Citation Codes

Equivalent Citations

citation codes

Case Number

RFA 496/2010

Attorney(S)

Mr. Sudhir K. Makkar, Advocate.
Mr. Joydeep Sharma, Advocate.

Judges

Valmiki J. Mehta, J.

Acts

Section 96 of the Code of Civil Procedure (CPC)
Section 14 of the Limitations Act, 1963
SECTION 74 CONTRACT ACT 1872
SECTION 73 CONTRACT ACT

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Smart Summary

Judgment Summary — VALMIKI J. MEHTA, J. (ORAL)

Factual and Procedural Background

This appeal under Section 96 of the Code of Civil Procedure challenges the trial Court's judgment dated 11 March 2010, which dismissed the defendant's (appellant's) application for leave to defend and decreed the plaintiff's (respondent's) suit for recovery.

The respondent is a cargo/freight forwarding agent and the appellant is a manufacturer/exporter. The parties entered into a Memorandum of Understanding (MOU) dated 24 December 2006 governing their contractual relations. The respondent provided freight forwarding services for the appellant's exports. The respondent filed a suit under Order XXXVII CPC claiming unpaid freight and related charges totalling Rs. 16,88,739.50 (principal). The appellant appeared and filed an application for leave to defend, which the trial Court dismissed.

The trial Court applied clause 8 of the MOU (a clause providing specified consequences for late or early deliveries), deducted 3% (amounting to Rs. 14,643.48) from the claim and decreed the balance (Rs. 16,74,096.02) in favour of the plaintiff along with pendentelite interest at 10% p.a. until the date of the decree.

Legal Issues Presented

Whether, in the presence of Clause 8 in the MOU providing a maximum 3% reduction for late deliveries (liquidated damages), the appellant/defendant could claim additional unliquidated losses arising from alleged wrongful detention and consequent air-freight expenses.
Whether a defendant can raise a counterclaim or seek to set off alleged losses as a defence in a leave to defend application under Order XXXVII CPC.
Whether a claim for liquidated damages under Section 74 of the Contract Act precludes a claim for unliquidated damages under Section 73 in respect of the same event contemplated by the contract clause.

Arguments of the Parties

Appellant's Arguments

For five invoices listed in the appeal (paragraph 3(iii)), the appellant alleged that delays caused by the respondent in shipping by ocean freight forced the appellant to use costlier air freight, resulting in a loss of Rs. 28,54,889.92, which the respondent should pay.
With respect to invoices numbered 118 to 122, the appellant asserted a counterclaim of Rs. 2,27,935/- connected to subsequent transactions.
It was additionally argued that the respondent deliberately withheld consignments because of payment disputes relating to earlier services, which led to the appellant incurring higher expenses (air freight) — i.e., the claimed losses were independent of amounts contemplated by Clause 8.
Learned counsel for the appellant conceded the general legal position that a claim for liquidated damages under Section 74 precludes a claim under Section 73, but maintained that the appellant's claimed losses were independent of Clause 8.

Respondent's Arguments

The respondent relied on Clause 8 of the MOU, which provided that the maximum amount deductible for late deliveries was 3% of the total amount payable to the respondent; accordingly, the appropriate adjustment was 3% and no larger claim for loss could be maintained.
The respondent contended that the appellant's allegation that consignments were wrongfully detained was false and that the respondent's actions were driven by unpaid dues, necessitating the claimed measures.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Punjab & Sind Bank v. S.K. Tulshan, 1991 (1) ILR (Delhi) 293	Held that the procedure under Order XXXVII CPC is exhaustive and a defendant cannot raise a counterclaim as an action in defence in a leave to defend application.	The Court relied on this authority to support the proposition that alleged losses cannot be pursued as a defence in the leave to defend application under Order XXXVII; such claims must be pursued by separate proceedings.
Union of India v. Raj Kumar Sawhney, 1995 (3) AD (Delhi) 881	Similar principle as above regarding the non-maintainability of counterclaims as a defence in Order XXXVII proceedings (decision of a learned Single Judge).	The Court treated this decision as reinforcing the rule that counterclaims or substantive claims cannot be raised as defences in a leave to defend application under Order XXXVII.
Deutsche Ranco GMBH v. Mohan Murti, 1993 (52) DLT 288	Also supports the view that the remedy of raising counterclaims in a leave to defend application under Order XXXVII is not available; similar single-judge authority cited for the same proposition.	The Court cited this case as additional support for the conclusion that the appellant's asserted counterclaims could not be entertained within the leave to defend application.

