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Gopal Chandra Jaiswal v/s M/s. Birla Tyres & Another

Company & Directors' Information:- BIRLA TYRES LIMITED [Active] CIN = U25209WB2018PLC228915

Company & Directors' Information:- BIRLA CORPORATION LIMITED [Active] CIN = L01132WB1919PLC003334

Company & Directors' Information:- S M TYRES PRIVATE LIMITED [Active] CIN = U51101JH2012PTC000312

Company & Directors' Information:- J D TYRES PRIVATE LIMITED [Active] CIN = U32109MH1999PTC121451

Company & Directors' Information:- S N TYRES PRIVATE LIMITED [Strike Off] CIN = U25111AS1999PTC005670

Company & Directors' Information:- B R TYRES PRIVATE LIMITED [Strike Off] CIN = U25112UP2003PTC028157

Company & Directors' Information:- H A TYRES PVT LTD [Active] CIN = U25199CH1985PTC006609

Company & Directors' Information:- M F TYRES LTD [Strike Off] CIN = U25112PB1993PLC014035

    F.A.T No. 35 of 2013 (Appellate Side)

    Decided On, 24 March 2017

    At, High Court of Judicature at Calcutta


    For the Appellant: Ashok Banerjee, Soumyen Datta, Pinaki Brata Ghosh, Susmita Majumder, Nandita Maji, Advocates. For the Respondents: Aniruddha Chatterjee, Rahul Karmakar, Amal Mitra, Advocates.

Judgment Text

Asha Arora, J.

1. This First Appeal at the instance of the plaintiff/appellant arises out of the judgement and decree dated 19th November, 2012 passed by the learned Judge, VIIth Bench, City Civil Court Calcutta in Title Suit No. 315 of 1998.

2. The parties are referred to herein as they are arrayed in the suit.

3. The plaint case, sans unnecessary details is as follows: The plaintiff is a dealer and trader in various types of scrap items including scrap rubberized fabric (nylon) and red poly. By an auction notice No. 1/BT/97-98 dated 31st March, 1997 the defendant No. 1 M/S Birla Tyres, through its auctioneer the defendant no. 2 M/S Tirupati & Company notified sale of various scrap items including material described as 'Scrap Rubberized Fabric (nylon) (including Red Poly)' weighing approximately 185 tons by public auction to be held on 17th April, 1997 at Kalamandir, Calcutta. Plaintiff participated in the aforesaid auction by offering a price of Rs. 17,800/- per metric ton which being the highest bid, was accepted by the defendants. As per terms and conditions of the auction sale plaintiff deposited Rs. 3,69,300/- as security deposit which was accepted by the defendant no. 1. Plaintiff lifted approximately 50 M.T. and 610 kgs of scrap rubberized fabric (nylon) including red poly and paid the price thereof including sales tax and excise duty amounting to Rs. 11,05,533/- to the defendant no. 1 who supplied about 12 tons of red poly along with the scrap material. In the bills and invoice raised by the defendant no. 1 the material was described as 'scrap rubberized fabric (nylon)' and red poly was deliberately omitted therein. The defendant no. 1 illegally charged excise duty @ 18% on the red poly. Plaintiff made representation and protested against the matter but in vain. Inspite of repeated requests and reminders the defendant no. 1 failed to refund an amount of Rs. 38,448/- paid by the plaintiff as excess excise duty. Plaintiff was unable to sell red poly which became an unaccountable item since it was not mentioned in the invoice. Due to breach of contract by the defendant no. 1 who failed to rectify the invoice, plaintiff was unable to lift the entire quantity of 185 tons of material purchased by him for valuable consideration thereby causing loss to his business. By a letter dated 17th September, 1997 the defendant no. 1 illegally forfeited the security deposit. By a notification no. 2/BT/97-98 dated 12th September, 1997 the defendant no. 1 through the defendant no. 2 notified the sale of the remaining quantity of the material which was purchased by the plaintiff. In the said second auction notice the item was described as scrap rubberized fabric (nylon) but red poly was not mentioned. With these assertions plaintiff claimed refund of the security deposit of Rs. 3,69,300/- and the excess amount of excise duty of Rs. 38,448/- with interest @ 18 per cent per annum on the said amount from 1st July, 1997 to 31st January, 1998. Plaintiff sought for a declaration that the forfeiture of security deposit by the letter dated 17th September, 1997 is illegal, arbitrary, void and not binding upon him. A decree for recovery of Rs. 4, 50,561/- against the defendant no. 1 has also been claimed.

