9911796707
TMI Blog2022 (10) TMI 525X X X X Extracts X X X X X X X X Extracts X X X X ..... r has been specifically articulated. Further, a request was made to stop delivery of the goods. - The supply was stopped on the basis of the communication dated 04.11.16. Pursuant to the purchase order, it is undoubtedly true, that 412 MT was delivered at the factory site of the second respondent. It is beyond challenge that no part of 412 MT has been returned by the second respondent to the first respondent - Section 59 of the Act contemplates a buyer setting up a breach of a warranty to diminish or reduce the price or even extinguish it. If this line is accepted, it could indeed be said that the decks are not cleared for the first respondent-seller for its claim under Section 8. The factum of the filing of the suit, however, cannot be taken into consideration for the purpose of deciding whether there is a preexisting dispute under the IBC. This is for the simple reason that the suit was not filed before the receipt of the demand notice under Section 8 of the IBC. No doubt, the documentary evidence furnished by the first respondent, namely, the purchase order indicates that the price is to be paid within seven days of receipt of the goods. It is true that Section 55(2) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation dismissed - Appeal allowed. - CIVIL APPEAL NO. 2199 OF 2021 - - - Dated:- 13-10-2022 - K. M. JOSEPH And HRISHIKESH ROY , JJ. For the Appellant : Mr. Kavin Gulati, Sr. Adv. Mr. Avi Tandon, Adv. Mr. Anish Agarwal, AOR Mr. Tejas Agarwal, Adv. Ms. Meghna Tandon, Adv. Mr. Mayur K., Adv. Ms. Vanshika Gupta, Adv. Mr. Ami Tandon , Adv For the Respondent : Mr. Manoj Harit, Adv. Mr. Vikram Hegde, AOR Mr. Nakul Dewan, Sr. Adv. Mr. Jaimin Dave, Adv. Ms. Aastha Mehta, Adv. Ms. Nooreen Sarna, Adv. Ms. Vishakha, Adv. Ms. Prerna Mohapatra, Adv. Mr. Nishant Rao , Adv Ms. Deepanwita Priyanka , AOR JUDGMENT K. M. JOSEPH , J. 1. By the impugned order, the National Company Law Appellate Tribunal (hereinafter referred to as NCLAT for brevity) has dismissed the appeal filed by the appellant challenging the order passed by the National Company Law Tribunal (hereinafter referred to as NCLT for brevity) dated 28.05.2020. By the said order, the NCLT admitted an application filed by the first respondent under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as IBC ) against the second respondent. The third respondent was appointed as the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ady discussed to you. For jammer plant: recently supply include high level of powder percentage and moisture too. Kindly consider the issues and please make us assure about quality of coal should not be down the level. Pics attached for your reference. Hdpl referred to in the communication is the second respondent. 5. The next correspondence to notice is e-mail dated 03.11.2016. It is addressed to the first respondent by the second respondent. It reads as follows: M/s. Sortex India Pvt. Ltd. 105, Raghuvir Textile Mall, Aai Mata Chowk, Dumbhal Parvat Patiya, SURAT . 395010 Kind Attn: Mr. Samirji Sub: Inferior/poor quality of Indonesian Coal. Dear Sir, We have placed an order for 500 MT Indonesian Coal to you vide our P.O. No. HDPL/2016-17/586 dated 27.10.2016 for 5400 GCV and Moisture condition is 38-40%. But, on receiving the coal we found that GCV less than 4000 and size of coal is 0mm 50% and maximum size is 5mm to 6 mm only and moisture is 48-50%. It seems if we receive such type of coal we are facing the cleaning problem of boiler and due to that nozzle bent and boiler become damaged. This will occur heavy productio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of the appellant. We further heard Shri Manoj Harit, learned Counsel appearing on behalf of respondent No. 1. We also have heard Mr. Nakul Dewan, learned Senior Counsel appearing for the IRP. 9. Shri Kavin Gulati, learned Senior Counsel would draw our attention to the following paragraph in the impugned order: 19. With the above admission in the affidavit, it is apparent that on 30.10.2016, STDPL, a sister concern of the Corporate Debtor has sent an e-mail to Group Concern of the Operational Creditor in regard to the Purchase Order dated 11.01.2016 whereas, the present claim is in regard to the Purchase Order dated 27.10.2016. It is also to be seen that there is no reference of this e-mail in the reply to the statutory notice. In the said e-mail it is not mentioned that it is in relation to the Purchase Order dated 27.10.2016. In the subsequent e-mail dated 03.11.2016, there is no reference to the earlier e-mail dated 30.10.2016. In such circumstances, we are of the view that the e-mail dated 30.10.2016 is not related to the transaction in question. 10. He would complain that NCLAT committed a clear mistake. The error lies in proceeding on the basis that in the email ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and contended that a buyer must have the right to examine the goods. He next drew our attention to Section 42 of the Act. 15. Immediately upon discovery of the fact that the goods delivered were not in conformity with the terms of the purchase order, the appellant had registered its protest as it were on 30.10.2016. This was again taken up on 03.11.2016 and the communication which is addressed by the first respondent on 04.11.2016 also would fortify appellant s case that the complaint of the appellant was not a spurious one. The first respondent is found making an attempt at justifying the moisture content of coal not being in terms of the purchase order. He would contend that Section 59 of the Act declares the remedies open to a buyer who has elected to treat the breach of a condition as a warranty and the said provision contemplates a suit for damages and what is more, even setting up the extinction of the price. 