IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

 CIVIL APPEAL NOS.7155-7156   OF 2009 (@ S.L.P.(C)Nos.27776-27777 of 2009

(CC 13433-13434)/2009)

JAI BALAJI INDUSTRIES LTD.  … Appellants  Vs.

PEC LTD. & ORS.     … Respondents

O R D E R

1. Permission is granted to file the special leave  

petitions.

2. Leave granted.

3. We have heard learned counsel for the parties  

at the very initial stage for issuance of notice  

since the Respondent No.1 was duly represented on  

caveat.

4. These appeals are directed against the judgment  

and order dated 1st September, 2009 passed by the  

Division Bench of the Calcutta High Court in APOT  

No.235  of  2009  and  APOT  No.249  of  2009  and  

connected  applications  allowing  the  appeals  in  

terms of the following order :  

“(a)The  appellant/defendant  will  be  at  liberty  to  encash  the  cheques  and  appropriate  the  amount  subject  to  furnishing  a  Bank  Guarantee  of  like  amount to be furnished in favour of  the Registrar, Original Side.  We also  grant  liberty  to  the  appellant  to  furnish  a  letter  of  undertaking  to  furnish Bank Guarantee for like amount  from a Nationalised Bank in favour of  Registrar,  Original  side.  Registrar,  Original  Side  until  the  formal  Bank  Guarantee is furnished as directed and  upon  doing  so,  the  cheques  may  be  encashed.   The  appellant  shall  keep  the  Bank  Guarantee  renew  till  the  disposal  of  the  suit.   The  Bank  Guarantee should be kept to the credit  of this suit.

(b) The  Receiver  already  appointed  shall  sell  the  goods  after  issuing  an  advertisement in the Newspapers, once  in  “Statesman”  once  in  “Ajkal”  and  once in Hindi in “Sanmarg”, either by  way of public auction or by private  party subject to confirmation by the  

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Court.  The cost charges and expenses  of  sale  will  be  borne  by  the  appellants  at  the  first  instance.  Further,  ad  hoc  remuneration  of  500  GMs should be paid to the Receiver.

(c) We also grant liberty to the parties  to bring the intending buyers.

(d) The  Receiver  after  confirmation  of  sale shall handover the sale proceeds  to  the  respondent/plaintiff.   The  appellant  is  directed  to  renew  the  said Bank Guarantee till the disposal  of the suit.

(e) The suit is expedited.

Plaint to be served forthwith, if not  already  served,  upon  Advocates-on-Record  for  the  defendant  in  the  suit,  by  the  Advocate-on-Record  for  the  plaintiff.  Written statement within 3 weeks from the  date the certified copy of this judgment  is  made  available,  cross  order  for  discovery two weeks thereafter, inspection  two  weeks  thereafter  and  the  suit  is  directed  to  appear  in  the  prospective  list.”

5. From the materials on record it appears that  

the  appellant  entered  into  an  agreement  on  28th  

July, 2008 with, a foreign seller for purchase of  

7100 metric tonnes of Manganese Ore which was to be  

sold by the said foreign party under a CIF contract  

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and discharged at Paradeep Port.  In terms of the  

said agreement, the quality and quantity of goods  

were to be inspected by the buyer at the Port of  

Loading.  Thereafter,  the  appellant  and  the  

Respondent No.1, a Government Company, entered into  

a High Seas Sale Agreement on 25th September, 2008,  

wherein the Respondent No.1 has been described as  

“seller”  of  the  goods  and  the  appellant  is  

described as the “buyer”.  Under the terms of the  

said Agreement, the appellant was to pay to the  

Respondent No.1 a sum of US$ 48,25,188.40 as 100%  

value of the documents plus 1.5% trading margin of  

documents,  as  payment  for  the  documents.  It  was  

also agreed that the Respondent No.1 would endorse  

the Bill of Lading in favour of the appellant.  A  

Deed of Pledge was also executed whereby the entire  

consignment  was  pledged  to  the  Respondent  No.1-

Company.

