Pradeep Nandrajog, J.@mdashTaking note of the pleadings of the parties, vide order dated 26.2.1996, following issues were framed:
1. Whether the plaint has been signed, verified and instituted by a person duly authorized? OPP
2. Whether the plaintiff manufactured and supplied items of furniture to the value of Rs. 1,13,019/- to the defendant after approval? OPP
3. Whether the defendant is liable to pay to the plaintiff for the various items of furniture of the value of Rs. 11,23,414/- claim to have been manufactured and lying in the workshop of the plaintiff? OPP
4. Whether the rescission of the contract by the plaintiff was justified? OPP
5. Whether the plaintiff is entitled to claim a sum of Rs. 6,50,000/- or any other amount on account of loss of profit as averred in para 17 of the plaint? OPP
6. Whether the plaintiff only supplied goods to the defendant as free samples which were returned after rescission of the contract as averred in the written statement? OPD.
7. To what amount, if any, the plaintiff is entitled to? OPP
8. Whether the plaintiff is entitled to claim interest, if so at what rate, amount and period thereof? OPP
9. Relief.
2. Shri Abhinav Vasisht, learned Counsel for the defendant did not dispute that in view of Ex.PW-1/1, PW-1/2 and PW-1/D-1, authority of Shri S.C.Puri, Director of the plaintiff company, to file the suit, sign and verify the plaint has been established. I accordingly hold that issue No.1 stands decided in favor of the plaintiff and against the defendant. I hold that the suit has been signed, verified and instituted by a duly authorised person.
3. Since issues No.2 to 8 require adjudication in light of evidence which is intermingled, I would discuss the evidence and thereafter summarize the probabilities which emerge in respect of the respective stands predicated and based thereon, return specific findings on each issue.
4. plaintiff must have felt happy when it received Ex.PW-2/2 (also exhibited as Ex.DW-1/P-1) being defendant''s letter dated 31.3.1993 accepting plaintiff''s offer to execute the works listed in the tender documents.
5. plaintiff had offered to complete the works at a total cost of Rs. 77,71,667/- within 5 months of letter of award.
6. Clause 2 of Ex.PW-2/2 required parties to execute a formal contract which was duly executed on 22.7.1993. (Copy of the agreement has been filed as Annexure-C to the plaint but has not been formally proved. However, in the written statement there is no denial that Annexure-C is not a true copy of the agreement and hence I treat the same as a proved document).
7. As per contract, price quoted was to remain firm till completion of the job. (Vide Clause 6 of letter of acceptance).
8. plaintiff was required to deposit Rs. 1,94,300/-, being 2.5% of the contract price, as security deposit for due performance of the contract. Alternatively, bank guarantee in said sum could be furnished. On 15.4.1993, plaintiff furnished the bank guarantee.
9. It all became a mess. Except for certain samples which were delivered to the defendant, as per case pleaded by the defendant; as per case pleaded by the plaintiff, these were part delivery of the items of furniture to be supplied under the contract; nothing was supplied by the plaintiff to the defendant.
10. plaintiff puts the blame on the shoulders of the defendant by stating that 5 month''s contract period was consumed by the defendant in not even giving a clear approval to the samples offered for inspection and acceptance, resulting in a price rise. plaintiff''s request for increase in price beyond contract stipulated period of 5 months was justified. Denial is stated to be unjustified. plaintiff terminated the contract in February, 1994.
11. Case of the defendant is that there was no delay in approving the samples. That plaintiff was not manufacturing the furniture items as per specifications. Defaults were notified time and again. No price rise took place. plaintiff wanted a ruse to enhance the price.
12. To prove its case, plaintiff has examined Shri Ashok Nair, its manager as PW-2 who is the principal witness of the plaintiff to establish plaintiff''s case.
13. As per testimony of Ashok Nair, on 17.5.1993 vide Ex.PW-2/22, plaintiff informed defendant that samples were ready and requested that an officer be deputed so that the samples could be inspected and approved. As per witness, nobody came from the side of the defendant to approve the samples and accordingly on 26.5.1993, vide Ex.PW-2/23, reminder was sent asking for an inspection and approval of the samples so that mass production of the furniture items could be taken up. According to the witness, defendant was informed that delay in approving the samples was upsetting the schedule of work. That inspection was carried out on 31.5.1993 but formal written approval was not given by the inspecting team which fact was brought to the notice of the defendant vide letter dated 8.6.1993, Ex.PW-2/24.
14. No formal written approval came and accordingly, on 14.7.1993, vide Ex.PW-2/25, once again, plaintiff wrote to the defendant seeking an approval for mass production. Once again, defendant was informed that in the absence of a formal written approval to the samples, it was unable to go in for mass production. According to the witness, approval was granted vide defendant''s letter dated 30.7.1993 Ex.PW-1/D-1 but the same was inchoate as stamps were not embossed on the samples so that the same could be identified for future business and in absence of the stamps the so-called approval was meaningless.
