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Garware Nylons Limited Vs. Swastik Yarns - Court Judgment

LegalCrystal Citation
SubjectContract
CourtMumbai High Court
Decided On
Case NumberChamber Summons No. 477 of 1996 and Summary Suit No. 3098 of 1995
Judge
Reported in(1997)99BOMLR497
AppellantGarware Nylons Limited
RespondentSwastik Yarns
Excerpt:
.....surat - same were accepted on telephone - acceptance of offer was received by the defendant at surat on telephone - contract shall be deemed to be concluded at surat - issuance of confirmation;[b] letters patent (bombay) - clause 12 - ex-parte leave granted to file suit - chamber summons by defendant for revokation/cancellation of leave - cause of action - offier accepted by defendant at surat - material part of cause of note from bombay and clause in the invoice that the concluded contract would come into existence on issuance of the confirmation note - not of significance when offer accepted on telephone at surat - action arose at surat - balance of convenience does not appear to be in favour of trial of suit at bombay - defendant carries business at surat - goods were supplied at..........on telephone, and, therefore, the acceptance of the offers was received by the defendant at surat on telephone, and therefore, the contract shall be deemed to have been concluded in surat. pursuant to the said contract, the goods were delivered in surat by the plaintiff through its depot office from surat. the payment in respect of the goods delivered was made by the defendant to the plaintiff by cheques which were received by the plaintiff at surat. therefore, the material part of cause of action, in any case, can be said to have been arisen only in surat. under clause 12 of the letters patent, this court has jurisdiction to try the suit other than relating to land or immoveable property, if the entire cause of action has arisen within the jurisdiction of this court. this court.....
Judgment:

R.M. Lodha, J.

1. M/s. Garware Nylons Limited - the Plaintiff has filed the suit for recovery of Rs. 12,26,043.78 ps. against M/s. Swastik yarns-the Defendant as per the particulars of claims Exhibit-'Z' annexed to the Plaint with future interest on principal sum of Rs. 10,70,898.22 ps. at the rate of 21 per cent per annum till payment or realisation.

2. According to the Plaintiff, the Defendant used to place telephonic orders to the Plaintiff at Bombay for supply of Nylons Filaments yarns and Polyester yarns, and subsequently, the orders placed by the Defendants were confirmed. The Plaintiff's case is that as per the various purchase orders placed by the Defendant to the Plaintiff, it sold, supplied and delivered Nylon Filaments yarns and Polyester yarns to the Defendant during the period from 30th June, 1992 till 19th June, 1993. The bills were raised by the Plaintiff against each delivery upon the Defendant, and the Defendant used to make part of amounts but never paid the complete amounts against each of the bills/invoices. On number of occasions, the Plaintiff approached the Defendant and requested to pay the outstanding amount, and, ultimately, a demand notice dated 20th June, 1995 was sent through its Advocate but no payment has been made. In paragraph 11 of the Plaint, it is averred by the Plaintiff that its registered office is at Bombay. The Defendant carries on business activities at Surat, State of Gujarat. The Defendant placed the purchase orders for supply of the materials upon the Plaintiff at Bombay. The goods and materials were delivered by the Defendant to the Plaintiff at Surat. The Defendant agreed to pay the price of the goods and materials to the Plaintiff at Bombay. The Defendant has already made part payment against the invoices at Bombay, and thus, the material cause of action has arisen in Bombay, and craves leave under Clause 12 of the Letters Patent. In a Petition filed by the Plaintiff, under Clause 12 of the Letters Patent for leave to sue the Defendant in this Court for the claim aforestated, the contents of paragraph 11 made in the Plaint are reiterated. The ex-parte leave was granted by this Court under Clause 12 of the Letters Patent, and by this Chamber Summons taken out by the Defendant, it is prayed that the ex-parte leave granted by this Court under Clause 12 of the Letters Patent be revoked and/or cancelled.