6. The  vessel  carrying  the  consignment  of  

Manganese  Ore  arrived  at  Paradeep  Port  and  the  

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goods were discharged on or about 8th October, 2008,  

and, thereafter, transferred to a warehouse.  It  

appears  that  the  goods  were  dispatched  to  the  

appellant’s  factory  premises  at  Durgapur  and  

Ranigunj in West Bengal and were allegedly unloaded  

on plots within the appellant’s factory premises  

purportedly leased to the Respondent No.1-Company.  

It is also the case of the appellant that out of  

the  said  consignment  of  7100  metric  tonnes  of  

Manganese Ore, the appellant purchased 100 metric  

tonnes from the Respondent No.1 with the intention  

of testing the quality of the said ore.   

7. Allegedly, the said ore did not meet the tests  

relating  to  its  quality  and,  consequently,  the  

appellant  rejected  the  entire  consignment  and  

refused  to  take  delivery  thereof  from  the  

Respondent No.1-Company.  That is the genesis of  

the dispute which arose between the parties.

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8. The appellant filed a suit, being C.S.No.137 of  

2009, in the Calcutta High Court in its Ordinary  

Original Civil Jurisdiction claiming return of an  

advance  amount  of  Rs.2,85,28,926/-  and  

Rs.35,30,000/-,  being  the  price  of  100  metric  

tonnes, aggregating a sum of Rs.3,20,58,926/- and  

Rs.2,52,08,526/-  paid  towards  various  duties,  

charges and freight etc.  The appellant also prayed  

for an injunction to restrain the Respondent No.1-

Company from encashing the security which had been  

given  by  the  appellant  to  the  extent  of  

Rs.20,31,25,956/- and for damages.  In the suit an  

application for interim orders was also made for  

the following reliefs :       

“(a)Commissioner/Special  Officer  be  appointed  to  make  inventory  of  the  manganese ores lying at the respondent  No.1’s leased plots in the factories  of  the  petitioner  at  Durgapur  and  Ranigunj and thereafter to take steps  for  drawing  of  samples  and  get  the  same analysed through and/or by such  agency as this Hon’ble Court may deem  fit and proper including National Test  House, Alipore, Calcutta;

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(b) Injunction restraining the respondent No.1  from depositing and/or encashing the said  cheque  dated  December  14,  2008,  bearing  no.242474  for  Rs.20,31,25,956/-  drawn  on  Allahabad Bank, Calcutta Main Branch;

(c) Direction  upon  the  respondent  no.1  to  cancel and return the said cheque bearing  no.242474,  dated  December,  2008  for  Rs.30,31,25,956/-,  drawn  on  Allahabad  Bank, Calcutta Main Branch;

(d) Appropriate direction upon the respondent  no.1 to remove the manganese ore lying at  the respondent no.1’s leased plots being  portions  of  the  factory  premises  of  the  petitioner at Ranigunj and Durgapur within  such time as may be fixed by this Hon’ble  Court;

(e) In default of the respondent no.1 removing  the  manganese  ore  from  the  said  leased  plots  in  the  factory  premises  of  your  petitioner, Receiver be appointed by this  Hon’ble Court with all powers under order  40  of  the  Code  of  Civil  Procedure  including sale of manganese ore lying at  the leased plots of the respondent no.1 in  the factory premises of the petitioner at  Durgapur  at  Ranigunj,  either  by  public  auction  or  by  private  treaty  and  to  deposit the sale proceeds thereof with the  Registrar, Original Side;

(f) Ad-interim  order  in  terms  of  above  prayers;

(g) Costs and incidental to this application  be borne by the respondent no.1;

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(h) Such  further  orders  be  made  and/or  directions be given as this Hon’ble Court  may deem fit and proper.”

