Scantel (P) Ltd. vs Latham India Ltd.

Indermeet Kaur, J.—The plaintiff i.e. Scantel (P) Limited has filed the present suit for recovery of Rs. 1,78,68,819.13. plaintiff pursuant to a technical collaboration agreement dated 18.6.1991 with Ricoh Co. Ltd. Tokyo, Japan had imported components of 500 Fax 82 machines in two lots of 250 machines each. On 18.2.1992 plaintiff and the defendant had entered into a Memo of Understanding (hereinafter referred to as ''the MOU'') whereby defendant had offered to market, distribute and sell the Fax 82 machines assembled/manufactured by the plaintiff. In terms of this agreement, defendant had assured the plaintiff that he would purchase 100 fax machines upto 31.3.1992 and 800/1000 fax machines during the financial year 1992-93. The purchase of machines for subsequent years i.e. for the year 1993-94 and 1994-95 was subject to further negotiations. This MOU of 18.2.1992 was valid till 31.3.1995.

On the assurance and commitment of the defendant that he would market and distribute the said fax machines, plaintiff pursuant to and in term of this MOU dated 18.2.1992 imported components for additional 500 fax machines. plaintiff made heavy investments in this regard. He incurred a liability of Rs. 4,32,95,771/-. plaintiff performed all his obligations in terms of this MOU. The defendant failed to honour his commitment. He purchased 5 machines short of the target up to 31.3.1992. For the financial year 1992-93, there was a substantial default on his part; there was a shortfall of 550 machines.

Defendant having committed a breach of the said MOU is liable to pay damages and compensate the plaintiff for the losses suffered by him. Amounts claimed by the plaintiff have been detailed in para 8 of the plaint and which are as follows:

a) Loss on market value of sale price at the rate of Rs. 18,350/- on 550 machines .... Rs. 1,00,92,500.00 b) Interest at the rate of 21% per annum on the blocade of capital/interest payable on advances received from the bank for one year as detailed in Annexure ''D'' attached hereto .... Rs. 21,94,025.00 ____________________ Total:- Rs. 1,22,11,925.00 ____________________

Defendant is liable to pay interest for the losses suffered by the plaintiff which amount is calculated at Rs. 13,52,156/-.

Further the defendant was negligent in making the payment of the bills pertaining to the purchases already made by him. In para 10, the details of the two bills raised by the plaintiff upon the defendants have been given:

Intt. as up to Bill No. Dated Principal 15.9.94 Total (Rs.) (Rs.) (Rs.) Bank''s DABP 13.1.93 8,16,000/- 6,12,053.89 14,28,053.89 No. 35 Bank''s DABP No. 36 28.1.93 21,16,000/- 7,60,684.24 28,76,684.24 _______________ Total:- 43,04,738.13 _______________

There has been a total failure and negligence on the part of defendant in not adhering to the terms and conditions of the MOU. The price of the machines initially targeted for a higher sum; in terms of a second understanding dated 21-23.12.2002 the price of the machine was reduced to Rs. 50,000/- per machine. plaintiff was also forced to take back 40 machines which have been wrongfully and illegally forced upon him by the defendant. plaintiff has claimed the following amounts:

a) Loss/damages to which the plaintiff is entitled to as stated in para 8 of the plaint .... Rs.1,22,11,925.00 b) Amount due to the plaintiff towards the value of the machines supplied as per para 10 of the plaint .... Rs. 43,04,738.13 c) Overdue interest on the value of the sales made by the plaintiff to the defendant as detailed in para 9 of the plaint .... Rs. 13,52,156.00 ____________________ Total:- Rs. 1,78,68,819.13 ____________________

Written statement filed by the defendant has disputed these claims. It is not in dispute that a MOU dated 18.2.1992 had been entered into between the parties. Under the said MOU, the plaintiff had appointed the defendant as the plaintiff''s principal distributer in India for the sale, supply, installation, servicing and maintenance of the said Fax machines and except for the Ministries, Government departments, public sector undertakings and the MTNL located within the Union Territory of Delhi; in all other locations within India as also in Delhi, defendant was free to promote as sole distributor the sales and services of the said machines to all categories of customers.

