R.P. Dholaria, J.
1. The present appeal has been preferred by the appellant under section 96 of the Code of Civil Procedure, 1908, challenging the judgment and decree dated 29/10/2002, passed by the learned Principal Judge, City Civil Court, Ahmedabad, in Civil Suit No. 3506 of 1989, whereby the learned Judge has allowed the suit and directed the defendant to pay Rs. 19,58,457/- towards the damages after deducting the amount of counterclaim granted to the defendant.
2. The appellant is the original defendant and the respondent is the original plaintiff. Therefore, they have been referred to herein as they appeared in the Suit as plaintiff and defendant for the sake of convenience and brevity.
3. The plaintiff is the company engaged in business of developing industries based upon Agro Products, inter alia, established Castor Oil Milling and Refinery Project at Jagana, Taluka - Palanpur, District – Banaskantha in the State of Gujarat. The defendant is a Company engaged in supplying machineries and equipments. The plaintiff company placed an order on 25/3/1985 for supply, erection, testing and commissioning of plant and machinery for the aforesaid project at Jagana. The aforesaid contract also contained terms and conditions with regard to standard of performance of machinery commissioned by the defendant, which was accepted by the defendant that the plant shall yield performance of 100 metric tons crushing capacity per day of 24 hours to produce residual oil in the cake of ISI standard. The residual oil of the cake shall not exceed 6% of its weight.
4. In pursuance of the contract, the defendant company commissioned the plant as per the requirement of the plaintiff in the month of March 1987 and it was also made functional. Subsequently, the plaintiff raised certain issues regarding the low performance of the machineries commissioned by the defendant and also raised the dispute regarding the plants having only 50% capacity instead of 100% as guaranteed by the defendant. It is also contended that the residual oil in the cake remained more than 7.5% instead of 6% as guaranteed.
5. In view of the aforesaid issue raised by the plaintiff, the defendant showed willingness to demonstrate the performance trial as agreed in the terms and conditions of the contract for a period of fifteen continuous days for twenty four hours in order to measure the performance of the machinery and production capacity as well as the measurement of residual oil in the cake. The defendant also assured that if opportunity of demonstration for performance is given, the defendant is ready to carry out the required modification, alteration and addition in the plant at their own cost.
6. The plaintiff, at its own, had taken certain piecemeal trial for about six times, for less than eight hours in a day of 24 hours and showed certain figures regarding performance as well as residual oil in the cake and raised dispute and instituted the suit for recovery of damages inter-alia indicating that the excess residual oil in the cake has incurred loss to the extent of Rs. 34,65,000/- as well as Rs. 12,00,000/- for excess burden of fixed costs due to lesser capacity utilization of plant and machinery and Rs. 8,00,000/- for process loss in oil milling and had claimed Rs. 64,65,000/- loss from the defendant and the said loss was restricted to Rs. 54,00,000/- as the plant and machinery was supplied by the defendant company at that price.
7. The defendant, against the aforesaid claim for damages raised by the plaintiff, filed written statement inter-alia contending that the defendant has not committed any breach of the contract. The defendant has further alleged that the defendant was always ready and willing to give the trial run continuously for fifteen days as per the terms and condition of the contract. The defendant has alleged that due to non availability of electricity supply for 24 hours and raw materials, the plaintiff never allowed to perform the demonstration as agreed between the parties. Therefore, there was no breach of contract as the plaintiff never allowed any performance trial to be undertaken by the defendant to measure fullest capacity of plant and machinery and hence, the defendant is not liable to pay any damages.
8. The defendant has also filed counterclaim along with the written statement claiming balance of payment of Rs. 6,75,735/- towards the unpaid price of the plant and machinery, which was promised by the plaintiff company.
9. After the conclusion of the pleadings, the learned Trial Judge framed the following issues:
'1. Whether the plaintiff is a company incorporated under the Companies Act?
2. Whether the plaintiff has placed the order with the defendants for the supply, erection, testing and commissioning of plant and machinery for their castor oil milling and refinery project at Jagana, Taluka Palanpur, District Banaskantha of the State of Gujarat on the terms and conditions and the said terms and conditions were accepted by the defendants.
3. Whether it is proved by the plaintiff that machineries supplied by the defendants were not in the capacity as stated in the terms and conditions?
4. Whether it is proved by the plaintiff that the plant and machinery supplied by the defendants were not according to the contract and defendants have committed breach of the contract?
5. Whether plaintiff suffered loss of Rs. 64,65,000/- as mentioned in the plaint para 14?
5A. Whether the defendant proves that he is entitled to amount as claimed by way of counter claim from the plaintiff?
