Partly allowed

M/s. Ameteep Machine Tools Pvt. Ltd. v. M/s. Ranga Engineering Pvt. Ltd.

Telangana HC10 Jul 2013CCCA/95/2000

Case brief

AI extract

What is this about?

The High Court disposed of appeals regarding a defective briquette machine purchased via an agent. The court upheld the trial court's decree holding the manufacturer and agent jointly liable but reduced the interest rate from 18% to 9% as the transaction was commercial but involved cost recovery for a malfunction. The appeal by the unstopped fifth defendant was dismissed.

What did the court decide?

CCCA Nos.95 of 2000 and 10 of 2005 partly allowed; decree upheld but interest reduced from 18% to 9%. CCCA No.115 of 2000 dismissed.

M/s. Ameteep Machine Tools Pvt. Ltd. Vs… — Contract and Commercial Disputes | Telangana HC (2013)

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THE HON’BLE SRI JUSTICE L. NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE S.V. BHATT

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C.C.C.A.Nos.95 and 115 of 2000 & 10 of 2005

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COMMON JUDGMENT: (per the Hon’ble Sri Justice L.Narasimha Reddy)

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These three appeals are between the same parties. Hence, they are disposed of through a common judgment.

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For the sake of convenience, the parties are referred to as arrayed in O.S.No.658 of 1986, which gave rise to two appeals.

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The 5^th defendant in the suit is a manufacturer of briquettes machines and the 1^st defendant is its dealer. The plaintiff placed an order for purchase of a machine for being installed at Indukurpet, Nellore District. Purchase order was placed on 27.08.1984 and the cost of the machinery was Rs.14,59,000/-. A sum of Rs.3,00,000/was paid as advance and thereafter, a sum of Rs.5,30,000/- was paid and the balance was agreed to be paid in 10 instalments, spread over five years. It is stated that the machine was installed by the technicians of the 5^th defendant.

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The plaintiff started complaining that the machine was not functioning at all. The 5^th defendant sent some of its officials on various occasions to rectify the defects. Ultimately, the plaintiff came to the conclusion that the machine cannot function at all and accordingly, required the defendants to pay a sum of Rs.8,30,000 paid by it with interest and to desist from demanding the balance of consideration. When the response was not positive, he filed O.S.No.658 of 1986 in the Court of the IV Senior Civil Judge,

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Hyderabad against the defendants for the relief of recovery of a sum of Rs.8,30,000/- with interest, damages at Rs.1,73,000/- and for injunction to restrain the defendants from recovering the balance of consideration of Rs.9,97,900/-.

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The suit was resisted mainly by the 5^th defendant. It pleaded that there was no privity of contract between it and the plaintiff and the machine was basically supplied to the 1^st defendant for its use. According to it, the 1^st defendant supplied the machine to the plaintiff without any authority and permission. It was also pleaded that the occasional repairs and advises extended to the plaintiff out of sheer courtesy were not under any contractual obligation. It was also pleaded that the plaintiff is under obligation to pay the balance of consideration and that it is not under obligation to pay any amount to the plaintiff, much less any damages.

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The 3^rd defendant filed a written statement disowning the liability.

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Virtually repeating the contents of its written statement filed in O.S.No.658 of 1986, the 5^th defendant filed O.S.No.745 of 1993 against the plaintiff for recovery of a sum of Rs.17,02,343/-. Both the suits were tried together. Through a common judgment, dated 25.01.2000, the trial Court partly decreed O.S.No.658 of 2008 granting relief of recovery of Rs.10,04,457/- and restraining the defendants from recovering Rs.9,97,900/-, but denying the relief of damages of Rs.1,73,000/-. O.S.No.745 of 1993 was dismissed.

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The 5^th defendant filed CCCA No.95 of 2000 against the judgment and decree in O.S.No.658 of 1986. Similarly, the 3^rd defendant filed CCCA No.10 of 2005 against the same decree. The 5^th defendant also filed CCCA No.115 of 2000 challenging the judgment

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and decree in O.S.No.745 of 1993.

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Smt.Manjari S.Ganu, learned counsel for the 5^th defendant, submits that the trial Court itself found that there is no privity of contract between the plaintiff and the 5^th defendant and still, importing theory of the collateral contract, has passed a decree in the suit holding the 5^th defendant also jointly and severally liable to pay the decretal amount. She contends that the machinery was supplied to the 1^st defendant for its own use, and without any authority, the 1^st defendant has supplied the same to the plaintiff. It is also her case that the plaintiff was not justified in praying for the refund of the amount and waiver of the balance of consideration, particularly when the machine functioned and it was so certified on various occasions. She also states that the rate of interest awarded by the trial Court is excessive.

