JUDGMENT
A.K. Sikri, J.
1. These are two cross suits. First suit is by M/s. S.S. International as the plaintiff against the Union of India for recovery of Rs. 5412341.85p. along with interest. Second suit is in the nature of counter claim filed by the Union of India against M/s. S.S. International. The respective claims arise out of same transaction and both the parties are alleging breach of contract on the part of other. Facts of both the suits may be noted to understand the controversy involved.
2. Suit No. 587/1982
Plaintiff, S.S. International, (hereinafter referred to as the ‘SSI’ for short) is a duly registered partnership firm with Sh. Sudhir Kumar Gupta as one of the registered partners who has signed and verified the pleadings on behalf of the firm. It is stated that on or about 25th November, 1980 the plaintiff entered into a contract of sale with the Union of India (hereinafter referred to as the ‘UOI’ for short). UOI had floated tenders for sale and supply of 96 MT of Kishmish and SSI had also submitted its bid, which was accepted vide acceptance letter dated 25th November, 1980. The contract was governed by (a) the special conditions of contract as forwarded by the defendant (b) the General Conditions of Contract (Form DGSandD-68 Revised) except clause 4(8) and clause 24 thereof as contained in the pamphlet ‘Conditions of Contract by Government of India’ as amended from time to time (c) the terms and conditions stated in the said acceptance of Tender dated 25th November, 1980. The SSI deposited bank guarantee dated 11th December, 1980 in the sum of Rs. 3,66,260/- (Rs. 3,41,840/- representing 10% of the security towards this contract and Rs. 24,400/- in respect of some other contract which is not relevant for our purposes). According to the SSI, the quantity of 85 MT of Kishmish was duly delivered and the balance quantity of 11 MT could not be supplied as the UOI prevented the SSI from supplying the same by repudiating and/or refusing to perform its obligation under the contract. The goods supplied were to conform and in fact, conformed to ASC specification No. 67 except that no warranty as required by the said specification was given by the SSI. The SSI, on the other hand, was required to give warranty in accordance with the standard warranty clause, Apendix J to the said specifications at the time of delivery of the material to the UOI. The SSI, however, never gave any warranty either in accordance with the said warranty clause or otherwise but only indicated the warranty period in challans for bein conformed during the pre-delivery inspection by the UOI. The material was duly offered for inspection. Thereafter the inspecting officer of the UOI marked the said material with different indent marks and issued sample of each sample mark. The said samples were sent by the inspecting officer to the Composite Food Laboratory, Delhi for testing and the bulk corresponding to said sample was cordoned and sealed by the said officer. Thus, after drawing of the samples, the SSI had no access to the bulk co responding thereto and had no occasion to interfere with the same. The Laboratory, where the samples were sent for inspecting, conducted all the physical and Chemical tests to satisfy the requirement of the prescribed ASC specification No. 67. One of such tests conducted by the laboratory was to verify the shelf life of the Kishmish, according to which the warranty period was to be ascertained. In any case, the said Laboratory had every opportunity to conduct such a test with regard to the warranty period. In so far as SSI is concerned, it was only to await the receipt of instructions from the defendant after the samples were drawn. It is also mentioned that after drawing of the samples, the SSI was only to await the receipt of the dispatch instructions from the defendant. On the samples passing all the tests ,the defendant would issue instructions to the SSI to deliver the material to its local representative at the Railway Station at Delhi. After the aforesaid delivery, the SSI ceased to have an liability in respect of the material so delivered and the said local representative made his own arrangements for further dispatch of the material. Even the delivery of the material from the godowns of the SSI to the Railway Station was in the presence and under the strict control of the representatives of the UOI. The SSI was never informed of the test results of the samples and upon receiving the dispatch instructions, it was presumed that the material had passed the inspection. In the alternative and without prejudice to the aforesaid, the SSI states that the warranty as given by it in the said challans was duly accepted and acted upon by the UOI and became final and binding as the UOI never insisted upon the SSI to give the warranty in accordanc with the said standard warranty clause.
3. However, vide its letter dated 4th April, 1981 and thereafter from time to time by its various letter the UOI informed the SSI that it had been reported by the QMG Branch, ST 7, Army Headquarters, New Delhi, that the quantity mentioned in the said letters and supplied under the inspection note and indent marks mentioned therein had gone bad and declared unfit for human consumption with the warranty period. Total quantity so mentioned in those letters was 48.770.948 MT The UOI thus sought to recover rom SSI the entire cost of the aforesaid material along with freight/handling and incidental charges. Total amount sought to be recovered was Rs. 16,27,906.50p. out of which the SSI deposited under protest a sum of Rs. 3,57,566.20p. The UOI, however, later on withdrew the rejection in respect of 5.107 MT out of total quantity rejected earlier i.e. 48.770.948 MT The SSI alleges that rejection of the quantity was illegal and not binding on it and some of the quantity rejected was even after the expiry of the warranty period. It is maintained that the material supplied by the SSI remained fit and wholesome during the warranty period even if there was any such warranty period. The rejection is also challenged on the following grounds:-
(a) That no opportunity whatsoever to prove the quality and fitness of the material was ever given to the plaintiff before making the alleged rejection.
(b) That a portion of initially rejected material was found fit and re-accepted by the defendant on its own and in most of the cases much after expiry of the warranty period.
(c) That substantial quantity was rejected after expiry of the warranty period.
(d) That a defendant from time to time consumed and found fit a substantial quantity supplied under the same indent mark and having the same fitness and quality as that of rejected material.
(e) That no test were conducted by the defendant upon the reserve sample lying with the defendant before making the alleged rejections.
(f) That during the warranty period the material was sound, wholesome and fit for human consumption and the causes alleged by the defendant did not exist.
(g) That the material was not kept in proper and appropriate transportation and storage condition and temperature having regard to the nature of the material.
(h) That it was incumbent upon the defendant to apply the principle of ‘first in first out’ while consuming the material keeping in view the nature of the material. The defendant not having done so, is itself guilty of the negligence and want of due care and caution.
(i) That the material supplied was contained in sealed tins. Therefore, without opening the same and using the material, it could not have been ascertained that the material is unfit for human consumption.
