TMI Blog1990 (3) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... ations were held regarding the purchase of raw cashewnuts by the petitioner and, in July, 1987, it was agreed that 250 M.T. (plus or minus 10% at seller's option) of dry raw cashewnuts would be supplied to the petitioner. The salient terms and conditions of the contract were the following : The goods were to be of Tanzanian origin and the shipment was to come from Mombasa port. The price negotiated and agreed was US dollars/1,300 per metric ton, C and F Cochin landed weight and quality. There was a tolerance limit prescribed as regards the quality of the goods, the moisture content and the foreign matter content. The payment of the price was to be by drawing against confirmed irrevocable letter of credit to be opened for 10% of the contract value. The price was to be paid at the rate of 90% on presentation of the documents at London and the balance of 10% after the cargo was discharged by the vessel at the port of destination, namely, Cochin, and after the goods were inspected and accepted by the petitioner. An L.C. was accordingly opened at the instance of the petitioner by the Bank of Baroda in accordance with these terms. The first consignment comprising 1,400 bags of 80 kg. e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parcel of 1,800 bags arrived at Cochin port in vessel M.F.V. Khabeer Das on October 12, 1987. Out of this consignment, 1,126 bags were found to be in sound condition and 674 bags were in a torn and burst condition. The decayed and damaged nuts were in excess of the tolerance limits. Again, S.G.S. India Pvt. Ltd. was requested to survey the entire goods but they failed to do so. The petitioner, therefore, got the goods surveyed after bringing to the notice of the consignor the attitude of the designated surveyor. The survey was again conducted by J.B. Boda, marine surveyors. As in the previous instance, S.G.S. India Pvt. Ltd. conducted a survey on November 18, 1987, in respect of the goods contained in the sound bags only. The report of J.B. Boda shows that the goods contained in the sound bags were damaged to the extent of 57.1% and the goods contained in the torn bags were defective to the extent of 76%. The surveys conducted by S.G.S. India Pvt. Ltd. were defective, incorrect and incomplete. As the petitioner had already paid 90% and 60% of the invoice price of the goods, when the extent of damaged goods received was so large, the petitioner became entitled to claim refund of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne calls. These demands have not evoked any response. As one of the conditions in the contract was that the provisions of the Combined Edible Nut Trade Association (CENTA), U.K., would be applicable to the contract, the petitioner raised a dispute before the CENTA and claimed refund of excess price and also sought arbitration of the dispute. The said association has erroneously and for ulterior purposes, not processed the reference and the claim of the petitioner, obviously due to the influence wielded by Romesh Kotecha with CENTA. On September 29, 1988, the petitioner's counsel sent a notice to the respondent to pay a sum of US dollars 62,366.63 with interest. The notice was not complied with ; hence this petition. The petitioner asserts that the amounts claimed are quantified and are due. In response to the notice regarding admission, the respondent has filed its objections. The substance of the respondent's pleas is : There was no relationship of creditor and debtor between the parties. The respondent acted only as a broker between the petitioner and a company called Producin Ltd., incorporated in the United Kingdom (referred in this order as "the London seller"). There ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vely, that the respondent was the agent of the London seller and, therefore, was liable to meet the claims of the petitioner. Several documents are filed by the parties in support of their respective contentions. At the time of arguments, Mr. Naganand, learned counsel for the petitioner, confined the petitioner's case to the alternative plea raised in the reply statement and contended that the respondent was the agent of a foreign principal (London seller) and, therefore, by virtue of section 230 of the Indian Contract Act. 1872, was liable to meet the petitioner's claim under the transaction in question. For this purpose, Mr. Naganand, referred to the copy of the agreement (annexure-O) which was in the letter-head of the respondent and to the fact that the petitioner had made several demands from the respondent to meet the petitioner's claim. Mr. Hanumantha Rao, learned counsel for the respondent, however, urged that the respondent was acting only as a broker and annexure-O (the agreement) was not signed by the respondent as the seller. In fact, the said document shows the London seller as the "seller" ; the price in US dollars ; and documentation required included "clean on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances, it is found that the validity of the petitioner's claim is genuinely disputed by the respondent on substantial grounds, this court would not proceed further in the exercise of its discretionary jurisdiction under section 433 of the Act. The admitted facts and circumstances of the case are : ( a )The goods were sold by the London seller. ( b )Payments were made by the petitioner to the London seller by opening irrevocable letters of credit in favour of the London seller. ( c )In the initial correspondence, the petitioner claimed refund of the purchase price from