4. The suit has been contested by the defendant no. 1 by filing written statement wherein the material averments made in the plaint have been disputed. It is the specific case of this defendant that the plaintiff failed to discharge his part of the obligation under the contract by not lifting the entire quantity of material which was correctly described in the invoice. Breach of contract by the plaintiff entitled the defendant no. 1 to forfeit the security deposit. Defendant categorically disputed the assertion that excise duty was charged for red poly and that the plaintiff was prevented from lifting and taking delivery of the entire material. Denying all other allegations made in the plaint, defendant prayed for dismissal of the suit.

5. Parties led evidence in support of their respective claims. Upon considering the oral and documentary evidence, the Trial Court arrived at the finding that the plaintiff failed to prove his case and is therefore not entitled to any relief in the suit which was accordingly dismissed on contest against the defendant no. 1 and exparte against the proforma defendant with cost.

6. Aggrieved, the plaintiff preferred the present appeal.

7. Inviting our attention to the auction notice dated 31st March, 1997 (exhibit 1) and the list of auction material (exhibit 1(a)), Mr. Banerjee, learned senior advocate appearing for the plaintiff/appellant strenuously argued that it is clearly mentioned in exhibit 1(a) that 185 tons of scrap rubberized fabric (nylon) (including red poly) was offered for sale by public auction for which the plaintiff’s bid being the highest was accepted but red poly item was deliberately omitted in the invoice and in the acceptance letter which amounted to breach of contract. Mr. Banerjee sought to impress that the contract was concluded on the date of auction which was held on the basis of the auction notice and the dismissal of the suit on the basis of the acceptance letter was not justified.

8. Mr. Chatterjee, learned advocate appearing for the respondent no. 1 countered that red poly has not been mentioned as a separate item in exhibit 1(a) nor was it offered for sale or sold to the plaintiff as a separate item. So there was no question of mentioning it in the invoice. Referring to the plaintiff’s letter dated 16th June, 1997 (exhibit 5) and 1st July, 1997 (exhibit 5(a)), Mr. Chatterjee submitted that there is no whisper therein of any monetary loss incurred by the plaintiff due to non mention of red poly in the bills and invoice. It has further been argued that the defendant no. 1 was constrained to invoke the forfeiture clause in the acceptance letter (exhibit 1(b)) since the plaintiff failed to lift the scrap material even on the extended date and inspite of reminder. In support of such submission Mr. Chatterjee pressed into service the letters dated 22nd July, 1997 and 17th September, 1997 (exhibit 6 and 6(a)). Referring to the discussion on 'Tenders' in Chapter 2 of Chitty on Contracts (Volume I) Mr. Chatterjee argued that an auction notice is an invitation for offer and not an offer to sell to the person making the highest bid. There is no contract until the offer is accepted by the person asking for it. Placing reliance on the case of Kunwar Chiranjit Singh versus Har Swarup reported in AIR 1926 Privy Council 1 learned advocate for the respondent contended that refund of security deposit cannot be claimed by the plaintiff since there was breach of contract on his part. To buttress his argument in support of forfeiture of the security deposit Mr. Chatterjee also referred to the case of Dharam Chand Soni and another versus Sunil Ranjan Chakrabarty and another reported in AIR 1981 Calcutta 323.

9. An advertisement intended to lead to the making of a bilateral contract is not generally an offer. It is commonly regarded as an invitation to treat. At an auction sale, the general rule is that the auctioneer’s request for bids is not an offer that can be accepted by the highest bidder. It is the bid that constitutes an offer, which the auctioneer may, but generally is not bound to accept. An acceptance is a final and unqualified expression of assent to the terms of the offer. In the case at hand the undisputed acceptance letter dated 17th April, 1997 (exhibit 1(b)) is a legally enforceable agreement for sale which is binding upon the parties. As per the acceptance letter (exhibit 1(b)) the defendant no. 1 agreed to sell to the plaintiff 185 tons of rubberized fabric (nylon) at the rate of Rs. 17,800/- per ton on 'as is where is basis'. The item red poly does not figure anywhere in the said contractual document. Significantly, the plaintiff signed on the aforesaid document without raising any dispute regarding non mention of red poly therein. By signing on the acceptance letter plaintiff accorded his approval and acceptance of its contents including its terms and conditions as is evident from the concluding part of the document (exhibit 1(b)) which reads as follows:

'This letter is being issued in duplicate; please sign & return the second copy of the letter signifying your acceptance of the said arrangements'

It is not the case of the plaintiff/appellant that he signed on the acceptance letter without perusing and understanding its contents. We are not convinced with the submission that the plaintiff/appellant signed on the aforesaid document in good faith without taking note of the fact that red poly was not mentioned therein. Curiously enough, plaintiff did not lead any evidence to substantiate this plea. On the contrary, in his cross-examination PW 1 stated that 'this is the sole transaction between the plaintiff and the defendant'. A reasonably prudent man would normally not repose faith on someone with whom he is transacting for the first time. In our view the plaintiff/appellant has taken a futile plea of desperation which is far from tenable.

