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Jairam Valjee Vs. Indian Iron and Steel Co. Ltd. - Court Judgment

LegalCrystal Citation
Decided On
Reported inAIR1940Cal466
AppellantJairam Valjee
RespondentIndian Iron and Steel Co. Ltd.
Cases ReferredDonnell v. Bennett
- orderpanckridge, j.1. this is an application by the plaintiff for an interlocutory injunction restraining the defendants, their servants, and agents, from purchasing dolomite and limestone from any party or parties other than the plaintiff, and from using dolomite or limestone so purchased in their furnaces. the defendants carry on business as manufacturers of steel, and their works are ay kulti in the district of burdwan. in december 1936 they absorbed a company called the bengal iron co. ltd., and the liquidator of that company informed the public by a circular letter that it was transferring its entire assets to the defendants including all contracts and commitments entered into by it prior to 3rd december 1936. the letter also stated that the defendants had agreed to discharge all.....

Panckridge, J.

1. This is an application by the plaintiff for an interlocutory injunction restraining the defendants, their servants, and agents, from purchasing dolomite and limestone from any party or parties other than the plaintiff, and from using dolomite or limestone so purchased in their furnaces. The defendants carry on business as manufacturers of steel, and their works are ay Kulti in the District of Burdwan. In December 1936 they absorbed a company called the Bengal Iron Co. Ltd., and the liquidator of that company informed the public by a circular letter that it was transferring its entire assets to the defendants including all contracts and commitments entered into by it prior to 3rd December 1936. The letter also stated that the defendants had agreed to discharge all liabilities entered into by the Bengal Iron Co. Ltd., before that date. The plaintiff is the lessee of several quarries of limestone and dolomite in the Central Provinces. These minerals are known as 'flux' and are used in the manufacture of steel. On 4th January 1935 the Bengal Iron Co. Ltd,, wrote the following letter to the plaintiff:

Dear Sirs,

Limestone and Dolomite

It is probable that we shall put our largest blast furnace into operation about March/April this year and for such period as it remains in blast our total requirements of flux will be approximately as under:

2600 tons Dolomite monthly2100 tons LimestoneWe offer you the contract for the supply of all our future requirements of flux at the following rates:

* * * *Should a second furnace be put into blast our requirements of stone will be increased and we are willing to purchase such increased quantities as may be needed, at the same rates.

Kindly let us know if you accept our offer so that we can advise you as to when supplies are to be commenced.

Yours faithfully.

The Bengal Iron Co. Ltd.

2. On the next day the plaintiff replied as follows:

Dear Sir,

Limestone and Dolomite for Kulti

I thank you for your letter No. 350 dated 4th January 1985 conveying an offer for the purchase of your entire future requirements of flux from me at the rates and conditions as stated herein.

I have pleasure in confirming my acceptance of your offer. I also undertake to supply your increased requirements for a second furnace when it may be put into blast. * * * *

Yours faithfully,

Jairam Valjee.

3. Thereafter the plaintiff supplied limestone and dolomite at the contract rates to the Bengal Iron Co. Ltd., up to December 1936, and after that date to the defendants. There was a modification in the arrangement in the latter part of 1937. The circumstances were these. The prices agreed on in January 1935 were free on rail Paraghat Station. In 1936 the siding accommodation at Paraghat available to the plaintiff was found to be insufficient, and it was arranged with the Bengal Nagpur Railway that an assisted siding should be constructed. This means that instead of extending the existing siding accommodation at the railway station the railway ran a feeder line from that siding to the plaintiff's quarries. Although the assisted siding was constructed at the plaintiff's request, the correspondence shows that the Bengal Iron Co. Ltd., were as anxious for the construction of it as he was, and were constantly pressing the railway authorities to meet his wishes. On 29th September 1937 the defendants wrote to the plaintiff stating that the railway was charging them with 2 annas 3 pies per ton on account of haulage from the quarries. They maintained that this liability should fall on the plaintiff, and stated that they proposed to recover this charge from the plaintiff's bills. They also stated that the assisted siding must have saved the plaintiff a large sum on account of cartage. The plaintiff challenged the defendants' contentions, whereupon the latter suggested a compromise, whereby the contract price of dolomite and limestone should be increased by 2 annas a ton as from 1st November 1937, the plaintiff being responsible for all siding charges. This proposal the plaintiff accepted. In May 1938 the defendants discontinued the use of dolomite, but continued to take supplies of limestone at the agreed rates. The dispute, which has culminated in the present litigation, originated on 2nd May 1939 when the defendants wrote to the plaintiff complaining of the prices they were paying for limestone, and saying that the supplies were costing at least Rs. 20,000 per month more than they would if obtained from other sources. The letter concludes:

You will appreciate that the company cannot contemplate the continuance of such a state of affairs. This letter is written in order to give you timely notice of the company's views. It is not proposed to take any immediate action as the company is anxious to give you every reasonable opportunity of making other arrangements but the present state of affairs cannot be allowed to continue indefinitely.

Yours faithfully,

The Indian Iron & Steel Co. Ltd.

4. The plaintiff replied that he had his contract which could not be terminated as suggested by the defendants. He however asked them to formulate their proposals. The defendants in a letter of 29th May gave the plaintiff notice that after 31st December they would not take any more flux from him. They took up the position that there was no binding agreement between the parties, but that if there was, they were entitled to terminate it by the notice they had given. The plaintiff proposed a reference to arbitration, but this was not acceptable to the defendants. The plaintiff continued to supply limestone up to the end of 1939, but it is admitted that since the beginning of this year the defendants have either obtained, or arranged to obtain, limestone for their works from other suppliers. Indeed one of the reasons advanced for refusing an interlocutory injunction was that it would compel the defendants to break contracts they have made with those suppliers. The suit was filed on 31st January. I shall have something to say as to the frame of the plaint at a later stage. Notice of this application was taken out on 6th February.

5. The defendants' opposition to the application can be divided into two branches. First they say that on the true construction of the agreement what they have done, or contemplate doing, is not a breach of it. Secondly they say that even if there is a prima facie case of breach, the circumstances are not such as would justify restraint of it by injunction, and more particularly by Interlocutory injunction. Mr. Isaacs argues that the words 'our total requirements' and 'all our future requirements' in the letter of 4th January 1935 mean, not, as the plaintiff contends, all the dolomite and limestone that the defendants may need for their works, but all the dolomite and limestone which they may call upon the plaintiff to supply. I think it is not unfair to say that this construction is nowhere hinted at in the correspondence, for, there the defendants take up the position that there is no contract at all, or alternatively that if there is a contract it is terminable by reasonable notice. This is however not a very important matter, because, if the documents really bear the construction which Mr. Isaacs contends they do, the defendants ought not to be prejudiced by the fact that neither they nor their advisers have hitherto put it forward. Mr. Isaacs points to an agreement in writing of 4th August 1923 between the plaintiff and the Bengal Iron Co. Ltd., for the supply of limestone for a period of three years. This agreement contains a covenant by the buyers not to purchase limestone from Paraghat except from the plaintiff for the contract period, provided the plaintiff's deliveries are in accordance with the contract. Mr. Isaacs argues that when anything in the nature of monopoly clause was contemplated, it was embodied in a formal agreement.