6. Whether this Court has jurisdiction to try this suit?
7. To what amount the plaintiff is entitled to recover from the defendants?
8. What order and decree?'
10. The learned trial judge has recorded following findings thereon:
'My findings on the above issues are as under:
1. In the affirmative.
2. In the affirmative.
3. In the affirmative.
4. In the affirmative.
5. As per final order.
5A In the affirmative.
6. In the affirmative.
7. As per the final order.
8. As per the final order.'
11. We have heard learned advocate Mr. Sanjay Mehta for the appellant and learned advocate Mr. Uday R. Bhatt for the respondent.
12. Learned advocate for the appellant-defendant has taken us through the impugned judgment and decree as well as the oral and documentary evidence, which were adduced before the learned Trial Court. He has argued that the entire judgment and decree passed by the learned Trial Judge is based on the presumption of breach committed by the defendant. He has further argued that the evidence on record does not disclose that the defendant has ever committed any breach of contract as agreed upon by the parties to the contract. On the contrary, defendant was always ready and willing to demonstrate the performance as per the agreed terms and that the plant and machinery commissioned by it is in accordance with the terms and conditions and guarantee provided by it but due to non-availability of power supply for more than six hours in a day and thereafter, due to non-availability of raw materials of castor seeds, the plaintiff could not arrange any trial run as agreed upon between the parties for a period of continuous fifteen days for twenty four hours to measure the performance standards of plants and machinery as per the production capacity as well as the residual oil in the cake as agreed upon between the parties to the contract.
13. He has further argued that the entire judgment rendered by the learned trial Court is based upon the mere presumption and imagination, which is lacking appreciation of documentary evidence as well as the oral evidence produced by the parties to the proceedings. The decree passed by the learned trial judge is not in consonance with the evidence on record and therefore, it is required to be set aside as such.
14. The learned advocate Mr. Uday R. Bhatt, appearing for the respondent-plaintiff has supported the judgment and decree passed by the learned Trial Court and argued that the judgment and decree passed by the learned trial court is in accordance with the evidence available on record, which calls for no interference by this Court.
15. We have gone through the record and proceedings as well the impugned judgment and decree passed by the learned trial Court in the aforesaid Civil Suit.
16. On the overall appreciation of factual scenario as well as the evidence on record, only question that arises for our consideration and determination, is that whether the defendant has committed any breach of terms and conditions of contract and whether the plaintiff is entitled to claim damages, if any, in case of breach of contract or not.
17. Whether the defendant is entitled to claim the amount by way of counterclaim set up by him.
18. As learned advocates for the parties have advanced their arguments on the point of breach of contract and the resultant damages as well as on the point of counterclaim only, they have not advanced any argument on the other issues raised for the determination by the trial Court. In that view of the matter, we are not called upon to address the issues upon which they have not advanced the arguments as such.
19. As the suit is filed for diminution of value and claim of damages on the ground of breach of contract, the entitlement for claim of damages and diminution of value flows from the provisions of Section 73 of the Indian Contract Act, 1872 read with Section 59 of the Sale of Goods Act. The relevant provisions are extracted below:
Section 73 of the Indian Contract Act, 1872 read as under:-
'73. Compensation of 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 non-performance of the contract must be taken into account.
Section 59 of the Sale of Goods Act, 1930 read as under:-
'59. Remedy for breach of warranty.-
(1) Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods; but he may -
(a) set up against the seller the breach of warranty in diminution or extinction of the price; or
(b) sue the seller for damages for breach of warranty.
(2) The fact that a buyer has set up a breach of warranty in diminution or extinction of the price does not prevent him from suing for the same breach of warranty if he has suffered further damage.'
20. A bare perusal of Section 73 of the Contract Act makes it very clear that breach of contract is the foundation to claim damages, that means the breach of contract is sine qua non for claim of damages. The party to the contract who alleges breach, has to plead and prove that breach has been committed by another party to the contract and upon proving such breach he becomes entitled to claim damages as per the provisions of Section 73 of the Contract Act. Whereas, Section 59 of the Sale of Goods Act, 1930, provides remedy to the buyer that in case, any breach of warranty is committed by the seller then the buyer can set up claim against the seller in diminution or extinction of the price as well as for damages, if any, sustained by him.
21. In order to appreciate on the first issue whether there is any breach of contract or not, on this point, indisputably, from the pleadings, it is clearly emerging out that there is no dispute as regards the agreement, which was entered into between the parties for commissioning the plant and machinery at Jagana Taluka - Palanpur and District Banaskantha and the performance standard of the of the plant and machinery also agreed at the 100 Metric tons seeds crushing capacity per day of twenty four hours to produce oil and cake of ISI standard. The residual oil in the cake shall not exceed 6%, that was also agreed and that guarantee was also accepted for the period of one year from the date of commissioning the plant and machinery at the aforesaid place.
22. Indisputably, the plant and machinery was commissioned at Jagana in the month of March 1987. In that view of the matter, the guarantee period was to continue upto the end of March 1988.