3. In support of the Chamber Summons, an affidavit has been filed on behalf of the Defendant. It is stated that no cause of action accrued within the jurisdiction of this Court, and, in any case, the material part of cause of action has not arisen in Bombay, as alleged by the Plaintiff. It is stated in the affidavit in support of the Chamber Summons that all orders for supply of various quantities of yarns were placed over telephone at Surat office of the Plaintiff. Such orders placed on telephone were concluded over telephone in Surat. Invoices in respect of the aforesaid contract concluded in Surat were also sent by the Depot of the Plaintiff to the Defendant in Surat. According to the defendant, the payment from time to time was released by the Defendant to the Plaintiff in Surat. Most of the payments made by the Defendant were made by cheques, and such cheques were drawn by the Defendant upon a bank in Surat. The cheques were delivered to the Plaintiff to its office at Surat and were encashed by the Plaintiff in Surat. The Defendant of course in the affidavit in support of the Chamber Summons has stated that the Plaintiff requested it to make payment by demand drafts payable in Bombay. Some payments were made through the demand drafts issued by their bankers in Surat, and the said drafts were delivered to the Plaintiff's Office at Surat.

4. Contesting the Chamber Summons taken out by the Defendant, an affidavit in reply has been filed on behalf of the Plaintiff by one Shyam Narayan Gupta. It is reiterated in the affidavit in reply that the Plaintiff's registered office is at Bombay. The Plaintiff has its Depots at Ahmedabad, Surat, Aurangabad and other places. The final products i.e. Polyester yarns and Polyester Filaments, etc., the Plaintiff used to manufacture at its Plant and Factory at Pimpri, Pune. The said final products are carried from the factory to its various Depots at Ahmedabad, Surat, Aurangabad, etc. The orders placed by the Defendant were accepted by the Plaintiff, and in token of acceptance of the order, the Plaintiff used to issue order confirmation note from Bombay. According to the Plaintiff, the concluded and binding contract can be said to have come in existence between the parties only upon the issuance of order confirmation note. From the affidavit in reply filed by the Plaintiff, it transpires that the cheques given by the Defendant towards the purchase price of the goods and material were received by the Depot Officers at Surat, and they forwarded the said cheques to the registered office of the Plaintiff at Bombay. It is further set out in the affidavit in reply that at the back side of each bills/invoices, it was clearly stipulated that all payments would be made at the Head Office at Bombay as per the bills/invoices, Thus, in the affidavit in reply, the Plaintiff submits that the cause of action has arisen within the jurisdiction of this Court, and, therefore, leave was rightly granted by this Court, and does not deserve to be revoked.

5. From the entire invoices bills placed on record by the Plaintiff along with the Plaint, it is clear that the orders were placed by the Defendants on telephone. There is no denial in the affidavit in reply to the categorical assertion made in the affidavit in support of the Chamber Summons that all orders were placed over telephone by the Defendant at Surat Office of the Plaintiff, and such orders were placed and/or negotiated by Mr. Shrinivas alias Shashikant and/or Mr. Dhirubhai on behalf of the Defendant, and by Mr. S.Z. Sukhdwala and/or Mr. Ghosh on behalf of the Plaintiff and that all orders/contracts for the purchase of different quantity of yarns were concluded over telephone in Surat. The learned Counsel for the Plaintiff sought to urge that binding and concluded contract between the parties came into existence only on issuance of confirmation notes and the said confirmation notes were issued from Bombay. In support of his contention the learned Counsel for the Plaintiff referred to the terms and conditions of the invoices. However, from the affidavit in reply filed by the Plaintiff, rather it appears that the offers/orders made by the offerer/Defendant were accepted by the Plaintiff on telephone, and subsequently, the confirmation notes were issued. Once the offer was accepted on telephone at Surat, the issuance of confirmation note from Bombay, is not of much significance nor is the clause in the invoice that the concluded contract would come into existence on issuance of the confirmation note decisive. If the orders made by the defendants on telephone from Surat were not accepted on telephone and offerer was not communicated acceptance on phone, a categorical and specific plea ought to have been set out either in the Plaint or at least in the affidavit in reply that the offers were not accepted on telephone. I have already observed that the defendant has come out with a specific case that: the orders were placed over telephone by the Defendant at the Surat Office of the Plaintiff and acceptance was communicated over telephone at Surat. It would be further seen that all goods were supplied by the Plaintiff from its Surat Depot to the Defendant and all invoices placed on record by the Plaintiff show that they have been issued from Surat. The Delivery Notes also show that they were dispatched from Udhana, which is out of jurisdiction of this Court, to the Defendant at Surat.

