B. Seshasayana Reddy, J.
1. Aggrieved by the judgment and decree dated 22-2-1988 passed in O.S.21 of 1985 on the file of Subordinate Judge, Addanki, Prakasam District, D-1 has filed this appeal.
2. R-1 herein is the plaintiff; the appellant and R-2 are D-1 and D-2 in O.S.21/ 85. The plaintiff filed the suit for recovery of Rs. 1,80,781.40 from D-1 by way of damages towards loss of interest and costs to it because of retaining the cheques mentioned in the plaint A and B schedules for a long time than provided for. The plaint averments in brief are as follows:
The plaintiff deals business in fertilizers, pesticides and insecticides etc. and it is a State Government undertaking. M/s. Nagarjuna Fertilizers Chilakaluripeta and M/s. Padmaja Enterprises, Muppavaram are the dealers of the plaintiff. D-1 is the bank of the dealers and whereas D-2 is the banker of the plaintiff. The dealers issued various cheques drawn on D-1 in favour of the plaintiff. The plaintiff presented the cheques for collection, through its Bank i.e. D-2. Details of cheques presented before D-2 for collection are mentioned in plaint A and B schedule. D-2 sent the cheques to D-1 for payment. D-1 retained the cheques for a considerable time. The plaintiff and defendants entered into correspondence with regard to the payment of the amounts covered under the cheques detailed in Plaint A and B Schedule. After considerable delay D-1 honoured the cheques and transmitted the proceeds to D-2 who in turn paid the amount to the plaintiff. The plaintiff averred that D-1 deliberately retained the cheques with a view to have illegal gain for itself. The plaintiff demanded interest @ 21.55 % on the delayed payments. After issuing legal notice dated 19-8-94, Photostat copy of which is marked as Ex.A-12, the plaintiff filed the suit for recovery of Rs. 1,80,781.40 from D-1 together with interest @ 6 percent from the date of the suit to the date of realization. The plaintiff did not claim any relief against D-2.
3. D-1 filed written statement disputing its liability. The sum and substance of written statement of D-1 is as follows:
This suit is bad for non-joinder of necessary and proper parties. The suit is also barred by law of limitation. There is no privity of contract between this defendant and the plaintiff to pay interest on delayed payments. The plaintiff has to settle its scores, if any, with D-2 which is its Bank or with its dealers namely M/s. Nagarjuna Fertilizers and M/s. Padmaja Enterprises. This defendant is agent of neither the plaintiff nor D-2 and therefore, no liability can be fastened on it because of the delayed payment on the amounts covered under cheques detailed in plaint A and B schedules. It is the plaintiff and D-2 who requested this defendant to keep pending the cheques pertaining to the dealers. If the plaintiff is really entitled to claim interest, it must be only against its dealers namely M/s. Nagarjuna Fertilizers and M/s. Padmaja Enterprises. In one instance this defendant collected interest of Rs. 2,228.62 on specific instructions and remitted the proceeds to D-2 on the account of the plaintiff under a D.D.No. 219051/199/84 dated 21-3-1984. Several cheques pertaining to M/s. Nagarjuna Fertilizers were retained by this defendant at the instance of plaintiff and D-2 vide letter dated 4.4.1983 at their own risk and responsibility. This defendant has no statutory power to compel the parties to pay interest on all over due bills under any circumstances. So far as this defendant is concerned, there is no agreement, understanding, rules established practices etc. whereunder it is obliged to pay interest to the plaintiff on the delayed payments. If there is any loss of interest as alleged, the plaintiff and D-2 are to be blamed for their bad business practices over which this defendant has no control. The alleged delay ranging from 40 to 130 days in honouring the cheques is entirely because of the plaintiff and D-2 requesting this defendant to retain the same. All the unpaid cheques have been returned to D-2 some time in March/April, 1983 under letter dated 10-3-1983. The plaintiff at no point of time demanded the payment of interest during the previous years in same and similar circumstances. It is the practice of the plaintiff to release fertilizers to its various dealers and take from them cheques irrespective of the fact whether money is available or not in the account of its dealers. This type of business is adopted by the plaintiff to help its dealers to effect its sales. There is no cause of action against this defendant and this defendant is not responsible for the loss, if any, caused to the plaintiff.
4. D-2 filed written statement contending that the cheques lodged with it by the plaintiff were promptly sent to the 1st defendant- bank for collection and there was no delay at its end and that proceeds of the cheques were credited to the account of the plaintiff. It is further contended by this defendant that it is not a necessary party to the suit and there is no cause of action against it.