6. I do not think that the procedure followed by the plaintiff and the defendants' predecessors can afford any assistance in construing correspondence passing between them over eleven years later. The immediate situation was that on 24th December 1934 the plaintiff had written that in his opinion it would be convenient if the parties were to come to an agreement and enter into a written contract 'for a permanent supply at a permanent rate for the supply o limestone and dolomite to your Kulti works.' The Bengal Iron Co., reply that they have been into the matter of their future requirements and are prepared to make an offer. Then follow the letters I have already set out. The Company's letter sets out their 'total' requirements for one furnace, and they then go on to make an offer for the supply of 'all our future requirements of flux F.O.R. Paraghat;' finally they mention the possibility of a second furnace being put into blast and say they are willing to purchase such increased quantities as may be needed at the same rates. In his reply the plaintiff describes the company's letter as an offer for the purchase of your 'entire future requirements of flux from me,' and the company make no attempt to correct this description. I think the use of the words 'total,' 'all' and 'entire' shows that a monopoly arrangement was contemplated. If these words are omitted, there is something to be said for Mr. Isaacs' contention, but I find it impossible to reconcile the suggested construction with the reiterated emphasis on totality appearing in the letters. The correspondence over the assisted siding does not in my opinion help the defendants. I think that there was much to be said for the Bengal Iron Co.'s contention that, as delivery was to be F.O.R. Paraghat, they should not be debited with any of the costs of transport to Paraghat railway station. The plaintiff showed considerable wisdom in making a virtue of necessity and settling this question on comparatively favourable terms.

7. I have no doubt that the two letters of January 1935 constituted a binding and permanent agreement, whereby the Bengal Iron Co., undertook to purchase all the limestone and dolomite they needed for their works from the plaintiff at the rates specified. I reject Mr. Isaacs' alternative submission that the obligations only subsisted as long as the two furnaces referred to remained in blast. I am told that the position is that one furnace was blown out in 1938, and the other one will be blown out in the near future, probably at the end of this year. On this construction of the contract the defendants are admittedly guilty of, or contemplate a breach of contrast, but I am disposed to agree with Mr. Isaacs that the pecuniary damage occasioned by the breach will be comparatively easy to ascertain, and having regard to the wealth of the defendants an injunction would not be an appropriate remedy.

8. However I am unable to find anything in the letter which justifies such a construction, nor has any attention been directed to any authority which would lead me to hold that the agreement) should be construed rebus sic stantibus. I must here notice the defendants' submission that, inasmuch as the agreement was between the plaintiff and the Bengal Iron Co. Ltd., the defendants are not bound by any implied negative covenant in it. It is true of course, generally speaking, that, although the benefits of a contract are transferable, its burdens are not, It is equally true that the parties to a contract may agree that one of them should drop out and a third party assume the benefits and liabilities of the contract. I know of no reason for saying that the consent of the third party to assume these benefits and liabilities must be express, and it may, I conceive, be inferred from conduct. In this case the defendants' conduct shows that they adopted the contract made between the plaintiff and the Bengal Iron Co. Ltd. They have taken deliveries under the contract for the past two years and have paid for them in terms of the contract, and on 4th November 1937 they offer to pay an increase of 2 annas per ton on the 'contract' rate. It would be most inequitable to permit the defendants to take advantage of the benefits of the contract as long as it suited them, and then to repudiate its liabilities.

9. Having arrived at the conclusion that the defendants will be guilty of a breach of contract, if they take limestone or dolomite from other suppliers, I must now consider whether they should be restrained from so doing by injunction under Order 39, Rule 2, Civil P.C. The hearing of this application lasted for more than a day and I do not see how oral evidence on either side can throw any light on the all-important question of the construction of the letters. The ease is accordingly one where the plaintiff is entitled to an interlocutory injunction, if he can make out a good case that be will succeed, having regard to the provisions of Chap. 10, Specific Relief Act, in obtaining a perpetual injunction at the trial.