Defendant had only agreed to try/attempt to lift 100 machines in two lots by 31.3.1992 and 800/1000 machines in the year 1992-93. There was no commitment or assurance given by the defendant. It was agreed that in terms of the MOU, if the price was found to be high the same could be reduced. There was no market for the said machines. plaintiff was also not cooperating and extending support to the defendant for marketing the said machines. plaintiff had committed a breach of terms and conditions of the MOU; he had offered to sell the said machines to the Inspector General of Police, Bhopal at a quoted price of Rs. 52,762/- per machine, whereas the defendant had submitted a corresponding quotation for the said machine at a price of Rs. 88,000/-. In dealing with the DIG, Bhopal the plaintiff had clearly committed a breach of the terms and conditions of the MOU. Other examples of the plaintiff offering for sale the said machines to other customers have been detailed in para 24 of the plaint. It is submitted that these dealings were a breach of the terms of the MOU which provided that the defendant would be the principal distributor of the said machines. It is denied that the defendant had purchased 5 machines short of the alleged target of 100 by 31.3.1992 or there was a shortfall of 550 machines in lieu of which the defendant is liable to compensate the plaintiff. The plaintiff, guilty of breaches of the MOU, no damages/compensation is payable to him. There was no enforceable or conclusive contract between the parties.

The price of the product had been reduced from Rs. 88,000/- to Rs. 50,000/- even as per the admission of the plaintiff. Defendant has rightly returned 40 machines to the plaintiff; they were not forced upon him. Defendant is not liable to pay the amount of Rs. 43,04,738.13/- as claimed.

Replication filed by the plaintiff has reiterated averments in the plaint and denied the defence as set up by the defendant.

On 12.5.1999, following issues were framed:

Whether the suit has been instituted and the plaint has been signed and verified by a duly authorized person? OPP

Whether the defendant committed any breach of the Memorandum of Understanding dated 18.2.1992? If so, its effect? OPP

Whether the defendant held out any assurance to the plaintiff to purchase a minimum number of fax machines? If so, its effect? OPP

Whether the plaintiff did not discharge its obligations on the Memorandum of Understanding dated 18.2.1992 as set out in the written statement? OPD

Whether the defendant failed to make payment of any fax machines sold by the plaintiff? If so, what amount is due and payable to the plaintiff? OPP

What amount, if any, the plaintiff is entitled to? OPP

Whether the plaintiff is entitled to any interest and if so, at what rate and for which period? OPP

Relief.

The plaintiff in support of his claim has examined two witnesses. PW-1 B.K.Sharma is the Branch Manager of the Indian Bank who has produced the statement of account of the plaintiff company. PW-2 T.D. Mittal was authorized representative of the plaintiff. In defence, two witnesses have been produced. DW-1 S.S. Bhatia was the erstwhile employee of the company. DW-2 S. Raghunathan was also an earlier employee of the defendant having worked in the company as vice-president.

Arguments have been heard. Record has been perused. Issue-wise findings are as follows:

ISSUE No. 1

PW-2, director of the plaintiff company has produced the minutes of the company Ex.PW-2/1. He has deposed that the plaint has been signed and verified by Mr. Anil Mittal, another director of the company. The original minute books of the company Ex.PW-2/1 have been placed on record; the signatures of Anil Mittal were duly identified. There is no cross-examination on this count.

This issue is decided in favour of the plaintiff and against the defendant.

ISSUE Nos. 2 to 5:

The aforenoted issues will be decided by a common discussion. MOU dated 18.2.1992 is Ex.D-1. It is an admitted document. It is running into seven pages and signed by the authorized representatives of the plaintiff and the defendant.

(i) In terms of Clause 1 (page 2) defendant had been appointed as the principal distributor in India for the sale, supply, installation, servicing and maintenance of ''Sanricoh'' Fax 82 machines manufactured by Scantel. Except for the ministries, government departments, public sector undertaking and the MTNL located within the union territory of Delhi, defendant was the principal distributor of these machines all over India.

(ii) The period of this agreement would be for three years i.e. up to 31.3.1995.

(iii) Clause 4 stipulated that the defendant will try to lift 100 fax machines upto 31.3.1992 and 800/1000 fax machines during the financial year 1992-93. For the period of 1993-94 and 1994-95 the offtake would be negotiated between the two parties before the commencement of the year.

