complainants liability under the contract was only of Rs. 74,334/ - as earnest money. On 16.9.1991, N.S.I.C. informed the complainant that his earlier offer stood revoked and the complainant must pay 30% of the price of the machinery as earnest money instead of 20%. Thereupon the complainant deposited a further sum of Rs. 24,995/ - on 1.10.1991. But ultimately the price charged by M/s. Neptune, the seller of the machine, came to Rs. 3,58,122/ -. The complainant subsequently after the machine was installed and the price was paid applied to N.S.I.C. for refund of the excess amount of earnest money and also a revision of the calculation sheet of the payment. By letter dated 14.11.1992, N.S.I.C. informed the complainant that the excess amount of earnest money released had been adjusted towards the cost of the machine.

THE case made out by the N.S.I.C. is that the complainant requested the N.S.I.C. for the refund of earnest money and accordingly after discussion, the complainant agreed that the excess amount of the earnest money could be adjusted in the instalments falling due in future and also agreed that the complainant will be signing the agreement. Accordingly the N.S.I.C. sent a draft agreement wherein the schedule of instalments was changed and the due adjustment of the excess earnest money was being given to the complainant but the complainant never signed this agreement and as a matter of fact returned the same to the N.S.I.C. That subsequently thereafter again the complainant demanded that the amount of the earnest money realised in excess be refunded to the complainant. The N.S.I.C. informed the complainant that the excess amount of the earnest money could be refunded only if the complainant signs another hire purchase agreement. As no such agreement was signed and refund of the excess amount of the earnest money was not made.

THESE facts only go to show the high - handed attitude N.S.I.C. adopted in this case. Admittedly earnest money was realised in excess. The only thing N.S.I.C. could lawfully do was to return the excess as and when demanded by the complainant. N.S.I.C. unilaterally decided to retain the excess and insisted on adjusting the amount against the instalments as and when they fell due. There was no contractual or any other legal right to do this. Two technical points were also taken about the maintainability of the complaint under the Consumer Protection Act. The first was that N.S.I.C. is a statutory body set up for rendering public service and was not amenable to the jurisdiction of the Consumer Court. This point is without any subsistence. The Consumer Protection Act, 1986 is attracted whenever there is a deficiency of service. This, however, is subject to statutory exceptions. The service rendered by N.S.I.C. has not been specifically excluded from the ambit of the Act. On the contrary, service has been defined to mean by Section 2(1)(o) of the Consumer Protection Act, 1986 : ''Service'' means service of any description which is made available to potential users and includes the provisions of facilities in connection with banking, financing insurance, transport, processing, supply of electrical or other energy, board or lodging or both, (housing construction) entertainment, amusement or the purveying of news or other information, but does not include the rendering of any service free of charge or under a contract of personal service.''

It appears from this definition that banking, financing, insurance, supply of electrical or other energy has been specifically included in this definition of service. When this Act was passed, insurance business was fully nationalised. All the large Indian Banks had also been nationalised. The objects of Nationalisation Acts were stated to be for public benefit. In fact, in the object clause of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, the purpose of Nationalisation of Banks was stated to be ''The Government is committed to implement the 20 - point programme vigorously. In pursuance of this objective, the public sector Banks have undertaken to increase their credit to priority sectors to 40 per cent of their total advances over a period of five years''. In spite of the fact, the Banks were nationalised for public purposes, the Consumer Protection Act specifically included the banking service within the ambit of its jurisdiction. Likewise, the insurance business stood fully nationalised when the Consumer Protection Act was passed. Nationalisation of Insurance Companies was also done so that the funds collected from insurance business could be utilised for development of the economy. In spite of that, for deficiency of service, Insurance Companies can be proceeded against in the Consumer Courts. Supply of electricity is also provided very substantially by State Electricity Boards. The deficiency in service in supply of electricity has also been included within the meaning of ''service''.

N .S.I.C. claims that it is a part of a welfare state and has to act within the four corners of the policies and procedures laid down by the Government to achieve the public purpose for which it was set up. Therefore, it cannot be said that it is engaged in a business of providing working capital or financial assistance like any other financial institution. If this argument is to be accepted then the nationalised Banks, Insurance Companies, State Electricity Boards will have to be kept out of the purview of the Consumer Protection Act in spite of the fact that services rendered by them have been specifically included in Section 2(1)(o) of the Consumer Protection Act. We are of the view merely because it is a public undertaking set up for the public purpose and carried its activities in public interest, N.S.I.C. cannot be excluded from the jurisdiction of the Consumer Courts in view of the definition of service provided by Section 2(1)(o) of the Consumer Protection Act.

MOREOVER , the service rendered by N.S.I.C. was for valuable consideration. N.S.I.C. had provided finance to obtain the machinery. N.S.I.C. was not doing it free of cost, charges and expenses but was going to charge interest like any other financial institution. In the rural areas, Banks provided loans to the farmers to purchase pump sets, tube wells, etc. Similar financial agreements are entered into by and between banks. Banks charge interest and on default of repayment of the loan, the Banks take back the pump sets and sell them in order to recover the loan given by them. In principle, there is no difference in the service provided by nationalised Banks and the service provided by the N.S.I.C. The next preliminary point is also without any merit. It was argued that the complainant was carrying on business. He had purchased the machinery for commercial purpose. Therefore, his complaint cannot be entertained. But by the Hire Purchase Agreement the complainant had availed of the service of N.S.I.C. The machinery was supplied by Neptune. The payment of the price was made by the N.S.I.C. to Neptune only after the complainant was satisfied with the performance of the machine. Any future complaint about the machine had to be raised with Neptune. N.S.I.C. did not give any warranty or guarantee about the performance of the machine. It became the property of the N.S.I.C. till the last instalment was paid. The complainant up to that point of time was merely a hirer. But it was in no sense of the term a buyer of the machine from N.S.I.C. It is on the strength of its ownership of the machine that N.S.I.C. re -possessed it on the allegation that the complainant had failed to repay the first instalment. Therefore, this is strictly speaking not a case of sale of machinery by N.S.I.C. to the complainant at all. N.S.I.C. merely provided the finances to enable the complainant to use the machinery in the first instance and ultimately to purchase the machinery. Therefore, the contract with N.S.I.C. was really a contract of financial service which has been specifically included within the definition of service under Section 2(1)(o) of the Consumer Protection Act. It was basically a hire -purchase agreement. Therefore, this point is also without any merit.

HAVING considered all the aspects of this case, we are in agreement with the view taken by the State Commission that the entire amount of earnest money must be returned by the N.S.I.C. with interest. We uphold the order passed by the State Commission for refund of the earnest money with interest. The direction for payment of damages of Rs. 25,000/ - and cost of Rs. 2,000/ - will however stand deleted.

THE complainant has used the machine for one year. On his satisfaction and recommendation the outstanding balance of 90% of the purchase price was paid by N.S.I.C. to Neptune. The complainant must pay 10% of the price of the machine for one years user. N.S.I.C. will be entitled to deduct a sum of Rs. 37 000/ - which is approximately 10% of the purchase price of the machine from the amount payable by it to the complainant. The First Appeal is disposed of finally as above.