Union of India (UOI) and Another vs Jayalakshmi Agro Chemicals

Rama Rao, J.—The Appellants are the Defendants. The Plaintiff filed a suit for recovery of Rs. 71,010.32 towards compensation for non-delivery of consignment covered by R.R. No. B-850460. The averments in the plaint are that a consignment of B.H.C. Technical consisting of 191 bags of 75 kgs. each was despatched from Mitnapur railway station, Western Railway by M/s. Tata Chemicals Limited for the value of Rs. 64,657.32 covered by their bill No. 5/100/75-76, dated 4th August, 1975, to Guntur railway station in the S.C. Railway to the Plaintiff under R.R. No. B-850460. The said consignment was loaded at Mitnapur railway station in the wagon No. S.C. 3234 by M/s. Tata Chemicals Limited. The wagon was not received at Guntur station and the Plaintiff waited for a period of three months and preferred a claim u/s 78-B of the Indian Railways Act to the Chief Commercial Superintendent, South Central Railway, Secunderabad the receipt of which has been acknowledged by the South Central Railway. The Plaintiff issued reminders on 2nd December, 1975 and again on 23rd December, 1975, but the consignment was not delivered and no reply was sent by the Railway authorities. As the wagon did not reach Guntur railway station, the Plaintiff issued notice u/s 80, Code of Civil Procedure, as the consignment was lost on account of the negligence and misconduct of the Railway authorities. In the said notice the Plaintiff claimed compensation for non-delivery of consignment of 191 bags of B.H.C. Technical and thus the Plaintiff is entitled to recover the full value of the consignment amounting to Rs. 64,657.32 and also further compensation for the loss sustained by him by way of interest which he suffered by paying Rs. 64,633 in the State Bank of India which comes to more than Rs. 5,441.85. As there was no compliance by the Railway authorities the Plaintiff is obliged to file the suit.

The second Defendant filed written statement stating that the Defendant offered delivery on 8th April, 1976 of the consignment to the endorsed consignees of the railway receipt and without receiving the said consignment the Plaintiff has no right to file the suit. The negligence attributed to the servants in the alleged delivery is denied. The Plaintiff is also put to strict proof of service of valid notices u/s 78-B of the Indian Railways Act and Section 80, Code of Civil Procedure. The claim in the suit is highly exaggerated. The Plaintiff is not entitled to any interest prior to the date of suit as there is neither custom nor contract for payment of the same.

On the above pleadings the following issues were framed for trial:

(1) Whether the Plaintiff has title to the suit consignment?

(2) Whether the person who signed the plaint has authority to sign the plaint?

(3) Whether the Defendant offered to deliver the consignment on 8th April, 1976 and whether it was rejected by the Plaintiff improperly, if so, whether the suit is maintainable?

(4) Whether there is no negligence on the part of the railways for nondelivery of the goods?

(5) Whether the statutory notices u/s 78 (B) and Section 80, CPC are valid?

(6) Whether the Plaintiff is entitled to claim interest?

(7) To what relief?

The Court below found that there is negligence on the part of the Railways for non-delivery of the goods. The Court below held that the Plaintiff is entitled to interest at the rate of 12% per annum as claimed by the Plaintiff from 12th August, 1975 to 7th June, 1976, the date of suit.

The Learned Counsel for the Appellant submitted that the Court below is not justified in granting interest prior to the filing of the suit in the absence of any usage or contract to that effect. In any event, the rate of interest at 12% per annum is excessive. The Learned Counsel for the Respondent contended that in view of the fact that the Plaintiff is deprived of the use of the amount due to the negligence on the part of the Defendants, the Plaintiff is entitled to claim interest and the rate 12% per annum cannot be considered as excessive.