6. In the decision in the case of Bhagwandas Goverdhandas Kedia v. Girdharlal Parshottamdas & Co. and Ors. reported in : [1966]1SCR656 the Apex Court has considered the question about the proposal and acceptance by telephone conversation, and it was held that the contract can be said to have been made over telephone when acceptance is received by the offerer. The Apex Court has thus:

(9) The defendants contend that the same rule applies in the case of contracts made by conversation on telephone. The plaintiffs contend that the rule which applies to those contracts is the ordinary rule which regards a contract as complete only when acceptance is intimated to the proposer. In the case of a telephonic conversation, in a sense the parties are in the presence of each other: each party is liable to hear the voice of the other. There is instantaneous communication of speech intimating offer and acceptance, rejection or counter-offer. Intervention of an electrical impulse which results in the instantaneous communication of messages from a distance does not alter the nature of the conversation so as to make it analogous to that of an offer and acceptance through post or by telegraph.

(10) It is true that the Posts and Telegraph Department has general control over communication by telephone and especially long distance telephones, but that is not a ground for assuming that the analogy of a contract made by post will govern this mode of making contracts. In the case of correspondence by post or telegraphic communication, a third agency intervenes and without the effective intervention of that third agency, letters or messages cannot be transmitted. In the case of a conversation by telephone, once a connection is established there is in the normal course no further intervention of another agency. Parties holding conversation on the telephone are unable to see each other: they are also physically separated in space, but they are in the hearing of each other by the aid of a mechanical contrivance which makes the voice of one heard by the other instantaneously and communication does not depend upon an external agency.

(11) In the administration of the law of contracts, the Courts in India have generally been guided by the rules of the English common law applicable to contracts where no statutory provision to the contrary is in force. The Courts in the former Presidency towns by the terms of their respective letters patents, and the Courts outside the Presidency towns by Bengal Regulation III of 1973, Madras Regulation II of 1802 and Bombay Regulation IV of 1827 and by the diverse Civil Courts Acts were enjoined in cases where no specific rule existed to act according to 'law of equity' in the case of chartered High Courts and elsewhere according to justice, equity and good conscience which expressions have been consistently interpreted to mean the rules of English Common law, so far as they are applicable to the Indian society and circumstances.

(12) In England the Court of Appeal has decided in Entores Ltd. v. Miles Far East Corporation (1955) 2 QB 327 that: '....where a contract is made by instantaneous communication, e.g., by telephone, the contract is complete only when the acceptance is received by the offerer, since generally an acceptance must be notified to the offerer to make a binding contract;

In Entores Ltd's case (1955) 2 QB 327, the plaintiff made an offer from London by Telex to the agents in Holland of the defendant Corporation, whose headquarters were in New York, for the purchase of certain goods, and the offer was accepted by a communication received on the Plaintiff's Telex machine in London: On the allegation that breach of contract was committed by the defendant Corporation, the plaintiff sought leave to serve notice of a writ on the defendant Corporation in New York claiming damages for breach of contract. The defendant Corporation contended that the contract was made in Holland. Denning LJ., who delivered the principal judgment of the Court observed at p. 332:

When a contract is made by post it is clear law throughout the common law countries that the acceptance is complete as soon as the letter is put into the post box, and that is the place where the contract is made. But there is no clear rule about contracts made by telephone or by Telex Communications by these means are virtually instantaneous and stand on a different footing' and after examining the negotiations made in a contract arrived at by telephonic conversation in different stages Denning L,.J. observed that in the case of telephonic conversation the contract is only complete when the answer accepting the offer was made and that the same rule applies in the case of a contract by communication by Telex. He recorded his conclusion as follows:.that the rule about instantaneous communications between the parties is different from the rule about the post. The contract is only complete when the acceptance is received by the offeror: and the contract is made at the place where the acceptance is received.(13) It appears that in a large majority of European countries the rule based on the theory of consensus ad idem, is that a contract takes place when the acceptance of the offer is communicated to the offeror, and no distinction is made between contracts made by post or telegraph and by telephone or Telex. In decisions of the State Courts in the United States, conflicting views have been expressed, but the generally accepted view is that by 'the technical law of contracts the contract is made in the district where the acceptance is spoken.' This is based on what is called 'the deeply rooted principle of common law that where the parties impliedly or expressly authorise a particular channel of communication, acceptance is effective when and where it enters that channel of communication'. In the text books there is no reference to any decision of the Supreme Court of the United States of America on this question : American Jurisprudence, 2nd Edn., Vol. 17 Article 54 p. 392 and Williston on contracts, 3rd Edn., Vol. 1, p. 271.