(j) That no opinion either as regards alleged rejection or as regards alleged charges recoverable on account thereof as required under paragraph 2 of the standard warranty clause was ever formed. Assuming though not admitting that such opinions were forme, the plaintiff states that at the time of forming such opinion, the concerned Officer acted arbitrarily, without any basis or justification, unreasonably, mechanically and without any application of mind. The Plaintiff was also not given any opportunit f being heard before formation of alleged opinions.
(k) That no declaration as required under paragraph 3 of the standard warranty clause was ever made. Assuming though not admitting that such declaration was made, the plaintiff states that the same was made arbitrarily, without any basis or justification unreasonably, mechanically without application of mind and without giving any opportunity of being heard to the plaintiff.
(l) That para 1 of the standard warranty clause is void for impossibility having regard to the nature of the material i.e. Kishmish without stalks. In particularly, the plaintiff states that no Kishmish without stalks can remain sound, wholesome and fit or human consumption for period of six months in any climate and under all conditions of storage and movement in India nor can the warranty period be counted as provided in the Standard Warranty clause irrespective of date of its manufacture.
4. It is stated that since the UOI was threatening to destroy the alleged rejected material and to recover and/or adjust the amount, the SSI took back the delivery of the said rejected material under protest and without prejudice to its rights and contentions and incurred an expense of Rs. 2,600/- on account of freight and labour charges. After bringing back the goods to Delhi, the SSI tried to sell the goods in the open market but could not find any buyer because of the reasons that shelf life of the material had considerably reduced. The SSI, to avoid further deterioration, kept the goods in a cold storage and incurred an expense of Rs. 10,056/- thereon. Ultimately, it could sell the goods @ Rs. 8 per kg. and realised an amount of Rs. 80,352/-. After a justing the expenses on freight, labour and cold storage, the amount which became available to SSI was Rs. 67,696/-. These goods had been sold to the UOI for Rs. 3,57,566.20p. and since on the wrongful rejection thereof the SSI could sell and realise only Rs. 67696/-, the SSI is entitled to claim the differential, i.e. 2,89,970/- from the UOI. The SSI also claims interest @ 18% on this payment with effect from 29th April, 1981 when the goods were taken back.
5. It may be mentioned that there were certain other rejections also which material kept lying with the UOI. There was some talk of furnishing of bank guarantee by the SSI to the UOI qua this material, but it was subsequently not agreed to by the UOI. The SSI had sought leave of this Court under Order II Rule 2 CPC in case the said quantity is not taken back. This aspect is not stated in detail as we are not concerned with the same today. However, in respect of remaining quantity of 11 MT, which was o be delivered by the SSI to the UOI by 31st October, 1981, it is stated in the plaint that the SSI duly tendered the said material and the same was duly inspected, tested and accepted for delivery. However, the SSI apprehended that in view of earlier rejection the UOI would withhold the payment and expressed its apprehension in the letter dated 9th December, 1981 and agreed to deliver the goods only if the UOI assures in writing that the amount due against the said delivery would not be withheld. Even when repeated letters were written in this behalf and were not replied to by the UOI and as no assurance was also forthcoming, the SSI treated the contract for supply of 11 MT as repudiated by the UOI. It is mentioned that out of 11 MT of Kishmish a quatity of 48 Kg. was taken and consumed by the UOI during sampling and the defendant is liable to pay to the SSI the price thereof at the rate of Rs. 35.57 per kg.. The balance quantity of 10.952 MT was sold by the SSI at the rate of Rs. 25/- per Kg. and the UOI is liable to pay to the SSI damages calculated at the rate of Rs. 10.57 per Kg. on the aforesaid quantity being the difference in the contracted price and the price realised. The UOI is also liable to pay a sum of Rs. 5,484/- paid by the SSI as cold storage charges which were incurred on account of keeping the goods in the cold storage from the date of its tendering until their sale. The SSI is further entitled to claim from the UOI the interest at the rate of 18% per annum with effect from 31st October, 1981 ti.. 21st April, 1982 on Rs. 3,89,562.64 and with effect from 22nd April, 1982 until realisation on the sum of Rs. 1,15,762.64. According to the SSI, the UOI has also failed and neglected to pay to it an amount of Rs. 48,605.28p. due from the UOI on account of sales-tax and this payment is also to be made. The total amount of Rs. 5,41,234.85p. as worked out by the SSI, which according to the SSI, it has to recover from the UOI is, thus, under the following heads:-
(a) Amounts due from the defendant
as claimed in paragraph 23
of the plaint Rs.2,89,870.20
(b) Interest on the amounts
mentioned in sub-para (a)
hereinabove at the rate of
18% p.m. with effect from
21.4.1981 till the date of
filing of this suit. Rs. 52,176.60
(c) Amounts due from the
defendant on account of
48 Kg. Of Kishmish at the
rate of Rs. 35.57 per Kg. Rs. 1,707.36
(d) Amounts due from the
defendant on account of
loss and damages incurred
by the plaintiff by reason of
selling 10.952 MT the goods in
open market at the rate of
Rs. 10.57 per Kg. as mentioned in
paragraph 37 of the plaint Rs. 1,15,762.64
(e) Cold storage charges for
keeping a quantity of 10,952 MT
in cold storage Rs. 5,484.00
(f) Interest on the above Rs. 33,112.77
(g) Amount of Sales Tax due from
the defendant. Rs. 48,605.28
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Total Rs. 5,41,234.85
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6. Apart from recovery of the aforesaid amount, the SSI has also sought declaration to the effect that rejection made by the UOI in respect of 43.663.948 MT is void and illegal. Pendente lite and future interest is also claimed.
7. Facts of Suit No. 288/1983
The UOI has denied the various allegations made by the SSI in its Suit No. 587/1982 and has rather claimed that it is the SSI which has to pay Rs. 644736.87p. For this this suit is filed. The averments made in this suit also form the defense of suit filed by the SSI.