5. Basing on the above pleadings, the Trial Court settled the following issues and additional issues for trial:
1. hether the plaintiff entitled to suit amount by way of damages as prayed for?
2. To what relief?
Additional issues:
1. Whether the suit is bad or non-joinder of necessary parties i.e. the dealers ?
2. Whether the suit is barred by limitation?
On behalf of the plaintiff, P.W.I was examined and Exs.A-1 to A-14 were marked and on behalf of D-1, DW.1 was examined and Exs.B-1 to B-7 were marked. On behalf of D-2, neither ocular nor documentary evidence was adduced. On considering the evidence on record ard on hearing Counsel for both the parties, the lower Court held that D-1 committed breach of duty i.e., by way of either passing or rejecting the cheque, and thereby decreed the, suit of the plaintiff against D-1 by judgment dated 22-2-1988. Assailing the judgment and decree, D-1 has filed this appeal.
6. Learned Counsel for the appellant contends that the tower Court failed to note that there is no privity of contract whereunder the appellant/D-1 is obliged to pay interest on the delayed payments. He further contends that the lower Court failed to note the retention of cheques issued by the dealers of R-1/plaintiff was either at the request of R-1/plaintiff or its banker-R-2 or its dealers and therefore the appellant/plaintiff is not liable to pay any interest on the delayed payments. In support of his contentions, he placed reliance on the decisions of Supreme Court in M.C. Chacko v. State Bank, Travancore, : [1970]1SCR658 , Nand Kishore v. State of Bihar, : AIR1974SC1988 , Aries Advertising Bureau v. C.T.Devaraj, : [1995]2SCR251 , and Coats Viyella India Ltd v India Cement Ltd. and Anr., (2000) 9 SCC 376. In the first cited decision the Supreme Court held that a person not a party to a contract cannot, subject to certain well recognized exceptions, enforce the terms of the contract: the recognized exceptions are that beneficiaries under the terms of the contract or where the contract is a part of the family arrangement. It is further held that where a Bank in whose favour letter of guarantee was executed, does not claim that it was a beneficiary under the terms of contract and the Bank was not a party, the Bank could not enforce the charge created by the letter of guarantee on the property of the executioner, even if there was an intention to create a charge. In the second cited decision, the Supreme Court while interpreting Section 40 of the Indian Contract Act held that where the lessors were not parties to the agreement between the lessees and the State, the lessors cannot be held liable for the business of the lessees. Hence decree against lessors for liability of lessees is liable to be quashed. In the third cited decision, the supreme Court while interpreting Sections 10 and 70 of the Indian Contract Act held that the plaintiff-advertiser not being a party to agreement between the financer and the owner of circus is not made liable to the claim of the fmancer. In the cited case the agreement relied on was between the fmancer and the borrower. The plaintiff-advertiser is not a party to the agreement and so there is no contract between the appellant/plaintiff and the defendant/respondent. In the fourth cited decision, the Supreme Court held that a contracting party cannot shift his liability under the contract on a third party which has no contractual relationship with the other contractual party.
7. Learned Counsel for R-1/plaintiff submits that the appellant/D-1 is liable to pay the interest in view of the instructions issued by Reserve bank of India for the delayed payments of the amounts covered under the cheques which were sent to appellant/D-1 for payment. He also submits that the appellant/D-1 is bound to compensate the loss of interest on the amount covered by the cheques detailed in plaint A and B schedule under Section 73 of the Contract Act. In support of his contention he refers to Ex.A-3 photostat copy of the letter dated 30-7-86 under the original of which RBI issued certain instructions to the schedule Banks for payment of interest on the delayed collection of the amounts covered under cheques/drafts.
8. The points that arise for determination are :
(1) Whether there is any privity of contract between the appellant/D-1 and R-1/plaintiff with regard to the payment of interest on the delay caused in collecting the amounts covered under the cheques detained in A and B schedules of the plaint from the accounts of its customers who are the dealers of R-1/plaintiff.
(2) Whether the appellant/D-1 retained the cheques at its own accord or at the request of R-1/plaintiff or R-2/D-2.