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Sri N. Ashok Kumar, learned counsel for the 3^rd defendant, submits that though the machine was supplied by the 1^st defendant to the plaintiff, at one stage in the capacity of an agent, the subsequent developments were not at all to the knowledge of defendants 1 to 3. He submits that there is nothing on record to suggest that the 3^rd defendant is in association with the 1^st defendant firm and the trial Court ought not to have held the 3^rd defendant jointly and severally liable under the decree.

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Sri M.Ravindra Reddy, learned counsel for the plaintiff, on the other hand, submits that his client initially approached the 5^th defendant for supply of the machine and it is only on its advise that he purchased the machine through the 1^st defendant, who is the agent of the 5^th defendant. He submits that the seal of the machine was opened at the time of installation by the technicians of the 5^th defendant and from

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day-one, serious defects were noticed. He submits that hardly there was any functioning of the machine and the defects were so serious that a vital part of the machine i.e. crank has broken. He further submits that the 5^th defendant represented that it had collaboration with the company at Switzerland and when correspondence was undertaken with the said company, it emerged that the representation of the 5^th defendant was not correct. He contends that the trial Court ought to have awarded damages for the loss suffered by the plaintiff.

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Both the suits were clubbed and the following issues were framed by the trial Court, based upon the pleadings in the respective suits:

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1.	Whether the plaintiffs are entitled to decree against D1 to D5 for refund of Rs.10,04,457/- as prayed for?
2.	Whether the plaintiff is not entitled for declaration as prayed for?
3.	Whether the plaintiff is not entitled for damages of Rs.1,75,000/- as prayed for?
4.	Whether the plaintiff is entitled for injunction against D7 for enforcing bank guarantee No.12, dated 09.01.1985, as prayed for?
5.	Whether D3 is not a necessary party of the suit?
6.	Whether the plaintiff has no cause of action against D5?
7.	Whether this Court has no jurisdiction to try the suit?

¶20

On behalf of the plaintiff, P.W.1 was examined and Exs.A1 to A106 were filed. On behalf of the defendants, D.Ws.1 to 3 were examined and Exs.B1 to B58 were filed. The result of the suits has already been indicated in the preceding paragraphs.

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In view of the extensive submissions made by the learned counsel for the parties, the following points arise for consideration:

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(1) Whether the plaintiff proved the defect as to the functioning of the machine supplied to him by the 1^st defendant and

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manufactured by the 5^th defendant?

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(2) Whether the 5^th defendant can be held liable for the defective functioning of the machine?

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(3) Whether the plaintiff was entitled for the relief claimed by him in the suit?

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(4) Whether the 3^rd defendant can be said to be not liable jointly and severally along with defendants 1 and 5?

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(5) Whether the interest awarded by the trial Court is excessive?

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Point No.1: The purchase was made through an order, dated 27.08.1984. The delivery of the machine was affected in December, 1989. It is not in dispute that the installation of the machine was made by the technicians of the 5^th defendant. It is evident from Ex.A8 addressed by the 5^th defendant to the plaintiff promising to dispatch a team for installation of the machine. However, the defects were noticed shortly thereafter. The earliest of the letters addressed by the plaintiff in this behalf was the one, dated 21.12.1984, Ex.A10. It was mentioned that many parts of the machine were found to have been rusted when the seals were opened. Thereafter, through Ex.A16, the nature of defects was pointed out. On their part, the 5^th defendant acknowledged the defects and has sent experts from time to time. The exercise went on till September, 1985. Under Ex.A74, dated 21.09.1985, both the parties acknowledged that the machine has developed serious defects from time to time and it has been brought to working condition by undertaking repairs or replacements. The 5^th defendant undertook to guarantee the performance of the machine for a period of one year from then onwards.

¶29

The plaintiff addressed a letter, dated 20.10.1985, stating that hardly within 10 days, the machine has developed defects and it was becoming virtually impossible for it to operate the same. The record discloses that an important part, namely crank was broken. The 5^th

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defendant, no doubt, stated that most of the defects in the functioning of the machine were on account of the failure of the plaintiff to maintain the percentage of moisture. Be that as it may, the machine came to a grinding halt and after serious defects were pointed out in October 1995, no major repair was carried out, much less the machine was replaced.

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The manufacture of briquettes fuel was an activity invented as a substitute for use of coal and other conventional fuel. The plaintiff exhibited enthusiasm in manufacture of such product and approached the 5^th defendant. Assuming that it was a new activity and breathing problems are bound to be there, they cannot be to the extent of bringing the process to a halt. Huge financial commitments are involved. The plaintiff had to enter into contract with others for supply of raw-material to it and supply of new products by it to others. Extensive correspondence and in fact, the minutes of the meetings of the representatives of the plaintiff and the 5^th defendant clearly demonstrate that the machine developed serious problems to the extent of its being unable to be put to use. Therefore, Point No.1 is answered in favour of the plaintiff.

