Jai Balaji Industries Ltd vs Pec Ltd.& Ors

connected applications allowing the appeals in

terms of the following order :

"(a) The appellant/defendant will be at liberty to encash the cheques and appropriate the amount subject to furnishing a Bank Guarantee of like amount to be furnished in favour of the Registrar, Original Side. We also grant liberty to the appellant to furnish a letter of undertaking to furnish Bank Guarantee for like amount from a Nationalised Bank in favour of Registrar, Original side. Registrar, Original Side until the formal Bank Guarantee is furnished as directed and upon doing so, the cheques may be encashed. The appellant shall keep the Bank Guarantee renew till the disposal of the suit. The Bank Guarantee should be kept to the credit of this suit.

(b) The Receiver already appointed shall sell the goods after issuing an advertisement in the Newspapers, once in "Statesman" once in "Ajkal" and once in Hindi in "Sanmarg", either by way of public auction or by private party subject to confirmation by the 3

Court. The cost charges and expenses of sale will be borne by the appellants at the first instance.

Further, ad hoc remuneration of 500 GMs should be paid to the Receiver.

(c) We also grant liberty to the parties to bring the intending buyers.

(d) The Receiver after confirmation of sale shall handover the sale proceeds to the respondent/plaintiff. The appellant is directed to renew the said Bank Guarantee till the disposal of the suit.

(e) The suit is expedited.

Plaint to be served forthwith, if not already served, upon Advocates-on-Record for the defendant in the suit, by the Advocate-on-Record for the plaintiff. Written statement within 3 weeks from the date the certified copy of this judgment is made available, cross order for discovery two weeks thereafter, inspection two weeks thereafter and the suit is directed to appear in the prospective list."

5. From the materials on record it appears that

the appellant entered into an agreement on 28th

July, 2008 with, a foreign seller for purchase of

7100 metric tonnes of Manganese Ore which was to be

sold by the said foreign party under a CIF contract 4

and discharged at Paradeep Port. In terms of the

said agreement, the quality and quantity of goods

were to be inspected by the buyer at the Port of

Loading. Thereafter, the appellant and the

Respondent No.1, a Government Company, entered into

a High Seas Sale Agreement on 25th September, 2008,

wherein the Respondent No.1 has been described as

"seller" of the goods and the appellant is

described as the "buyer". Under the terms of the

said Agreement, the appellant was to pay to the

Respondent No.1 a sum of US$ 48,25,188.40 as 100%

value of the documents plus 1.5% trading margin of

documents, as payment for the documents. It was

also agreed that the Respondent No.1 would endorse

the Bill of Lading in favour of the appellant. A

Deed of Pledge was also executed whereby the entire

consignment was pledged to the Respondent No.1-

Company.

6. The vessel carrying the consignment of

Manganese Ore arrived at Paradeep Port and the 5

goods were discharged on or about 8th October, 2008,

and, thereafter, transferred to a warehouse. It

appears that the goods were dispatched to the

appellant's factory premises at Durgapur and

Ranigunj in West Bengal and were allegedly unloaded

on plots within the appellant's factory premises

purportedly leased to the Respondent No.1-Company.

It is also the case of the appellant that out of

the said consignment of 7100 metric tonnes of

Manganese Ore, the appellant purchased 100 metric

tonnes from the Respondent No.1 with the intention

of testing the quality of the said ore.

7. Allegedly, the said ore did not meet the tests

relating to its quality and, consequently, the

appellant rejected the entire consignment and

refused to take delivery thereof from the

Respondent No.1-Company. That is the genesis of

the dispute which arose between the parties. 6

8. The appellant filed a suit, being C.S.No.137 of

2009, in the Calcutta High Court in its Ordinary

Original Civil Jurisdiction claiming return of an

advance amount of Rs.2,85,28,926/- and

Rs.35,30,000/-, being the price of 100 metric

tonnes, aggregating a sum of Rs.3,20,58,926/- and

Rs.2,52,08,526/- paid towards various duties,

charges and freight etc. The appellant also prayed

for an injunction to restrain the Respondent No.1-

Company from encashing the security which had been

given by the appellant to the extent of

Rs.20,31,25,956/- and for damages. In the suit an

application for interim orders was also made for

the following reliefs :