10. PW 1 admitted in his cross examination that prior to the bid he inspected the material offered for sale and on being satisfied, he made the bid. There is nothing on record to show that there was an agreement for sale of red poly to the plaintiff/appellant or that the said item was sold to him. Therefore there is no merit in the contention that red poly should have been mentioned in the bills and invoice. There is also no document to prove that excise duty was charged separately on red poly. The argument that there was breach of contract on the part of the defendant no. 1 by not mentioning red poly in the acceptance letter and in the invoice is fallacious for the reasons herein above discussed. It is clear from exhibit 1(b) that the defendant no. 1 agreed to sell 185 tons of scrap item described as rubberized fabric (nylon) to the plaintiff so there was no question of mentioning the item red poly in the invoice and bills. Plaintiff’s claim for mentioning red poly in the acceptance letter and in the bills on the basis of the auction notice which is merely an invitation for offer, is not legally sustainable.

11. It is pertinent to mention that the plaintiff/appellant failed to substantiate his contention that he suffered loss due to non mention of red poly in the invoice and that he could not sell the said unaccounted item. On the contrary, PW1 admitted in his cross-examination that though he faced difficulty in selling red poly which he lifted, due to want of invoice, but ultimately he sold the said item.

12. We are also not impressed with the argument that the security deposit was illegally forfeited by the defendant no. 1. It is not in dispute that the plaintiff lifted 50 tons 610 kgs of scrap material out of 185 tons. After lifting part of the material plaintiff requested the defendant no. 1 for extending the date for lifting the remaining material as is evident from his letter dated 16th June, 1997 (exhibit 5). Despite extension of date plaintiff failed to lift the material within the stipulated period which prompted the defendant no. 1 to invoke the forfeiture clause embodied in the acceptance letter (exhibit 1(b)).

The relevant clause (iv) of the aforesaid document reads as follows:

'iv) That you are to keep in deposit with the Company an interest free sum of Rs. 2,50,000/- (Rupees Two Lac Fifty Thousand) only by Bank draft in the name and style of ‘Birla Tyres-Prop. Kesoram Industries Limited’ within ten days from the date of acceptance of this letter as and by way of security deposit. Such security deposit will be adjusted at the end of complete lifting of the materials. PROVIDED HOWEVER that at the time of each lifting of the materials necessary. Delivery Order will be issued by the Company to you mentioning threin the quantum of the materials to be lifted and on payment (by bank draft) the price of the materials to be lifted against the aforesaid Delivery Order. It be noted that in case of failure on your part to lift the entire materials within the stipulated period then and in that case the Company will be at liberty to forfeit the aforesaid security deposit including the further security deposit to be paid as hereinafter stated without showing any reasons what-so-ever. Provided further that if the actual quantity of the materials as stated above is found more than what has been stated above, then you are to deposit with the Company such further sum or sums as the Company will decide by way of further security deposit in the manner as stated above.'

The principle enunciated in the decisions reported in AIR 1926 Privy Council 1 and AIR 1981 Calcutta 323 (supra) is that where the contract falls through due to default or breach by the vendee, the seller is entitled to forfeit the earnest money unless there is anything to the contrary in the terms of the contract. The plaintiff cannot in such a situation claim refund of the earnest money. The earnest money is a guarantee for the performance of a contract. If the transaction goes forward, it is a part of the purchase price. If it falls through due to default or breach by the vendee, the earnest money is liable to be forfeited. In the case at hand, in view of the express terms contained in the contract between the parties, forfeiture of the plaintiff’s security deposit was justified since the plaintiff failed to discharge his obligation under the contract by not lifting the material within the period stipulated. In the context of the fact situation of the present case it is pertinent to refer to section 74 of the Indian Contract Act which provides as follows:

'When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the br

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each is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.' Section 74 of the Indian Contract Act applies not only to cases where the aggrieved party is seeking to receive some amount upon a breach of contract, but also to cases where upon a breach of contract an amount received under the contract is sought to be forfeited. It is evident that the first part of section 74 applies to the facts of this case. In the case at hand there is a specific term in the contract entitling the defendant no. 1 to forfeit the security money in case of failure on the part of the plaintiff to lift the entire material within the stipulated period. In the circumstances stated, forfeiture of the security deposit was justified in terms of the agreement and the plaintiff/appellant is not entitled to refund of the same. 13. For the reasons discussed we are of the firm view that the plaintiff/appellant failed to make out any case for interference with the impugned judgement and decree passed by the Trial Court. 14. Consequently the appeal is dismissed. 15. No order as to costs. 16. Lower court records along with a copy of this judgement be sent forthwith to the Trial Court. 17. Urgent photostat certified copy of the judgment if applied for, be made available to the parties upon compliance of requisite formalities.