City and Industrial Development Corporation of Maharashtra Ltd., Bombay and Another Vs. M/S. Nagpur Steel and Alloys Pvt. Ltd., Nagpur - Court Judgment

Excerpt:
the case dealt with the applicability of section 59 of the sale of goods act, 1930 while dealing with breach of warranty by the buyer on the sale of goods - in this regard, prior notice to seller was a condition precedent - the buyer accepted goods but failed to comply with the agreed specifications and consumed the same for its own use - it was held that such an act by the buyer amounted to waiver of condition - therefore, it was not entitled to claim breach of warranty. - maharashtra scheduled castes, scheduled tribes, de-notified tribes (vimukta jatis), nomadic tribes, other backward classes and special backward category (regulation of issuance and verification of) caste certificate act (23 of 2001), sections 6 & 10: [s.b. mhase, a.p. deshpande & p.b. varale, jj] caste certificate .....orderv. a. mohta, j.1. this is a buyer's appeal against a money decree mainly representing the unpaid price of the goods sold and tonnes of mild steel round bars and cold twisted deformed bars of various specified sizes was invited by the buyer -- original defendant no. 1 -- city and industrial development corporation of maharashtra (cidco). tender of the seller -- original plaintiff --m/s. nagpur steel and alloys private limited, nagpur, was ultimately accepted and a purchase order dated 14th/15th december 1977 was despatched to nagpur. this contract was subject to conditions specified in the tender as well as the purchase order. the agreed rate was rs. 2275.05 per metric tonne. the seller was obliged to test the goods from some government institution and to despatch the test.....

Judgment:
ORDER

V. A. Mohta, J.

1. This is a buyer's appeal against a money decree mainly representing the unpaid price of the goods sold and tonnes of mild steel round bars and cold twisted deformed bars of various specified sizes was invited by the buyer -- original defendant No. 1 -- City and Industrial Development Corporation of Maharashtra (CIDCO). Tender of the seller -- original plaintiff --M/s. Nagpur Steel and Alloys Private Limited, Nagpur, was ultimately accepted and a purchase order dated 14th/15th December 1977 was despatched to Nagpur. This contract was subject to conditions specified in the tender as well as the purchase order. The agreed rate was Rs. 2275.05 per metric tonne. The seller was obliged to test the goods from some Government institution and to despatch the test certificates. Goods without test certificates and not as per specifications were to be rejected by the buyer. The exact words of that part of the contract are :

'Material without test certificates and material not as per specifications will be rejected and it will be suppliers responsibility to lift rejected materials at their risk and costs and if such materials is not cleared from CIDCO godown/stockyard within 30 days time, they shall be forfeited without further notice.'

Goods were supplied from time to time between 19th December 1977 to 22nd March 1978 in 60 different consignments which each time were closely followed by a bill and test certificate from the Government institution for the respective consignment. As many as 58 bills were paid but the last two bills -

(i) dated 7th February 1978 for 9.475 metric tonnes of 8 M.M. C.T.D. bars amounting to Rs. 21,556.10 and

(ii) dated 22nd March, 1978 for 9.86 metric tonnes, 6 M.M, rounds amounting to Rs. 23,439.19 were detained on the ground that some of the goods supplied was over sized. Since in spite of notice of demand the whole price of the goods was not cleared,a suit for the amount representing the two bills, outstanding balance of Rs. 4663.84 from the other bills and other miscellaneous charges totalling Rs 58, 756,41 was filed against CIDCO and the Manager (Stores and Purchase) -- original defendant No. 2.

3. The defendants objected to the territorial jurisdiction of Nagpur Civil Court to try the suit and on merits raised a defence to the effect that (i) the goods were not supplied from the seller's factory at Nagpur as orilly agreed, (ii) the goods did not bear the ISI mark, (iii) the goods did not conform to the agreed specifications, (iv) the certificates issued by the Government Polytechnic, Nagpur, indicated that the goods supplied did not conform to the agreed specifications, (v) the buyer was entitled to reject the supplies but did not do so in view of the seller's explanation regarding the difficulties faced by it and decided to treat the breach of condition as a breach of warranty, (vi) the goods were accepted because the exigency of the work which was in progress and (vii) because of supply of over sized goods, the seller had to consume more goods linear wise and in that if suffered damages to the tune of Rs. 99,305.93. The seller made a counter claim against the plaintiff to the extent of Rs. 46,666.32.