Court's Reasoning and Analysis

The Court proceeded by examining the contractual Clause 8 of the MOU (dated 24 December 2006), which provided agreed consequences for late deliveries: specifically, that where more than 5% of containers per month did not adhere to cycle time, deductions of 3% of the total amount payable to the freight forwarder would be permissible for late deliveries exceeding 31 days. Clause 8.1 dealt with incentives for early deliveries, also fixed at 3%.

The Court made the following core analytical steps:

Interpretation of Clause 8: The clause was construed as an agreed mechanism to quantify consequences for delayed delivery — manifestly limiting the remedy for delay to a maximum 3% of the total payable amount.
Contractual bargain vs. additional claims: The Court reasoned that where parties with open eyes agree a contractual clause providing for liquidated consequences for delay, the same party cannot later claim additional amounts for the selfsame late deliveries. The contract thus prima facie covers the issue of late deliveries.
Legal position on liquidated vs. unliquidated damages: The Court noted (and the appellant's counsel conceded) the statutory principle that where a contract provides for liquidated damages (Section 74, Contract Act), a claimant cannot seek unliquidated damages under Section 73 for the same breach. The Court applied that legal principle to hold that additional unliquidated claims for the same late-delivery event were not permissible.
Procedural limitation under Order XXXVII CPC: The Court referred to binding Single Judge decisions holding that the procedure under Order XXXVII is exhaustive and a defendant cannot raise a counterclaim as an action in defence in a leave to defend application. The Court treated this as dispositive of the procedural impropriety of raising the appellant's alleged losses as a defence in the leave to defend application.
Combining substantive and procedural conclusions: On either ground — contractual limitation to 3% and procedural bar to counterclaims in Order XXXVII leave-to-defend proceedings — the Court found no triable issue and no merit in the appellant's leave to defend application. As such, the trial Court's dismissal of the application and its deduction of 3% (Rs. 14,643.48) from the claim were upheld as not being in error.

The Court further recorded the trial Court's decree of the plaintiff's suit for Rs. 16,74,096.02 and the award of pendentelite interest at 10% p.a. till decree; it found no fault with these outcomes given the contractual clause and procedural authorities.

After the legal analysis, learned counsel for the appellant sought leave to withdraw the appeal so that a substantive suit could be filed on the counterclaim, and indicated preparedness to apply under Section 14 of the Limitation Act, 1963 for exclusion of time (on the basis of bona fide mistake). The Court allowed the appeal to be dismissed as withdrawn with liberty to file substantive proceedings.

Holding and Implications

Final Disposition: The appeal was dismissed as withdrawn, with liberty to the appellant to institute substantive proceedings in accordance with law. The trial Court's order dismissing the leave to defend application and decreeing the suit (after deducting 3% = Rs. 14,643.48, resulting in Rs. 16,74,096.02) with pendentelite interest @ 10% p.a. was sustained in substance by the reasons given in this judgment.

Immediate consequences for the parties:

The plaintiff's decree for Rs. 16,74,096.02, plus pendentelite interest at 10% per annum until the date of decree, stands as the judgment in the Order XXXVII suit.
The defendant/appellant cannot, in the leave to defend application under Order XXXVII, set up counterclaims or attempt to recover alleged losses arising from the same late deliveries when the contract provides an agreed remedy (3%). If the defendant wishes to pursue the asserted losses, it must file a separate substantive suit (the Court granted liberty to do so).
The Court noted the statutory relationship between Section 74 (liquidated damages) and Section 73 (unliquidated damages) of the Contract Act: where a liquidated sum is agreed, unliquidated claims for the same event are not maintainable.
The parties were left to bear their own costs.

Implication as to precedent: The Court applied existing Single Judge authorities regarding Order XXXVII procedure and the contractual/statutory rule on liquidated vs. unliquidated damages; the opinion did not purport to lay down a new legal principle beyond applying those authorities to the facts. No new precedent was declared.