15. Since letter dated 30.7.1993 required plaintiff to manufacture frames at its workshop and complete balance job of polishing, putting foam and upholstery etc. at the site of the defendant, on 4.8.1993, (Ex.D-6) plaintiff wrote to the defendant that it was not possible to put foam and upholstery as also do polishing at the site. Defendant''s consent was sought for doing the requisite works at the factory of the plaintiff. Stalemate continued. On 15.9.1993, vide Ex.D-7, defendant reiterated that final completion including polishing had to be at its site.
16. Certain items of work were claimed to have been completed for which bill dated 29.10.1993 Ex.PW-2/7 was raised under cover of letter dated 29.10.1993, Ex.PW-2/6. No payment was received. plaintiff made a grievance on that account vide letter dated 12.11.1993, Ex.PW-2/8.
17. According to the witness, plaintiff wrote to the defendant on 6.12.1993, vide Ex.PW-2/11, informing reasons for delay which were wholly attributable to the defendant. Further, since 5 month''s contract stipulated period was over, defendant was informed that due to rise in price of wood and other raw material to be used in manufacture of the finished products, suitable increase in price should be accorded approval.
18. The witness also proved letter dated 4.10.1993, Ex.PW-2/29, letter dated 7.10.1993, Ex.PW-2/30, letter dated 15.10.1993, Ex.PW-2/31, letter dated 22.10.1993, Ex.PW-2/33, letter dated 16.11.1993, Ex.PW-2/34 and letter dated 27.11.1993, Ex.PW-2/35 all written by the plaintiff to the defendant pertaining to grant of approval of samples. The witness also proved defendant''s letters dated 21.10.1993 and 16.11.1993, Ex.PW-2/32 and Ex.PW-2/34 on the issue of approval of samples. Witness also proved plaintiff''s letter dated 4.12.1993 addressed to the defendant as Ex.PW-2/36 as per which quantities of items lying completed and semi completed were listed out. As per the said letter, nearly 500 items of furniture were completed or near completed.
19. As per the witness, since defendant was not giving any commitment to increase the prices notwithstanding plaintiff gave proof of price rise, plaintiff was constrained to write a letter informing that it was unable to proceed ahead with the work. Finally, according to the witness, plaintiff had no option but to send a telegram, Ex. PW-2/14, terminating the contract. It was followed by a detailed letter dated 15.2.1994, Ex. PW 2/15.
20. According to the witness, since chairman of the defendant was to visit the site where furniture had to be finally placed, plaintiff was asked to furnish 4-5 model rooms for which it sent 46 items of furniture. These goods were received and even no payment was made for these items of furniture.
21. In a nutshell, PW-2 blamed non-supply due to non-grant of approvals to the samples.
22. Since defense of IOC was that plaintiff had delayed everything and there was no default from the side of the defendant at any stage, to sustain and establish the defense, PW-2 was cross examined on the line that samples offered for inspection were approved subject to defect noted therein being rectified; a fact recorded in the site inspection book. Witness was cross-examined on the lines that semi-finished product which was inspected from time to time was found to be defective and deficiencies were notified to the plaintiff which were never removed. Since it would be relevant, certain admissions in the cross examination of PW-2 may be noted.
23. Witness admitted that the cost of samples in sum of Rs. 96,767/- detailed in Ex.PW-2/40, were supplied on 26.6.1993. He volunteered that the samples were taken back by the plaintiff from the defendant but stated that were to form part of the supply and were taken back as they were required for production of the bulk articles.
24. Initially, witness denied that a site inspection book used to be maintained and that it was signed jointly by representatives of the plaintiff and defendant when site visits were made for inspection, but later on admitted that a site inspection book used to be there. But stated that no instructions were ever written on that book. He denied that in the site inspection book defects in samples and other items of mass production were pointed out. Witness admitted that Ex.PW-2/D-4, a letter dated 19.11.1993, was written by the plaintiff.
25. Defendant examined Mr.Mukesh Khurana and Mr.M.K.Mittal, Project Manager and Senior Manager respectively as DW-1 and DW-2.
26. As per testimony of DW-1, only samples received were the ones listed in Ex.PW-2/40. They were returned to the plaintiff and acknowledgment was received on 1.9.1993 vide Ex.DW-1/1. Witness categorically deposed that no other sample was supplied. He deposed that inspection used to be carried out as and when samples were offered for approval and as and when furniture was manufactured at site that in the site inspection book lying at the workshop of the plaintiff observations used to be recorded. Witness stated that letters Ex.D-1 to Ex.D-7 and Ex.DW-1/2 to Ex.DW-1/6 were written by the defendant to the plaintiff on various dates. Witness stated that carbon copies/photocopies of site inspection book were taken from the plaintiff by the defendant. Witness proved carbon copies/photo copies of the site inspection book as Ex.DW-1/7 to Ex.DW-1/8.