8. After giving the details of tender inquiry and acceptance of tender vide letter dated 15th November, 1980 for supply of 96 MT of Kishmish, the schedule for supply of the various quantities is given as under:-
Quantity (M.T.) Delivery Dates Rate
23.00 12.12.80 }
15.00 10.01.81 }
18.00 10.02.81 } Rs. 35.55 per kg.
12.00 10.4.81 }
11.00 10.5.81 }
1.00 10.6.81 }
10.00 10.7.81 } Rs. 35.75 per kg.
6.00 10.8.81 }
9. It is stated that the contract was governed by a special conditions for contract as appended to the Tender Enquiry; (b) the General Conditions of Contract (Form DGSandD-68 Revised); (c) the terms and conditions for supply of fruits dried for defense services laid down in appendix to Tender Enquiry dated 12.9.80. The supplies were to be conforming to ASC Specifications No. 67 read with the warranty clause.
10. It is stated that certain supplies were made belatedly and not within the scheduled delivery period and some of the quantities were rejected. However, even as per the UOI total quantity of 85 MT was dispatched to various supply depots and quantity of 43.663.948 MT was declared as gone bad and unfit for human consumption. It is mentioned that the first intimation of 10.044 MT which had gone bad during the warranty period was received on 30th March, 1981. In terms of the standard warranty clause the defendant was asked to make good the loss and refund Rs. 3,57,566.20 towards the cost, freight etc. vide letters dated 4th April, 1981 and 14th April, 1981. The SSI refunded the entire amount of Rs. 3,57,566.20 on 15th April, 1981 and removed the condemne stocks from various supply depots. The decision of the UOI in rejection of the stores was final under the contract and binding on the supplier. This was as per the terms of the contract. The Army Headquarters intimated under their various communications from time to time that a further quantity of 33.619.948 MT Kishmish had gone bad during warranty period. The SSI was, thereafter, advised in terms of para 2 of the Standard Warranty Clause to replace the condemned stocks with fresh ones and remove condemned stocks from various supply depots at their own expenses. The SSI on various pretexts did not replace the condemned stocks. However, since the SSI did not replace the stocks which had gone bad, they were asked to refund the cost, freight, incidental charges etc. thereof They were also asked to lift the condemned stocks lying at various supply depots at their own expense and arrangements after depositing the cost thereof. It is further stated that vide letter dated 21st October, 1981 the SSI was asked to deposit the cost, freight etc. for a quantity of 6.152.056 MT declared gone bad during the warranty period as per various letters received from the Army Headquarters up to 21st October, 1981. The SSI also in its letter dated 30th October, 1981 greed to refund the cost but later on it went back on their promise and did not refund the cost etc. of the condemned stores.
11. According to the UOI, for some more quantities declared unfit for human consumption, the SSI submitted a proposal to furnish bank guarantee but thereafter submitted fresh modified proposal for the amount equivalent to the claim of the UOI and, therefore, vide letter dated 18th February, 1982 the SSI was asked to furnish bank guarantee in a modified format by 25th February, 1982. When the SSI failed to bring the said bank guarantee by stipulated date it was decided to cancel the offer in letter dated 18th February 1982 and the SSI was advised to remit the amount of Rs. 12,67,984.44p. by 20th March, 1982 being the cost, freight and incidental expenses and sales-tax on the total quantity of 33.619.948 MT Kishmish. The SSI was also asked by subsequent letter to deposit Rs. 2355.86p. towards CST and freight etc. The SSI was given another chance vide letter dated 20th March, 1982 to furnish an unconditional bank guarantee by 31st March, 1982. They were also advised to dispatch the balance accepted quantity of 11 MT Kishmish against the contract within a period of one week failing which the same was liable to be cancelled at their risk and cost without any further notice. The SSI in its letter dated 30th March, 1982 again reiterated that the alleged rejection was illegal, void and contrary to contract, unenforceable and not binding. They refused to furnish a clear and unconditional Bank Guarantee and also to dispatch the remaining duly accepted balance quantity of 11 MT Kishmish withheld by them until a written assurance for payment of their bills against the supplies was given. Thus, the SSI failed to dispatch the balance quantity of 11 MT Kishmish and also did not furnish an unconditional bank guarantee. The contract was, therefore, cancelled at the risk and cost of the SSI. As a matter of fact, the action of the SSI in not supplying the quantity of 11 MT was mala fide and deliberate as it appears that the cost of Kishmish by that time had gone up. The UOI reserved its right to file appropriate proceedings for loss suffered by it due to non-supply and breach committed by the SSI after making risk purchase. According to the UOI, the SSI failed to furnish the required bank guarantee or remove the condemned stores or supply the balance 11 MT This forced the UOI to declare a total quantity of 33.649.949 MT as gone bad during the warranty period and to dispose of a quantity of 20.668.364 MT by a public auction whereby the UOI could realise an amount of Rs. 1,47,500.81p. The SSI, however, had been paid a sum of Rs. 7,36,613.30p. as cost of the said quantity under the terms of the contract. The UOI also incurred a sum of Rs. 39,138.77p. as freight, incidental and back loading charges in disposing of the said quantity of 20.668.384 MT A sum of Rs. 1,75335p. was also incurred by the UOI towards advertisement charges for auctioning the said goods. A sum of Rs. 14,732.26p. was also incurred as sales tax @ 2%. Thus, in all the UOI incurred a sum of Rs. 7,92,237.68p. towards the cost of the condemned stocks and out of which a sum of Rs. 1,47,500.81p. was realised by auctioning the condemned stocks. Thus, a total amount of Rs. 6,44,736.87p. is still recoverable from the SSI. It is in these circumstances that suit for recovery of this amount is filed by the UOI against the SSI.
12. Since these two suits filed by the parties against each other are the cross-suits, vide order dated 10th May, 1984 Suit No. 288/1993 filed by the Union of India was consolidated with Suit No. 587/1982 and it was directed that proceedings would be held in Suit No. 587/1982 and will also be read as proceedings in Suit No. 288/1993. On 9th August, 1984 following issues were framed by the Court:
S. No. 587/82
1. Whether the plaintiff gave to the defendant any enforceable warranty in terms of the standard warranty clause or otherwise? If so, to what effect?