(iv) Terms of payment were contained in Clause 5; under Clause 6 if the Fax machines cannot be sold because of high price; both parties would consult each other and reduce the selling price by re-fixing their margins.

(v) Under Clause 8-A plaintiff was to supply to the defendant sufficient quantities of brochures and marketing literature to promote the sale of the said machines. Warranty clause was contained in Clause 8-b; plaintiff had agreed to give one year''s manufacturer''s warranty and to replace all defective parts within that period.

(vi) Under Clause 9 plaintiff would advertise and make press announcements about the appointment of the defendant as the principal distributor for Sanricoh Fax Machines.

(vii) The termination clause was contained in Clause 15; either party may terminate this agreement by giving 180 days prior notice. Under Clause 15 (c ) the termination of the agreement would not relieve the parties or affect their rights to claim damages for breach; under Clause 15 (d) in the event of termination of the agreement defendant would forthwith return to the plaintiff all materials belonging to the plaintiff.

plaintiff has contended that in terms of this agreement between the parties, the defendant had undertaken to lift fax machines in two lots by 31.3.1992 and thereafter another 800/1000 machines in the year 1992-93. Defence of the defendant is that this was only an understanding to try and do so; the word used is ''try''; the MOU was only at the level of an understanding; the document itself recites it as an MOU.

Perusal of the MOU Ex.D-1 shows otherwise. The document has to be read in totality and no one clause can be read in isolation or divorced from the other. "Agreement" has been mentioned in several clauses of the said document. u/s 2(h) of the Indian Contract Act, 1872, a contract has been defined as:

An agreement enforceable by law is a contract.

Under Section 2(e) of the said Act:

Every promise and every set of promises, forming the consideration for each other, is an agreement.

It is thus clear that an agreement become a contract if the promise is accompanied by a consideration. This consideration may be in cash or in kind; the parties had in terms of Ex.D-1 agreed to perform certain inter se obligations; in consideration of the defendant having been appointed as the principal distributor of the said Fax 82 Ricoh machines in India; he had agreed to lift the said machines initially in two lots i.e. 100 machines by 31.3.1992 and thereafter a minimum second lot of 800 machines in the year 1992-93. Further for the subsequent years of 1992-93 parties would renegotiate. Price of the machine had been fixed with liberty to the parties to have it re-fixed in certain contingencies. plaintiff had in lieu thereof to abide by certain conditions i.e. to supply sufficient brochures and literature for advertisements to promote the sale of the machines and to replace defective parts in the one year manufacturer warranty period. These terms and conditions had been finalized by the parties in Ex.D-1 which was a concluding and binding contract between the parties. plaintiff had also undertaken to impart training to the staff of the plaintiff.

PW-2 T.D. Mittal director of the plaintiff company was dealing with the defendant company from the very beginning. He has reiterated the averments made in the plaint; the defendant would be the distributor of the machines and in terms of the MOU Ex.D-1 defendant would lift the machines in the manner described therein. Up to 31.3.1992 defendant was required to lift 100 machines but he had lifted only 95 machines. In the year 1992-93 defendant was supposed to lift a minimum of 800 machines but he had lifted only 155 machines in the said year. Defendant had lifted only 250 machines out of the total agreed lot. PW-2 has further deposed that only 650 machines could be sold to other buyers leaving a balance of 231 machines during this period of the MOU; 120 machines were again sold but 170 machines were still in their stock. Further 550 machines had been sold to DOT at a price of Rs. 40,000/- plus the excise duty and sales tax per machine. He has further deposed that the plaintiff has suffered a substantial loss and has approximated it to about Rs. 20,000/- per machine.

DW-1 S.S. Bhatia was the erstwhile Deputy General Manager of the defendant company. He has reiterated that no commitment was made by the defendant to lift a particular number of machines from the plaintiff company. DW-2 S. Raghunathan has also been reiterated this.