27. According to the witness, defendant appointed another contractor for supply of items at the risk and cost of the plaintiff. He proved the contract with the new party i.e. M/s. Office Equipment as Ex.DW-1/13. He stated that Rs. 70 lacs were paid to M/s. Office Equipment for supply of items which as per contract, plaintiff had to supply at a cost of Rs. 69 lacs.
28. DW-2 deposed on lines of DW-1 and also referred to various letters exchanged between the parties. According to the testimony of DW-2, contract awarded to M/s. Office Equipment in sum of Rs. 70,90,328.31 was in respect of that part of work which plaintiff agreed to do for Rs. 69,16,023.35. According to the witness, IOC was entitled to 15% towards supervision charges in respect of the work awarded to M/s. Office Equipment and Therefore the plaintiff was liable to pay said amount to the defendant.
29. Position which emerges from the testimony of the witness of the plaintiff and the witnesses of the defendant as also the documentary evidence proved by the parties is that plaintiff was to complete the interior works as also was to furnish a new building which was near completion when contract was awarded to the plaintiff at CMTI, Gurgaon, Haryana. Contract stipulated period was 5 months. Within this period samples had to be prepared and got approved. Mass production had to commence in conformity with the samples. plaintiff was required to complete part work at its factory i.e. manufacturing frames etc. Final finishing i.e. affixing, upholstery, polishing etc. had to be at the building of the defendant.
30. Evidence establishes that on 17.5.1993, vide Ex.PW-2/22, plaintiff offered for inspection the samples prepared by it. Formal approval was accorded vide Ex.PW-2/4 being letter dated 16.7.1993 addressed by the architect engaged by the defendant to supervise the work. However, said letter establishes that there was no delay on the part of the defendant for the reason inspections were carried out much earlier. Letter dated 16.7.1993 informs plaintiff that the letter was in reference to third inspection of the furniture carried out on 31.5.1993 at contractor''s shop. The letter, while according approval to the samples, clearly records that the approval is conditional. Deficiencies were clearly notified in the said letter.
31. Since fulcrum of the case of the plaintiff was delay in granting approval to the samples, it would be imperative for me to note the contents of the letter dated 16.7.1993. The same reads as under:
16th July, 1993 KA/1411/83/93
Mr. R. Bagchi,
Sr. Manager (Projects)
I.O.C.,
4th floor, Core No. 2,
Scope Complex,
New Delhi-110003.
Dear Sir,
Sub : CMTI at Gurgaon - Interior work, Phase-II, Furnishing and Finishing.
This is with reference to the third inspection of the furniture carried out on the 31st May''93 at Contractor''s show room and the observations of the Chairman, I.O.C. during his visit of the site on 29th June, 1993. We may communicate our approval/observations to the contracting firm for proceeding further in the matter.
A. HOSTEL BLOCK :
Item No. 1 (Sofa sets).
The sample of the sofa sets is approved subject to the thickness of the seat, back and conforming to the tender item. The quantity under the item shall be modified as follows:
a) Single seater sofa. - 22 Nos.
b) Two seater sofa. - 10 Nos.
c) Three seater sofa. - 22 Nos.
Item No.2 (Writing/P.C./Dining Chairs):
The sample of chair is approved subject to thickness of seat and back conforming to tender item. The number of chairs shall be restricted to 135 nos. till further clearance.
Item No. 3 (Double bed).
The sample is approved subject to modification that the exposed and shall be provided with 10 mm. block board (O.S.T.) with decorative moulding of size 65X12 mm (in two planes to provide bands of width 35 X 30 mm.) Quantity 10 Nos.
Item No. (Single Bed).
Same remarks as per item No. 3. The quantity shall be restricted to 75 Nos. till further clearance
Item No.5 (Head Board)
Sample is approved. The item shall be a substituted item and the rate shall be derived from Item No.5 (Qty. 10 Nos.).
Item No.6 (Head Board for single bed)
Sample is approved. The item shall be a substituted item and the rate shall be derived from Item No.6. The quantity shall be restricted to 30 Nos. till further clearance.
Item No.7 (Bed side table)
Sample is approved to modification that the groove shall be provided along the three edges of the shutter below the drawer to match with the groove formed on the hinged side (Qty.20 nos.).
Item No.8 (Side table 750x525x450 mm.)
Same remarks as per item No.7. The quantity shall be restricted to 15 Nos. till further clearance.
Item No.9 (Luggage Rack).