2. Whether the rejection of the goods by the defendant was proper, valid and in accordance with the contract?
3. Whether the defendant after initially rejecting the goods consumed any portion of the same and if so its effect?
4. Whether the plaintiff is entitled to claim the amounts mentioned in paragraphs 22, 23 and 37 of the plaint?
5. Whether the plaintiff is entitled to claim from the defendant an amount of Rs. 48,605.28 by way of Sales Tax due under the contract?
6. What amount of principal is the plaintiff entitled to claim against the defendant?
7. What amount of interest is the plaintiff entitled to claim against the defendant?
S. No. 288/83
1. Whether the plaintiff gave to the defenant any enforceable warranty in terms of the standard warranty clause or otherwise? If so, to what effect?
2. Whether the defendant is guilty of breach of contract?
3. Whether the rejection of the stores supplied by the defendant was wrongful?
4. Whether the defendant is liable to pay the amount of Rs. 6,44,736.87 as detailed in the plaint?
5. Relief.
13. SI has examined two witnesses, namely, Sh. Sohan Lal Gupta as DW-1 and SMT Meena Gupta, DW-2. Union of India has also examined two witnesses, namely, PW-1 Col. S.C. Charavarty and PW-2 Mr. Venu Gopalan (it appears that witnesses of Union of India are examined as PWs and that of SSI as DWs whereas it should have been there other way round). Witnesses of both the sides have supported their respective versions which shall be discussed in detail while dealing with the issues.
14. ISSUE No. 1 of S. No. 587/82 and 288/83
The first issue in both the suits is common, namely, whether SSI gave the UOI any irreversible warranty in terms of the Standard Warranty Clause or otherwise? If so, to what effect? From the respective pleadings and the issues framed on which evidence is led by both the parties, it is clear that the primary dispute between the parties is about the rejection of part material by the Union of India. As per the Union of India, the quantity rejected was not in accordance with the specifications and the warranty given by the SSI. The SSI denies the same. It is, therefore, to be examined, in the first instance, as to whether there was any such warranty and if so, whether the goods supplied by SSI to UOI were not in accordance with the said warranty. The decision on this issue would govern the outcome of the second issue as well. According to SSI, burden of proving this issue is upon UOI, but it has not been able to produce any evidence to show that SSI gave any irreversible warranty in terms of the Standard Warranty Clause or otherwise.
15. Even as per SSI’s own admission, the goods were to conform to ASC Specification No. 67. It is also an accepted case that the contract was governed by Special Conditions of Contract as appended to the Tender Enquiry; General Conditions of Contract (Form DGSandD-68 Revised) and the terms and conditions for supply of dry fruits for defense services laid down in appendix to Tender Enquiry dated 12th September 1980. Standard Warranty Clause was mentioned in the ASC Specification No. 67 for fruits dried (Ex P-1) and it reads as under:-
“1. The contractor warrants the supplies delivered to be sound, wholesome and fit for human consumption Fruit Dried for a period of six months from the last day of the stipulated month of delivery if the supplies are tendered in the month of manufacture and from the last day of the month of tendering of the supplies are tendered (with prior permission of the Chief Director of Purchase, provided that such permission will be deemed to have been granted in cases where delivery period is 15th day or prior of a month) in a month subsequent to the month of manufacture in any climate and under all conditions of storage and movement in India.
2. In the event of the supplies or a part thereof having been declared during the period of warranty as being unsound, unwholesome or unfit for human consumption as Fruit Dried by the Director of Supplies and Transport, QMG’s Branch, Army Headquarters, New Delhi or any officer acting on his behalf (whose opinion as to whether or not the particular consignment is sound, wholesome or fit for human consumption as Fruit Dried will be final), the purchaser will have the right to dispose of the condemned stock in any way he considers necessary after giving due notice to the contractor and also, at his discretion, either to allow the contractor to replace the condemned stock within a specified period or to recover from the contractor the contract price thereof together with sales tax and excise duty, if any, paid thereon by the purchaser along with all incidental and freight charges incurred from the place of delivery to the place where the supplies were ultimately condemned. The option of the Chief Director oPurchase or an Officer acting on his behalf in regard to these charges will be final.
3. The declaration by the Chief Director of Purchase or any Officer acting on his behalf communicated to the contractor in writing that a particular consignment has been condemned will be taken by the contractor as the conclusive evidence of the proper condemnation of that consignment provided that such comment is issued by the Chief Director of Purchase within 45 days of the expiry of the warranty period. Nothing herein contained shall prejudice any other right of the purchaser in that behalf under this contract or other wise. The above stipulations were essential to the main purpose of the contract.”
16. The learned counsel for SSI contended that it was only a format in which warranty was to be given but no such warranty was ever given by SSI or even demanded by the UOI, which was even admitted by PW-1 (Col. S.C. Chakravarthy of UOI) in his deposition. Even PW-2 (Mr. Venugopalan) in his deposition admitted that he could not locate any warranties on record. Therefore, argued the counsel, in the absence of any enforceable warranty, alleged rejection of the goods based on the purported warranty clause was improper. I am unable to accept the plea of SSI. Maybe no separate warranty was given. However, it may be noted that invitation to tender and instructions to tenders (Ex. P-1) dated 12th September 1980 clearly provided that:
“The contract which may eventuate from this Tender will be governed by the General Conditions of Contract (Form DGSandD-68-Revised) except Clause 14(8) and Clause 24 thereof pamphlet conditions of Contract Government of India (now under the Ministry of Supply) 1971, DGSandD-28 Copy of which is obtainable from the Manager of Publications, Delhi-6) Print as amended from time to time and terms and conditions for supply of Fruit Dried to defense Services contained in the Appendix to this Tender Enquiry xxxxx”
17. Apart from stating the conditions in which tender was to be submitted in the said NIT, NIT included appendix stating sub-conditions of contract for the supplies in question, which, inter alia, provided that supplies will be required to conform to parts 1 to 5 of ASC Specification No. 67, packing would be as per paras 6 and 7 of ASC Specification No. 67 and marking would be as per paras 8 and 9 of the ASC Specification No. 67. Thus, ASC Specification No. 67 was made applicable in view of special conditions. ASC Specification No. 67 was also attached. Further along with this invitation, standard warranty clause was attached (Ex. P-2) on the top of the Standard Warranty Clause the NIT no. and date is specifically mentioned which is relatable to the NIT in question. ASC Specification No. 67 is also specifically stipulated. While submitting the tender, SSI signed all these documents including Standard Warranty Clause. Thus, SSI agreed to be governed by all these specifications and it would be clearhat the Standard Warranty Clause was also given. It may be mentioned that in the Standard Warranty columns like tender no., ASC specification no., nature of goods to be supplied and period for which the warranty was given are specifically filled in hand and the warranty is signed by SSI. Therefore, it is na+¯ve on the part of SSI to say that it was only a format and no separate warranty was signed. By signing the said Standard Warranty Clause, SSI gave the requisite warranty and it cannot now be permitted to say that there had to be a separate document of warranty which was required to be signed for giving the warranty and the Standard Warranty Clause (Ex. P-2) was only a format. The issue No. 1 is accordingly decided in favor of the UOI and against he SSI.