the London seller. ( d )The claim of the petitioner arose out of the alleged defective qualities of the cashewnuts sold to it by the London seller. ( e )The agreement is in the letter-head of the respondent and it has signed it. But the capacity in which it has signed it is not forthcoming. ( f )The petitioner raised a dispute for arbitration against the Lon don seller without success. ( g )The petitioner has suffered an award out of the claim made by the London seller in respect of the same transaction, though the petitioner asserts that the petitioner was not heard in the matter by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . ,S. T. Belton ( Tractors ) Ltd. [1968] 1 All ER 585 (QBD), Bowstead on Agency (15th edition), articles 86 and 105, etc., Deoki Nandan and Sons v. Ram Lal Qulak and Lockwood Bros., AIR 1923 Lah 296, and Tutika Basavaraju v. Parry and Co. [1903] ILR 27 Mad 315. There can be no doubt about the validity of the respective propositions of law put forth by learned counsel. But the applicability of the law, here, depends upon proof of certain facts such as, the existence of a relationship of principal and agent between the London seller and the respondent; the nature of the contract governing the transaction in question ; whether the contract was a direct contract between the petitioner and the London seller and assuming that the respondent acted as the agent of the foreign seller, the circumstances justify the inference against the presumption to be drawn under section 230 of the Contract Act. These matters are for a court to decide in a suit unless this court finds the plea set up by the respondent here, as totally lacking in bona fides ; or it is frivolous or a camouflage to cover up its lustreless case. The respective pleas of the parties here clearly show that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has been said that the latter is a phrase which means no more than that in accordance with settled practice the court can only exercise its discretion in one way, namely, by granting the order. These statements can be reconciled on the basis that although the matter is 'a complete and unfettered judicial discretion' the discretion is exercised in accordance with certain established principles, but the principles do not bind the court in an all or nothing way. In accordance with these principles the creditor has a prima facie right to a winding up order which is subject to certain exceptions." Again, Palmer is quoted, as to the exceptional circumstances under which the discretion to wind up would not be exercised : "(1)where the petitioner's debt is less than $200 ; (2)the debt is bona fide disputed by the company ; (3)the company has paid or tendered payment of the petitioner's debt; (4)the winding up is opposed by other creditors ; and (5)the company is in the process of being wound up voluntarily." Words of caution against invoking the court's jurisdiction to pressurise a company are found in the decision of the Supreme Court in Amalgamated Commercial Traders P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitial stage of a suit can only be hazardous ; but, still, the court is called upon to apply its judicial mind on this question. Similar is the situation when the respondent company is asked to show cause against a winding up order at the initial stage ; the respondent, here, has to show cause as to why the petition filed should not be advertised ; such an advertisement may have adverse effects on the reputation of a company and, therefore, it is given an opportunity to show cause against ordering the advertisement (vide National Conducts ( P. ) Ltd. v. S.S. Arora [1967] 37 Comp Cas 786 ; AIR 1968 SC 279). Therefore, whenever the respondent company comes forward and sets forth its defence, this court has to examine the nature of the respective cases pleaded by the parties and if a prima facie case is made out by the petitioner, the respondent should shoulder the onus of disproving it, by showing that its defence is in good faith and is one of substance and it is likely to succeed in point of law. The guidance to find out whether the defence is bona fide and one of substance, reference to the principles enunciated under Order 37, rule 3, Civil Procedure Code may not be irre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier occasions ; it might have kept quiet without responding to the demands made and notices issued by the petitioner ; only after the petitioner invoked this court's jurisdiction, the respondent company may unearth circumstances or materials and oppose the claim ; in such a situation, an adverse inference may have to be drawn against the respondent-company ; the defence, being an afterthought, will be a mere cloak to cover up its inability or refusal to pay: Here, some of the serious or substantial questions to be tried are : ( i )Whether the respondent-company acted as the agent of the foreign seller? ( ii )Whether the contract of sale and purchase was entered into between the petitioner and the foreign seller directly? ( iii )Whether the presumption under section 230 of the Contract Act is not attracted for any reason, in case the respondent acted as the agent of the foreign seller? ( iv )Whether there was an. effective award against the petitioner which disentitles it to put forth/any claim arising out of the transaction covered by the award? ( v )Can the petitioner invoke parallel and separate proceedings against the foreign seller and its alleged agent, the res ..... X X X X Extracts X X X X X X X X Extracts X X X X
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