"(a) Commissioner/Special Officer be appointed to make inventory of the manganese ores lying at the respondent No.1's leased plots in the factories of the petitioner at Durgapur and Ranigunj and thereafter to take steps for drawing of samples and get the same analysed through and/or by such agency as this Hon'ble Court may deem fit and proper including National Test House, Alipore, Calcutta;

7 (b) Injunction restraining the respondent No.1 from depositing and/or encashing the said cheque dated December 14, 2008, bearing no.242474 for Rs.20,31,25,956/- drawn on Allahabad Bank, Calcutta Main Branch;

(c) Direction upon the respondent no.1 to cancel and return the said cheque bearing no.242474, dated December, 2008 for Rs.30,31,25,956/-, drawn on Allahabad Bank, Calcutta Main Branch;

(d) Appropriate direction upon the respondent no.1 to remove the manganese ore lying at the respondent no.1's leased plots being portions of the factory premises of the petitioner at Ranigunj and Durgapur within such time as may be fixed by this Hon'ble Court;

(e) In default of the respondent no.1 removing the manganese ore from the said leased plots in the factory premises of your petitioner, Receiver be appointed by this Hon'ble Court with all powers under order 40 of the Code of Civil Procedure including sale of manganese ore lying at the leased plots of the respondent no.1 in the factory premises of the petitioner at Durgapur at Ranigunj, either by public auction or by private treaty and to deposit the sale proceeds thereof with the Registrar, Original Side;

(f) Ad-interim order in terms of above prayers;

(g) Costs and incidental to this application be borne by the respondent no.1;

8 (h) Such further orders be made and/or directions be given as this Hon'ble Court may deem fit and proper."

9. On 18th May, 2009, the learned Single Judge

passed an interim order, as prayed for, in regard

to encashment of the security deposit till 22nd May,

2009. Thereafter, the interim order was extended

and the appellant herein was directed to revalidate

the cheque dated 14th December, 2008, which was

purported to have been given by way of security to

the Respondent No.1, by another six months from the

date of receipt of the order. Thereafter, the

Respondent No.1-Company filed an application for

vacating the interim order while the appellant

sought continuance thereof.

10. After hearing the parties at length on 12th

June, 2009, the learned Single Judge rejected the

prayer made on behalf of the respondent-Company to

vacate the interim order, and, instead, passed the

following order :

9

"To ascertain the quality of the balance goods lying in the leased plots of the respondent no.1 Mr. Amit Gupta, Adv., 1st Floor, Bar Library Club is appointed Receiver at an initial remuneration of 500 GMs. For purposes of drawing samples and getting the same analysed through the National Test House, Alipore, Calcutta. Report be filed by the said agency on the next date of hearing.

This order is passed as from the report if it appears that the goods are as per specifications there will be no reason for the petitioner to refuse lifting of the goods.

Accordingly, the interim order granted will continue till ten weeks. Directions are given for filing affidavits:

Affidavit-in-opposition be filed within four weeks from date; affidavit-in- reply thereto, if any, be filed within two weeks thereafter. Matter to appear in the list seven weeks hence."

11. Aggrieved thereby, the Respondent No.1 herein

preferred APOT No.235 of 2009 and APOT No.249 of

2009 before the Division Bench of the Calcutta High

Court and the same were disposed of finally by the

Appeal Court by its order dated 1st September, 2009,

extracted hereinabove, whereby the order of the 10

learned Single Judge was set aside and replaced by

the said order.

12. As mentioned hereinbefore, these appeals are

directed against the said order of the Division

Bench of the Calcutta High Court.

13. On behalf of the appellants it has been

contended that under the High Seas Sale Agreement,

the Respondent No.1 was to endorse the Bill of

Lading in favour of the appellant, but that the

same was never done and the consignment of

Manganese Ore was never made over to the appellant

and has remained in the custody of the Respondent

No.1 ever since it was discharged at Paradeep Port.

It was also submitted that after having purchased

100 metric tonnes of the said ore for the purpose

of testing, when it was found that the same was

sub-standard material, the appellant had expressed

its inability to accept the consignment. It was

also submitted that without delivering the 11

consignment, the Respondent No.1 was not entitled

to encash the cheques, which had been made over to

it by way of security deposit.

