9911796707
TMI Blog2022 (6) TMI 1477X X X X Extracts X X X X X X X X Extracts X X X X ..... ff for recovery of an amount of Rs. 18,58,903.88 ps. The plaintiff company was a small scale unit established for manufacturing High Density Poly Ethylene (HDPE) sacks and was established at Siddipet, Karimnagar Road, with the assistance of APIDC. The 1st defendant was a Government of India Public Sector Undertaking established at Ramagundam popularly known as Fertilizer Corporation of India (FCI), Ramagundam Unit. The 1st defendant was placing orders with the plaintiff for supply of bulk quantity of sacks for the 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. 11-9-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad to be supplied and formalities could be complied later on. The defendants took delivery of 1.42 lakhs bags including 33,000 bags under clause No. 8.5 of tender and made use of them. But, later on the defendants issued purchase order No. 40893 dated 07.12.1993 for one lakh bags only. The defendants orally agreed to give the prevailing price of Rs. 10.25 ps. per bag for the 33,000 bags supplied under clause No. 8.5 of the tender. But, after taking delivery, for the reasons best known to them, the defendants had not given 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the due amount. The plaintiff further submitted that because of delayed payment, he was constrained to pay interest to the financial institutions from where they borrowed money, as such, they were entitled to claim Rs. 3,45,467/- towards interest on the delayed payment calculated upto 15.07.1994 and were also entitled to Rs. 1,63,470.94 ps., which was part of the value of cost supplied to the defendant which had been deducted in the name of liquidated damages clause. He further submitted that as the plaintiff was a small scale 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 liquidat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1993, Mr. S. Biswas, Deputy General Manager, instructed the plaintiff on phone for the supply of bags, but suddenly the defendant despatched a telegram on 7th December, which was received by the plaintiff on 8th December and also the purchase order No. 40893 dated 07.12.1993 for 1,00,000 bags stating that they had no authority to exceed the quantity and no further supply to be made. The plaintiff contended that the defendant received first consignment of bags from his competitors on 06.12.1993. As such they had chosen to restrict 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... layed payment and on Rs. 1,63,471/- deducted for liquidated damages. He justified the imposition of penalty of Rs. 4,89,919.99 ps. that it was as per the terms and conditions of NIT and imposed after taking into consideration the reports of the department. He contended that they never asked the plaintiff for supply of 25,000 bags and had not received the said quantity and the plaintiff was not entitled to claim Rs. 1,18,000/- towards its loss. He contended that the total claim of the plaintiff to a tune of Rs. 18,58,903.88 ps. was 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny became the successful bidder and quoted Rs. 8.75 ps. per bag. Since the said company failed to supply the goods as agreed, the plaintiff company came forward and agreed to supply at Rs. 8.75 ps. per bag, hence, the defendant company was not liable to pay any difference amount which was not agreed by the defendants. The plaintiff voluntarily supplied 33,000 and 9000 bags to the defendants without purchase order at his own risk and requested the defendants to ratify their price. In such circumstances, the defendants accepted the goods from the plaintiff @ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms and conditions of the agreement/purchase order that the appellant had to satisfy both the conditions of individual value and also average value of breaking load strength was not correct. The trial Court misconstrued the interpretation of clause No. 3 as well as the technical specifications. The trial Court erred in holding that the individual value of bags was also an important factor to determine the breaking load strength of the bag. If the said interpretation was accepted, the defendant authorities had to test every bag. As per the tender conditions, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... procedure for testing the bags and not a single bag was rejected on the ground of deficiency in strength. Similarly, the defendants Talchar Unit also received bags and there was no adverse report regarding quality of the bags. But, when the bags were supplied to Fertilizer Corporation of India, Ramagundem, they withheld the amounts and to justify their action and to cover up their inaction and breaches raised the grounds of defective goods. The trial Court ought to have seen that the plaintiff was a small scale industry and was covered by the provisions of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55 ps. per bag and he stood as the successful bidder. A purchase order for 6,00,000 bags vide purchase order No. 40247 was issued by the defendant on 03.05.1993 vide Ex. A9. The said order was further amended to 6.55 lakhs bags at the same rate and further amended to 8.55 lakhs (i.e. 2.00 lakhs @ Rs. 10.25 per bag) and the telegram for confirming 6.00 lakhs bags order was marked as Ex. A6 and the purchase order amendment dated 15.09.1993 for 2.00 lakhs bags was marked Ex. A8 and the purchase order amendment dated 12.10.1993 for 8.55 lakhs bags was marked as Ex. A7. 