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TMI Blog2022 (6) TMI 1477X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 9.45 ps. per bag for 9,000 bags is valid and he is entitled to the difference of price from Rs. 8.75 ps., to Rs. 10.25 ps. amounting to Rs. 49,500/- and Rs. 6,210/- towards price difference for 9,000 bags from Rs. 8.75 ps., to Rs. 9.45 ps., for a total amount of Rs. 55,710/- - answered in favour of the plaintiff as against the defendants. Whether the claim of the plaintiffs for Rs. 1,18,000/- towards loss incurred on 25,000 bags for selling it as scrap @ 50% price on account of not taking delivery by defendants is proper? - HELD THAT:- The evidence of DW. 1 would disclose that without any contract, they accepted the supply of bags for 1,00,000 and issued a telegram to stop supply on 11.12.1993. This would support the evidence of PW. 1 that their company supplied 1,09,000 bags by 05.12.1993 and on 7.12.1993 the defendant company released formal order No. 40893 for 1,00,000 bags only and during the said period the defendant company telephoned the plaintiff company from Ramagundem Unit as well as from their Delhi office to supply bags without waiting for formal order. The plaintiff company further printed 25,000 bags on 6/7.12.1993, but the order was placed for 1,00,000 bags only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered as improper - But, when punitive penalty is imposed, there must be evidence of damage suffered by the defendants. In the absence of the same and when the goods were utilized without rejection, imposing penalty on the plaintiff is considered not in accordance with law and terms and conditions of the contract. Hence, this point is answered in favour of the plaintiff as against the defendants and the observations of the trial Court on this aspect is considered not proper and as such, the same is liable to be set aside. Whether the plaintiffs are entitled to claim interest @24% per annum? - HELD THAT:- As per Section 4 of the said Act, which was existing as then, buyer should be liable to pay interest to the supplies on outstanding dues beyond the appointed day at a rate which was 5% points above the floor rate - As the trial Court had not granted interest at the said rate and granted only 12% interest, the same is also considered as not proper. As Section 5 of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 also specifies that notwithstanding anything contained in any agreement between the supplier and a buyer, the buyer shall be li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of packing fertilizers to transport the same to their customers. The defendants had been placing orders with the plaintiff for supply of sacks since 1986-87 onwards and the plaintiff was supplying the same as per technical specifications given by the defendants. The terms and conditions were mentioned in the purchase orders. The purchase orders would provide with regard to the payment terms and other conditions. According to payment terms, 100% payment should be made by the defendants within 20 days of the receipt and approval of the material at the defendants plant. The defendants placed the following orders for supply of bags: P/RD/1630/DHPE/LTD/KMK Dt. 11-9-1992 with amendment No. II, Dt. 2-12-1992 and amendment No. Nil Dt. 12-10-1993 for 6.45 lakhs bags. P/RD/1640/HDPE/LTD/KMR/40247 Dt. 3-5-1993 with amendment No. 1 Dt. 15-9-1993 amendment No. II Dt. 12-10-1993 for 8.55 lakhs bags. P/RD/P/9385072/HDPE/KMR/40893 Dt. 7-12-1993 with amendment No. 1 Dt. 21-4-1994 for additional quantity of 42000 bags. 3.1. The plaintiff as per the given specifications manufactured the bags and supplied the same and the order No. 40247 with amendment No. II dated 12.10.1993 was completed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase order amendment with regard to quantity and price as agreed. After taking further delivery of 1,09,000 bags, the defendants unilaterally issued formal order No. 40893, dated 07.12.1993 only for 1,00,000 bags falling short of 9,000 bags as per the terms agreed on 17.11.1993. The defendant issued amendment for 42,000 bags unilaterally which included 33,000 bags as well as 9,000 bags, falling short in the order No. 40893 not as per the agreed price but for an amount of Rs. 8.75 ps. per bag which was never agreed by the plaintiff. The plaintiff also printed 25,000 bags on 06/07/12.1993 which had to be dispatched by 08.12.1993. 