4. The seller resisted the claim inter alia on the grounds that :

The buyer accepted the supplies without any grievance or protest despite knowledge of the so called over size of some of the material, utilized the material in the works and paid the price of 58 consignments. This unconditional acceptance of the material amounted to waiver of the condition. Had the grievance been made in right time, the seller would have easily replaced those goods. Even the intention to treat the breach of condition as breach of warranty did not exist. In any case, no such intended was ever communicated either orally or in writing to the seller and this amounted to waiver. In February 1978 retesting was done through buyer's representative. Test report showed that samples tested were quite in conformity with the specifications within permissible variations.

5. In the trial, several documents were filed. The seller led oral evidence of its Managing Director Dr. Banerjee (P.W. 1). The defendant examined an Expert Shri Dinkar Deshpande (D.W. 1).

The trial Court answered territorial jurisdictional issue in favour of the seller and on merits held that-

(i) condition was waived.

(ii) the supply was as per contract.

(iii) there was no justification for the buyer to hold up the sum of Rs. 51,668.66, and

(iv) the seller did not commit breach of the contract but committed breach of warranty in respect of some supplies.

Consequently, a money decree for Rs. 56,651.81 including various miscellaneous charges, interest, etc. with costs and future interest, was passed and the counter claim of the buyer was dismissed.

6. The dismissal of the counter claim has become final since it has not been challenged, by the defendants.

7. After hearing Shri A. G. Potey, learned counsel for the appellant, Shri V. P. Kukday, learned counsel for the respondent and going through the record with their assistance, we see no merit in this appeal for the reasons that follow.

8. The point relating to territorial jurisdiction has not been pressed before us --perhaps rightly. The only point and that too relating to merit pressed before us is that the buyer had treated the breach of condition of size as a breach of warranty and it was entitled to set up the breach of warranty in diminution of the price as provided under Section 59 of the Sale of Goods act (the Act).

9. The documentary evidence consists of the tender notice, purchase order and correspondence between the parties. The seller examined its Managing Director Dr. Banerjee who was involved in the transaction almost at every stage. The buyer examined only Prabhakar Deshpande the Expert. No one in support of its side of the transactionwas examined. Gist of Dr. Banerjee's material part of the evidence is that every consignment was tested and test report was sent along with bill, the goods were verified, utilized in the construction and then payments released. No protest of any nature was ever made till 58 bills were cleared. In February 1978 retesting of some samples were made and test report shows that those were in conformity with the specifications within permissible variations. On 2nd May 1978, letter (Ex. 46) was sent by the buyer contending that the amount was held up, to meet the claim of the contractor, if made in future. At no point of time either the goods were rejected or the buyer communicated its decision to treat the so called breach of condition as a breach of warranty.

10. It will be worthwhile reproducing the material portion of the letter (Ex. 46) :

'Thus the outstanding payment to you is Rs 51,668.66 is held up since in case we release this payment to you, at the time of claim from contractors, it will be difficult for the corporation to meet their claim and it is at the express wish of the Chief Engineer that the full payment is not released to you.

In a nut shell what we find instead of paying you Rs. 51,668.66 we have to collect from you Rs. 3,989.58 worked out at the present market rate.'

11. The following thus are the proved and undisputed positions on record :

(i) The price agreed was weight-wise.

(ii) The contract specifically provided that goods without test certificates and not as per specifications would be rejected and it was the supplier's responsibility to lift rejected goods which, if not done within 30 days, entitled the buyer to forfeit the goods without any notice.

(iii) Consignments were sent in 60 different instalments ranging over a period of nearly 3 months -- each consignment followed by a bill and a test certificate from a Government Institution.

(iv) The goods were accepted and never opportunity to replace the goods was given to the seller.

(v) The goods were accepted despite full knowledge of the oversize and actually utilized in the construction and the price of as many as 58 bills paid without any protest.

(vi) There is no evidence to show that the buyer gave any oral or written notice of its intention to treat the breach of condition as breach of warranty.

(vii) The last two bills were held up on the ground that if that payment was released, it would be difficult for the buyer to meet the claim of the contractor if made in future.

(viii) There is no proof about actual damage to the buyer or its extent.

12. Now, Section 12 of the Act specifies that a stipulation in the contract of sale of goods may be a condition or a warranty depending upon whether the stipulation is essential to the main purpose of the contract is merely collateral of the contract. While the breach of the former gives rise to a right to treat the contract as cancelled, the breach of the latter gives rise only to the claim for damages. Section 13 of the Act deals with the subject 'when condition to be treated as warranty'. Sub-section (1) lays down that the buyer may either (a) waive the condition or (b) elect to treat the breach of the condition as a breach of warranty.

13. It seems to us clear that in the instant case the condition about size was for the benefit of the buyer, it could be waived voluntarily and has been waived by the buyer. The buyer was fully aware of the so called over size of the goods and yet did not reject the goods though specifically provided for in the contract, consumed the goods without giving any opportunity to the buyer to replace the same and even paid the price for 58 consignments. All this amounted to waiver.