12.2. Learned 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 ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis of the lowest tender accepted by them during the relevant period with other manufacturers is improper. The plaintiff is not a party to the contract between the defendant and the other successful bidder with whom they entered into contract for supply of bags @ Rs. 8.75 ps. When he was asked to supply the bag @ Rs. 9.13 ps. + 3.41% APGST on 17.11.1993 and the supplies for 33,000 bags was made on 16.09.1993 and 18.11.1993 regularizing the supply at Rs. 8.75 ps., per bag on the basis of the lowest tender accepted by them was not proper. 12.5. The observation of the trial 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order No. 40893 dated 07.12.1993 for 1.00 lakhs bags, stating that they had no authority to exceed the order quantity of one lakh bags against order No. 40893 dt. 07-12-1993 and no further supply to be made. 13.1. He further contended that the defendant despatched the telegram without any moral basis and refused to take the delivery of 25000 bags which was printed before receipt of purchase order. As the defendant received first consignment of bags from competitors on 6-12-1993, they had chosen to restrict the supply to 1,00,000 bags only on 7-12-1993, which was received by the plaintiff 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 miti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of the plaintiff as against the defendant and the judgment of the trial Court in this regard is upheld. 14. POINT No. 3: Whether awarding of liquidated damages of Rs. 1,63,471/- in favour of the defendants is proper? The defendant deducted an amount of Rs. 1,63,471/- towards liquidated damages for delayed supplies, which the plaintiff contended as improper and that he was liable to be paid the said amount along with interest. The defendants got examined the Accounts Officer in the Finance Department of their Corporation as DW. 3, who calculated the liquidated damages. He stated that 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 det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the contract price or (ii) cancel the contract and/or (iii) purchase from any other source on account and at risk of Seller, the stores not delivered or other of similar descript ion and recover all additional expenses thus incurred from the suppliers." 14.3. Thus, both these documents would state that the delivery date is the essence of the contract. But, however, the same was termed as a penalty under clause No. 8 of Ex. A1 and as liquidated damages in Clause No. 12 in Ex. A2. When the contract provides a specific amount to be paid as damages in the event of future default or breach of contract, it is called 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that delayed supplies were calculated even before placing the original order or the statement was given to them long after the supply and the same was not valid, they need to confront the same with DW. 3 when a witness was specifically examined in the said regard by the defendants. But, the cross-examination of DW. 3, would not disclose confronting the witness with the said statement marked under Ex. A42. As such, the plaintiff failed to prove that they were entitled to the said amount deducted by the defendants as liquidated damages. 14.5. But, the trial Court made observations on this issue as follows: "In between 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration, who stated that the specifications of the empty bags were provided in the notice inviting tender (NIT). They conducted break load of the empty bags lengthwise, width-wise and bottom seems and allowed 10% deviation with penalty. For example: If the weight of the bag was 87 kgf., 10% comes to 8.7 kgf. And the weight would be allowed 78 kgf and less than 78 kgf, they would outrightly reject the bags. Between 78 and 87, they would allow the bags with penalty. He stated that he conducted tests of the bags under Ex. B2 to B64 and they contained the actual values mentioned by him. There are variations in the specifications of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per IS 9755: 1985 as revised up to-date." 15.3. Learned counsel for the plaintiff contended that technical specifications were prescribed along with average, when the average was within the specified limit and no bag was less than 90% of the specified value of the breaking load strength, it had to be accepted as per the NIT conditions (i.e. as per the tender conditions), so the question of imposing penalties on the ground that they were not suiting to the technical specifications was bad in law. 15.4. DW. 4 admitted in his cross examination that his signatures were not there in Exs. B2 to B64 and he did not know who prepared the sheet appended 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing damages arising out of the breach are two different and distinct concepts and the right to assess damages arising out of a breach would not include a right to adjudicate upon as to whether there was any breach at all. This Court held that one of the parties to an agreement cannot reserve to himself the power to adjudicate whether the other party has committed breach. This court held: "Even assuming for argument's sake that the terms of Clause 12 afford scope for being construed as empowering the officer of the State to decide upon the question of breach as well as assess the quantum of damages, we do not think that adjudication by the other 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 16. POINT No. 5: Whether the plaintiffs are entitled to claim interest @ 24% p.a.? As per Clause No. 5 of Annexure I to Ex. A1 notice inviting tender, 100% payment should 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 li ..... X X X X Extracts X X X X X X X X Extracts X X X X
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