18. ISSUES No. 2 and 3 OF S. No. 587/82 AND ISSUE No. 3 OF S. No. 288/83
These two issues are again common and relate to the validity of the act of the UOI in rejecting the stores supplied by the SSI. The submission of learned counsel for the SSI, in the alternative, was that if it is assumed that warranty in the Standard Warranty Clause was given, goods were thoroughly examined and decided to ensure its conformity to the prescribed specification and, therefore, there was no implied condition as to quality of fitness. For this proposition he referred to Section 16 of the Sale of Goods Act and particularly, proviso to sub-section (2) of Section 16 which stipulates that if the buyer has examined the goods, there shall be no implied conditions as regards defect which such examination ought to have revealed. This provision world not come to the aid of the SSI. It may be noted that Section 16 prescribes certain implied conditions as to quality or fitness of the goods supplied by seller to buyer and it naturally prescribes that there is no implied warranty or condition as to quality or fitness for any particular purpose of goods supplied under the contract of sale. In the present case, no doubt, before the delivery of goods in question, there was proper testing and checking thereof by the officers of the UOI. However, this checking would only mean that at the time of taking delivery of the goods, the UOI was satisfied about its quality and fitness. Goods are, however, not rejected on that ground. Warranty relates to the fitness period, i.e. the shelf life of the goods is also ensured. Thus, not only the SSI was to ensure that the goods supplied were of requisite quality and fit for consumption, at the time of supply, it was also to ensure that they remain so for a period of six months. The testing of the goods of delivey would mean satisfying the first requirement and not the second. Had the goods been rejected on the ground that they were not of proper quality at the time of supply, SSI could argue that such rejection is improper when the delivery is taken after testing these goods. However, the goods are rejected on the ground that they had gone bad even before expiry of six months viz.during the warranty period which was ensured by SSI.
19. It may be noted that the goods in question are consumables/food, namely, Raisins (kishmish). The goods were purchased in bulk by the UOI to be consumed by the armed forces over a period of time. It is for this reason that warranty from SSI was taken to the effect that they were to remain fit for consumption for a period of six months from the date of its supply. The warranty clause specifically authorised the UOI to reject the goods if they become unsound, unwholesome and unfit for human consumption during the period of warranty. Therefore, in view of this specific provision in the Standard Warranty Clause, the UOI had the right to reject the goods.
20. I do not agree with the submission of learned counsel for the SSI, based on Section 12 of the Sale of Goods Act, that what was given was only ‘warranty’ and since it was not a ‘condition’, the UOI had no right to reject the same. Although what is stipulated is ‘warranty’, the nature of this warranty would clearly show that the stipulation was in the nature of a condition. Sub-section (2) of Section 12 prescribes that a condition is stipulated essentially to the main purpose of the contact, the breach of which gives a right to treat the contract as repudiated. A warranty, on the other hand, is a stipulation collateral to the main purpose of the contract and breach thereof gives rise to a claim for damages but not to a right to reject he goods. In the present case if the foodstuffs supplied became unfit for consumption, it would naturally be of no use and thus, would form an essential part to the main purpose of the contract. Furthermore, the SSI cannot seek shelter of Section 12 of the Sale of Goods Act, in any case, in view of specific power given to the UOI to reject the goods; to direct the seller to take back delivery; to dispose of the rejected goods at the risk and cost of the seller.
21. At this stage, the other contention of the learned counsel for SSI needs to be noted. It was argued that even if such a warranty was given, it would be void for impossibility under Section 56 of the Contract Act. This argument was based on para-1 of the warranty which stipulated that the SSI wants that ‘supplies delivered will remain sound, wholesome and fit for human consumption for a period of six months from the last date of the stipulated month of delivery in any climate and under all conditions of storage and movement in India.’ Submission was that the goods supplied, namely, raisins could not remain fit for human consumption for a period of six months irrespective of storage and transport condition and there was a categorical statement made to this effect by the witness of SSI, namely, Sohan Lal (DW-1), which was not rebutted by the UOI and no suggestion was given to the witness either that such a statement was untrue. Furthermore, argued the counsel, Raisins (kishmish) being a food product cannot remain sound, wholesome or fit for human consumption for a period of six months from the date of delivery in all climates and under all conditions of storage and movement in India. This argument is also far-fetched. It may be mentioned that ven as per SSI’s submission, it had supplied 85 MT of kishmish and large quantity of kishmish, delivery whereof was taken, was consumed without any complaint meaning thereby that quality remained fit for consumption entire period of six months and did no become unwholesome or bad. Further the SSI, at the time of submitting tender itself, agreed to this condition being fulfillled. Section 56 of the Contract Act, in these circumstances, would not come into play. Therefore, I am unable to accept the submssion of learned counsel for the warranty clause was void for impossibility.
22. It was next argued that UOI had a duty to mitigate damage to the goods by taking all reasonable care and caution during storage and movement of the goods but not evidence is produced to show that such reasonable care and caution was taken. The argument begs the question. The UOI intimated the SSI that a particular quantity had gone bad during warranty period and invoked the warranty clause for rejecting the said quantity. It was for the SSI to put specific query to the UOI as to whether it had taken reasonable care and caution. Not only no such query was put earlier, no such question was put to the witnesses of the UOI either.