From this evidence gathered it is apparent that even as per the case of the plaintiff the defendant had lifted 250 machines. Ex.D-1 required the defendant to liquidate 100 machines in the first lot and thereafter another lot of 800 machines. Even going by the admission of the plaintiff, defendant had to lift a total of 900 machines in terms of the MOU. He had however taken only 250 machines. Balance thus would be 650 machines. PW-2 has further admitted that they were able to sell 650 machines to other buyers of which 550 machines had been sold to the DOT at a price of Rs. 40,000/- which is exclusive of the excise duty and the sales tax; 120 machines were also sold. From this version it is apparent that the entire balance lot of 650 machines which were left with the plaintiff was sold to other buyers.

PW-2 has not given the exact amount for which these 550 machines were sold to DOT, however as per his version they were sold at a sum of Rs. 40,000/- plus sales tax and excise duty. In the plaint it has been admitted by the plaintiff that initially the price of the machines had been fixed at Rs. 78000/- which was inclusive of the excise duty; thereafter it was reduced to Rs. 65000/- and further to Rs. 50,000/-. Submission of the defendant that these 650 machines sold to other buyers would roughly estimate to Rs. 50,000/- per machine is forceful as sales tax and excise duty were yet to be added on this principal figure of Rs. 40,000/-. Reduced price of the machines was Rs. 50,000/-. plaintiff does not have appear to have suffered any loss on this count.

DW-1 has deposed that the plaintiff had failed to honour the terms and conditions of the MOU and had not imparted training of man power, supply of spare parts and advertising of its products in terms of the said MOU. plaintiff had in fact started competing with the sale of its product and one such example was the sale effected by the plaintiff to a police headquarter at Bhopal.

The MOU Ex.D-1 recites that the plaintiff would be sole distributor of the Ricoh Fax 82 machines in India, subject to the rider that in the union territory of Delhi, the plaintiff would have direct dealing with the government departments, public sector undertaking and the MTNL. In his replication the plaintiff has admitted that he was dealing with the DIG police, Bhopal. This was a clear breach of the terms and conditions of the MOU Ex.D-1. Ex.D-7 is the letter dated 15.6.1992 addressed by the defendant to the plaintiff pointing out that the plaintiff has committed a contradiction of the MOU as he had made sales to the IOC, Bombay as per which defendant alone was to sell these machines to all departments outside Delhi. On 14.7.1993 vide Ex.D-19 the defendant again brought to the notice of the plaintiff that he was directly dealing with the customers of the plaintiff i.e. DIG, Bhopal, the DOT at Nanded, IOC, Calcutta, Indian Bank, Madras which was against the terms of the MOU pursuant to which the defendant was losing business as the plaintiff was competing with him.

PW-2 has admitted that in terms of the MOU the plaintiff company had an understanding with the defendant that the plaintiff would provide training to the employees of the defendant company. On 13.8.1993 vide Ex.D-21 the defendant wrote to the plaintiff informing them that in spite of the representatives of the defendant having reached the office of the plaintiff for their scheduled training programme the same could not be held as the representative of the plaintiff Mr. G. Sigh was not available.

On 24.8.1992, vide Ex.D-9 defendant wrote to the plaintiff asking him to dispatch all essential spare parts for the machines which had not have been done since the last three months against their indents. In this letter it had been reiterated that the spares of fax 82 machines have in spite of reminders not been supplied to the defendant leading to a severe breakdown in their service operation. On 14.9.1993 vide Ex.D-22 defendant again reiterated his request that spares be supplied for the fax 82 machines; further there had been no cooperation from the plaintiff side. This was again reiterated on 30.9.1993 vide Ex.D-23.

This documentary evidence establishes that during the period of the MOU which was valid and subsisting up to 31.3.1995 serious disputes and misunderstandings had arisen between the parties. Defendant had attributed non-cooperation on the part of the plaintiff; plaintiff had in spite of an agreed undertaking not imparted training to the staff of the defendant; plaintiff further continued to deal with customers including government agencies even outside the union territory of Delhi which was harmful to the interest of the defendant whereby the defendant suffered losses. The defendant in these circumstances was not permitted to act as an exclusive distributor of the fax 82 machines. Spare parts of the Fax 82 machines in spite of repeated reminders and requests by communications as also by indents were not supplied to the defendant. The documentary evidence discussed supra has amply established this.