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Point No.2: The 5^th defendant made every effort to avoid its liability by stating two reasons: the first is that the product was sold to the 1^st defendant and that there did not exist any contract between itself and the plaintiff.

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Had it been a case where the 1^st defendant is an ordinary customer and it has sold the machine to another without any authority, the contention of the 5^th defendant could certainly have been accepted. However, it is an undisputed fact that the 1^st defendant is an agent of

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the 5^th defendant and the former has every right to deal with the product. In a given case, it may purchase the product from the 1^st defendant without indicating the name of its end customer and in other cases, it can place orders on behalf of the prospective purchasers. Having appointed the 1^st defendant as its agent, the 5^th defendant cannot avoid its liability. Being the manufacturer, it is under contractual obligation to ensure that the product supplied by it, either directly or through an agent, is up to the specifications. The plea as to the absence of privity of contract virtually pales into insignificance, in view of the existence of relationship of principal and agent between itself and the 1^st defendant. In addition to that, the trial Court has examined the plea of collateral contract with reference to the decided cases and has arrived at a just and proper conclusion. We are not inclined to interfere with the same. Point No.2 is answered accordingly.

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Point No.3: The plaintiff, no doubt, is entitled to be placed in a situation where it was before the contract was entered into. May be with a fond hope to undertake a new activity, it has purchased the machine. Once the machine has developed serious problems, it is entitled to claim the amount paid by it as part consideration and to insist that it shall not be under obligation to pay the balance. This, however, would be subject to the condition that it shall be under obligation to return the machine in its entirety to such of the defendants, who comply with the decree, and pay the decretal amount. We also agree with the trial Court that the plaintiff is not entitled for the damages.

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Point No.4: The 3^rd defendant made an endeavour before this Court to extricate herself from the liability under the decree. The plea raised by her is that she is not associated with the 1^st defendant at all.

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We have carefully perused the written statement filed by the 3^rd defendant and the evidence adduced on her behalf. Her effort was only to dissociate herself with the 5^th defendant and nowhere in the written statement she has stated that she is not a partner of the 1^st defendant firm. D.W.1 is none other than the father of the 3^rd defendant and he deposed that the 3^rd defendant is a partner of the 1^st defendant firm. Once that fact is established, the obligation created under law gets attracted. Apart from that, the 1^st defendant has independently transacted with the plaintiff and the same is evident from Ex.A2, whereunder a guarantee was given as to the quality of the product to the plaintiff directly. An agent is jointly and severally liable along with the principal towards any third party with whom he has entered into any transaction. If the contract between the principal and agent contains any clause to protect the interest of the agent, it is certainly open for them to work out their remedies. However, from the point of view of a third party, who deals with the principal through an agent, the liability towards him would be joint and several on the part of the principal and agent. Therefore, the plea of the 3^rd defendant cannot be accepted.

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Point No.5: The trial Court awarded interest at the rate of 18%. It is too well known that a civil Court can grant interest under Section 34 C.P.C. mostly at the rate of 6%. It is only when the transactions are proved to be commercial in nature, higher rate of interest can be awarded.

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Though the subject matter of the suit partakes the character of commercial transaction, since there was sale and purchase of goods; having regard to the fact that what is claimed in the suit is only the cost of a malfunctioning machine, we are of the view that interest can be awarded at 9%.

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Hence, CCCA Nos.95 of 2000 and 10 of 2005 are partly allowed upholding the decree passed by the trial Court in O.S.No.658 of 1986 in all respects, but reducing the interest from 18% to 9%. CCCA No.115 of 2000 is dismissed. There shall be no order as to costs.

¶41

The defendants have deposited one-fourth of the decretal amount to the credit of the suit and that the amount so deposited has earned interest. It is made clear that the interest that is earned on the amount so deposited shall be taken into account while determining the amount to be deposited by the judgment debtors.

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The miscellaneous petitions filed in these appeals shall also stand disposed of.

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______________________ L. NARASIMHA REDDY,J

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______________________

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S.V. BHATT,J

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Dt:10.07.2013

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kdl

M/s. Ameteep Machine Tools Pvt. Ltd. v. M/s. Ranga Engineering Pvt. Ltd.

Case brief

What is this about?

What did the court decide?

M/s. Ameteep Machine Tools Pvt. Ltd. v. M/s. Ranga Engineering Pvt. Ltd.

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Statutes considered

Parties & counsel

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