Sample approved. Overall dimensions shall conform to tender item. The sample of carpet shall be got approved. The quantity shall be restricted to 45 Nos. till further clearance.
Item No.10 (Writing-cum-dressing table)
Sample approved. Over all dimensions shall conform to tender item. The shutter for the cup board shall be provided with groove on the remaining three sides to match with the groove formed on the hinged side. The storage cabinet shall be provided with one shelf of 19 mm. block board (commercial) (Quantity 10 nos.).
Item No.11 (Writing cum dressing table).
Same remarks as per item No.10. The quantity may be restricted to 45 nos. till further clearance.
Item No.12 (Mirror Unit)
Sample approved (Qty. 70 Nos.)
Item No.13 (T.V. Cabinet)
There was a hold on this unit from the beginning and it is not known why the sample has been made. Revised working drawings shall be issued shortly.
Item No.15 (Dining Table)
The teak wood edging was not as per design. Sample may be modified accordingly. (Qty. 10 Nos.)
Item No.16 (Coffee table)
Sample approved (Qty.70 nos.)
Item No.17 (Easy Chairs)
Sample approved with revised size of 640x700/760 mm. This will be a substituted item (Qty. 130 Nos.)
Item No.18 (Centre table 1000 x 75 x 450 mm.)
Sample approved. (Qty. 18 Nos.)
Item No.19 (Corner table 450 x 450 x 450 mm.)
Sample approved. Qty shall be restricted to 10 Nos. till further clearance.
B. TEACHING BLOCK
Item No.3 (Low back chairs):
Sample approved. Thickness of seat, arms and back shall conform to tender item (Qty. 332 Nos.).
Item No.4 (Sofas)
Sample approved. Quantity shall be as per tender.
Item No.5 (Centre table 1000 x 740 x 450 mm.)
Remarks same as for item No.18 under Hostel Block (Qty.4 nos.)
Item No. 6 (Corner table 450 x 450 x 450mm.)
Remarks same as for item No. 19 under Hostel Block (Qty. 8 Nos.)
C. Administration Block
Item No. 17 (Executive chair)
The chair is required to be low back chair as per tender item. Revised sample may please be prepared.
Item No. 32
The sample is not conforming to the ''Premium work chair'' of Godrej. The sample shall be equivalent or same as Godrej premium work chair PCH 722.
The Contracting firm may be asked to get the sample for the remaining items of furniture also ready for inspection at the earliest.
Thanking You,
Yours faithfully
Sd/-
for Kothari Associates Pvt. Ltd.
32. Samples were offered for approval on 17.5.1993 vide Ex.PW-2/22. Ex.PW-2/4 establishes that by 31.5.1993 third inspection was carried out. The letter brings out that some of the samples prepared were not in conformity with the specifications. The letter brings out a conditional approval. In this connection it would be relevant to note that the plaintiff has withheld best evidence, in that, has hidden from this Court the site inspection book.
33. As noted above, witness of the plaintiff, after initially denying existence of any such book finally admitted during cross examination that a site inspection book existed. His testimony that though book was kept, no instructions were written is belied from the testimony of DW-1 who proved carbon copy and photocopies of the site inspection book as Ex.DW-1/7 and DW-1/8. I may note that DW-1 has not been subjected to any cross examination in context of his testimony pertaining to Ex.DW-1/7 and Ex.DW-1/8. His testimony pertaining to said documents has gone unchallenged.
34. Falsity of the stand adopted by the plaintiff is belied from plaintiff''s letter dated 19.11.1993, Ex.PW-2/D-4. The said letter responds to the points raised and written in the site inspection book. The letter gives clarification of the points written in the site inspection book. Being relevant, I reproduce the entire letter. It reads as under:
The Sr. Manager (Projects) IBFC (C)/IOCL/93/416
Indian Oil Corpn. Ltd.,
SCOPE Complex, Lodhi Road, 19th November, 1993.
NEW DELHI.
SUB: INTERIOR WORKS PART-II (FURNISHING and FINISHING) FOR
CONSTRUCTION OF CMTI, GURGAON (HARYANA).
Dear Sir,
This has reference to the inspection of furniture items at our workshop on 18.11.1993 for the works mentioned in the subject above. The points raised and
written in the Site Instruction Book by the concerned Engg. - in charge are being clarified below.
SINGLE BEDS.
1) The joints in the ply are only to match the grains of the ply fixed and are not visible. This point was clarified in the last inspection of 22.10.1993.
2) The frame work wood used is as per the Tender approved materials and is of best quality.
3) Ply and Board samples were given as per the direction of inspection team. These samples were taken from the unfinished furniture items lying at the site and the same can be verified at our workshop where this item is kept.