23. Thus, it can be concluded that the warranty clause gave power to the UOI to reject the goods in case the stipulation contained in the warranty clause was attracted.
24. he next question which is to be determined is whether in the facts of this case such a rejection by the UOI was proper. Learned counsel for the SSI submitted that once the goods supplied conform to ASC Specification No. 67 and the UOI accepted the goods only after being fully satisfied about these specifications that too after conducting all tests, it has to be presumed that these goods would also satisfy the requirement of para-1 of the Standard Warranty Clause. He also referred to the deposition of PW-1 (Co. Chakravarty) wherein he made the following statement:-
“xxxxx It is correct that in this case the goods were accepted by us only after they met the prescribed specifications. Therefore, they would have remained sound wholesome and fit for human consumption for a period of six months from last date of the tipulated month of delivery in any climate and under all conditions of storage and movement in India.”
25. It was argued on the basis of the aforesaid statement that there was a specific admission by the witness of the UOI itself that Raisins supplied as per ASC Specification No. 67 would remain wholesome and fit for human consumption for a period of six months and, therefore, there could not have been a rejection thereof on the purported ground that they had become unfit. It was also argued that the UOI did not produce any evidence whatsoever, either oral or documentary, to show that the rejection of goods by it was proper, valid and in accordance with the contract. It was submitted that the alleged documents filed by the UOI were only inter-departmental communications between other departments of the UOI with which SSI had no concern and even those documents were exhibited. They would not have any evidential value as the witnesses produced had admitted that they had no personal knowledge of the facts pertaining to the present case. It was incumbent upon the UOI to produce and examine as witnesses all the officers who had conducted the test on the basis of which the alleged rejection was made and also file test reports. Therefore, these inter-departmental communications are also not proved in accordance with law and mere exhibiting of the documents does not dispense with its proof and for this purpose reliance was placed on Sait Tarajee Chaimchand v. Yelamarti Satyam, AIR 1971 SC 1865. The alleged documents filed and relied upon by the UOI for proving that the goods were liable for rejection do not at all constitute documentary evidence. As aforesaid, these documents are inter departmental communications and/or the correspondence exchanged between the parties and the truth of these documents has been neither admitted nor proved. The correctness of the contents of the letters cannot and does not stand proved as soon as it is admitted that the letter had passed between the parties as held in Hoare Miller and Co. Ltd. v. Union of India, (1961) 65 Cal W N 1206. Balance sheets relating to accounts dnot prove themselves and the facts mentioned therein have to be proved by evidence and after giving an opportunity to the opposite party to contest the correctness of such evidence by cross/examination as is clear from The Management of the Postal and R.S. Co-operative Thrift and Credit Society v. The Workmen of the Postal and R.M.S. Co-operative Thrift and Credit Society , 2nd (1963) 2 Punjab 28. The evidence of the contents contained in the document is hearsay evidence unless the writer thereof is examined before the Court. An attempt to prove the contents of the documents by proving the signature or handwriting of the author thereof is to set at naught the well recognized rule that hearsay evidence cannot be admitted [See Sir Mohd. Yusuf and Anr. v. D. and Anr., AIR 1968 Bom. 112 (DB); Achuthan Pillai v. Marikar (Motors) Ltd., AIR 1983 Ker 81 (DB)].
26. It was also submitted that as per Section 54 of the Evidence Act all facts except contents of documents must be proved by oral evidence and oral evidence has to be direct in view of Section 60 of the Evidence Act. It ws also submitted that Section 51 of the Evidence Act, whenever the opinion of any person is relevant, the ground on which such opinion was based is also relevant. Thus, it was incumbent upon the UOI to object all the test reports which form ground for the alleged opinion of the office s of the UOI that the goods were liable for rejection during the warranty period. Instead of filing these test reports only the conclusion thereof was filed. It was also submitted that admittedly SSI was not associated with the sampling and testing of he goods. He also submitted that witness of SSI, DW-1, had highlighted the following aspects in his deposition:-
(a) While the first inspection and sampling prior to delivery of goods was in the presence of SSI, the second inspection and sampling during the alleged warranty period was in the absence of SSI. UOI neither gave any show cause notice nor associated SSI with sampling and testing.
(b) While during the first inspection a sample was given to SSI, no sample of the second inspection was given to SSI.
(c) While during the first inspection a composite sample was drawn by mixing 10 per cent of the lot, there is no evidence to show that during the second inspection similar procedure was strictly followed and the sample was drawn by mixing 10 per cent of he material sought to be rejected.
(d) The officers who drew the sample during second inspection recorded proceedings which are called station board proceedings but the same have admittedly not been filed by UOI.
(e) The test reports of the samples drawn during first inspection on the basis of which the goods were accepted by UOI were neither considered nor compared with the test reports of the samples drawn during second inspection on the basis of which the good were alleged rejected. As aforesaid, none of these test reports have been filed on record and there is no opportunity to SSI to compare the said test reports.
(f) There is no breakup to show as to how much of the rejected quantity was related to the quantity accepted in appeal on price reduction on the ground that they did not conform to the prescribed specifications. Admittedly the goods which were accepted in appeal had some defects and the price was reduced according to the defects. There is no evidence to show that in respect of the goods accepted in appeal, the defects during the second inspection were in addition to the defects found during the appeal and waived upon price reduction.
27. He further submitted that under para 2 of the alleged Standard Warranty Clause the goods could be rejected during alleged warranty period only by the Director of Supplies and Transport or any officer acting on his behalf. Admittedly, the goods have not been rejected by the Director of Supplies and Transport and admittedly, no authority in favor of the persons who have allegedly rejected goods has been filed on record or proved. Thus, there is no proof that the alleged rejections have been made by he persons duly authorised by the contract to do so.