10. Mr. Isaacs has submitted that the suit is in substance one for specific performance, and that the only case when the Court will give a decree for specific performance of a contract for the sale of goods is that contemplated by Section 58, Sale of Goods Act, that is to say, when the suit is brought by the buyer for breach of contract to deliver specific or ascertained goods. He argues that Chap. 6 of the Act constitutes a complete Code and no remedies are open to a party aggrieved by the breach of such a contract, except those falling within the Chapter and he relies on the observations of Atkin, L.J. in In re Wait (1927) 1 Ch. 606 at pp. 629 and 630. Now I think that from the point of view of pleading many of Mr. Isaacs' observations are justified. The implied negative covenant, on which the plaintiff founds his claim for an injunction, is not pleaded. A grievance is made of the defendant's refusal to take the dolomite lying at the, plaintiff's quarries, although the plaintiff's counsel is now forced to admit that he cannot complain if the defendants in the future take no dolomite or limestone at all from him. Finally the second prayer of the plaint is for specific performance of the contract. However the first prayer is for an injunction and I do not think the fact that the plaintiff has asked for relief to which he is not entitled should prevent him from obtaining other relief, if he can make out a good case for it.

11. Assuming that a party to a contract for the sale of goods can only obtain a decree for specific performance if his case is covered by Section 58, Sale of Goods Act, I do not think it follows that breach of an implied negative covenant cannot be restrained by injunction merely because the covenant is contained in a contract for the sale of goods. As to implied negative covenants in general I derive particular assistance from the observations of Maclean, C.J. in Burn & Co. Ltd. McDonald (1909) 36 Cal 354 at page 364:

The law in India on this subject is codified and it has been laid down in the House of Lords by the Judicial Committee and in several cases in this Court, to some of which I myself was a party that where the law has been codified it is of little avail to enquire what is the law apart from such codification but we must look to the Code itself as our guide in the matter. The Jaw here is codified by Rule 57, Specific Relief Act. That seems to me to make the case reasonably clear. That Section runs as follows: 'Notwithstanding Section 56, Clause (f) Clause (f) says that an injunction cannot be granted to prevent the breach of a contract the performance of which would not be specifically enforced-'where a contract comprises an affirmative agreement to do a certain act coupled with a negative agreement, express or implied, not to do a certain act, the circumstance that the Court is unable to compel specific performance of the affirmative agreement, shall not preclude it from granting an injunction to perform the negative agreement; provided that the applicant has not failed to perform the contract so far as it is binding on him. The language of that Section is reasonably clear, and it appears to give legislative sanction in India to the view expressed by Lord Selborne in the passage I have read. If there had been any doubt as to the meaning of the language of the Section, illus. (d) is conclusive upon the subject. It runs : 'B contracts with A that he will servo him faithfully for 12 months as a clerk. A is not entitled to a decree for specific performance of this contract. But he is canticle to an injunction restraining B from serving a rival house as clerk.' The view I entertain coin-rides with that of the late Farran C.J. in Charlesworth v. McDonald (1899) 23 Bom. 103. In that case the Court thought that there was a negative covenant, although the terms of the agreement were not very clear, After dealing with the case in Lumley v. Wagner (1852) 5 De. G. & S 485 Farran C.J. says : 'In my opinion it would be most unfair to gentlemen in the position of the plaintiffs not to protect them in such cases. It would virtually debar them from engaging an assistant at all. An action for damages would afford them no protection, certainly no adequate protection;' and in a previous part of his judgment he refers to 8. 57, Specific Relief Act, and speaks of it 'as a legislative decision to the same effect.

12. I only think it necessary to refer to one of the English authorities relied on by the plaintiff, and I do so because the facts of that case seem to me to resemble very closely the facts with which I am called upon to deal. The authority is Metropolitan Electric Supply Co. Ltd. v. Ginder (1901) 2 Ch. 799. There the defendant had signed a statutory form of request to the plaintiffs to supply him with electrical energy. The request contained the following term:

The consumer agrees to take the whole of the electric energy required for the premises mentioned below for a period of not less than five years.

