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Food Corporation of India Vs. Manipal and Sons - Court Judgment

LegalCrystal Citation
SubjectContract
CourtRajasthan High Court
Decided On
Case NumberS.B. Civil Regular First Appeal No. 27 of 1975
Judge
Reported in1985(1)WLN780
AppellantFood Corporation of India
RespondentManipal and Sons
Cases ReferredAbdulla Ahmed v. Ani Mendra Kissan
Excerpt:
.....and no ambiguity that earnest money was to be adjusted--held, it was not permissible to consider oral evidence against express provision of section 92.;there could not have been any doubt or scope of debate for interpreting ex. a-2 which contains the terms and conditions read with ex 2 which is letter of acceptance of those terms and conditions.;there was no doubt or ambiguity in this respect and the earnest money was to be adjusted, i have got no option but to hold that the oral evidence considered by the trial court was not permissible as against the express provision of section 92.;appeal partly allowed - - since plaintiff failed to take the delivery of the remaining 700 qtls. (1) it must be given at the moment at which the contract is concluded (2) it represents guarantee that..........by the buyer a seller is entitled to forfeit the earnest money.it then held that on the basis of oral evidence condition no. 3 is not proved.22. in view of the above the plaintiff's case was accepted.23. mr. shishodia while challenging the above finding had laid much stress on section 92 of the evidence act. according to him when the agreement or contract is in writing no amount of oral evidence can be looked into for showing any variations/alteration in the terms of the contract. in support of his contention he has relied upon the decision of the apex court in chunchun jha v. edafat ali : [1955]1scr174 and submits that any recording of oral evidence and consideration of it would tantamount as extraneous inquiry in outrageous violation of section 92 of the evidence act. he also relied.....
Judgment:

G.M. Lodha, J.

1. This first appeal is directed against the judgment dated 28-9-74 of the Additional District Judge, Sri Ganganagar in civil suit No. 8/72. The plaintiff's suit has been decreed in his favour for an amount of Rs. 9,500/-.

2. The plaintiff is a registered partnership firm carrying on grain merchant's and commission agents' business at Ganganagar. The defendant is a statutory Corporation established under Section 3 of the Food Corporation Act, 1964. The defendant has a District Office at Ganganagar which is managed by an officer called the District Manager. The plaintiff had entered into four contracts for the purchase of 4000 quintals of gram and had deposited security deposits of Rs. 4000/- with the defendant for the due performance of the contracts. These contracts were duly performed but the defendant has refunded only a sum of Rs. 3000/- leaving a balance of Rs. 1000/-. The plaintiff is entitled to recover this balance of Rs. 1000/- from the defendant. On 22-2-69 the plaintiff made a written offer for the purchase of 1000 quintals of gram @ Rs. 85.11 per quintal. As per condition for making the offer the plaintiff deposited Rs. 8500/- by means of a cheque being 10% of the price of gram offered to be purchased. This offer was accepted by the defendant vide its letter dated 24-2-69. In pursuance of this contract the plaintiff took delivery of 300 quintals of gram on 25-2-69. Thus part delivery of the goods was in progress and therefore the property in all the 1000 quintals of gram passed on to the plaintiff. The defendant remained in possession of the remaining 700 quintals of gram on behalf of the plaintiff as an unpaid seller. The time fixed for the performance of the contract was 10 days from the date of the letter of acceptance but as the price of gram began to shoot up the defendant did not make the delivery of the balance quantity of 700 quintals despite oral and written requests. The defendant vide his letters dated 16-7-69, 16-1-70 and 26-2-70 communicated to the plaintiff that the sum of Rs. 8500/- deposited by him had been forfeited and that he was further liable to pay a sum of Rs. 3577/-as damages suffered by the defendant. According to the plaintiff, the defendant is not entitled to forfeit the said sum of Rs. 8500/- or to recover notional loss of Rs. 3577/-. The amount of Rs. 8500/- was deposited as a precondition for making offer and it was not an earnest money and, therefore, not liable to be forfeited. There was no breach on the part of plaintiff and therefore, the defendant was not entitled to make any forfeiture or recover any loSections Even on the breach of the contract by the plaintiff, the defendant was only entitled to resell the goods and recover the loss if any. In the present case the defendant did not suffer any loss and was, therefore, not entitled to recover any damages. The breach of contract, if any, by the plaintiff took place on 6-3-69 and the rate of gram prevailed in the market on this date was the same as contracted by the plaintiff. The defendant did not suffer any damages. The stipulation regarding the forfeiture of earnest money was penal in nature. The plaintiff has, therefore, brought the suit for the refund of Rs. 1000/- deposited in respect of the previous contracts, Rs. 8500/- deposited in respect of the contract dated 24-2-69 and Rs. 2500/- as past interest on those two amounts.

