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Indian Drugs and Pharmaceuticals Ltd. Vs. Industrial Oxygen Co. Ltd. and anr. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtMumbai High Court
Decided On
Case NumberFirst Appeal No. 44 of 1975
Judge
Reported inAIR1985Bom186; 1984(2)BomCR261; 1984MhLJ690
ActsIndian Contract Act, 1872 - Sections 74
AppellantIndian Drugs and Pharmaceuticals Ltd.
Respondentindustrial Oxygen Co. Ltd. and anr.
Appellant AdvocateV.H. Gumaste and;S.M. Mhamane, Advs.
Respondent AdvocateJ.B. Chinoy, Adv.,;i/b., Malvi Ranchhoddas and Co.
Excerpt:
.....pay the damages compensation @rs. the owners had claimed the price of the trucks as well as the rental charges at the rate of..........chinoy that the rate of rs. 1.25 per week for detention of the cylinders beyond the first three weeks' period is not a measure of liquidated damages. to attract the provisions of section 74 it is not necessary that the entire contract should come to an end; the breach of each term thereof can be visualised in advance and taken care of by providing an adequate clause for liquidated damages so that the parties to the contract can proceed to work put the contract in future and settle the question of damages that have accrued on the basis of the rate that has been put as a pre-estimate at the commencement of the contract. if the very purpose of putting a genuine pre-estimate is to avoid litigation and introduce certainty in computation of difficult question of assessment of damages, it.....
Judgment:

1. Messors Sandvik Asia Limited having their factory on Bombay Poona Road, are engaged in supply of Hydrogen Gas. They entered into an Agreement Exhibit 55on 8th January 1968 with Industrial Oxygen Company Pvt. Ltd., Poona, ('Industrial Oxygen') who agreed to sell all surplus Hydrogen Gas manufactured by them, fixed a rate of Rs,6/- per cubic metre for Government owned corporation and a different rate for other customers. Sandvik Asia Ltd. were to allow 20% per cubic metre commission to Industrial Oxygen on the sales effected by the latter.

2. Industrial Oxygen approached the Indian Drugs & Pharmaceuticals Ltd., Unit, Synthetic Drugs and Plant at Hyderabad ('Indian Drugs') on the question of supply of Hydrogen gas and vide letter dated 24th /27th June 1969 (Exhibit 40) a contract was entered into between the parties for the supply of 7500 cubic metres of Hydrogen gas in returnable cylinders. A schedule of delivery was drawn up under which 50 cylinders were to be delivered by 30-6 1969 and the balance of the ordered quantity at the rate of 50 cylinders every week. As regards the modus operandi of the cylinders, Clause 8 of the letter provided :

'8. LOAN PERIOD: In case cylinders are detained beyond three weeks from the date of issue from Poona till the day of return rental charges at Rs. 1.25 per week per cylinder will be paid extra.'

It appears that the supplier did not adhere to the delivery schedule of supplying 3256 cubic metres by 13th September 1969, inasmuch as, only 1592.45 cubic metres were supplied. The purchaser terminated the contract, and the consequence of this termination do not form the subject matter of the present suit. According to the supplier, he wrote a letter on 23rd September 1969 (Exhibit 32). The relevant portion, as respects the return of the cylinders, reads :--

'Since you have unilaterally terminated the contract for bulk supply and you are therefore not entitled to retain or detain our cylinders supplied with Hydrogen has any longer. You are requested to return them back immediately within 4 days from the receipt of this letter along with rental charges as per the contract. It may be added here that in case you fail to deliver all the cylinders or any number thereof, after the said period of 4 days as stated above you will be liable to pay the damages compensation @ Rs. 5/- per cylinder per day for the period for which they are illegally detained by you which please note. In mutual interest we request you to take immediate action in this direction and return the cylinders to us without any further delay.'

As the Indian Drugs did not pay the charges as demanded, Industrial Oxygen filed Special Civil Suit No. 161 of 1972 in the Court of II Jt. Civil Judge, S.D. Poona, who decreed the suit against the Indian Drugs, which gives rise to this appeal.