28. Lastly, on this issue his submission was that when after initially rejecting the quantity of 48.663.948 MT, rejection was withdrawn in respect of 5.107 MT Thereafter out of this SSI took back 10.44 MT thereby leaving balance quantity of 33.679.948 MT However, UOI, as against this quantity, ultimately made available a quantity of 20.668.364 MT and did not account for balance quantity of 12.951.584 MT This means, argued the counsel, even after initial rejection a huge quantity of 18.058.564 MT was consumed which would show that rejection was not on any sound parameters but arbitrary.
29. Before considering these submissions we may have to take stock of the correspondence exchanged between the parties regarding rejection. As noted above, out of total quantity of 85 MT dispatched by SSI to various supply depots the quantity, the quantity of 43.663.948 MT was declared as gone bad and unfit for human consumption. According to UOI, first intimation of 10.044 MT, which had gone bade during warranty period, was received on 30th March 1981. SSI was informed about the same vide letters dated 4th April 1981 and 13th April 1981. In letter dated 4th April 1981, SSI was informed that Director of Supplies and Transport, New Delhi, had reported in the said quantity becoming rotten and demanded refund of sum of Rs. 3,57,064.20p. on account of cos of condemned stock. It was also said that the condemned stock was lying at the Rail Head Supply Depot, ASC, Pathankot. In letter dated 13th April 1981 freight charges of Rs. 502/- incurred by UOI in the movement of condemned quantity were also mentione and SSI was asked to refund that as well.
30. Significantly without questioning this rejection of the UOI, the SSI made the payment on 15th April 1981 and removed the rejected stock. Although it is said that goods were taken back without prejudice to the rights and contentions of the SSI but no documentary evidence in support of this plea has been produced.
31. In so far as balance condemned quantity is concerned, which was rejected in various blocks, the UOI has produced the communications addressed by Supplies and Transport Directorate, Army Headquarters to Chief Director of Purchase. It would be of interest to note that the SSI has admitted in para-12 of the plaint in the suit filed by it that it was informed by the UOI about the said rejection by various letters and it was also admitted that total quantity mentioned in the said letter was 48.770.948 M and the total amount sought to be recovered was Rs. 16,27,906.05p. These letters are filed by the SSI itself which are Exhibits P-3 to P-14. The SSI has also admitted in this para that Rs. 3,57,566.20p. was refunded (which was in respect of 10.044 MT). The SSI alleges that the deposit of this amount was under protest but as mentioned above, no such letter is filed. The SSI has also stated that it duly objected and refused to accept the rejection of material. Although first such letter filed by the SI on record is dated 4th December 1981, however, in the letter dated 21st October 1981 of the UOI (Ex. P-15) there is reference to two letters dated 31st August 1981 and 7th September 1981 of the SSI as per which the SSI had stated that rejection was maa fide and motivated and these allegations were refuted vide Ex. P-15. In the letter dated 4th December 1981 (Ex. P-21) the SSI has stated that it had consulted its Legal Adviser and were advised that the rejections were illegal and contrary to contract Correspondence exchanged between the parties thereafter has been produced on record as per which, the SSI had been repeatedly saying that the rejection was not proper. There is discussion, in these letters, about the supply/non-supply of remaining 11 T also which aspect would be taken care of while discussing that particular issue. It would be sufficient to state here that while UOI has been maintaining that rejection was proper, the SSI was branding it as illegal and mala fide. From this discussio it would be clear that while the SSI did not object to the first rejection of 10.044 MT of Raisins and even refunded the payment, for subsequent rejections dispute was raised. Therefore, in so far as the rejection of 10.044 MT of supplies are concerned which are even taken back by the SSI, no quarrel can be made by them.
32. It may be noted that even 11 MT of Raisins, the remaining supply was inspected and was ready for delivery. Vide letter dated 23rd December 1981 the SSI, inter alia, expressed its apprehension that in case 11 MT of Raisins is supplied, the UOI may not make the payment against the supply. However, in order to maintain good business relations and sort out the existing dispute, it offered that it would furnish to the UOI a bank guarantee for the sum claimed by the UOI against the SSI on account of alleged rejections, which shall be kept alive till the alleged liability is duly and finally adjudicated upon by an appropriate forum. Certain conditions, however, were stipulated in the said communication for giving this guarantee, including the condition that balance payments would be released and payment against supply of 11 MT shall not be withheld or adjusted against the recovery of alleged claim of the UOI. The SSI, at the instance of the UOI, even modified some of these conditions. However, the UOI id not accept even the modified conditions but wanted an unconditional bank guarantee, which was not acceptable to the SSI and the SSI vide its letter dated 18th January 1982 (Ex. P-31) treated the contract as having been repudiated by the UOI. In its letter dated 18th January 1982 (Ex. P-32) the UOI reiterated that furnishing of bank guarantee as proposed was not acceptable, demanded the amount of Rs. 12,39,292.40p. against rejected material and also demanded supply of balance 11 MT of goods. Vide letter dated 2nd February 1982 (Ex. P-35) the SSI again offered to give bank guarantee without prejudice to its earlier communication dated 18th January 1982 reiterating the same conditions. Subsequent correspondence shows that both the parties stuck to their guns-UOI kept claiming that SSI did not furnish the unconditional bank guarantee; did not remove the condemned stores; did not make payment against rejected supplies; and did not supply balance quantity of 11 MT. On the other hand, SSI was willing to gave the bank guarantee subject to the condition that the disputes are resolved; balance payment against the supplied already made to it is released and promises given for releasing the payment against the supply of 11 MT as well. The UOI, in these circumtances, disposed of 20.668.364 MT by way of public auction for an amount of Rs. 1,47,500.81p. and thereafter both the sides filed these cross-suits.
33. It is clear from the aforesaid discussion that as far as quantity of 10.044 MT is concerned, the SSI did not raise any dispute and accepted back the material and even refunded the amount. Therefore, this claim made in the suit filed by it is untenable.