3.2. The plaintiff contended that due to the defendant unilaterally changing the rate, he suffered loss of Rs. 55,710/- for 33,000 bags supplied on 16th and 18th November, 1993 under clause No. 8.5 of tender document i.e. 5% excess quantity @ Rs. 10.25 per bag which was prevailing rate under order No. 40247. The defendant issued the amendment @ Rs. 8.75 ps. inclusive of sales tax, hence, caused loss of Rs. 1.50 ps. per bag amounting to Rs. 49,500/-. For 9,000 bags supplied before getting the purchase order No. 40983 dated 07.12.1993 @ Rs. 9.44 ps., incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le unit, it would come within the purview of Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (for short 'the Act'). Any transactions done with SSI unit, payment should be made within 30 days from the date of supply as per the statute and in the present case, as per the terms agreed, within 20 days. Neither the agreed period nor the statutory period was adhered to. The rate of interest specified under the Act was 5% over the normal lending rate which the plaintiff was legally entitled to. 3.6. The plaintiff contended that when they demanded money because of financial constraints, the defendants imposed liquidated damages Because the plaintiff demanded interest for delayed payments, as a counter-blast, the defendant imposed penalties of Rs. 4,89,919.99 ps. towards deficiency in the bags that they were not manufactured as per the specifications given in the purchase order. The plaintiff further contended that the defendant used the bags without any protest, and in most of the cases, the defendant used the bags on the same day of receipt of bags and also dispatched the fertilizer packed in the said bags on that day itself without wait ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct the supplies to 1,00,000 bags on 7th December. He contended that the defendant, after giving instructions to manufacture bags, did not choose to lift the 25,000 bags which were printed in the name of F.C.I. Ramagundam. As such, they remained unsold and requested the defendants to consider the request for lifting of 25,000 bags. As the defendant did not choose to consider the same, the plaintiff sold those bags as scrap at 50% rate and suffered loss to a tune of Rs. 1,18,000/-. The plaintiff contended that he wrote several letters and issued legal notices to the defendants, but no reply came. Left with no other alternative, the plaintiff filed the suit for recovery of the amount. 4. The 1st defendant filed written statement and the same was adopted by defendant Nos. 2 to 4. The defendant No. 1 admitted that they placed purchase orders for supply of 6,00,000 bags vide order No. 40247 dated 03.05.1993@ Rs. 10.55 ps. per bag and purchase order for supply of 1,00,000 bags @ Rs. 9.13 ps. per bag and issued amendment dated 21.04.1994 for supply of 42,000 bags @ Rs. 8.75 ps. per bag. He denied that they asked for supply of 33000 bags and stated that the plaintiff unilaterally supplied 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not tenable and that the suit was barred by limitation and prayed to dismiss the same with costs. 5. Basing on the said pleadings, the trial Court framed the issues as follows: i) Whether the plaintiff had supplied 42,000 bags (33,000 + 9,000) on the advice and urgency shown by the defendant on his own? ii) Whether the defendant after taking and consuming the bags even without placing order can deny the agreed price for 42,000 bags? iii) Whether the defendant had any right to deduct Rs. 1,63,471/- as liquidated damages? iv) Whether the defendant is entitled to deduct Rs. 4,89,919-99 ps. as penalty if so whether it is in accordance with the terms and conditions of order/tender? v) Whether the plaintiff is entitled to interest for the delayed payments as per law? vi) Whether the plaintiff has printed 25,000 bags as per the oral order of defendant company if so, whether the plaintiff sustained loss at the rate of 50% of the value due to refusal on the part of the defendant to take delivery of the bags? vii) Whether the defendant has called fresh tender after placing of the orders to the plaintiffs company and in which M/s. Neptune Polymers, Ahmedabad quoted rate of a bag at Rs. 8.46 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... @ Rs. 8.75 ps., per bag and paid the amount. Hence, the plaintiff was not entitled to the difference in price for the two quantities of bags and was also not entitled for any interest. The court ought to have seen that the printing of 25000 bags by the plaintiff was on his own accord in the absence of any order from the defendants, as such, he was not entitled to seek recovery of Rs. 1,18,000/- towards loss of 50% price on 25,000 bags against the defendants. Even otherwise, there was admittedly no evidence to show 50% loss of price suffered by the plaintiff. The court erred in holding that the plaintiff was entitled to the rate of Rs. 9.45 ps. per bag for supply of 9,000 bags and also the plaintiff was entitled to claim the value for 25,000 bags @ Rs. 9.45 ps. on 1,18,000 bags and the said finding was not based on evidence. The court below erred in holding that the plaintiff was entitled to interest on Rs. 1,72,734/- @12% per annum, particularly, in the absence of any conditions specified. The Court failed to consider the reason for delayed payments by the defendants as stated in the written statement. There was no basis for awarding interest particularly when the