3. The defendant in its written statement has admitted to have entered into the five contracts with the plaintiff. The fact that the security deposit of Rs. 1000/- is due and recoverable from the defendant has also been admitted. Regarding the balance sum of Rs. 8,500/-, it has been pleaded that the plaintiff, by not depositing the balance price of the balance quantity of 700 quintals of gram had committed the breach of contract and the defendant under the terms and conditions of the contract was entitled to forfeit the earnest money and also to recover loss suffered. The amount of Rs. 8,500/- was deposited not as a pre-condition of an offer but as an earnest money and was, therefore, liable to be forfeited in the event of breach of contract by the plaintiff. Since plaintiff failed to take the delivery of the remaining 700 qtls. of gram upto 30-4-1969, he was liable for the loss occasioned by such breach. The market rate prevailing on 30-4-1969 was Rs. 50/- per quintal and the plaintiff was, therefore, liable to pay the damages amounting to Rs. 3,577/-. It has further been pleaded that there is an arbitration clause in the agreement and, therefore, the Civil Court has no jurisdiction to entertain the suit.

4. The following issues were framed in the suit;

(1) Whether the sum of Rs. 8,500/- was not deposited as earnest money but as the precondition of offer?

(2) Whether the defendant is not entitled to forfeit the sum of Rs. 8,500/- as given in para 10 of the plaint?

(3) Whether the plaintiff was ready and willing to perform the contract?

(4) What was the date of breach of contract, if any?

(5) Whether the defendant suffered a loss of Rs. 3,577/-?

(6) Whether the plaintiff is entitled to any interest, if so at what rate?

(7) Whether the court has no jurisdiction to try the suit?

(8) Relief?

5. The trial Court after considering the various aspects of the case held issue No. 1 against the defendant.

6. Before this Court the finding in relation to this issue only is being challenged and neither of the parties challenged any other finding.

7. I would, therefore, concentrate only in respect of issue No. 1 and examine whether the finding of the trial court in this respect is correct and justified on facts and law.

8. In order to appreciate the controversy between the parties on this aspect of the case, it would be essential first to have a resumption of the contract between the parties as evidenced by the documents which are admitted or proved.

9. The first relevant document in this respect is Ex. A-2, letter from the plaintiff to the defendant. This letter has been admitted by the defendant.

10. This is an offer by the plaintiff for purchase of gram from the Food Corporation of India gram as per details given below and on the terms and conditions.

11. In para 2 it has been mentioned that terms and conditions of the tender in Schedule 2 in connection with this tender have been examined and understood thoroughly by the plaintiff and they are acceptable and the plaintiff would be bound by those terms.

12. Para No. 3 which is most crucial requires reproduction for ready reference. It reads as under:

I/We enclose here with a demand draft 794834 dated 22nd February 1969 on the Bank of Rajasthan for Rs. 8,500/- which is equivalent to 10% of the quantity offered to purchase in favour of the Food Corporation of India, as money for this offer. I/We agree to deposit the balance cost of consignment within.... days of the acceptance of the offer.

13. It will have to be noticed here that the two important words are 'earnest money' and 'balance cost of consignment'.

14. It is significant to note that in para No. 8 of this letter it has been mentioned that no exemption of separate-deed would be necessary.

15. This letter is accompanied by Schedule 2 containing terms and conditions. Clause (3) contains a condition that if the cost is not deposited within 10 days from the date of issue of the acceptance of the offer, Food Corporation of India may at their option forfeit the earnest money....'

16. Ex. 2 is the letter of defendant mentioning that the offer referred to above in the form of letter dated 22nd February 1969 is accepted according to the terms and conditions already agreed to by you.

17. In the second paragraph of this letter it is mentioned that the delivery should be taken within 10 days of the issue of this letter after depositing the entire cost of gram.

18. There is an endorsement in this letter wherein a copy has been sent to Accounts Section with cheque for Rs. 8,500/- being the 10% of the value of gram from the party and earnest money is sent herewith for early enactment.

19. Here also two words are significant in the body of the letter of acceptance as of 'conditions already agreed' and deposit of the 'entire cost' of gram. In the endorsement 10% of the value of gram has been shown to have been received in the form of Rs. 8,500/- and this would form earnest money.

20. Now the whole of the controversy centres round the pivot phrases earnest money, entire cost and balance of cost, variously used in this correspondence.