16. He would point out that suits were filed within the period of limitation even if it may be that the filing of the suits may strictly not be a circumstance which is relevant in the scheme of the IBC. Nonetheless, it goes a long way to establish the case of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flected in its book of accounts. The claim that the suit can be filed within the period of limitation does not fit in with the scheme of Section 9 of the IBC. 19. The purchase order contemplated payment within 7 days of delivery. There is no denial of liability to pay before 12.11.2016 which is the last day by which the account became payable. The analysis reports relied on by the appellant are sought to be painted as concoctions. Rule 150 of the NCLT Rules, it is pointed out is only directory and not mandatory. 20. Learned Counsel would contend that the emails relied upon by the appellant must not be seen as anything more than an effort by the buyer to wriggle out of its obligation to make payment for goods which were received. He would further contend that the purchase order contemplated production of the certificate of analysis. Therefore, when the certificate of analysis was present, it is inconceivable how the appellant without disputing the same could claim that the goods delivered fell short of the standards agreed to between the parties. As regards the claim by the appellant that the goods were consumed in large lots (the case of the appellant is that the total quanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rged by the appellant cannot follow. He would also submit that the perusal of the accounts does not establish the case that a loss ensued to the corporate debtor, in that, accounts do not show that the coal in question was not used. 22. In response, Shri Kavin Gulati, learned Senior Counsel would invite the Court to undertake a more exhaustive survey of the Act. He drew our attention to Section 13 besides Section 63 and the substance of his argument is as follows: He would contend that the law provides that if the buyer treats the contravention of a condition as a violation of a warranty, the rights declared in Section 59 come into play. The right includes a right to sue not merely for damages but also to extinguish even the price of the goods. He would submit that proceeding on the basis that the appellant has accepted the goods, in view of Section 42 of the 1930 Act, it would not be fatal to the appellant. He would contend that Section 13 (2) would then apply in the facts. In other words, this is a case where, out of 500 Metric Tonnes, the Court can proceed on the basis that there was a delivery of 412 Metric Tonnes of coal and the same was consumed by the corporate debtor. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell. (4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. Thus, till the property passes, there is no sale. Property has been defined in Section 2(11) as the general property in goods, and not merely a special property. 24. Section 12 deals with Condition and warranty. 12. Condition and warranty. - (1) A stipulation in a contract of sale with reference to goods which are the subject thereof may be a condition or a warranty. (2) A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated. (3) A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated. (4) Whether a stipulation in a contract of sale is a condition or a warranty depends in ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller s skill or judgment, and the goods are of a description which it is in the course of the seller s business to supply (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be reasonably fit for such purpose: Provided that, in the case of a contract for the sale of a specified article under its patent or other trade name, there is no implied condition as to its fitness for any particular purpose. (2) Where goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be of merchantable quality: Provided that, if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed. (3) An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade. (4) An express warranty or condition does not negative a warranty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when he intimates to the seller that he has accepted them, or when the goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller, or when, after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them. 33. It is apposite also to look into Section 43. 