3. From the tables filed by Industrial Oxygen (Exhibit 35) it appears that firstly they calculated the hire charges at the rate of Rs. 1.25 per week till September 1969 but thereafter the rate was raised to Rs. 5/- per day in conformity with their demand in Exhibit 32. The delay in return of the empty cylinders ranges from 6 days to 137 days and the details of the calculations are not in dispute.

4. Mr. Gumaste, the learned Advocate for the appellant attacks the judgement of the trial Court on two counts. In the first place he argues that the rate of Rs.1.25 per week stipulated in Exh.40 which forms the contract agreement is a genuine pre-estimate of damages which the supplier is likely to suffer in case the purchasers detained the cylinders beyond three weeks from the date of issue thereof from Poona and partakes the nature of liquidated damages. Alternatively, Mr. Gumaste argues that even if the computation of damages is done on the general principles of Section 73 of the Contract Act, the quantum of Rs.5/- per day as opposed to Rs.1.25 per week is exorbitant and not supported by any evidence.

5. Mr. Chinoy on behalf of the respondents says that the plea of liquidated damages was never taken at any stage of the proceedings and even if it is allowed to be taken at this stage, the contract document does not quantify Rs. 1.25 per week as liquidated damages but the rate has been put as a term of the contract denoting the returnable charges to be paid by the purchasers for use of the cylinders. Mr. Chinoy maintains that the first three weeks of user of the cylinder is not charges for by the seller as he expects the consumer to spread out his utilisation programme so that the cylinder gets exhausted within a period of three weeks.

6. I am afraid a plain reading of Section 74 of the Contract Act negatives the contention of Mr. Chinoy that the rate of Rs. 1.25 per week for detention of the cylinders beyond the first three weeks' period is not a measure of liquidated damages. To attract the provisions of Section 74 it is not necessary that the entire contract should come to an end; the breach of each term thereof can be visualised in advance and taken care of by providing an adequate clause for liquidated damages so that the parties to the contract can proceed to work put the contract in future and settle the question of damages that have accrued on the basis of the rate that has been put as a pre-estimate at the commencement of the contract. If the very purpose of putting a genuine pre-estimate is to avoid litigation and introduce certainty in computation of difficult question of assessment of damages, it seems to be in the highest degree unlikely that the intention would have been that the clause of liquidated damages will not come into operation till the entire contract has been broken.

7. As regards the second point, except the word of the solitary witness Sohanlal Kapoor of Industrial Oxygen that---

' If cylinders were to be returned to us we were to get Rs. 7.50 per cylinder.'

There is nothing on the record on which the claim of Rs. 5/- per day can be sustained. Assuming that a cylinder contains 6.23 cubic metres of gas the selling price of which was Rs. 6/-, the price of the gas per cylinder would work out to Rs. 40/- and the profit at 20% to Rs. 8/- per cylinder. Probably, that is what P.W. 1 Sohanlal Kapoor had in mind when he said that they would be getting Rs. 7.50 per cylinder as profit. But the period over which this profit of Rs. 7.50 has to be distributed has not been made clear by him or any other witness. Admittedly each consumer is given some period during which he can retain the cylinders. It is not as if that the Industrial Oxygen supply the cylinders and take back any empty one by way of replenishment. The period for other customers is only two weeks as deposed to by Kapoor as against the period of three weeks allowed to Government concerns. The profit of Rs. 7.50 will have to be spread over a period of time, say a month, and that more or less fits in with the rate of 1.25 per week put in as a term in the contract by the parties.

8. The learned trial Judge has relied on the decision in Dhian Singh Sobha Singh v. Union of India, : [1958]1SCR781 which was a case in which two motor trucks which were hired to the Defence Department for imparting tuition to the military personnel were not returned to the owners. The owners had claimed the price of the trucks as well as the rental charges at the rate of Rs. 17/- per day. The case of Dhian Singh was one of conversion by bailee which is not the case here. It is nobody's contention that the cylinders in which the gas was supplied were not returned to the supplier. The second distinguishing feature is that the claim was decreed at the agreed rate of Rs. 17/- per day by way of hire charges and not at any higher rate as is being claimed by the plaintiff in the facts of the above case.

9. In these premises, the Appeal succeeds and setting aside the order of the learned II Joint Civil Judge, S.D. Poona, I order that the suit is dismissed, but in the circumstances of the case the parties should bear their own respective costs.

10. Appeal allowed.


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