21. There is no doubt that both the parties with their eyes open treated the above correspondence as agreed terms and conditions of the contract. The plaintiff himself sent the tender-cum-offer with the schedule containing the conditions and the defendant accepted it. That being so, there can not be any controversy that prima facie the terms and conditions of the contract to be deduced from this correspondence. The trial Court after discussion of the decision of the Hon'ble Supreme Court and particularly the judgment in Shri Hanuman Cotton Mills' case AIR 1970 SC 1956 that the four conditions necessary for treating the amount as earnest money are as under:

(1) It must be given at the moment at which the contract is concluded

(2) It represents guarantee that the contract will be fulfilled or in other words, 'earnest' is given to bind the contract '

(3) It is part of purchase price when the transaction is carried out

(4) It is forfeited when the transaction falls through by reasons of the default or failure of the purchaser

(5) Unless there is any thing to the contrary in the terms of the contract, on default committed by the buyer a seller is entitled to forfeit the earnest money.

It then held that on the basis of oral evidence condition No. 3 is not proved.

22. In view of the above the plaintiff's case was accepted.

23. Mr. Shishodia while challenging the above finding had laid much stress on Section 92 of the Evidence Act. According to him when the agreement or contract is in writing no amount of oral evidence can be looked into for showing any variations/alteration in the terms of the contract. In support of his contention he has relied upon the decision of the Apex Court in Chunchun Jha v. Edafat Ali : [1955]1SCR174 and submits that any recording of oral evidence and consideration of it would tantamount as extraneous inquiry in outrageous violation of Section 92 of the Evidence Act. He also relied upon a Full Bench decision of the Allahabad High Court in Md. Taki Khan v. Jang Singh AIR 1935 All. 529 enunciating the same principle.

24. Mr. Arora, on the contrary, submits that Section 92 never provides a general bar, but it contemplates various contingencies where oral evidence can be looked into. My attention is being invited to proviso VI of Section 92 which reads as under:

Section 92. Exclusion of evidence of oral agreement.--When the terms of any such contract, grant to other disposition of property, or any matter required by law to be reduced to the form of a document, have been proved according to the last section, no evidence of any oral agreement or statement shall be admitted, as between the parties to any such instrument or their representative in interest, for the purpose of contradicting, varying, adding to or subtracting from, its terms:. ... ... ... ... ... ... ... ... ... ... ...

(6) Any fact may be proved which shows in what manner the language of a document in related to existing facts.

25. In support of his contention Mr. Arora refers to Balumal v. Venkata Chelapathi Rao AIR 1955 Mad 76 wherein it has been held that what is prohibited is evidence of any oral agreement contrary to the terms of written agreement. Proviso (6) permits to establish by oral evidence that the language of the document is not what it purports to be and the evidence of surrounding circumstances under which the document was brought about may be given orally.

26. Reliance is also placed on the decision of the Hon'ble Supreme Court of India in Abdulla Ahmed v. Ani Mendra Kissan : [1950]1SCR30 wherein it was held by Mahajan, J. in a concurrent judgment that extrinsic evidence to determine effect of an instrument where there is doubt can be looked into and if any acts are done after the date of the instrument they can be guide to clear the doubts. Mr. Arora also relied upon Godora Electricity's case : [1975]2SCR42 wherein it was held that in case of an ambiguous instrument extrinsic evidence to determine the instrumental effect is admissible to clear doubts. Reliance was also placed upon Abdula Ahmed's case (supra).

27. Mr. Shishodia when, confronted with the above, pointed out that the Hon'ble Supreme Court in Hindustan Lever Ltd's case : [1977]3SCR455 has interpreted proviso (6) of Section 92 in para 14. It was held that no oral evidence can be allowed led to deduce their meaning or to vary it in view of the provisions of Section 91 and Section 92 of the Evidence Act.

28. Dealing with Telco's case : [1977]2SCR685 their Lordship's observed that case has got no application unless there is ambiguity and the facts require to be explained. Their Lordships held that in Telco's case (supra) the agreement could not be understood without reference to the actual facts to which they were sought to be applied, in relation to the nature of the special agreement for restriction or distribution arise.

29. In para 15 of the above judgment of Hindustan Lever's case (supra), their Lordship observed that there is no difficulty in understanding the meaning of the words used and, therefore, proviso (6) cannot apply.

30. Paras Nos. 14 and 15 of the above judgment make it clear that proviso (6) can be applied in case of doubts or ambiguity in the language or where it is yet to be ascertained as to in what manner where and to which contingencies the contract was to be applied as happened in Telco's case (supra).