plaintiff supplie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the technical specifications were prescribed along with average. When the average was within the specified limit, and no bag was less than 90%, it had to be accepted as per the NIT conditions. Imposing penalty on the ground that they were not suiting the technical specifications was bad in law. The defendants deducting the amounts on one ground or the other, when the amount was demanded, was nothing but putting financial coercion on the plaintiffs, as such, the action of invoking the penal clause and imposing penalty was bad in law. The defendants adopted discriminative attitude and interpreted the specifications clause to suit their own convenience. But for all others, who supplied the bags, the average specifications alone were taken, but not the individual bag strength. There could not be two sets of standards for accepting or rejecting the goods. The test on the bags was not done in the presence of the plaintiffs and Exs. B2 to B64 were not approved through the concerned official. As such, relying on them to give a finding that the specifications should be individual but not average was not in consonance with the terms of agreement and law. There is no punitive clause in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. According to the said Act, the defendants were liable to pay compound interest with monthly rests at one and half time of prime lending rate charged by the State Bank of India. Though the legal position was brought to the notice of the Court, the same was not looked into and granted 12% basing on the rationale of the case in the State of Madras Represented by Director v. M.A.S. Mehta [AIR 1964 Madras 508] which was not applicable to their case and prayed to set aside the judgment and decree to the extent it went against them. 10. Heard Sri P. Sandeep, learned counsel appearing for the appellant/plaintiff in A.S. No. 913 of 2004 and the learned Counsel Sri Aka Venkataramana, learned counsel for the appellants/defendants in A.S. No. 808 of 2002. 11. Now, the points that arise for consideration in these appeals are: 1) Whether the trial Court erred in awarding price difference for 33,000 and 9,000 bags in favour of the plaintiff? 2) Whether the claim of the plaintiffs for Rs. 1,18,000/- towards loss incurred on 25,000 bags for selling it as scrap @ 50% price on account of not taking delivery by defendants is proper? 3) Whether awarding of liquidated damages of Rs. 1,63,471/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned counsel for the plaintiff contended that the defendant company approached the plaintiff for further supply of bags invoking clause-8 of the tender document and accordingly, the plaintiff supplied 13,000 bags on 16.09.1993 along with 7,000 bags which was due vide purchase order amendment dated 15.09.1993 (total 20,000 bags) and further supplied 20,000 bags on 18.11.1993. Total 33,000 bags were supplied under clause No. 8. He further submitted that on 17.11.1993, the defendant called for further negotiations and the plaintiff company offered to reduce the price of the bag to Rs. 9.13 ps. + 3.41% APGST per bag and the defendant confirmed the same orally. The defendant company requested the plaintiff to supply 10,000 to 20,000 bags on every alternate day without waiting for formal order and accordingly, the plaintiff company supplied 1,09,000 bags by 05.12.1993. On 07.12.1993, the defendant company released a formal order 40893 for 1,00,000 bags only. He further contended that the defendant company never made the payment as per the agreed terms within 20 days. Their due amount reached upto Rs. 35,00,000/- at one point of time. On 17.11.1993, they were asked to quote the rate for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l court that there was evidence on record to show that the defendant company was in the practice of first calling for tenders for a certain quantity of empty bags and later extending the quantity by way of purchase orders from time to time as per its convenience, contrary to the terms and conditions of the NIT is justified. Its further observation that the defendant never followed the NIT conditions and never issued the purchase orders specifying the quantity and time within which the supply to be made to the defendant company, hence, the defendant could not argue that it had not placed orders for 33,000 and 9,000 empty bags, is also considered as proper. 