13. After a little more than two years the defendant gave notice to the plaintiffs to disconnect his premises, and made arrangements to get his supply from a rival company. In granting an injunction Buckley, J. observed:

One of the first defences which is raised is this : it is said that the language of the contract is affirmative and not negative, and that the Court is asked to grant an injunction upon the footing that there is a negative covenant, when in point of fact there is none. Now, in dealing with that contention it appears to me that my first duty is to construe the contract and that for the purpose of arriving at the true construction of the contract, must disregard what would be the legal consequences of my construing it in the one way or the other way. I must find out what it means; and when I have found out what it means, then I must apply proper legal principles to the contract as construed. There is a passage in the judgment of Lord Selborne in Wolverhampton and Walsall Ry. Co. v. L. & N. W. Ry. Co. (1873) 16 Eq. 433 which I desire to read on this part of the case. Referring to Lumley v. Wagner (1852) 5 De. G & S 485, Lord Selborne said : 'With regard to the case of Lumley v. Wagner (1852) 5 De. G & S 485, to which reference was made, really when it comes to be examined it is not a case which tends in any way to limit the ordinary jurisdiction of this Court to do justice between parties by way of injunction. It was sought in that case to enlarge the jurisdiction on a highly artificial and technical ground, and to extend it to an ordinary case of hiring and service, which is not properly a case of specific performance; the technical distinction being made, that if you find the word 'not' in an agreement - 'I will not do a thing' - as well as the words 'I will,' even although the negative term might have been applied from the positive, yet the Court, refusing to act on an implication of the negative, will act on the expression of it. I can only say that I should think it was the safer and the better rule, if it should eventually be adopted by this Court, to look in all such oases to the substance and not to the form. If the substance of the agreement is such that it would be violated by doing the thing sought to be prevented, then the question will arise whether this is the Court to come to for a remedy. If it is, I cannot think that ought to depend on the use of a negative rather than an affirmative form of expression.

The cases since that, I think, have gone to show that that which Lord Selborne said would be the true principle if it should eventually be adopted by this Court, has really now been adopted by this Court. The language here is that the consumer agrees to take the whole of the electric energy required for his premises from A. The company was bound to supply under the statute if asked. The consumer asks. The result is that he thereupon had a right as against the plaintiffs to be supplied. The only question for bargain then was the price, which was fixed at 41/2d. They were contracting, not affirmatively for the supply of something, but negatively that the defendant would not take from somebody else. There is no affirmative contract here to take anything at all. Ginder does not agree that he will take any energy from the plaintiffs. He says he will take the whole of the electric energy required. It is competent to him to burn gas if he likes, and require no energy. The only thing he was contracting to do was that if he took electric energy he would take it from the plaintiffs. It seems to me the whole essence of that contract is that which is not expressed in words, I agree, but which by implication is really the only thing existing, a contract that he will not take from somebody else. He agrees to take the whole from A, which necessarily implies that ho will not take from B. As matter of construction therefore not by express words but by necessary implication, I think there is here an agreement not to take from others. In that state of things, how do the authorities stand? In the first place, it is said that in the recent case in Whitwood Chemical Co. v. Hardman (1891) 2 Ch. 416 the language was that A would give the whole of his time to the company's business, which implied that ho would not give any to anybody else.

I agree that is exactly similar to this in the sense that here it is an agreement that he would take the whole of his required supply, and in Whitwood Chemical Co. v. Hardman (1891) 2 Ch. 416 it was that he would give the whole of his time. But when I read the judgments in that case it appoars to me that the Lords Justices founded themselves entirely on this - that what they were dealing with was a contract for personal service, which of course this Court will not in general specifically perform. What they pointed out was that the parties were not thinking of contracting there about excluding the manager from acting for another: that was not in their contemplation. What was in their contemplation was that they should enjoy his whole time, that he should give them his service without reservation, but they did not contemplate the negative stipulation that he should not serve others. It being a contract of personal service, it is quite plain, I think, that the Court of Appeal were not prepared to extend the doctrine of Lumley v. Wagner (1852) 5 De. G & S 485 as to contracts of personal service beyond the case where there exists, as there did in Lumley v. Wagner (1852) 5 De. G & S 485, express negative words.