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Ajanta Offset & Packagings Ltd. v. Kintetsu World Express

VALMIKI J. MEHTA, J (ORAL)

1. The challenge by means of this appeal filed under Section 96 of the Code of Civil Procedure (‘CPC’) is to the impugned judgment of the trial Court dated 11th March, 2010 by which the trial Court dismissed the leave to defend application filed by the appellant/defendant and thereby decreed the suit of the respondent/plaintiff for recovery.

2. The brief facts of the case are that the respondent is a cargo/freight forwarding agent. The parties entered into a Memorandum of Understanding (MOU) dated 24 December, 2006 setting out the terms and conditions with respect to their contractual relations. The appellant/defendant is a manufacturer/exporter of printed materials from India to various global destinations and the respondent/plaintiff offered its freight forwarding services to the appellant/defendant for the exports of the printed materials. The subject suit came to be filed as the respondent/plaintiff claimed that the various freight charges and other charges payable with respect to the services rendered to the appellant/defendant by the respondent/plaintiff were not paid. The suit was filed for recovery of the amount of Rs. 16,88,739.50/-/-. This amount is the principal amount payable with respect to the services. The suit was filed under Order XXXVII CPC. The appellant/defendant after entering appearance was served upon the summons of judgment, and accordingly, it filed the application for leave to defend which has been dismissed by the impugned judgment.

3. There were two fold contentions which were raised on behalf of the appellant in the leave to defend application. First contention was that with respect to five invoices which are stated in paragraphs 3(iii) of the appeal, the appellant was caused losses because the material had to be shipped by costly air freight because of delays which were caused by the respondent/plaintiff in shipment of the goods by ocean freight. The appellant/defendant therefore claimed to have suffered a loss of Rs. 28,54,889.92/- and which was claimed to be due and payable by the respondent/plaintiff. The second contention is that, with respect to invoices bearing Nos. 118 to 122, there was a counter claim to be filed of Rs. 2,27,935/-. It was also additionally argued that losses had occurred because the respondent/plaintiff had deliberately withheld the consignment on account of certain payment disputes pertaining to earlier services rendered and therefore, losses were caused by having sent the goods by air freight instead of ocean freight because the shipments were withheld by the respondent/plaintiff. The respondent/plaintiff in reply contended that the contract in question being the MOU dated 24 December, 2006 specifically contained the consequences in case of delayed delivery and for which clause 8 provided that the maximum amount which could be claimed for delay was 3% of the total amount which was payable to the respondent/plaintiff. It was argued that the appellant/defendant had falsely claimed that the respondent/plaintiff wrongly detained the consignment. It was argued that payments were due and therefore, the respondent/plaintiff was forced to seek such claim from the appellant/defendant.

4. The trial Court by reference to the Clause between the parties which entitled a deduction of 3%, deducted the amount calculated in terms thereof of Rs. 14,643.48/- from the suit amount and decreed the suit with respect to the balance amount. The relevant paragraphs of the impugned judgment are paras 8 to 10 which read as under:-

“8. Perusal of the case file shows that the transactions and business dealings were being carried out between the parties on the basis of the Memorandum of Understanding dated 24.12.2006 and the execution of Memorandum of Understanding dated 24.12.2006 has not been denied by any of the parties. Furthermore, the application shows that the defendant has claimed the rebate of a sum of Rs. 14,643.48 p. only against the claim of the plaintiff by deducting an amount of 3% from the total amount payable by the defendant and the same comes to an amount of Rs. 14,643.48 p. only The defendant has claimed a loss of Rs. 2,27,935/- in respect of the subsequent transactions pertaining to invoices bearing No. 118 to 122, and in the considered opinion of this Court the same are not the subject matter of the present suit and therefore, the claim of the defendant for the shipment of the said consignment pertaining to the invoices No. 118 to 122 cannot be clubbed by the defendant, as a defence to the present claim of the plaintiff. No other issue has been raised by the defendant in the present application.

9. During the course of arguments, the ld. Counsel for the plaintiff has accepted the proposal of the Court for decretal of his suit for the remaining amount, after deducting the amount of Rs. 14643.48 p. from the original claim of the plaintiff.

10. Since the defendant has raised no triable issue and in the considered opinion of this Court the damages suffered by the defendant in the subsequent transactions between the parties cannot be taken as defence to the present claim of the plaintiff. I am of the considered opinion that the present application is devoid of any merit and therefore, the same is hereby dismissed and accordingly the suit of the plaintiff is hereby decreed for a sum of Rs. 16,74,096.02 p. Since the transaction between the parties is a commercial transaction, pendentelite interest @ 10% p.a is also awarded in favour of the plaintiff on the aforesaid amount, till the date of the decree. It is ordered accordingly.”