12.6. DW. 2 also admitted in his evidence that the first tender was accepted on 11.09.1992 and second tender was accepted on 03.05.1993 and the third tender was accepted on 07.12.1993 and the third amendment to the first tender took place on 12.10.1993 for 1.45 lakhs bags supplied within a period of 24.04.1993. He admitted that there were instances that the defendant received sacks against the order and subsequently regularized by way of amendments, they used to receive sacks at times, even before the order of amendment, might be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intiff on 8-12-1993. Thus, after giving instructions to manufacture bags, they did not choose to lift the 25000 bags which were printed in the name of FCI, Ramagundem and they remained unsold. The plaintiff requested all the officers of FCI, Ramagundem for lifting the 25000 bags personally as well as by letters but the defendants had not chosen to consider the demand of the plaintiff. Ultimately, the plaintiff had to sell the bags as scrap at 50% rate and suffered huge losses. The plaintiff got issued legal notice dated 25.09.1995 for lifting stock. No reply was given by the defendants. As such to mitigate the losses, plaintiff sold 25,000 bags as scrap at 50% and balance 50% rate has to be paid by the defendants for an amount of Rs. 1,18,000/-. 13.2. The defendant in his written statement stated that he never advised the plaintiff to make ready the 25,000 bags printed thereof. DW. 1 also stated in his evidence that the plaintiff had not supplied 25000 bags to them and as such he was not entitled to claim damages at Rs. 1,18,000/- towards 50% of the cost of the said bags. DW. 1 admitted in his cross examination that the plaintiff supplied the printed bags with FCI Monogram but stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there were delays in the supplies made by the plaintiff and he calculated the delay on the information furnished by the Deputy M.M. Stores/Central Industrial Security Force. The Central Industrial Security Force would receive the material and would endorse on the lorry receipt about the date of receipt of the goods and communicate the said date to him. On the basis of the said date and purchase order, he would calculate the delay. There were 41 occasions where the plaintiff supplied the goods with delay and he calculated liquidated damages for all 41 delays for a total sum of Rs. 1,63,471/- as detailed in the statement marked under Ex. B65. He further stated that the liquidated damages were arrived in accordance with the contract and purchase order. 14.1. The notice inviting the tenders (NIT) is marked as Ex. A1. Annexure-I of the tender document contains general terms and conditions. Clause No. 7 deals with the delivery schedule. It reads as under: 7.0 DELIVERY SCHEDULE: 7.1 SUPPLY SHOULD BE COMPLETED AS PER THE DELIVERY SCHEDULE GIVEN IN THE PURCHASE ORDER AND SUPPLIER SHOULD TAKE INTO ACCOUNT THE TIME TAKEN IN TRANSIT FROM THE SUPPLIER'S WORKS TO THE DESTINATION WHILE MAKING ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as liquidated damages and when the same was designed to penalise the breaching party, it is called as a penalty. When these damages are ascertainable from the terms of the contract to be calculated as compensation upon a specific breach, they can be considered as liquidated damages. Both these clauses under Exs. A1 and A2 would provide that the buyer can recover from the seller for such delayed supplies half percent for week of delay subject to maximum of 5% of the total value of the delivery order under which supplies have been delayed. Thus, the contract provided the mode of calculation of these damages and there was specific wing in the defendant Corporation and specific mode and method for calculating the delayed supplies. 14.4. The contention of the learned counsel for the plaintiff was that the defendant company has no right to impose liquidated damages as it committed breach of contract by not making the payment within time and failed to consider Sections 51 and 54 of the Contract Act. Section 51 and 54 of the Contract Act deals with reciprocal promises and effect of default as to that promise which should be first performed. But, the terms of the contract would not discl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween the statements Ex. B65 and A42 showing the delayed supplies of goods to the defendant corporation, I accept Ex. A42. The reasons are that as per the NIT conditions the defendant has to issue purchase order mentioning the quantity and the time within which the goods are to be supplied under Clause -8 of NIT., But the defendant did not honour this clause and used to place orders verbally with the plaintiff and receive the goods. In those circumstances there was no record evidence to show that the plaintiff failed to supply the bags within the time specified in the purchase order. The purchase order issued by the defendant after receipt of the goods showing the delay in supply have no evidentiary value and the Court is unable to place reliance on those purchase orders. The plaintiff admitted that there were some occasions where the goods been supplied with delay as detailed in Ex. A42. Therefore, I accept Ex. A42. The plaintiff calculated the delays which are not questioned by the defendant. As per Ex. A42 the defendant is entitled to claim liquidate damages of Rs. 1,63,471/-. 14.6. The observations of the trial Court and the relief granted were contradictory to each other. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he bags as per his report covered by Exs. B2 to B64 and after making the report of the specifications, he sent them to Chief Chemist and after Chief Chemist's report, it would be sent to the material handling plant and the material handling plant department would assess the penalty as per NIT. He stated that the specifications were taken individually but not on an average When the court questioned specifically, he stated that he had calculated the individual bag weight and also the average as per the specifications for acceptance of goods without penalty. 15.1. The defendants also got examined DW. 5, Area Manager of the Corporation, who was one of the members of the Committee constituted for fixation of penalties, where the bags supplied were not in accordance with the specifications. The said Committee report was marked as Ex. B1. He stated that the Committee members found that there were variations in the supplies, more than the prescribed specification in the NIT to impose penalties on the supplies. He admitted that he imposed higher penalty of 62.5% in some cases. In case of variations of specifications above 10%, the company accepted the goods, but with higher penalty i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded to Ex. B3. He admitted that if there were variations in specifications i.e. below 10% as per NIT, they would reject the entire lot. He admitted that in Ex. B2, the average breaking strength was 91.63 which was more than 87%, but contended that Item No. 13 was showing 82 kgf which was not individually fulfilling the requirements. Thus, the evidence of DW. 4 would disclose that they imposed penalty basing on the individual bag weight and also on the average. The trial Court also accepted the contention of the defendants in the said regard that the plaintiff had to satisfy the conditions for individual value of the breaking load strength and also the average specified value of breaking load strength. 15.4. On a perusal of Note ii) of Annexure II, when the technical specifications were prescribed along with average and when the average was within the specified limit and no bag was less than 90% of the specified value of the breaking load strength, the same had to be accepted by the defendants as per the NIT conditions. When 10% deviation of average of the bags was allowed as per the NIT conditions, it does not mean that the individual value of the bag would also be not more than 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r officer regarding the breach of the contract can be sustained under law because a party to the agreement cannot be an arbiter in his own cause. Interests of justice and equity require that where a party to a contract disputes the committing of any breach of conditions the adjudication should be by an independent person or body and not by the other party to the contract. The position will, however, be different where there is no dispute or there is consensus between the contracting parties regarding the breach of conditions. In such a case the officer of the State, even though a party to the contract will be well within his rights in assessing the damages occasioned by the breach in view of the specific terms of Clause 12. We are, therefore, in agreement with the view of the Full Bench that the powers of the State under an agreement entered into by it with a private person providing for assessment of damages for breach of conditions and recovery of the damages will stand confined only to those cases where the breach of conditions is admitted or it is not disputed. 15.7. Thus, the defendants themselves deciding about the breach of conditions of contract and imposing damages, when t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made by the defendants within 20 days of the receipt of approval of the material at their plant. The evidence of PWs. 1 and 2 and the evidence of DW. 1 also would disclose that the defendants were not complying with the said payment terms and had made delayed payments. The plaintiff is a small scale industry and was covered by the provisions of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993. As per Section 4 of the said Act, which was existing as then, buyer should be liable to pay interest to the supplies on outstanding dues beyond the appointed day at a rate which was 5% points above the floor rate. (The Reserve bank of India in its new credit policy has changed the system of prescribing floor rates for the purpose of lending by banks for the loans exceeding Rs. 2.00 lakhs. The banks are free to fix the prime lending rate for loans.) 16.1. Section 4 of the Act reads as under: 4. Date from which and rate at which interest is payable.- Where any buyer fails to make payment of the amount to the supplier, as required under section 3, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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