4) All the materials used is ISI mark and ISI stamp is visible on the material. We were never told of the size of sample to be supplied. The samples taken from unfinished bed is still lying at our workshop. You are requested to arrange a meeting at our workshop along with the Architect concerned for proper inspection of furniture items.
DOUBLE BEDS
1) Double bed frames are strictly as per the Tender approved materials and specifications the sample of which was approved by your deptt. and the seal of Architect is there on the sample. Undersized and under finished frames will not be supplied. Kindly arrange a meeting at our workshop along with the Architect concerned for proper inspection of the furniture items.
COFFEE TABLE/LOW BACK CHAIRS
1. The frame work of coffee table and low back chairs are as per tender approved materials and the approved samples. No defective, crack etc. material will be supplied. The material can be inspected at our work shop along with the concerned Architect.
2. The joints of chair were opened and approved by the inspection team during earlier inspection. However, the joints can again be examined.
3. The wood used is as per the tender approved materials. You are requested to inspect the material again along with the architect concerned for proper inspection of the materials.
SOFAS
1. The sofa frame work wood used is of best quality and are as per the tender approved materials and approved samples.
2. The joints of sofa frame work were firmed up after getting approval from the inspection team refer to the inspection of 12.10.1993 and approval note No. 2 of the site instruction book.
WRITING CUM/DRESSING TABLE.
1. The material used for this items is ISI marked and ISI stamps are visible on the materials. For proper inspection of the item. Kindly arrange a meeting at our work shop along with the Architect concerned for proper inspection of the materials.
2. Vernier calipers are available at our work shop and in the last inspection thickness were measured with the same.
Apart from the clarifications given above we hereby once again remind you that our 1st progress Bill No. IBFC (C)/IOCL/93/412 dated 29.10.93 which was submitted to you on 1.1.93 is not yet cleared by your deptt. due to which we are facing lot of problems in clearing payments to our suppliers, contractors and labours etc.
This work was awarded to us on 30.03.93 refer to your FAX OF ACCEPTANCE 908 POI DT. 30.03.93 and was to be completed within 5 months i.e. by 30.08.93. The rates quoted by us in this tender were keeping in mind the market rates of materials, labours etc. during this period. The furniture samples were made available to you within a record time of 15 days. A formal approval of samples was given by your deppt. vide letter No. KA/1411/83/93 dated 16.07.93 of M/s Kothari Associates (P) Ltd., your Architect consultant for the job. The samples of some of the furniture items were modified and remodeled due to faulty tender specifications. So much time and labour was spent by us in making these samples. The entire work shop area of 10,000 Sft. is now occupied by the furniture items made for this job and unless these are not lifted our other jobs are being hampered. Moreover keeping in mind the commercial aspect of the area occupied by the furniture items the loss of revenue is tremendous which is a great cause of worry to us.
Till date the material made by us could not be delivered due to the reasons mentioned below:
1. Irregular and improper inspection of the furniture items. The last inspection which was held on 18.11.93 was almost a month after the previous inspection of 22.10.93.
2. Storage space for finished materials at site (CMTI GURGAON) is not yet intimated to us inspire of our repeated reminders refer to our earlier correspondence.
3. The drawings of cupboards which were not as per tender specifications were issued to us and till date the latest drawings are not provided to us.
4. The decision regarding tapestry/upholstery of furniture items is not taken by your deptt. and the approved samples of the same are not yet intimated to us inspire of our numerous reminders refer our earlier correspondence.
Keeping in view of all the difficulties being faced by us in the execution of this job and increase in prices of materials in the market you are requested to arrange a meeting where a suitable escalation in tender rates and the problems faced by us can be discussed and sorted out. The 5 months completion time allotted for this job is already over and the way your deptt. is handling this project it seems either the site at Gurgaon is not ready to receive furniture items as yet or storage space is still not available at the site for stacking of furniture items.
You are now once again requested to arrange a meeting at our work shop for proper inspection of furniture items along with the Architect consultant and release the payments of our 1st progress bill at the earliest.
Thanking you and we remain,
Yours faithfully
FOR. I.B.F.C. (CAL) PVT. LTD.
Sd/-
SUBHASH PURI
DIRECtor.
35. Photocopies of the site inspection book, Ex.DW-1/8 to Ex.DW-1/10 records visits made on 12.10.1993, 22.10.1993 and 18.11.1993. The three documents show that on 12.10.1993 as many as 6 defects pertaining to joinery, kind of material used, under sized timber being used were notified. In the inspection carried out on 22.10.1993, 2 defects were notified and in the inspection carried out on 18.11.1993 as many as 15 defects were notified. Ex. PW-2/D-4 written by the plaintiff is a response to the defects noted in the site inspection book.
36. The rule of best evidence is that party must produce best evidence. The rule also requires that it would be legal to draw an adverse inference against the party who suppresses and withholds relevant material from the Court.