43. Buyer not bound to return rejected goods. - Unless otherwise agreed, where goods are delivered to the buyer and he refuses to accept them, having the right so to do, he is not bound to return them to the seller, but it is sufficient if he intimates to the seller that he refuses to accept them. 34. Chapter V deals with the rights of the unpaid seller against the goods. Apart from exercising the right of lien thereunder, Section 54(2), inter alia, entitles the unpaid seller in the circumstances mentioned therein to resell the goods. Chapter VI deals with suits for breach of the contract. Section 55 reads as follows: 55. Suit for price. - (1) Where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epudiating the contract or rejecting the goods. This is in situations where the contract is not severable. Still further, for Section 13(2) to apply, the buyer must have accepted all or even part of the goods. This however is again made subject to an express or implied contract providing otherwise. Section 13(2) of the Act suffered an amendment by the Amending Act 33 of 1963. By the said amendment, the words or where the contract is for specific goods the property in which has passed to the buyer came to be omitted. Going by the objects and reasons of the Amending Act, it is found that the said words gave rise to some difficulty. It is, inter alia, stated in the objects and reasons that under Section 20 of the Act, property in specific goods in a deliverable state passes to the buyer when the contract is made. When there is a contract for sale of specific goods by sample, Section 17(2) of the Act provides for an implied condition that the bulk should correspond to the sample in quality. It is further indicated in the objects and reasons that when in such a case property is delivered subsequently which does not correspond with the sample, Section 13(2) obliged the buyer to treat t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct for the sale of a specific article is a contract for the article as it is and any description of it at the most amounts to a warranty, for the breach of which the buyer can only recover damages. Occasionally, where goods are sold over the counter to a customer who asks for the goods by their name, the sale may be a sale by description, but in general a customer who buys goods in a shop across the counter is not buying by description. It would appear that the only sales not by description are sales of specific goods as such. Specific goods may be sold as such when they are sold without any description, express or implied; or where any statement made about them is not essential to their identity; or where though the goods are described, the description is not relied upon, as where the buyer buys the goods such as they are . Whether statements with reference to the goods amount to a description of them depends upon the terms of the contract, but in mercantile contracts they will usually amount to a part of the description. Conditions as to Quality This section, it will be observed, deals only with the condition that the goods should correspond with the description ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n implied condition- (a) that the bulk shall correspond with the sample in quality; (b) that the buyer shall have a reasonable opportunity of comparing the bulk with the sample; (c) that the goods shall be free from any defect, rendering them unmerchantable, which would not be apparent on reasonable examination of the sample. Thus, the Act provides for certain implied conditions and warranties. The parties may further also provide for express conditions and warranties. Section 31 proclaims that it is the duty of the seller to deliver goods in accordance with the terms of the contract of sale. Equally, it is the duty of the buyer to accept the goods and to pay for them in accordance with the terms of the contract of sale. Delivery of goods and payment of price are acts to be performed concurrently. In other words, the seller should be ready and willing to give possession of the goods to the buyer in exchange for the price and the buyer must be ready and willing to pay the price on receipt of the possession of the goods. It is significant, however, to notice that this obligation though ordinarily concurrent is subject to a contract to the contrary. In other words, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods ascertains and finds that the goods are not in conformity with the contract, then he is not duty bound to accept the goods. On the other hand, he is entitled to reject the goods. In such circumstances, subject to a contract to the contrary, the buyer who is entitled to reject the goods need not return the goods to the seller. The principle underlying Section 43 is that the buyer need not be saddled with the liability of expense to be incurred for returning of the goods. This is, however the case only when the buyer acquires a right to refuse to accept the goods. As we have noticed, Section 19 deals with the question as to when the property in the goods passes in a contract of sale of specific or ascertained goods. The property would pass according to the intention of the parties. Section 19 (2) provides for three criteria to ascertain the intention of the parties as to when the property passes. The court must bear in mind the following criteria: the terms of the contract, the conduct of the parties and the circumstances of the case. 41. Section 20 which in terms of Section 19 (3) is one of the rules to ascertain the intention of the parties provides that in an uncondition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noticed by us entitles the buyer to waive a condition or to elect or treat the breach of the condition as a breach of the warranty. Section 13 (2) as noticed by us subject to a contract otherwise limits the right of the buyer even when there is a breach of condition to sue only for breach of warranty. Section 59, accordingly, applies in all the three situations, which are as follows. There occurs a breach of the warranty. Secondly, a condition is violated by the seller, but the buyer elects to treat the breach of the condition as a breach of the warranty. Thirdly, under Section 13 (2), in view of the buyer having accepted the goods, in circumstances described in Section 13 (2), the buyer is compelled to sue under Section 59, namely, on the footing that there is a breach of warranty. Thus, the word elects in Section 59 is relatable to Section 13(1) whereas the words is compelled in Section 59 is to be read with Section 13(2) of the Act. 43. It is clear that a breach of warranty does not entitle the buyer to reject the goods. The remedies which he can seek under Section 59 are as follows. He can seek the reduction (diminution) of the price. He may also seek to be freed from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t would be the position if, after there is acceptance of the goods, under Section 42 even if it be a case of express intimation of acceptance, that events occur which lead to the creation of circumstances attracting Section 14? As for instance, the buyer is confronted with a situation where he finds that the goods were in fact stolen and the seller had no right to sell the goods. A third party comes forward and substantiates his case that the goods were never the property of the seller. Would it not be a condition under Section 14 (a) which has been observed in its breach by the seller? Let us further assume that the buyer has not yet paid the price. Can he not despite having accepted the goods exercise his right under Section 59 and seek extinction of the price apart from claiming damages? 46. Under the law, namely the Act, if a suit for price were brought in similar circumstances, the question would arise squarely, whether the second respondent as buyer could defend the action by setting up diminution or extinction of the price. Could the second respondent as defendant seek to non-suit the first respondent by establishing a breach of a warranty. Undoubtedly, ordinarily accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stered post or courier or by any electronic communication have been deleted. Likewise, in Section 8(2), the period of at least 60 days through an information utility or by registered post or courier or by any electronic communication has also been deleted. In Section 9(5), the absence of a proviso similar to the proviso occurring in Section 7(5) was also rectified. Further, the time periods of 2 and 3 days were uniformly substituted, as has been seen above, by 7 days, so that a sufficiently long period is given to do the needful. xxx xxx xxx 34. Therefore, the adjudicating authority, when examining an application under Section 9 of the Act will have to determine: (i) Whether there is an operational debt as defined exceeding Rs 1 lakh? (See Section 4 of the Act) (ii) Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? and (iii) Whether there is existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute? If an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44. We have already noticed that in the first Insolvency and Bankruptcy Bill, 2015 that was annexed to the Bankruptcy Law Reforms Committee Report, Section 5(4) defined dispute as meaning a bona fide suit or arbitration proceedings . In its present avatar, Section 5(6) excludes the expression bona fide which is of significance. Therefore, it is difficult to import the expression bona fide into Section 8(2)(a) in order to judge whether a dispute exists or not. xxx xxx xxx 48. To similar effect is the judgment of the Chancery Division in Hayes v. Hayes [Hayes v. Hayes, 2014 EWHC 2694 (Ch)] under the UK Insolvency Rules. The Chancery Division held: I do not think it necessary, for the purposes of this appeal, to embark on a survey of the authorities as to precisely what is involved in a genuine and substantial cross-claim. It is clear that on the one hand, the court does not need to be satisfied that there is a good claim or even that it is a claim which is prima facie likely to succeed. In Bayoil S.A., In re [Bayoil S.A., In re, (1999) 1 WLR 147 (CA)] itself, Nourse, L.J. referred, at WLR p. 153, to what Harman, L.J. had said in L.H.F. Wools Ltd., In re [L. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Per Disc. % Amount 1. Imp.Coal GCV (ADB) - 5400 KCAL TOTAL MOISTURE (ARB) -40% BY WT (+-2%) Inherent Moisture (ADB) 12%by W (+/-2%) Volatile Matter (ADB) -38-40% ASH (ADB) 5- 7% BY WT Sulfur (ADB) 1% by Wt. Fix Carbon - by Difference Size-0-50 MM Shortage Allowed - 1% INPUT CST @ 2% AGST C- FORM 5,00,000 .00 Kgs 3.14 2 Kgs % 15,70,0 00.00 31,400.00 Total 5,00,000 .00 Kgs INR 16,01,4 00.00 Amount Chargeable (in words): Indian Rupees Sixteen Lakh One Thousand Four Hundred Only Terms Condition With Statutory Details Note: 1. Certificate of Analysis is required along with Material Note: 2. All necessary document should be mention our P.O. Number compulsory otherwise Material is not Unloading at our site Note: 3. Courier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase order dated 11.10.2016 which related to the sister concern of the second respondent namely, STDPL. The second reason for refusing the appellant to draw support from the said email is that there is no reference to email dated 30.10.2016 in the reply to the statutory notice under the IBC. 53. We are of the view that the approach of the NCLAT cannot be sustained. A perusal of the email would clearly indicate that though it was sent by STDPL express reference is made to the second respondent also, and thereafter, the issues relating to the quality of the coal are articulated. We also notice that pictures were attached for the reference. 