9. On  18th May,  2009,  the  learned  Single  Judge  

passed an interim order, as prayed for, in regard  

to encashment of the security deposit till 22nd May,  

2009.  Thereafter, the interim order was extended  

and the appellant herein was directed to revalidate  

the  cheque  dated  14th December,  2008,  which  was  

purported to have been given by way of security to  

the Respondent No.1, by another six months from the  

date  of  receipt  of  the  order.  Thereafter,  the  

Respondent  No.1-Company  filed  an  application  for  

vacating  the  interim  order  while  the  appellant  

sought continuance thereof.   

10. After  hearing  the  parties  at  length  on  12th  

June, 2009, the learned Single Judge rejected the  

prayer made on behalf of the respondent-Company to  

vacate the interim order, and, instead, passed the  

following order :

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“To  ascertain  the  quality  of  the  balance goods lying in the leased plots of  the respondent no.1 Mr. Amit Gupta, Adv.,  1st Floor, Bar  Library Club  is appointed  Receiver at an initial remuneration of 500  GMs.  For purposes of drawing samples and  getting  the  same  analysed  through  the  National  Test  House,  Alipore,  Calcutta.  Report be filed by the said agency on the  next date of hearing.   

This  order  is  passed  as  from  the  report if it appears that the goods are as  per specifications there will be no reason  for  the  petitioner  to  refuse  lifting  of  the goods.

Accordingly, the interim order granted  will continue till ten weeks.  Directions  are given for filing affidavits:

Affidavit-in-opposition  be  filed  within four weeks from date; affidavit-in- reply thereto, if any, be filed within two  weeks thereafter.  Matter to appear in the  list seven weeks hence.”

  11. Aggrieved thereby, the Respondent No.1 herein  

preferred APOT No.235 of 2009 and APOT No.249 of  

2009 before the Division Bench of the Calcutta High  

Court and the same were disposed of finally by the  

Appeal Court by its order dated 1st September, 2009,  

extracted  hereinabove,  whereby  the  order  of  the  

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learned Single Judge was set aside and replaced by  

the said order.

12. As  mentioned  hereinbefore,  these  appeals  are  

directed  against  the  said  order  of  the  Division  

Bench of the Calcutta High Court.  

13. On  behalf  of  the  appellants  it  has  been  

contended that under the High Seas Sale Agreement,  

the  Respondent  No.1  was  to  endorse  the  Bill  of  

Lading in favour of the appellant, but that the  

same  was  never  done  and  the  consignment  of  

Manganese Ore was never made over to the appellant  

and has remained in the custody of the Respondent  

No.1 ever since it was discharged at Paradeep Port.  

It was also submitted that after having purchased  

100 metric tonnes of the said ore for the purpose  

of testing, when it was found that the same was  

sub-standard material, the appellant had expressed  

its inability to accept the consignment.  It was  

also  submitted  that  without  delivering  the  

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consignment, the Respondent No.1 was not entitled  

to encash the cheques, which had been made over to  

it by way of security deposit.

15. It was lastly contended that the appellant had  

no obligation to take delivery of the entire goods  

since the Agreement provided that the goods were to  

be delivered part-by-part.

16. The case made on behalf of the appellant was  

vehemently opposed on behalf of the Respondent No.1  

on the ground that the High Seas Sale Agreement was  

merely a means of import of the said ore into India  

by the appellant and the Respondent No.1 was merely  

a facilitator for the said purpose.  In fact, the  

role of the Respondent No.1 was to import the goods  

and,  thereafter,  to  make  over  the  same  to  the  

Appellant as it had no use for the Manganese Ore.  

In fact, the same would be evidenced by the Deed of  

Pledge, whereby the goods continued to be in the  

control and possession of the Respondent No.1 till  

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the same were delivered to the appellant.  It was  

also  the  case  of  the  Respondent  No.1  that  the  

consignment of Manganese Ore had always been with  

the appellant in its own godown and that the Bill  

of Lading had also been endorsed in favour of the  

appellant,  whereupon  the  title  to  the  goods  had  

passed to the appellant.