To recapitulate case of the plaintiff is based on his claims in two categories; the first claim of Rs. 1,22,11,925/- is on account of Rs. 1,00,92,500/- as the loss on the market value of the sale price of the machines claimed at Rs. 18350/- per machine on 550 machines. This loss calculated by the plaintiff is negatived by his own evidence. Agreed price as per the averments made in the plaint was reduced to Rs. 50,000/- per machine. Defendant had taken a supply of 250 machines against the agreed lot of 900 machines. The balance 650 machines as per PW-2 has been sold to outsiders at a price of Rs. 50,000/- per machine.

The second category of the claim made by the plaintiff is detailed in para 10 of his plaint. This amount of Rs. 43,04,738.13 is in terms of two bills i.e. the first bill is Bank''s DABP No. 35 dated 13.1.1993 of Rs. 8,16,000/- of which interest had been added of Rs. 6,12,053.89. The second bill is Banks''s DABP NO. 36 dated 28.1.1993 at Rs. 21,16,000/- of which interest of Rs. 7,60,684.24 had been added totaling Rs. 28,76,684.24.

PW-1 B.K.Sharma the bank witness of the plaintiff has negatived this claim of the plaintiff. He had brought the statement of account of the plaintiff company being the Branch Manager of the Indian Bank. As per his version on oath the first bill i.e. DABP No. 35 stood adjusted on 7.10.1994. The second bill DABP No. 36 Ex.PW-1/2 was partly adjusted and against which a sum of Rs. 13,68,500/- was outstanding. He has proved statement of account as Ex.PW-1/4. This statement of account is for the period of 18.1.1993 to 24.10.1994. It is clear that even as per the case of the plaintiff himself he was only entitled to Rs. 13,68,500/- on the second bill DABP 36 Ex.PW-1/2.

In his cross-examination PW-2 has admitted that he has learnt from Ex.PW-1/4 that a sum of Rs. 3 lakhs had been paid by the defendant in September, 1994. PW-2 has further stated that he cannot say whether defendant had made any payment of Rs. 8,16,000/- in October, 1994. Bill Ex.PW-1/4 however shows that three payments have been made in the month of October, 1994. There are two payments of Rs. 2,95,100/- and Rs. 2,,04,900/- on 7.10.1994. On 22.10.1994 there is another payment of Rs. 3,16,000/-. It is, thus, clear from Ex.PW-1/4 that this payment of Rs. 8,16,000/-has been reflected in Ex.PW-1/4 which payment has been adjusted against DABP No. 35.

Admittedly 40 machines had been returned by the defendant to the plaintiff. This has been mentioned by the plaintiff in para 12 of his plaint; his case being that he was forced to take these machines whereas the defendant has stated that there was no such force and coercion. In terms of Clause 15 (d) of the MOU if there was a breach of the agreement the defendant was liable to return back all the materials of the plaintiff. This was an admission by the parties that these machines continued to belong to the plaintiff. The correspondence i.e. the letters sent by the defendant to the plaintiff also substantiate this submission. Vide Ex.D-17 dated 22.4.1993 plaintiff had agreed to take back the delivery of 40 number of scanricoh fax 82 machines if the defendant was not able to sell this material within time. This was reiterated in the communication dated 14.9.1993 Ex.D-22 while making a reference to this letter of 22.4.1993. In his cross-examination PW-2 has admitted that in April 1994 plaintiff had taken back certain machines from the defendant in terms of their agreement. Value of each machine even if sold outside in the open market was Rs. 50,000/- which was also the agreed upon price between the parties. Value of 40 returned machines would thus be about Rs. 20 lakhs. The claim on this count also i.e. the amount of Rs. 13,68,500/- is thus not substantiated.

No loss has been suffered by the plaintiff. plaintiff is also guilty of breaching the terms and conditions of the MOU; business losses were consequently suffered by the defendant. plaintiff is not entitled to any amount i.e. the either of the two claims set up by him.

Issues No. 2 to 5 are decided accordingly.

ISSUES No. 6 & 7:

plaintiff is thus not entitled to any amount from the defendant. Question of payment of interest also does not therefore arise. Issues No. 6 and 7 are decided in favour of the defendant and against the plaintiff.

ISSUE No. 8

Suit of the plaintiff is dismissed. No order as to costs. Decree sheet be drawn. File be consigned to record room.