14. Section 59 of the Act provides for remedy for breach of warranty. It lays down that where there is a breach of warranty by the seller, or where the buyer elects to treat any breach of condition as a breach of warranty, he is not entitled to reject the goods, but he may set up against the seller the breach of warranty in diminution or extinction of theprice. Now, this section comes into play only when the buyer does not waive the condition. That apart, the buyer has failed to prove that it has, in fact, elected to treat the breach of condition as a breach of warranty as contemplated under Section 59. It is not the case of the buyer that it had given notice of its intention of such election or to claim compensation for a breach of warranty or to set up the breach in diminution or extinction of price In any case, no evidence to that effect is adduced by the buyer. PW Dr. Banerjee has stated that no such intention was ever expressed and had it been done, he would have easily replaced the oversized goods. Remedies under Section 59 are not absolute and cannot be resorted to at any point or strategically point suitable to the buyer. He is duty bound to give notice of his intention. Its proper time, form and manner will, of course, depend upon the facts and circumstances of each case. To hold otherwise, would amount to placing the seller in an awkward and indefinite position -- not warranted either by law or by equity.

15. Useful reference may be made to the following observations made in the context of Section 59 of the Act in the case of Bohre Brij Kishore v. Firm Shripatram Chironji Lal, ILR (1959) 9 Raj 260 :

'It was incumbent upon the plaintiff to give a notice to the defendant in order to enable him to explain whether or not the quality supplied by him was according to the sample. He should also have been given an opportunity to take the goods back and repay the money which he had received from the plaintiff, if he wanted to do so. This opportunity was also denied to him. It may be further pointed out that the plaintiff has also failed to prove what was the actual loss in the transaction.'

16. Few more precedents may be noticed, though their context is somewhat different. In the case of Firm Kotu Mal v. Firm Bihari Lal, AIR 1921 Lah 355 which deals with Section 117 of the Contract Act (since repealed), it was held at page 356 :

'Where there has been a resale by the buyer, in order to recover special damage for a breach of warranty, it is necessary that the buyer should not have been negligent in failing to detect the inferiority of the goods before he resells or deals with them.

In the case of Empire Engineering Co. v. Municipal Board, Bareilly : AIR1929All801 , it has been held that compensation under Section 118 of the Contract Act (since repealed) cannot be claimed for breach of warranty by the buyer unless he gives notice within reasonable time after its discovery.

17. In the case of Mithan Lal v. Suraj Parshad, AIR 1932 Lah 52 it has been held that there was no justification for issuing notice of intention to sue the seller for compensation after a period of 24 days of the resale of the goods by the buyer, since the buyer had sufficient time to examine the goods and the silence for such a long period and transfer of the goods to some one else amounted to give up all grievances relating to the quality.

18. Reference to the precedents will not be complete without mentioning those upon which the appellants have placed reliance. The case of Mangilal Karwa v. Shantibai, AIR 1956 Nagpur 221 merely lays down that breach of condition can be converted into breach of warranty at the option of the purchaser entitling him under Section 59 of the Act to a dimunition or extinction of the price.

The case of National Traders v. Hindustan Soap Works, : AIR1959Mad112 lays down that in case of sale of specific goods by description and buyer having no opportunity of inspection, mere acceptance of the goods and payment of price does not disentitle the buyer from availing of remedy under Section 59 of the Act.

The case of Sorabji Hormusha Joshi and Co. v. V. M. Ismail, : AIR1960Mad520 is of a sale by description and implied warranty about the goods being merchantable. The following observations of that case are worth reproduction :

'On this evidence it is clear that the first plaintiff who had an opportunity to inspectthe goods did not avail himself of the same and was content to take delivery and having done so it does not lie in his mouth now to say that un merchantable goods were fraudulently palmed off on him,'

The ratio of the aforesaid decisions in no way advance the case of the appellant.

19. This takes us to the last facet of the case namely, proof of actual damages. Price agreed was on weight basis. The seller had parted with the quantity of goods for which he is claiming price. Justification for withholding the two bills was the possibility of a contractor's claim against the buyer in future. The terms of the agreement between the buyer and the contractor were within the special knowledge of the buyer. They are not placed on record. There is no material to come to the conclusion that the contractor had, in fact, made any claim on that account and the buyer had to meet the same. No reasonable officer of the buyer who dealt with the transaction from time to time has been examined. An adverse inference under Section 114(g) of the Evidence Act can, therefore, be drawn against the buyer. Counter claim is dismissed and the said dismissal is not challenged. Thus, this is a case where the buyer has even failed to prove the actual loss.

20. Result : Appeal dismissed but without costs.

21. Appeal dismissed.