17. From  the  submissions  made  on  behalf  of  the  

parties,  it  will  appear  that  the  appellant  is  

aggrieved by the fact that besides having paid a  

sum of Rs.20,31,25,856/- by a postdated cheque to  

the Respondent No.1, the appellant had also been  

deprived  of  the  goods,  the  value  whereof  had  

greatly  diminished  since  it  was  received  at  

Paradeep Port on or about 8th October, 2008.  On the  

other  hand,  not  only  would  the  Respondent  No.1  

retain control over the consignment but it would  

also have unjustly enriched itself to the extent of  

the security provided by the appellant in terms of  

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the  order  of  the  High  Court  impugned  in  these  

appeals.         

18. In deciding these appeals, we have to keep in  

mind the fact that the suit is still pending before  

the  Calcutta  High  Court  and  the  rights  and  

liabilities of the parties are yet to be worked out  

in the suit.   The question whether the Bill of  

Lading had been endorsed in favour of the appellant  

or not by the Respondent No.1 is also a matter to  

be decided in the suit on evidence.  Furthermore,  

the appellant has itself indicated that it was not  

willing to accept the consignment since it was of  

sub-standard quality and had deteriorated further  

since it was discharged at Paradeep Port.  As has  

been pointed out by the learned Single Judge in her  

order  of  12th June,  2009,  the  appellant  in  its  

undertaking had agreed to pay the balance amount in  

respect of the imported goods on their first demand  

without demur and protest and to honour the cheques  

issued in favour of the Respondent No.1 on their  

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presentation on the dates indicated.  Furthermore,  

a further undertaking was given not to intimate the  

bankers  to  stop  the  payment  of  the  cheques  

delivered to the Respondent No.1 and also not to  

close  the  account  without  the  permission  of  the  

Respondent No.1.  

19. On a prima facie assessment of the terms and  

conditions of the Agreement entered into between  

the appellant and the Respondent No.1 on 7th August,  

2008, the responsibility relating to the quantity  

and quality of the cargo was to be that of the  

appellant  and  Clause  8  of  the  said  Agreement  

indicates  that  the  Respondent  No.1  would  not  be  

responsible for any shortage in the quantity and  

quality of the cargo at the loading point as well  

as at the delivery point.  Nothing has come to our  

notice whereby the Respondent No.1 was prevented  

from  encashing  the  cheques  alleged  to  have  been  

given by way of security.   

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20. In our view, it would not be proper for us to  

delve into the details of the matter at this stage  

since the order of the Division Bench in appeal  

protects the appellant, while granting liberty to  

the  Respondent  No.1  to  encash  the  cheques  and  

appropriate  the  amount  upon  furnishing  a  Bank  

Guarantee of the like amount which was to be kept  

renewed till the disposal of the suit. Furthermore,  

the  goods  in  question  are  to  be  sold  by  the  

Receiver  appointed  by  the  Court  and  the  sale  

proceeds have been directed to be handed over to  

the appellant herein.   Balance claims, if any,  

will have to be decided in the suit filed by the  

appellant.  Apart from the above, it has also to be  

kept in mind that the Respondent No.1 has already  

paid for the goods to the foreign buyer.   

21. We, therefore, see no reason to interfere with  

the judgment and order passed by the Appeal Court  

of the Calcutta High Court in APOT No.235 of 2009  

and  APOT  No.249  of  2009.   The  appeals  are,  

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accordingly, dismissed. We make it clear that the  

observations made in this order are only for the  

disposal of the appeals which have been directed  

against the interim orders and the Trial Court will  

be at liberty to proceed in the suit uninfluenced  

by any of the said observations.

22. There will be no order as to costs.  

…………………………………………J. (ALTAMAS KABIR)

……………………………………………J. (CYRIAC JOSEPH)

New Delhi Dated: 27.10.2009

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