31. New comes the important and pertinent question regarding application of the principles enunciated by the Apex Court in the above judgment while interpreting Sections 91 and 92 with special reference to proviso (6) of the Indian Evidence Act. A plain reading of Section 91 and Section 92 would show that the legislative intent in enacting the entire Chapter VI of the Indian Evidence Act was to exclude oral evidence when there is documentary evidence. There is great relevance and importance of this because whereas oral evidence can be manipulated by the parties to suit them, when the controversy comes in the Court, the documents which were excluded when the case was not in the Court and the matter was not in controversy are beyond that suspicion of manipulation. More over the documents contain concise and precise words, terms and phrases, conditions and contrary to which the oral evidence can be elastic differing from individual to individual even in one case.

32. The legislature was very conscious of the fact that this should not be a rule of thumb and, therefore, it provided exceptions and provisions for various contingencies which should be applied in all exceptional cases.

33. It is also important that Section 93 expressly provides a bar of leading oral evidence to clear ambiguity in a document.

34. Now the crucial question is what is the doubt or ambiguity which is required to be cleared by resort of proviso (6). Ex. A. 2, offer of the plaintiff uses some words in para 3 which must be sorted out first to understand whether there was doubt or ambiguity. The price was fixed and known to the parties. The earnest money was calculated as ten percent of the price. Rs. 8500/- was 10% of the price. The most important term and condition in para 3 of this letter is that the offer was to deposit the balance cost of consignment.

35. I attach great importance to the phrase 'balance cost'.

36. There cannot be any room for doubt as for Ex. A. 2 is concerned that what plaintiff meant was to pay the balance cost by adjustment of Rs. 8500/-. Para 8 further makes it clear that no separate deed was to be executed and acceptance of this offer shall constitute a valid and legal contract. The Schedule 2 further mentions it as earnest money in Clause (3). So far they cannot be doubted and even the plaintiff has not argued that these terms are of any doubtful nature.

37. The whole controversy about the doubt and ambiguity raised by Mr. Arora is in respect of Ex. 2. Here it must be noticed that in para 1 there is defendant's acceptance of the offer of the plaintiff mentioned above and as observed above contained in letter Ex. A. 2 and the most important is that the acceptance is according to the terms and conditions already agreed to in Ex. A. 2.

38. Now Mr. Arora's contention is that these terms and conditions in Clause (e) of Schedule 2 contained the condition that cost of the stocks should be deposited within 10 days. Mr. Arora submits that in para No. 2 and Ex. 2 the words used are 'entire costs' and, therefore, this created an ambiguity or doubt as to what was the meaning of it. In view of this, the lower court was justified in looking into the conduct of the parties in the transaction whether, when the cost was deposited, it was after adjustment of the earnest money or without adjustment.

39. I have given a very serious thoughtful consideration to this aspect of the case which is crucial and the decision of the entire case depends upon it. There appears to be no doubt that when Ex. A. 2 was sent by the plaintiff he made it clear that the balance of the cost would be deposited and by first paragraph of letter Ex. 2 that condition was accepted by the defendant. In my opinion, the phrase 'entire cost' cannot have two meanings and in the context of Ex. A. 2 and the first paragraph of Ex. 2 it would mean that it would not be open to the plaintiff to pay only part of the price which in no manner can be less after deduction from the adjustment of the earnest money as clearly mentioned in Ex. A-2. If that would have been the intention then either part. No. 1 would have been left without further clarification. I am, therefore, of the view that 'entire' only means that the total cost after adjustment of the earnest money should be paid and not part of it.

40. A specific amount of cost, namely, one thousand quintal of gram at rate of Rs. 85.11 p. was the subject-matter of the contract and, therefore, what the Food Corporation wanted to make it clear was that it would not be permissible to take part of the goods i.e. instead of 1,000 only 500 or 800 quintals.

41. It is significant that in para No. 2 the word 'entire' has been used twice; once as a prefix to quantity and this is prefixed to cost and it only shows emphasis that the plaintiff cannot take it in piece meal or in part.

42. The main crux of this clause was that within 10 days the entire quantity should be withdrawn and the entire cost should be deposited.

43. I am, therefore, of the opinion that there could not have been any doubt or scope of debate for interpreting Ex. A. 2 which contains the terms and conditions read with Ex. 2 which is letter of acceptance of those terms and conditions.

44. In view of this, the principles laid down in the above judgments which all emphasise that normally Section 92 read with Section 91 would bar the consideration of any oral evidence unless under proviso (6) there is ambiguity and doubt which require to be explained applies squarely.

45. Since I am of the opinion that there was no doubt or ambiguity in this respect and the earnest money was to be adjusted, I have got no option but to held that the oral evidence considered by the trial court was not permissible as against the express provision of Section 92.

46. The result of the above discussion is that this appeal succeeds to the extent that the decree would be reduced by Rs. 8500/-. The parties Would ear their own costs throughout.


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