37. In my opinion, site inspection book would be the best evidence, for in the site inspection book record of inspections would be maintained. I hold that by not producing the same, an adverse inference has to be drawn against the plaintiff, being that, defendant notified defects in the samples and thus it cannot be said that plaintiff was prevented from finalizing the samples. Defects in the samples would mean that the plaintiff did not even finalize all samples within a reasonable time. From Ex.PW-2/D-4, I hold that the plaintiff was being intimated the various defects by writing the same in the site inspection book, a fact admitted by the plaintiff in it letter Ex. PW-2/D-4. I conclude and hold that defendant promptly carried out inspections of the samples submitted for approval by the plaintiff on 17.5.1993 and that by 31.5.1993 as many as 3 visits were made. I also conclude that conditional approval to the samples was granted. Since plaintiff has led no other evidence to show that the defects notified in the samples were removed in its entirely, I hold that there is no delay on the part of the defendant in granting approval to the samples.
38. Since no meaningful work was done and the entire dispute centers around whether defendant delayed execution of the work by not granting approval to the samples, peripheral issues pertaining to non germane grievances which have been highlighted in the various other letters proved are not being discussed by me.
39. I accordingly proceed to decide issues No.2 to 9.
40. Issue No. 2 and 6 are interconnected. Dispute between the parties is whether furnishing of a few rooms was towards supply of items under the contract as pleaded by the plaintiff or whether, items offered were free samples as pleaded by the defendant.
41. That certain items were received by the defendant is not in dispute. It is not in dispute that 46 items were so supplied. DW-2 admitted that since the Chairman-cum-Managing Director was visiting the site at Gurgaon, 4 ? 5 model rooms were furnished. However, the witness stated that these were free samples.
42. Items of furniture supplied are detailed in Ex.PW-2/40, being plaintiff''s letter dated 26.6.1993 duly acknowledged by the defendant. Acknowledgment records that 46 pieces of furniture were supplied. Ex. DW-1/1 is the only piece of evidence to show which samples were taken back. It shows that on 1.9.1993, 16 pieces were taken back.
43. Unfortunately, plaintiff has led no evidence, much less proved a bill submitted for the said items. The first bill proved is a bill dated 29.10.1993, Ex.PW-2/7. The said bill pertains to finished as well as unfinished pieces of furniture. However, since there is no evidence from the side of the defendant that the prices charged for in the bill, Ex.PW-2/7, do not conform to the schedule of rates as per which plaintiff was to complete the work, I would be analyzing the claim for these 46 items of work in light of Ex.PW-2/7.
44. The amount claimed is Rs. 1,13,019/-. However, PW-2 said that price was Rs. 96,767/-. I, thus treat the price of 46 items to be Rs. 96,767/-. PW-2 admitted that some samples were taken back but stated that he did not remember how many samples were taken back. He stated that the samples which were taken back from the defendant were to form part of supply and were required for production of the articles in bulk. However, I find that vide Ex. DW-1/1, 16 items of sample were taken back on 1.9.1993. There is no proof that these 16 items were resupplied.
45. I do not agree with the stand of the defendant that items supplied were free samples for the reason contract does not envisage supply of samples free of cost.
46. Onus of issue No.2 is on the plaintiff. plaintiff had to establish the items supplied and their value. Having established that 46 items were supplied vide Ex.PW-2/40, having thereafter admitted to have received back some of all items, which I find are the one listed in Ex. DW-1/1, I have a problem at hand in deciding the price of the 30 items not received back by the plaintiff and appropriated by the defendant as no bill is proved for the 46 items and the bill Ex PW-2/7 is for items supplied (46 pieces) and unfinished goods. Applying the thumb rule i.e. dividing Rs. 96,767/- (price of 46 items admitted by DW-2) by 46 and multiplying by 30, I hold that the price of 30 items is Rs. 63,120 (Approximately).
47. I accordingly decide issue No. 2 by holding that plaintiff supplied 30 items of furniture to the defendant valued at Rs. 63,120/-.
48. I decide issue No. 6 by holding that plaintiff was not required to supply any samples free of cost and that the 30 items of furniture supplied by plaintiff to the defendant had to be paid for by the defendant.
49. Issue No.3, 4 and 5 are interlinked. The basic issue to be decided is whether the plaintiff was justified in rescinding the contract.
50. Justification of the plaintiff to rescind the contract is delay by the defendant in approving the samples and as a result prevented the plaintiff from completing the works in time. As per the plaintiff, there was a price rise in the interregnum and since defendant was at fault, plaintiff was justified in seeking price revision and since defendant refused to increase the prices it was justified in rescinding the contract. According to the plaintiff, for the raw products used in partial manufacture of the furniture it was entitled to be recompensed and was also entitled to be recompensed towards loss of profit.