15. It was lastly contended that the appellant had

no obligation to take delivery of the entire goods

since the Agreement provided that the goods were to

be delivered part-by-part.

16. The case made on behalf of the appellant was

vehemently opposed on behalf of the Respondent No.1

on the ground that the High Seas Sale Agreement was

merely a means of import of the said ore into India

by the appellant and the Respondent No.1 was merely

a facilitator for the said purpose. In fact, the

role of the Respondent No.1 was to import the goods

and, thereafter, to make over the same to the

Appellant as it had no use for the Manganese Ore.

In fact, the same would be evidenced by the Deed of

Pledge, whereby the goods continued to be in the

control and possession of the Respondent No.1 till 12

the same were delivered to the appellant. It was

also the case of the Respondent No.1 that the

consignment of Manganese Ore had always been with

the appellant in its own godown and that the Bill

of Lading had also been endorsed in favour of the

appellant, whereupon the title to the goods had

passed to the appellant.

17. From the submissions made on behalf of the

parties, it will appear that the appellant is

aggrieved by the fact that besides having paid a

sum of Rs.20,31,25,856/- by a postdated cheque to

the Respondent No.1, the appellant had also been

deprived of the goods, the value whereof had

greatly diminished since it was received at

Paradeep Port on or about 8th October, 2008. On the

other hand, not only would the Respondent No.1

retain control over the consignment but it would

also have unjustly enriched itself to the extent of

the security provided by the appellant in terms of 13

the order of the High Court impugned in these

appeals.

18. In deciding these appeals, we have to keep in

mind the fact that the suit is still pending before

the Calcutta High Court and the rights and

liabilities of the parties are yet to be worked out

in the suit. The question whether the Bill of

Lading had been endorsed in favour of the appellant

or not by the Respondent No.1 is also a matter to

be decided in the suit on evidence. Furthermore,

the appellant has itself indicated that it was not

willing to accept the consignment since it was of

sub-standard quality and had deteriorated further

since it was discharged at Paradeep Port. As has

been pointed out by the learned Single Judge in her

order of 12th June, 2009, the appellant in its

undertaking had agreed to pay the balance amount in

respect of the imported goods on their first demand

without demur and protest and to honour the cheques

issued in favour of the Respondent No.1 on their 14

presentation on the dates indicated. Furthermore,

a further undertaking was given not to intimate the

bankers to stop the payment of the cheques

delivered to the Respondent No.1 and also not to

close the account without the permission of the

Respondent No.1.

19. On a prima facie assessment of the terms and

conditions of the Agreement entered into between

the appellant and the Respondent No.1 on 7th August,

2008, the responsibility relating to the quantity

and quality of the cargo was to be that of the

appellant and Clause 8 of the said Agreement

indicates that the Respondent No.1 would not be

responsible for any shortage in the quantity and

quality of the cargo at the loading point as well

as at the delivery point. Nothing has come to our

notice whereby the Respondent No.1 was prevented

from encashing the cheques alleged to have been

given by way of security.

15

20. In our view, it would not be proper for us to

delve into the details of the matter at this stage

since the order of the Division Bench in appeal

protects the appellant, while granting liberty to

the Respondent No.1 to encash the cheques and

appropriate the amount upon furnishing a Bank

Guarantee of the like amount which was to be kept

renewed till the disposal of the suit. Furthermore,

the goods in question are to be sold by the

Receiver appointed by the Court and the sale

proceeds have been directed to be handed over to

the appellant herein. Balance claims, if any,

will have to be decided in the suit filed by the

appellant. Apart from the above, it has also to be

kept in mind that the Respondent No.1 has already

paid for the goods to the foreign buyer.

21. We, therefore, see no reason to interfere with

the judgment and order passed by the Appeal Court

of the Calcutta High Court in APOT No.235 of 2009

and APOT No.249 of 2009. The appeals are, 16

accordingly, dismissed. We make it clear that the

observations made in this order are only for the

disposal of the appeals which have been directed

against the interim orders and the Trial Court will

be at liberty to proceed in the suit uninfluenced

by any of the said observations.

22. There will be no order as to costs.

................................................J. (ALTAMAS KABIR)

...................................................J. (CYRIAC JOSEPH) New Delhi Dated: 27.10.2009