23. The plaintiff contends that the plant and machinery commissioned by the defendant failed to prove the performance standard as agreed upon by the parties to the contract. It is further alleged that as the defendant failed to prove the performance as guaranteed by it, the breach is committed thereon and the plaintiff has become entitled to recover the damages as such. On the point of non-performance, only recitals coming out from the plaint is that the plant and machinery commissioned is showing performance standard upto 50% and laboratory report suggesting more than 7.5% of residual oil in the cake instead of 6%.
24. In order to prove to aforesaid nonperformance of the plant and machinery, the plaintiff has examined two witnesses, namely, P.D.Dave as well as Ramesh J. Patel at exhs. 24 and 70. Mr. P.D.Dave was working as an Engineer. He has deposed that at the time of installation of machinery, there was a power supply of six to eight hours only. He has also deposed that in order to measure the performance standard of the plant and machinery, it was required to offer twenty four hours trial run for fifteen continuous days and thereafter, to have a test from the laboratory regarding the residual oil.
25. Regarding the same in the cross examination, he has admitted that due to non-availability of adequate supply of power as well as adequate and sufficient stock of castor seeds, the plant and machinery could never be operated round the clock.
26. He has further admitted that no such performance test was carried out during the guarantee period due to aforesaid reasons. He has further admitted that in the cross examination, if any defect in the performance standard is noticed in the machineries, then the plaintiff could have mentioned and shown to the defendant, so that, within stipulated period of guarantee, the defect could have been removed and only thereafter, the plaintiff is entitled to claim any damages as such.
27. We have also gone through the voluminous communication took place between the parties regarding the commissioning of the machinery as well as complaint as regards the performance of the plant and machinery. The plaintiff continued to remain complaining regarding the nonperformance as per the guarantee standard, whereas the defendant has always shown willingness to have trial run in accordance with stipulated condition but due to non-availability of adequate power supply as well as adequate stocks of castor seeds during the guarantee period, i.e. between March 1987 and March 1988, no such trial run was taken place to measure the performance standard as guaranteed.
28. Learned advocate for the appellant has taken us through one letter addressed by defendant to plaintiff at Exh. 67 which itself is eloquent so far as the dispute with regard to the breach of condition and non- performance on the part of the defendant is concerned. The letter at exh. 67 extracted as below:
'We refer to your letter No. GAIC/J.U/88-89 dtd. 17.3.89, and are shocked at the contents therein, we are now compelled to say that you are trying to find out some excuse or the other for not releasing our outstanding payments. We would once again summarise the entire matter as under:
Refer to our letter No. TURKEY/88/4005 dtd. 17.6.88 wherein we had summarised the entire sequence of the events (copy enclosed herewith for your ready reference). During the meeting we had at Ahmedabad in which all your top officials including Managing Director were present it was agreed to release the payment against the bank guarantee but it was not done. Subsequently you kept on giving us the dates for running of the plant.
You have been informing us that due to severe drought you have not been able to procure the castor seeds while we find our other clients in Gujarat including Jayant Oil Mills, Baroda, have processed thousands of tonnes of castor seed through out out the year, if they can procure the material why you could not? Subsequently you informed us that your people have carried out certain modifications and that with those modifications the oil mill has become upto date and you wanted to debit us about rupees seventy five thousand only. (Rs. 75,000/-).
Subsequently you informed us to depute our personnel to assist you in running of the oil mill. In order to keep good customer relations we agree to depute our personnel and the data collected by him during his 10 days stay from 1st March to 11th March ‘89, has been communicated to you vide our letter No. CUS/998 dtd. 14.3.89, categorically proving the performance of the oil mill. (Xerox copy of the report is enclosed herewith for your ready reference). Even after this you are coming out with your letter dtd. 17.3.89, making only vague statement that plant is not working without giving any kind of detailed report about the working or contradicting the report sent by us. If you have genuine complain you should have tabulated the results yourself and indicated the short coming to us rather than making such vague statements.
When the mechanic left Jagana factory your factory Manager should have given a letter about his not agreeing to results tabulated by him, but there is no report to contrary from factory also.
We have patiently waited for the last 2 years but now this kind of vague replies without giving any facts and figures compels us to believe that your letters are meant only to avoid payment under some pretexts or the other for the reason best known to you. It may not be out of point to mention here that we had already requested yourself by telex message to maintain the log sheets for the working of the plant and still this simple procedure is not being followed and for your fault of not able to run the oil mill you cannot hold us responsible or withhold our payments.
After all castor crushing or refining plant is not something which is totally new but is a very standard normal plant working at hundreds of places. Even the expeller supplied to you are in accordance with your own choice and of the make specified by you in your own purchase order and hundreds of such expellers have been working through out the country. Therefore, we are unable to understand why they should not work at your place and in fact their working has already been demonstrated.