51. But, in view of the evidence and as discussed by me in paras 12 to 37 above, plaintiff has miserably failed to prove defaults by the defendant. On the contrary, defendant has established that it promptly went for inspecting the samples. Defects were notified in the samples. plaintiff has failed to establish that the defects which were notified were rectified and inspire thereof final approval was not accorded. I accordingly hold that the plaintiff was in breach of the agreement, in that, failed to get the samples approved and complete production as per samples within period of 5 months. I hold that plaintiff had no cause to rescind the contract. I hold that plaintiff is not entitled to any loss of profit. I hold that plaintiff is not entitled to any price or cost towards items of furniture allegedly finished and unfinished which were lying in the factory of the plaintiff. Issue No.3, 4 and 5 are accordingly decided in favor of the defendant and against the plaintiff. For the unfinished product, plaintiff is not entitled to any money. plaintiff is not entitled to any loss of profit.
52. One would have closed discussion on issue No.7 by holding that since issues No.3, 4 and 5 have been decided against the plaintiff, inevitable corollary is that on issue No.7 plaintiff should be held entitled to only Rs. 63,120/-. But, that has not to be so in the facts and circumstances of this case. Some discussion has to follow before issue No.7 is decided.
53. plaintiff had furnished a bank guarantee in sum of Rs. 1,94,300/-. The same was forfeited with plaintiff served a notice of termination of the contract in the month of February 1994.
54. plaintiff claims the forfeiture of the performance guarantee as illegal. Thus, notwithstanding issues No.3 to 5 being decided against the plaintiff, plaintiff claims at least refund of the amount covered by the bank guarantee.
55. The issue has taken an interesting turn for the reason after filing the written statement and allowing a few years to lapse, defendant wanted to amend the written statement and raise a counter claim. Counter claim was on account of the fact that IOC awarded part work to a third party and stated that relatable to the contract with the plaintiff work awarded by it to the third party, if completed by the plaintiff would be valued at Rs. 69,16,023.35 on the price quoted by the plaintiff. To the third party it had paid Rs. 70,19,328.31 plus, defendant claimed that it was entitled to 15% supervision charges in respect of the work awarded to M/s. Office Equipment. Thus, IOC valued the work awarded to M/s. Office Equipment at Rs. 70,19,328.31 + Rs. 10,52,899.24 = Rs. 80,72,227.55. Less value of what would have been paid to the plaintiff i.e. Rs. 69,16,023.35, counter claim laid was in sum of Rs. 11,56,204.20.
56. The counter claim was held to be barred by limitation. Challenge failed before the Division Bench. Matter reached the Supreme Court. Order passed was that the application filed by the defendant to raise a counter claim would be treated as not having been filed at all.
57. Whereas plaintiff claims that loss suffered by the defendant, if at all, cannot be recovered and Therefore under all circumstances amount covered by the bank guarantee has to be paid by the defendant to the plaintiff.
58. Case pleaded by the defendant is that adjustment is neither a counter claim nor a set off. Learned counsel for the defendant stated that in respect of the sum covered by the bank guarantee, since plaintiff defaulted bank guarantee had to be forfeited.
59. The sum covered by the bank guarantee is admittedly a security deposit for due performance of the obligations under the contract by the plaintiff.
60. As noted above, as per contract, plaintiff was to give a cash deposit equivalent to 2.5% of the contract value. Alternatively, bank guarantee in said sum could be offered. The amount is obviously a security for the completion of the supply. But in what sense is it a security for the completion of the supply?
61. Security in the sense that the plaintiff cannot insist on abandoning the contract and yet recover the deposit. As observed by Fry L.J. In the decision reported as Hove v. Smit L.R. (1884) Ch.D. 89 of the report:
Money paid as a deposit must, I conceive be paid on same terms implied or expressed. In this case no terms are expressed and we must Therefore enquire what terms are to be implied. The terms must inter alias to be implied appear to me in the case of money paid on the signing of a contract to be that in the event of the contract being performed it shall be brought into account, but if the contract is not performed by the payer it shall remain the property of the payee. It is not merely a part payment but is then also an earnest to bind the bargain was entered into, and creates up the fear of its forfeiture a motive in the payer to perform the rest of the contract.
62. It is trite that in order to determine whether a plea in a written statement is a counter claim or set off or a mere defense, one has to take into consideration the entire plea and not merely a portion thereof.
63. In the written statement, defendant has categorically pleaded that no amount is payable to the plaintiff and on the contrary it is the defendant which has suffered a loss.
64. As held in the decision reported as
65. In the report published as
14. On general principles supported by rationality and reasonability, it appears to be a sound proposition that a person who is obliged to pay a sum of money to another person and also has in his hands an amount of money which that other person is entitled to claim from him, then instead of physically entering into two transactions by exchanging money twice that person may utilize the money available in his hands to satisfy the claim due and legally recoverable from such other person to him. However, this equitable principle is not one of universal application and has its own limitations.