9. Point No. 1: R-1/plaintiff deals in fertilizers, pesticides and insecticides. M/s Nagarjuna Fertilizers and M/s Padma Enterprises are the dealers of R-1/plaintiff. The appellant/D-1 is the banker of the dealers and whereas R-2/D-2 is the banker of R-1/ plaintiff. There is no written contract between the appellant/D-1 and R-1/plaintiff with regard to the payment of interest on the delayed collection of the amounts covered under cheques detailed in plaint A and B schedules from the dealers. Indeed the lower Court on thorough consideration of the evidence brought on record has observed as follows:
'The object of damages is only to place the injured in the same situation with respect to the damages as if the contract has been performed. This view of mine is fortified by a decision reported in 1988(1) APLJ 15(SW). As stated above, the facts of the case are attracted by the proviso to Section 73 of the Contract Act, as there is no implied contract between the plaintiff and the 1st defendant to honour or dishonour those cheques as and when the cheques were presented to him for collection, but not to keep them pending for abnormal period without any justification cause or without giving any reply even though the matter has been brought to the notice of the higher authorities by way of Ex.A-6 letter. Thus, viewed from any angle and on consideration of the facts and circumstances of the case, and the material placed on record I am inclined to hold that the 1st defendant cannot escape from liability as he has admittedly detained the cheques for an abnormal period ranging from 40 to 130 days without any justification, cause and as he could not prove any acceptable evidence that he detained the cheques the instance of the plaintiff i.e. initially by way of his oral instructions, followed by the written instructions in the shape of Ex.A-7 and on the request of the dealers for the detention of the cheques to the knowledge of the plaintiff. In view of the above decision, I therefore hold that the plaintiff is entitled to the suit amount by way of damages in the shape of loss of interest sustained by it. This issue is accordingly answered in favour of the plaintiff.'
The finding of the Trial Court is crystal clear that there is no privity of contract between the appellant/D-1 and R-1/plaintiff. It is nowhere pleaded in the plaint of the existence of any contract between R-1/ plaintiff and the appellant/D-1. The Trial Court relied heavily on Ex.A-3 circular issued by RBI. Indeed the Trial Court laid much emphasis on the Reserve Bank of India circular to fasten the liability on the appellant/ D-1 to pay the interest on the cheques returned for the period ranging from 40 to 130 days. The lower Court failed to note that the circular is dated 30-7-86 by which date R-1/plaintiff filed the suit. The date of filing of the suit is 26-6-1985. Therefore, no reliance can be placed on Ex.A-3 circular which is said to be issued an year after filing the suit to fasten the liability on the appellant/D-1 to pay interest for retention of the cheques for the period ranging from 40 to 130 days. We deem it appropriate to refer Ex.A-3 circular and it reads as follows:
'The Assistant Manager 9FC),
A.P. State Agro Industries Development
Corporation Ltd.,
'Agro Bhawan', 10-2-3, AC Guards,
Hyderabad - 4.
Dear Sir,
Collection of cheques, drafts etc.
Payment of interest on delayed collections.
With reference to your letter No.Accs/BR/ GNT/85-86 dated the 19th July 1986, we furnish below the norms prescribed for scheduled commercial banks in the matter of collection of cheques, drafts/ instruments etc.,
Nature of instrumentsTime schedule
(a) For cheques/drafts/ instrumentsdrawn on branches on the same bank.
Within 14 days from thedate of lodgement of the instrument forcollection.
(b) For cheques/drafts/ instrumentsdrawn on branches of other banks.
Within 21 days from thedate lodgement of the instrument for collection.
In case of delay beyond the stipulated period as mentioned above, interest at the prevailing rate applicable to savings bank accounts should be credited to the customer's account by the collecting banker without the customers having to claim it.
As regards local cheques/drafts etc., the proceeds thereof should be collected and credited to the customer's account by the third working day from the day of lodgement, as per the clearing house rules.
Further, the banks have also been advised to ensure that immediate credit of instruments upto an amount of Rs. 2500/- is given to customer's account.
Yours faithfully,
Sd/-
For Joint Chief Officer.'
It is explicit from the above referred letter that the instructions issued to the bankers were subsequent to 30-7-1986 by which date the appellant/plaintiff either returned the cheques or sent the proceeds of the cheques to the banker of R-1/plaintiff. Therefore, no liability can be fastened on the appellant/D-1 basing on the above referred circular. Except the circular there is no other document to speak of the contractual obligation of the appellant/D-1 to pay interest to R-V plaintiff on the delayed payments of the amounts covered under cheques detained in plaint A and B schedule. The lower Court fixed the liability on the appellant/D-1 by invoking Section 73 of the Indian Contract Act which reads as follows:
'Section 73: Compensation for loss or damage caused by breach of contract:--When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.