We are also surprised to see that all the technical reports are coming from the commercial division rather than the engineering division.
In short, we have demonstrated working of oil mill to the capacity and it would not be possible for us to wait any further for receiving our dues. You are therefore, requested to immediately make payments.'
29. During course of the hearing as narrated above, the issue as regards breach of contract and on the performance of the machinery as agreed upon was only in dispute and consequent thereof, the learned advocate for the rival parties have taken us through the pleadings as well as oral and documentary evidence in detail.
30. We have gone through the entire record and proceedings and we have minutely evaluated the evidence on record. On going though the entire record and proceedings, it is clearly emerging out that there was guarantee period from the date of commission of plant and machinery for a period of one year to run plant and machinery in a day 100 MT production capacity and the machinery may not exceed 6% residual oil in the castor seeds. That guarantee was subject to the condition of demonstrating performance trial of plant and machinery for a period of 15 continuous days and in case any defect or non-performance is found, the defendant shall take action to carry out the required modification, alteration and addition in the plant in accordance with the terms and conditions. That means a performance trial should run for 24 hours in a day for continuous period of fifteen days, then only the performance standard can be measured. That fact also has been admitted in the communication as well as in the oral evidence of the plaintiff and the defendant both. The evidence on record clearly indicates that the plaintiff has never offered a full-fledged trial run continuously for a period of fifteen days for twenty four hours due to non-availability of power supply as well as stock of castor seeds. When the plaintiff failed to offer the performance trial run in order to find out the defect in the machinery, the defendant could not get any opportunity to remove any such alleged defect. The agreement itself is suggesting that in case of any dispute arises for performance standard, the trial run is to be given by the plaintiff to measure the performance standard. In this view of the matter, unless the plaintiff offers the trial run in presence of the defendant, it could not be termed as any breach of contract or defect in the plant and machinery commissioned by the defendant and in consequence whereof, the plaintiff cannot be entitled itself to claim any damages for breach of contract as such.
31. The commissioning of plant and machinery is the result of the contract. The contract itself is not a property, so that, without proving any breach of contract, one cannot claim damages so far.
32. The contract is the result of cross promises exchanged between the parties. In view of reciprocal consideration moved either in the form of promise or in the form of money from one party to another party. In case of breach of any promise, the party should allege to another party that it has committed breach of contract and has to prove the breach thereof and if the breach of guarantee is proved, then only the damages can be claimed.
33. For the reasons recorded above, in our considered view, whenever the plaintiff itself has not proved any breach of guarantee as committed by the defendant consequently therefore, there can be no action for claiming the damages so far based upon alleged breach of guarantee as such.
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In that view of the matter, in our view, the learned Trial Court has wrongly arrived at the findings that the breach is committed and in consequence thereof, the plaintiff has become entitled to recover the damages. That finding does not get any support either from the oral evidence on record or from the documentary evidence as discussed above. Therefore, the decree passed by the learned Trial Court deserves to be set aside so far as the award of damages is concerned. 34. Now coming to the counter claim filed by the defendant, the defendant has filed the counter claim along with the written statement, which is at page 29 to 38 in the original file, wherein a claim regarding the unpaid price of plant and machinery has been filed by the defendant. Against the aforesaid counter claim, the defendant has given one page reply of denial only. Regarding the counter claim, we have gone through the entire Record and Proceedings as well as oral and documentary evidence on record, more particularly, the documentary evidence, which is at exh 93, written by the plaintiff to the defendant which clearly mentions that the expenses incurred by the company on addition and alteration of Jagana Unit was approximately Rs. 73,000/-. After receiving the reply from the defendant company, the plaintiff will release the balance payment. 35. In our view, so far as the unpaid price of the plant and machinery is concerned, there appears no dispute that amount was not released by the plaintiff because the trial run for due performance of plant and machinery could not be held by the plaintiff for pretty long period due to reasons recorded above. In view of above factual scenario, there is no dispute with regard to unpaid price of plant and machinery installed. The amount of unpaid price is also ascertained but it was subject to deduction of additions or alterations carried out in the plant and machinery. After the aforementioned deduction, the plaintiff itself has promised to pay the unpaid price and consequently, the counterclaim allowed by the trial Court calls for no interference. Even none of the parties has raised any contentions so far as the counterclaim is concerned. 36. In light of the above discussion, the appeal succeeds. The judgment and decree of the trial Court granting damages to the plaintiff is set aside. The judgment and decree of the trial Court allowing the counterclaim of the defendant is upheld. The judgment and decree passed by the trial court in Civil Suit No. 3506 of 1989 on 29.10.2002 is modified to the aforesaid extent only. There shall be no order as to costs.