5. In order to appreciate the important issue at hand it is important to reproduce the agreed clause 8 in the MOU dated 24 December, 2006 entered into between the parties and the same reads as under:-

“8.0 In the event of more than 5% of the number of containers per month, not adhering to the above cycle time, Ajanta would be at liberty to make deductions amounting to 3% of the total amount payable to KWE for all such late deliveries exceeding 31 days.

8.1 In the event of more than 5% of the number of containers per month, being delivered ahead of the above cycle time, KWE would be at liberty to claim incentives amounting to 3% of the total amount payable to KWE for such advance deliveries before 26 days.”

6. A reading of the aforesaid clause shows that the parties envisaged the consequences of late delivery as being a maximum of reduction of 3% in the total amount which would be payable by the appellant/defendant to the respondent/plaintiff.

7. It is conceded by learned counsel for the appellant, and rightly so in view of the legal position, that once there is a claim for liquidated damages under Section 74 of the Contract Act, 1872, there is no scope of claiming unliquidated damages under Section 73 of the Contract Act. Learned counsel for the appellant, however, argued that in the present case, the losses which are claimed are independent of the losses which are contemplated by Clause 8 of the contract between the parties as the respondent/plaintiff had wrongly detained the containers.

8. In my opinion, once the parties with open eyes agreed upon a Clause in the contract for the consequences of late deliveries as the liquidated damages being 3% of the total amount payable to the respondent/plaintiff, then in such circumstances it is not permissible for the appellant/defendant to claim that with respect to the self-same late deliveries, additional amount towards losses can be claimed for late deliveries. The issue with respect to late deliveries, whatever be their nature is at least prima facie squarely covered by this Clause 8.0

9. At this stage, I may refer to a judgment of the learned Single Judge of this Court in the case Punjab & Sind Bank…Plaintiff v. S.K Tulshan…Defendant 1991 (1) ILR (Delhi) 293 in which it has been held that the procedure under Order XXXVII is exhaustive and it is not permissible for a defendant to raise a counter claim as an action in defence in a leave to defend application. Two other judgments of two other learned Single Judges of this Court to the same effect are the judgments in the cases of Union of India v. Raj Kumar Sawhney 1995 (3) AD (Delhi) 881 and Deutsche Ranco GMBH v. Mohan Murti 1993 (52) DLT 288. Such right, if the same is valid, will necessarily have to be exercised by means of proceedings other than setting out the same as a defence in the leave to defend application.

10. Therefore, looking at the issue from any angle of the disentitlement to claim an amount beyond the issue of liquidated damages or non-maintainability of the counter claim for alleged losses in a suit which is filed under Order XXXVII CPC, no fault can be found with the impugned judgment.

11. In view of the above, there is no merit in the appeal and the same is dismissed accordingly leaving the parties to bear their own costs.

12. At this stage, learned counsel for the appellant, on instructions, states that he would not like to press the appeal on merits in view of the judgments of this Court that the losses or damages as a counter-claim cannot be claimed as a defence in a leave to defend application, but, a substantive suit can be filed for the same. Learned counsel for the appellant therefore seeks liberty to withdraw this appeal so as to file substantive proceedings against the respondent/plaintiff in accordance with law. It is also submitted that the appellant will, if so required, move an application under Section 14 of the Limitations Act, 1963 in the suit which is filed, for exclusion of limitation on account of the bona fide mistake in having pursued the counter claim as a defence in the leave to defend application instead of filing the substantive suit.

13. Accordingly, in view of the statement of learned counsel for the appellant, the appeal is dismissed as withdrawn, with liberty to the appellant to file a substantive suit in accordance with law. Nothing contained in this order will therefore be a reflection on the merits of the counter-claim or the merits of the suit which is proposed to be filed on the counter-claim and the substantive suit/proceedings will be disposed of by the concerned Court in accordance with law.

Ajanta Offset & Packagings Ltd. v. Kintetsu World Express

Judgment Summary — VALMIKI J. MEHTA, J. (ORAL)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Respondent's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Ajanta Offset & Packagings Ltd. v. Kintetsu World Express

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