(14) Obviously the draftsman of the Indian Contract Act did not envisage use of the telephone as a means of personal conversation between parties separated in space, and could not have intended to make any rule in that behalf. The question then is whether the ordinary rule which regards a contract as completed only when acceptance is intimated should apply, or whether the exception engrafted upon the rule in respect of offers and acceptances by post and by telegrams is to be accepted. If regard be had to the essential nature of conversation by telephone, it would be reasonable to hold that the parties being in a sense in the presence of each other, and negotiations are concluded by instantaneous communication of speech, communication of acceptance is a necessary part of the formation of contract, and the exception to the rule impose on grounds of commercial expediency is inapplicable.

7. Applying the aforesaid principle, it would be seen that the offers were made by the defendant over telephone from Surat, and they were accepted on telephone, and thus, acceptance of the offer was received by the Defendant over telephone in Surat, and, therefore, the contract can be said to have been made at Surat. In the affidavit in reply to the Chamber summons, it is admitted by the Plaintiff that all payments made by cheques by the defendant have been collected at its Surat branch office but immediately forwarded at its Bombay Office. If the payments were made by cheques by the Defendant which were collected by the Plaintiff at Surat, and the said cheques were not dishonored, in the eye of law the payments shall be deemed to have been made at Surat.

8. In the case of Commissioner of Income Tax, Bombay South, Bombay v. Messrs Ogale Glass Works Ltd. reported in : [1954]25ITR259(SC) it was held that a cheque unless dishonoured, is payment, and the payment takes effect from the delivery of the cheque.

9. In the case of W.P. Horsburgh and Anr. v. Chandroji Sambajirao and Anr. reported in AIR 1957 MB 90 the Division Bench of the then Madhya Bharat High Court has held that what is material is the place of the receipt of the cheque if the said cheque is not dishonoured, and not the place where the Cheque is encashed to find out the place of payment. The Division bench of the Madhya Bharat High Court considered the number of cases including the judgment of the Apex Court in the Commissioner of Income Tax v. Ogale Glass works Ltd. (supra), and held thus:

The question does not present any difficulty and is now concluded by the decision of the Supreme Court in Commr. of Income-tax. Bombay v. Ogale Glass Works Ltd., Ogale Wadi : [1954]25ITR259(SC) .

(B). In that case one of the questions considered was whether when payment is made by a cheque, it is the mere receipt of the cheque or the actual receipt of the amount from the Bank when the cheque is cashed that constitutes payment.

It was held that a cheque, unless dishonoured is payment, that the payment takes effect from the delivery of the cheque but is defeated by the happening of condition i.e. nonpayment at maturity; and that if the cheque is not dishonoured but cashed, the payment relates back to the date of the receipt of the cheque and in law the date of payment would be the date of the receipt of the cheque. Das J., (as he then was) while delivering the judgment of the Court observed

When it was said that a payment by negotiable instrument is a conditional payment what is meant is that such payment is subject to a condition subsequent that if the negotiable instrument is dishonoured on presentation the creditor may consider it as waste paper and resort to his original demand Stedman v. Gooch 1793-1 Esp. 3(C). It is said in Benjamin on Sale, 8th Edition, p. 788:

The payment takes effect from the delivery of the bill but is defeated by the happening of the condition, i.e. nonpayment at maturity.In Byles on Bills, 20th Edition, p. 23 the position is summarised pithily as follows:

A cheque, unless dishonoured, is payment.' To the same effect are the passages to be found in Hart on Banking 4th Edition, Volume 1, page 342. In Felix Hadley and Co. v. Hadley 1898 2 Ch 680 (D) Byrne J. expressed the same idea in the following passage in this judgment at p. 682:

In this case I think what took place amounted to a conditional payment of the debt; the condition being that the cheque or bill should be duly met or honoured at the proper date. If that be the true view, then I think the position is exactly as if an agreement had been expressly made that the bill or cheque should operate as payment unless defeated by dishonour or by not being met; and I think that agreement is implied from giving and taking the cheque and bills in question.