Compensation for failure to discharge obligation resembling those created by contract. When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.
Explanation :--In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account.'
The first paragraph deals with compensation for loss or damage caused by breach of contract. It states that where a contract is broken, the party suffering from the breach of contract is entitled to receive compensation from the party who has broken the contract. Compensation can be recovered for loss or damage:
(i) that arose in the usual course of things from such breach; or
(ii) which the parties knew at the time they made the contract as likely to result from such breach.
The second paragraph provides that no compensation is payable for any remote or indirect loss or damage. The third paragraph applies the same principles where breach occurs of obligations resembling contracts. The fourth paragraph provides that while assessing damage, the means which existed to the person claiming damages of remedying the inconvenience caused by non-performance, must be considered. It is the fundamental principle of damages for breach of contract that these are awarded to place the injured party in the same position in which he would have been, had he not sustained the injuries of which he complains. When a contract is broken by one party, contract is discharged, and the obligations under the contract come to an end; a new obligation arises for payment of damages. The function of damages for breach of contract is compensatory and not punitive. Their function is to put the person whose right has been invaded in the same position as if it had been respected so far as the award of a sum of money can do so. From a reading of Section 73, it can be held that when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss which naturally arises in the usual course of things from such breach. The section further contemplates that if the parties knew when they made the contract that a particular loss is likely to result from such breach, they can agree for payment of such compensation. In such a case there may not be any necessity of leading evidence for proving damages unless the Court arrives at the conclusion that no loss is likely to occur because of such breach. The question of paying compensation under Section 73 of the Indian Contract Act arises only when there is a contract. The evidence brought on record clearly establishes that there is no privity of contract between the appellant/D-1 and R-1/plaintiff and therefore the question of invoking Section 73 does not arise. Hence, the appellant/D-1 is not entitled to pay interest on the delay caused in realising the amounts covered by cheques detailed in plaint A and B schedule from the accounts of its dealers.
10. Point No. 2: Ex.B-3 is the photostat copy of the letter dated 11-3-93 addressed to the appellant/D-1-Bank by M/s Nagarjuna Fertilizers. Ex.A-7 is the true copy of the letter addressed to appellant/D-1 by R-1/ plaintiff requesting the appellant/D-1 to retain the cheques till 25-3-1983. We feel it apposite to refer the relevant portion of the letter and it reads as follows:
'With reference to the above letter, we requested you to collect the amounts from the parties immediately for the pending cheques.
At present there are some cheques pending given by the said party. We have contacted the party for early realization and the party promised to honour the entire cheques in two instalments on or before 25-3-83. In this connection, we request you to keep the remaining cheques of the party upto 25.3.83 and collect the amounts from the parties. The proceeds of the cheques with interest must be remitted to our account in State Bank of Hyderabad, Arundelpet, Guntur branch on or before 31-3-83 without fail.'
It is explicit from the above-referred letter that it is R-1/plaintiff who requested appellant/D-1 to retain the cheques issued by M/s. Nagarjuna Fertilizers. Ex.A-8 is the true copy of the letter addressed to the appellant/D-1 by R-2/D-2 and it reads as follows:
'With reference to your Lr.No. ADV/P/83 dated 10.3.83 we have to advice you to retain the cheques sent to you for collection from our Bank till 31.3.83. You are requested to send the payments with overdue interest @ 21.55% immediately. This has reference to the telephone conversation you had with the undersigned on 9.3.1983.'
In the above-referred letter, R-2/D-2 who is the Banker of R-1/plaintiff and who sent the cheques for collection requested the appellant/D-1 to retain the cheques till 31-3-1983. It is explicit from the above-referred letters that the drawer, R-1/plaintiff and R-2/defendant requested the appellant/ D-1 to retain the cheques till 31-3-1983. The Trial Court having referred all these letters observed that those letters would not come to the rescue of appellant/D-1. We are unable to sustain the observation of the Trial Court on this aspect. Retention of the cheques by the appellant/D-1 was at the request of R-1/plaintiff and R-2/D-2, therefore the appellant/D-1 could not be held responsible for delayed payments of the amounts covered under the cheques detailed in plaint A and B schedules.
11. In the result, this appeal is allowed setting aside the judgment and decree dated 22-2-1988 passed in OS.21 of 1985 on the file of the Subordinate Judge, Addanki, Prakasham District with costs and consequently the suit of the plaintiff for recovery of amounts against the appellant/ D-1 stands dismissed with costs.