The Learned Counsel for the Appellant relied upon the decision of the Supreme Court in Union of India (UOI) Vs. West Punjab Factories Ltd., . The Supreme Court was concerned with the appeals arising out of the suits filed for damages for loss of goods which were destroyed by fire on the railway platform at Morar Road railway station and the case of the Plaintiff was that the damage and loss was caused when the goods were in the custody and control of the Railway administration and it was due to misconduct, negligence and carelessness on the part of Railway administration and the suit was filed for Rs. 77,000/- and odd along with interest upto the date of suit and interest pendente lite and future interest. In the context of considering the claim for interest the Supreme Court held as follows:

The next contention is that no interest could be awarded for the period before the suit on the amount of damages decreed. Legal position with respect to this is well settled : See AIR 1938 67 (Privy Council) . That decision of the judicial committee was relied upon by this Court in Seth Thawardas Pherumal Vs. The Union of India (UOI), . The same view was expressed by this Court in Union of India (UOI) Vs. A.L. Rallia Ram, . In the absence of any usage or contract, express or implied, or of any provision of law to justify the award of interest, it is not possible to award interest by way of damages. Also see Union of India (UOI) Vs. Watkins Mayor and Co., . In view of these decisions no interest could be awarded for the period upto the date of suit and decretal amount in the two suits will have to be reduced by the amount of such interest awarded.

In Union of India (UOI) Vs. Watkins Mayor and Co., , the Plaintiff entered into contract with the Defendant in July, 1944, for the supply of drums made out of iron sheets to be supplied by the latter and the iron sheets were supplied in pursuance of the contract but on 21st August, 1944, the Defendant cancelled the contract and the iron sheets stored in the godown of the Plaintiff were removed by the Defendant from time to time. Thereupon the Plaintiff instituted a suit claiming compensation under various heads viz., godown rent, watch and ward, terminal tax, cartage, unloading and coolie charges and interest on total expenses for the storage of the goods. In the context of considering the claim for interest the Supreme Court enunciated the principles regarding the award of interest prior to the suit and held as follows:

It is well-established that interest may be awarded for the period from the date of the institution of the suit if there is an agreement for the payment of interest at fixed rate or if interest is payable by the usage of trade having the force of law, or under the provisions of any substantive law entitling the Plaintiff to recover interest, as for instance, u/s 80 of the Negotiable Instruments Act, 1881, the Court may award interest at the rate of 6% per annum when no rate of interest is specified in the promissory-note or bill of exchange. There is in the present case neither usage nor any contract, express or implied, to justify the award of interest. Nor is interest payable by virtue of any provision of the law covering the case. Under the Interest Act, 1839, the Court may allow interest to the Plaintiff if the amount claimed is a certain sum which is payable at a certain time by virtue of a written instrument. But it is conceded that the amount claimed in this case is not a sum certain but compensation for unliquidated amount. On behalf of the Respondent it was submitted by Mr. Aggarwala that interest may be awarded under the Interest Act which contains a provision that ''interest shall be payable in all cases in which it is now payable by law''. But this provision only applies to cases in which Court of Equity exercises jurisdiction to allow interest. The legal position has been explained by the judicial Committee in AIR 1938 67 (Privy Council) at 70, as follows:

As observed by Lord Tomlin in Maine and New Brunswick Electrical Power Company v. Hart AIR 1929 P.C. 185 at 188, in order to invoke a rule of equity it is necessary in the first instance to establish the existence of a state of a circumstance which attracts the equitable jurisdiction, as for example, the non-performance of a contract of which equity can give specific performance.