The following observations of Lord Maugham in Rhokana Corporation Ltd. v. Inland Revenue Commissioners 1938 AC 380 (E) are also apposite:

Apart from the express of Section 33, Sub-section 1, a similar conclusion might be founded on the well-known common law rules as to the effect of the sending of a cheque in payment of a debt, and in the fact that though the payment is subject to the condition subsequent that the cheque must be met on presentation, the date of payment, if the cheque is duly met, is the date when the cheque was posted.-

In the case before us none of the cheques has been dishonoured on presentation and payment cannot, therefore, be said to have been defeated by the happening of the condition subsequent, namely, dishonour by non-payment and that being so, there can be no question, therefore, that the assessee did not receive payment by the receipt of the cheques....The cheques not having been dishonoured but having been cashed, the payment related back to the date of the receipt of the cheques and in law the dates of payments were the dates of the delivery of the cheques.

Here Col. Horsburgh, though he stated in his examination-in-Chief that he received the cheque at Bombay admitted in his cross-examination that he came to Gwalior and received the cheque of Gwalior from Sardar Angre. The cheque was cashed and not dishonoured. That being so, it must be held that the defendant-appellant received payment when the cheque was delivered to Col. Horsburgh at Gwalior.

A part of the cause of action, therefore, arose at Gwalior and the plaintiff had aright to institute the suit in the Court of Additional District Judge, Gwalior within whose territorial jurisdiction the cheque was delivered to the defendants.'

10. As observed above, in the present case, there is no dispute that most of the cheques were received by the Plaintiff at Surat, and none of these cheques bounced and/or dishonoured, and, therefore, the payment shall be deemed to have been made at Surat.

11. In the circumstances aforesaid, it would be seen that the offers were made on telephone by the Defendant from Surat, and the same were accepted, on telephone, and, therefore, the acceptance of the offers was received by the Defendant at Surat on telephone, and therefore, the contract shall be deemed to have been concluded in Surat. Pursuant to the said contract, the goods were delivered in Surat by the plaintiff through its Depot office from Surat. The payment in respect of the goods delivered was made by the Defendant to the Plaintiff by cheques which were received by the Plaintiff at Surat. Therefore, the material part of cause of action, in any case, can be said to have been arisen only in Surat. Under Clause 12 of the Letters Patent, this Court has jurisdiction to try the suit other than relating to land or immoveable property, if the entire cause of action has arisen within the jurisdiction of this Court. This Court has also jurisdiction to try such suits if the part of cause of action, of course material, has arisen within the jurisdiction of this Court, and leave has been obtained under Clause 12 of the Letters Patent before admission of such plaint. However, as observed above, the material part of cause of action in the present case cannot be said to have arisen within the jurisdiction of this Court. Besides that the balance of convenience also does not appear to be in favour of trial of the suit at Bombay. The Defendant carries on business at Surat. The goods were supplied at Surat. The Plaintiff has its Depots at Surat. The payments made through cheques were collected by the Plaintiff through its Depots at Surat. The substantial evidence, therefore, is available at Surat.

12. The learned Counsel for the Plaintiff sought to invite my attention to the terms and conditions appended to the invoices/bills, and submitted that, under Clause 25(b), all payments for the goods ordered was required to be made at Bombay, and that the Bombay Court alone has jurisdiction to decide the claim made in the suit. Firstly, the said terms and conditions do not form part of record. Neither along with the plaint, the Plaintiff has placed on record the said terms and conditions which form part of invoice nor along with the affidavit in reply to the Chamber Summons, the said terms and conditions have been placed on record. Besides that from the affidavit in reply itself, it is clear that the payments were mostly made by cheques by the Defendant at Surat, and these cheques were collected by the Plaintiff through its Depot office at Surat. In the plaint, no plea has been set up that it was agreed between the parties that the Bombay Court alone has jurisdiction to try and entertain the present suit nor in the Petition for grant of leave under Clause 12 of the Letters Patent, the plea was set out that the Bombay Court alone has jurisdiction, and therefore, the contention of the learned Counsel for the Plaintiff that it was agreed between the parties that the Bombay Court alone has jurisdiction cannot be accepted.

13. In view of the foregoing discussions, I hold that from the material available, the material part of cause of action has arisen outside the jurisdiction of this Court, and therefore, ex-parte leave under Clause 12 of the Letters Patent deserves to be revoked. Accordingly, the leave granted under Clause 12 of the Letters Patent is revoked.

14. The Chamber Summons taken out by the Defendant is made absolute by revoking the ex-parte leave granted under Clause 12 of the Letters Patent. However, there shall be no order as to costs.


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