15. Set-off is defined in Black''s Law Dictionary (7th Edn., 1999) inter alias as a debtor''s right to reduce the amount of a debt by any sum the creditor owes the debtor; the counterbalancing sum owed by the creditor. The dictionary quotes Thomas W. Waterman from A Treatise on the Law of Set-Off, Recoupment, and Counter Claim as stating:
Set-off signifies the subtraction or taking away of one demand from another opposite or cross-demand, so as to distinguish the smaller demand and reduce the greater by the amount of the less; or, if the opposite demands are equal, to extinguish both. It was also, formerly, sometimes called stoppage, because the amount to be set off was stopped or deducted from the cross-demand.
66. In my opinion, a rough and ready test to determine whether the defendant has pleaded a set off/counter claim or is claiming adjustment is whether the claim in the plaint as well as the claim in the written statement can stand together. In other words, if plaintiff can be held entitled to sum claimed by him and so would the defendant be entitled to the claim it would be set off or counter claim. Thereafter, adjustment to be made. But where the defense actually is that really speaking plaintiff would not be entitled to a sum in relation to what the plaintiff claims, it would not be a plea of counter claim or set off but a plea of adjustment.
67. Learned counsel for the defendant urged that claim of defendant for forfeiture of security deposit was a claim for adjustment for the loss suffered due to breach of contract by the plaintiff. I do not agree for the reason the essence of a claim of adjustment, like a plea of payment, is that the plaintiff''s claim has already been discharged.
68. This is evident from the decision of the Supreme Court reported as
69. Thereafter in relation to Sections 73 and 74 of the Contract Act and the decisions reported as
68. From the aforesaid discussions, it can be held that:
(1) Terms of the contract are required to be taken into consideration before arriving at the conclusion whether the party claiming damages is entitled to the same.
(2) If the terms are clear and unambiguous stipulating the liquidated damages in case of the breach of the contract unless it is held that such estimate of damages/compensation is unreasonable or is by way of penalty, party who has committed the breach is required to pay such compensation and that is what is provided in Section 73 of the Contract Act.
(3) Section 74 is to be read along with Section 73 and, Therefore, in every case of breach of contract, the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree. The court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequence of the breach of a contract.
(4) In some contracts, it would be impossible for the court to assess the compensation arising from breach and if the compensation contemplated is not by way of penalty or unreasonable, the court can award the same if it is genuine pre-estimate by the parties as the measure of reasonable compensation.
70. Admittedly, defendant has not awarded the works to be executed by the plaintiff in its entirety to M/s. Office Equipment and there is no material to establish that there was a price rise in cost of wood. Indeed, argument of learned Counsel for the defendant was that there was no increase in price of wood. The extra amount stated to be incurred by the defendant is on account of supervision charges which M/s. Office Equipment was to incur. It appears that the contract with M/s. Office Equipment has been tailor made to take a defense against the claim of the plaintiff for the reason under a supply contract the supplier has to receive payment after goods are supplied. The supplier has not to pay supervision charges to the purchaser. It may be noted that even qua the plaintiff, defendant was to supervise the manufacture of furniture evidenced by the fact that defendant has led evidence to the effect that as and when inspection was carried out at the factory of the plaintiff, in the site inspection book, deficiencies were noted. In any case, it is obvious that contract with M/s. Office Equipment is on materially different terms vis-a-vis the contract with the plaintiff and hence cannot form the basis for comparative assessment of rates.
71. Looked at from both angles, no counter claim from the defendant and no proof of actual loss, amount towards security deposit has to be refunded by the defendant to the plaintiff.
72. I accordingly decide issue No.7 by holding that the plaintiff is entitled to Rs. 63,120/- plus Rs. 1,94,300/- from the defendant i.e. Rs. 2,57,420/-
73. Counsel for the plaintiff could not point out any term of the contract pertaining to interest. No evidence of market practice or usage relating to interest has been led. I play it safe. Let interest be the one given by scheduled banks on fixed deposits. It has varied from a high of 12% p.a. in 1994 to 5.5.% in 2005. Currently it stands at 8% p.a. I hold interest @9% p.a. as reasonable. Bank guarantee was encased after 19.8.1994. The exact date is not known as neither party has brought on record the same. I accordingly hold that plaintiff would be entitled to interest on sum of Rs. 2,57,420/- @9% per annum with effect from 1.9.1994 till date of realization.
74. Suit stands decreed in favor of the plaintiff and against the defendant in sum of Rs. 2,57,420/- with interest @9% p.a. with effect from 1.9.1994 till date of realization.
75. No costs.