34. However, in respect of further quantities rejected, the SSI put the objection on record and challenged the rejection as mala fide and improper. The UOI has, therefore, to prove that this rejection was in accordance with the terms and conditions of the contract. The grounds on which this rejection is challenged are already stated above while taking note of the arguments of learned counsel for the SSI. No doubt, the UOI has filed various intimation received from the Supplies and Transport Director of Army Headquarters to the Chief Director of Purchase stating that particular quantities had been declared gone bad and unfit for human consumption within the warranty period. In all these communications reasons for condemnation of stocks are also stated and generally these reasons are: stocks found infested, taste and smell not present; percentage of moisture, discoloured units, dirty units, mouldy/ID units and units with stalks above specification limits etc. Significantly, what is not explained by the UOI either in the pleadings or even in the evidence, documentary or oral, as to why after rejecting the material, rejection in respect of 5.107 MT was withdrawn. Again, it is also not explained as to why out of balance quantity of 33.619.948 MT, the UOI could make available only a quantity of 20.668.364 MT, that is where the balance quantity of 12.951.584 MT had gone, whether it was consumed or stolen-no clarification is given. The SSI has categorically stated that this quantity was consumed to which there is no rebuttal. Thus, after rejecting the material, huge quantity of 18.058.584 MT was consumed by the UOI. If those were the reasons stated above, because of which the goods were declared unfit for consumption, consumption of this huge quantit by the UOI puts question-mark on the action of the UOI in rejecting these materials. In this background when we read the testimony of UOI’s own witnesses whereby it is accepted by PW-1 that the goods, supply whereof was accepted after satisfying that they met the test of ASC Specification No. 67, would have remained sound, wholesome and fit for human consumption for a period of six months in any climate and under all conditions of storage and movement in India assumes significance. What is accepted in the statement is that normally when these goods, i.e. raisins brown seedless (Kishmish), meet the test of ASC Specification No. 67, their shelf life for a period of six months is almost assured. In view of this statement, burden was heavy upon the UOI toshow that rejection was valid and for proper reasons. The SSI was also not associated with sampling and testing on receipt of the complaint. Therefore, I am constrained to hold that rejection in respect of 33.619.948 MT of goods by the UOI is illegal Issue No. 3 of S. No. 587/82 also stands answered with this discussion as I have already held that after initial rejection of the goods, the UOI allowed 18.058.584 MT to be consumed.
35. ISSUE No. 2 of S.No. 288/83
I have already noted above that the SSI was ready to supply balance 11 MT. What it wanted was that on supply of this material, the payment thereof be released and should not be withheld because of dispute regarding rejection of alleged condemned quantity. It was even ready to give bank guarantee for this purpose. However, the UOI wanted unconditional bank guarantee and it is not understood why this posture was adopted by the UOI, inasmuch as conditions imposed were that the dispute shall be adjudicated by proper forum and payment against supply of 11 MT shall also be released. By asking for unconditional bank guarantee the UOI indirectly expressed its intention that it could still withhold the payment in respect of balance quantity of 11 MT to be supplied to it. Therefore, I am of the opinion that non-supply of balance quantity by the SSI was for valid reason as it had right to ask the price for the goods which were to be supplied, more particularly when it was willing to give bank guarantee for the disputed rejection and claim made by the UOI in respect of the said rejection. Even if the UOI wanted unconditional bank guarantee, it nowhere specifically stated that payment against the supplies to be made would be released. When no such assurance as coming from the UOI, the SSI’s apprehension that payment may not be made even if supplies are made and non-supply of the goods on these grounds would be just and proper. This issue is, therefore, answered in favor of the SSI and against the UOI and hold that the SSI is not guilty of breach of contract.
36. ISSUES No. 4 TO 7 of S. No. 587/82 AND ISSUES No. 4 AND 5 OF S. No. 288/83
All these issues are different shades of same question, namely, who is entitled to what amount? To recapitulate, the sum and substance of the aforesaid discussion is as under:-
A) The SSI cannot agitate the rejection of 10.044 MT of quantity as it accepted back the material and at that time no protest was made;
B) Rejection of 33.619.948 MT of quantity by the UOI is improper;
C) There was no fault in not delivering balance quantity of 11 MT by the SSI to the UOI, which was, although duly tested and okayed by the UOI, but it did not give any assurance that payment would be released once this material is supplied and rather even after the SSI stated that it had the apprehension that in view of disputes about the rejected quantity and claim made by the UOI in that behalf, the UOI may not make the payment, these fears of the SSI were not allayed by the UOI.
The plaintiff, therefore, shall not be entitled to any amount in respect of 10.044 MT, i.e. Rs. 2,89,870.20p. claimed (Rs. 3,57,566.20 (paid by it) minus Rs. 67,696.00 (amount realised on sale of the said material). Consequently, it will not also be entitled to any interest on this amount. Rest of the claim is on account of 11 MT. Out of this the quantity of 48 Kg. was taken and consumed by the UOI and the SSI shall be entitled to a sum of Rs. 1,706.40p. on this ground. It is alleged by the SSI that balance quantity of 10.952 MT was sold by it @ Rs. 25/- per Kg. as against the rate of Rs. 35.55p. per Kg. and, therefore, it is entitled to differential amount of Rs. 1,15,543.60p. and further amount of Rs. 5,484/- as cold storage charges. DW-1 in his deposition has affirmed this aspect and has produced invoices (Exhibits DW-1/6 and DW 1/7) showing that the material was disposed of at Rs. 25/- per Kg.
37.Other claim of the SSI is for sales-tax of Rs. 48,605.28p. under the contract. It is stated that the UOI did not pay the SSI this amount of sales-tax which was payable by it. There is no rebuttal of this in the written statement filed by the UOI. DW-1 made categorical statement on this behalf and on this aspect there is no cross-examination. Therefore, the SSI shall be entitled to this amount as well. In the conspectus I hold that the SSI is entitled to the following amounts:-
A) Rs. 1,15,543.60
B) Rs. 48,605.00
C) Rs. 1,706.40
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Total (A+B+C) Rs. 1,65,855.00
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38. In the facts and circumstances of this case, keeping in view the fact that the matter remained pending in this Court for a long period and also having regard to the interest rates prevailing today, I deem it proper to award interest @ 7% per annum with effect from the date of filing of the suit till its payment.
39. The UOI shall not be entitled to any relief in the suit filed by it and the said suit is hereby dismissed. Suit filed by the SSI is decreed for a sum of Rs. 1,65,855/- with interest @ 7% pe annum and proportionate costs.