But, on the other hand, there is Catt v. Tourle (1869) 4 Ch. 654, a case equally on all fours with the present as regards the expression, but not a case of personal service. There the words were that the plaintiff should have the exclusive right of supplying all ale, and he asked for an injunction to restrain a person from supplying the ale himself or obtaining it from another person; and succeeded in getting it. The observation which has been made on Catt v. Tourle (1869) 4 Ch. 654 is, that it was a case dependent upon the doctrine in Tulk v. Moxhay (1848) 2 Ph. 774 because the defendant in the action was a person who bought the land with notice of the covenant in question, and was therefore bound by it. It does not appear to me that that observation has any pertinence. It is quite true, but is Immaterial to the case. When the doctrine of Tulk v. Moxhay (1848) 2 Ph. 774 is applied it only results in this -that the defendant became bound by a covenant which he had not entered into-he became bound under the Tulk v. Moxhay (1848) 2 Ph. 774 doctrine because he had notice. Then the question is, what was the covenant by which he had become bound? It was the same thing as though he had been the original person, a party to the contract containing the words. The Curt of Appeal there were of the opinion, under those words, 'the exclusive right ofsupplying', that they were entitled to imply the negative words, and that there was a right to an injunction.

Another case referred to was Fothergill v. Rowland (1873) 17 Eq. 132, a decision of Sir George Jessel. That was an action brought by a person who had become entitled to be the purchaser of all the coals raised in a colliery. His vendor was going to sell the colliery to somebody else, and he would therefore not have received them, and the point of the case was that the plaintiff's whole remedy would be in damages. He was simply the purchaser of goods which were going to be delivered to somebody else; he could get the same goods or goods just as good and as suitable for his purpose elsewhere, and his remedy was only in damages. Then there is a decision of Fry, J. in Donnell v. Bennett (1883) 22 Ch. D. 835, where the learned Judge granted an injunction in a case of a contract for the sale of chattels, because there -existed negative words. He was there proceeding upon the existence of negative words. He says this at the beginning of his judgment, after reading or referring to a passage in Lord Selborne's judgment to which I have referred: 'That the Court ought to look at what is the nature of the contract between the parties; that if the contract as a whole is the subject of equitable jurisdiction, then an injunction may be granted in support of the contract whether it contains or does not contain a negative stipulation.' I think this is such a contract, because it appears to me that the contract for this present purpose is not one for the supply by the plaintiffs to the defendant of electricity-he is not bound to take any. The contract really is a contract the whole of which is in substance the negative part of it, that he will take the whole from them, involving that he will not take any from anybody else. I therefore think that the fact that the contract is affirmative in form and not negative in form is no ground for refusing an injunction.

14. This rather lengthy passage discusses many of the cases cited by counsel before me. Applying the principles on which the authorities show that the Court's discretion should be exercised, I have come to the conclusion that the plaintiff has made out a case for an injunction. The fact that the contract is a permanent one, and the uncertainty whether new processes of manufacture may not reduce the defendants' requirements on the one hand, and on the other whether war conditions may not be productive of increased orders make damages impossible to calculate. It was said and not challenged that the only steel works in this country are those of the defendants and Messrs. Tatas. It appears therefore that the plaintiff is unlikely to find an alternative market for his goods if the defendants cease to take them. The plaintiff has undertaken to supply the defendants at the contract rates, as subsequently modified, if called on to do so. He is also willing that the defendants should pay the price of any goods so supplied by him to their solicitors with a limit of Rs. 25,000 to be held by the latter free of lien and subject to further orders and to be available for compensating the defendants for any loss they may sustain, should it subsequently be held that this injunction has been wrongly granted. This undertaking was suggested by the plaintiff's counsel and, as he is willing to give it, I think the Court should accept it. It must be understood however that I should not have thought it proper to impose any undertaking on him as a condition of granting the injunction. Subject to this the defendants are restrained, pending the hearing of the suit, from taking delivery of dolomite or limestone from suppliers other than the plaintiff. The costs of this application will be costs in the cause.

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