The Learned Counsel for the Respondent relied upon the decision of the Supreme Court in Union of India (UOI) Vs. The Steel Stock Holders Syndicate Poona, . The Supreme Court was concerned with the matter in which the suit arose where the Plaintiff filed a suit for recovery of an amount of Rs. 2,378.65 being the damage for breach of contract resulting from delayed delivery of the goods consigned by the Plaintiff through the Defendant Railways to be delivered at Poona. According to the Plaintiff under the contract or usage of the Railways the normal period of delivery was 10 days and as the Defendant committed inordinate delay in delivering the goods it is liable to pay damages to the Plaintiff. The Plaintiff further claimed damages by way of interest at 12% per annum on the locked up capital of Rs. 27,332.44 which due to rise in prices has swelled to Rs. 35,476.27. The suit was resisted by the Defendant Railways on the ground that there was no inordinate delay and further the Plaintiff was not entitled to claim interest as damages. The trial Court found that the figure of Rs. 27,332.44 the original amount which was deposited by the Plaintiff in the bank against the goods should be taken as the basis for calculation of damages and the calculation of interest thereon at the rate of 6% per annum was done. Adverting to the decision of the Supreme Court in Union of India (UOI) Vs. Watkins Mayor and Co., , the Supreme Court distinguished the said decision as follows:

this Court was not at all concerned with a case like the present one where the Plaintiff has merely claimed damages pure and simple and in order to assess the same had applied the yardstick of charging interest at a particular rate on the locked up capital for a period of more than six months. In these circumstances, therefore, the ratio of the aforesaid decision in Union of India (UOI) Vs. Watkins Mayor and Co., , is not applicable to the facts of the present case.

It is further held at page 887 after referring to the Supreme Court decision supra and also the decision in AIR 1938 67 (Privy Council)

The principle adumbrated in the two cases mentioned above will not apply to cases where Plaintiff does not claim interest on a quantified amount or on damages but where the Plaintiff merely calculates interest as a yardstick or measure to assess the damages which he would be entiled to.

Referring to the facts in this case it is further held as follows:

The Plaintiff was a stockist and as the money in the bank remained idle for a period of more than six months due to the delayed delivery made by the Railway on account of its negligence, the Plaintiff merely claimed compensation for this delayed delivery on the basis that if the amount was not locked up it would have earned some interest which would yield some profit to the Plaintiff. Thus it is clear, therefore, that in the instant case the Plaintiff neither claimed interest on any quantified amount, nor did he claim profit due to loss of market.

It is further held as follows at page 887:

Thus it is clear that there is question of Section 73 of the Contract Act overriding the provisions of the Interest Act, because in the instant case the Interest Act has no application at all in as much as no interest is claimed by the Plaintiff at all but interest has been used as a measure to determine the compensation which the Plaintiff could seek against the Appellant for its negligence in causing inordinate delay in the delivery of the goods.

The essence of the principles propounded by the Supreme Court time and again is that the interest or the amount of damages cannot be claimed in the absence of contract specific or implied or the usage having force of law. In a situation where the interest has become a tool of assessing or measuring damages and the damages are worked out bearing in mind the interest aspect and the amount representing interest is merged in the quantum of damages the question of severing the amount representing interest or the issue of forfeiture of the claim for that portion of the amount in consideration of amount of damages does not arise. In the event of quantification of damages coupled with claim of interest thereon the interest cannot be allowed in the absence of contract or usage of trade having force of law. The claim for interest on unliquidated damages does not have the sanction of law and in the event of inextricable merger of the amount representing interest in the claim for damages the issue centres round the tenability of claim for damages as such and the amount representing interest is stripped of a separate entity. It is true as stressed by the Learned Counsel for the Respondent, that the distinction is subtle but however in the absence of express provision of law the claim for interest is not sustainable. In the instant case the claim for unliquidated damages is made for Rs. 64,633/- and the interest thereon at 12% per annum was claimed for the period prior to the suit. The Court below granted interest at 6% per annum. In view the of ratio propounded by the Supreme Court the claim for interest is unsustainable and the judgment of the Court below is erroneous.

In the result, the judgment and decree of the Court below granting interest prior to the institution of the suit is set aside. Appeal allowed. No costs.

The Plaintiff aggrieved by the grant of interest of 6% only as against the claim of 12% preferred cross-objections. The cross-objections are dismissed in view of the decision taken above. No costs.