54. The further fact that there is no express reference to email dated 30.10.2016 in the reply notice given by the second respondent to the statutory notice under Section 8 of the IBC given by the first respondent will not, in our view, detract from the impact of the communication dated 30.12.2016. It is not as if there is a dispute about the sending and receipt of the communication dated 30.10.2016. Therefore, we are of the view that the NCLAT has clearly erred in refusing to lay store by the said communication. On 03.11.2016, undoubtedly, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther words, treating the quality of the coal with reference to certain standards as conditions to be fulfilled by the seller, the mere acceptance of the goods by the buyer may not prevent the buyer from still contending that there has been a breach of the condition, but since the law permits the buyer to treat such breach of the condition when there is acceptance of the goods as only a breach of a warranty, Section 59 of the Act immediately gets attracted. Section 59 of the Act contemplates a buyer setting up a breach of a warranty to diminish or reduce the price or even extinguish it. If this line is accepted, it could indeed be said that the decks are not cleared for the first respondent-seller for its claim under Section 8. 56. However, the objections of the first respondent may be noticed. Apart from supporting the order of the NCLAT with reference to its contents, it is pointed out that the case of the appellant is a mere ruse, and that no complaint was raised on the ground and though there was guarantee under the purchase order, nothing prevented the second respondent from rejecting the goods. The second respondent not only accepted the supply of the goods but proceeded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he pendency of the suit, and also, the nature of the limited inquiry to be conducted under the IBC. We may further note, however, that Section 55(2) also contemplates that the buyer must wrongfully neglect or refuse to pay the price. Interestingly, it will be noticed that the law-giver has in Section 55(1) also used the words and the buyer wrongfully neglects or refuses to pay for the goods but the law-giver has further added the words according to the terms of the contract which words are not found in Section 55(2). Even proceeding on the basis that under Section 55(2) of the Act, this is a case where there is a certain day fixed for the payment of the price irrespective of the passing of the property inter alia, the law does clothe the buyer with the right to resist the suit on the basis that the refusal to pay the price is not wrongful. In other words, he can lean on Section 59 and set up a breach of warranty and seek at least the diminution of the price if not extinction of the same. That apart, he has a right to seek damages even on the same breach. 58. Section 4 of the Act, inter alia, contemplates that an agreement to sell becomes a sale when the time elapses or the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racted for. No doubt, the Court found, in the facts therein, that the property had not passed. For the purpose of this case, we may not have to adjudicate and find that the property has passed in the goods to the second respondent. 59. In Mobilox (supra), this Court took the view that one of the objects of the IBC in regard to operational debts is to ensure that the amount of such debts which is usually smaller than the financial debts does not enable the operational creditor to put the corporate debtor into the insolvency resolution process prematurely. It is further declared that it is for this reason that it is enough that a dispute exists between the parties. It is further the law as declared in Mobilox (supra) that Section 5(6) of the IBC excludes the expression bona fide which qualified the words suit or arbitration proceedings in Section 5(4) under the Bankruptcy Law Reforms Committee Report. All that is required is to see whether there is a plausible contention which must be investigated. This Court has gone on to declare that a patently feeble legal argument may not be a plausible dispute. We respectfully agree. We are unable to find that in the facts of this cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods by the corporate debtor being not in dispute, the impact of Section 13(2) read with Section 59 cannot at least for the purpose of determining whether there is a pre-existing dispute be ignored. 62. No doubt, the first respondent lays store by the purchase order requiring certificate of analysis in that in view of there being no challenge to the said certificate of analysis and there being no rejection of the goods which was contemplated under the purchase order at the ground site, it is contended that the dispute cannot be countenanced. The appellant would, on the other hand, seek to buttress his case with reference to the lab reports, no doubt, procured from the labs which the second respondent has set up. The appellant, it must not be overlooked has a definite case that, only upon use of the goods, the defect in the goods came to be discovered. No doubt, the lab reports may support the appellant. It is not the case of either party that the quality of the coal as set out in the purchase order is something which could be established on mere physical examination. As far as the contention that no debit note was raised in respect of supplied goods and that the accounts ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
