KORES (INDIA) LTD. v. M/S KEMS AGENCIES

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE SATHISH NINAN** **WEDNESDAY, THE 7TH DAY OF AUGUST 2019 / 16TH SRAVANA, 1941** ## **RFA.No.316 OF 2011** **AGAINST THE JUDGMENT AND DECREE IN OS 176/2009 DATED 23-12-2010 OF I ADDITIONAL SUB COURT, ERNAKULAM** **----------** ## **APPELLANTS/DEFENDANTS:** **1 KORES (INDIA) LTD., KORES HOUSE, PLOT NO.10, DR.E.MOSSES ROAD, WORLI, MUMBAI - 400 018. 2 THE MANAGER, M/S.KORES (INDIA) LTD., 57/1010, CHITTOOR ROAD, COCHIN - 11.** **BY ADVS. SRI.S.SREEKUMAR (SR.) SMT.HANI P.NAIR SRI.P.MARTIN JOSE SRI.P.PRIJITH** ## **RESPONDENT/PLAINTIFF:** **M/S.KEMS AGENCIES, ST.THRESAS SHOPPING COMPLEX, VALLAM, RAYONPURAM P.O., PERUMBAVOOR, REP. BY ITS MANAGING PARTNER MR.BINOY JOSEPH, AGED 35 YEARS, S/O.E.V.JOSEPH, RESIDING AT EDAPPULAVAN HOUSE, CHELAMATTOM, OKKAL P.O., PERUMBAVOOR. PIN 683550.** **BY ADVS. SRI.M.NARENDRA KUMAR SRI.GEORGE VARGHESE KIZHAKKAMBALAM SRI.V.RAJENDRAN (PERUMBAVOOR)** **THIS REGULAR FIRST APPEAL HAVING BEEN FINALLY HEARD ON 07.08.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ## **SATHISH NINAN, J.** ## **= = = = = = = = = = = = = = = = = = RFA No.316 of 2011** **= = = = = = = = = = = = = = = = = = Dated this the 7[th] day of August, 2019** ## **J U D G M E N T** This appeal is by the defendants in a suit for money. 2. The first defendant is a Company engaged in the manufacture of writing materials. The second defendant is its Manager. The plaintiff was the 'super stockist' and distributor in the State of Kerala, for the writing materials manufactured by the first defendant. The plaintiff commenced business in April 2005, but wound it up in the year 2006 allegedly due to lack of quality and performance of the products of the defendant. When the plaintiff stopped its business, they had stock worth `10 lakhs. In February, 2007, the defendant took back goods worth `3.5 lakhs. The remaining goods worth `6,55,783/- were not taken back. The goods were either defective or poor in quality. It is accordingly that the suit is filed for RFA No.316 of 2011 :- 2 :- realisation of the value of the goods remaining with the plaintiff along with a prayer for a direction to the defendants to take back the goods. 3. The allegations regarding defect and quality were denied by the defendants. It was pleaded that the suit is barred by limitation. 4. The trial court held the goods supplied to be defective, and poor in quality; that plaintiff is entitled to realise its value; and that the suit is filed within the period of limitation. Accordingly, the suit was decreed. Aggrieved, the defendants are in appeal. 5. Heard Sri.S.Sreekumar, learned Senior Counsel for the appellants-defendants and Sri.M.Narendra Kumar, learned counsel for the respondent-plaintiff. 6. That the defendant company is the manufacturer of the writing materials in question and that the plaintiff was its stockist and distributor in the State of Kerala at the relevant time, are not in dispute. Though arguments were advanced by either sides as to whether the sale in question is a sale by sample or a sale by RFA No.316 of 2011 :- 3 :- description or by both, in the nature of the article and the admitted nature of transaction, I do not think that in the instant case, much would turn on a finding on the same. If the goods supplied could not be used for the purpose it was intended to be, due to its quality, the plaintiff is entitled to recover its value either as price or as damages. This is so in terms of Section 16 of the Sale of Goods Act. Section 16 reads thus:- ## “ **S. 16. Implied conditions as to quality or fitness.—** Subject to the provisions of this Act and of any other law for the time being in force, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a **—** contract of sale, except as follows: (1) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller's skill or judgment, and the goods are of a description which it is in the course of the seller's business to supply (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be reasonably fit for such purpose: Provided that, in the case of a contract for the RFA No.316 of 2011 :- 4 :- sale of specified article under its patent or other trade name, there is no implied condition as to its fitness for any particular purpose. (2) Where goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or producer or not), there is an implied condition that the goods shall be of merchantable quality: Provided that, if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed. (3) An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade : (4) An express warranty or condition does not negative a warranty or condition implied by this Act unless inconsistent therewith.” 7. In terms of sub-section 1, since the very purpose of the sale is known to the defendants, there is an implied condition that the goods shall be reasonably fit for the purpose. In terms of subsection 2, be it a sale by description, there is an implied condition that the goods shall be of RFA No.316 of 2011 :- 5 :- merchantable quality. The term “merchantable quality” has not been defined under the Sale of Goods Act but has been the subject of various judicial pronouncements. 8. In Randall v. Newson: (1876-77) 2 QBD 102 at p. 107 :- “If a man sells an article he thereby warrants that it is merchantable, **—** that it is fit for some purpose. If he sells it for that particular purpose, he thereby warrants it for that purpose.” In Bristol Tramways, etc. Carriage Co. Ltd. v. Fiat Motors Ltd. (1910-2) KB 831, 641, Farwell, LJ gave another explanation of the phrase 'merchantable quality' which I would like to quote here: “The phrase in Section 14(2) is, in my opinion, used as meaning that the article is of such quality and in such condition that a reasonable man acting reasonably would after a full examination accept it under the circumstances of the case in performance of his offer to buy that article whether he buys for his own use or to sell again.” In Grant's case: 1936 AC 85 at p. 99-100 : (AIR 1936 PC 34 at p. 40), Lord Wright observed : “Whatever else merchantable may mean, it does mean that the article sold, if only meant for one RFA No.316 of 2011 :- 6 :- particular use in ordinary course, is fit for that use, merchantable does not mean that the thing is saleable in the market simply because it looks all right; it is not merchantable in that event if it has defects unfitting it for its only proper use but not apparent on ordinary examination : that is clear from the proviso, which shows that the implied condition only applies to defects not reasonably discoverable to the buyer on such examination as he made or could make.” 9. Therefore, if the writing materials sold is not fit to be used for the purpose of writing, then it cannot be said to be of merchantable quality. The defect, if any, in the quality of the writing materials cannot be held to be a patent defect. Suffice to conclude that the plaintiff is entitled to sustain a claim for the value of the defective goods, be it under the head price or damages. 10. The learned Senior Counsel for the appellants would harp on the contention that, the plaint claim is barred by limitation. Though an issue is not seen framed by the trial court regarding limitation, there was a plea in the written statement and the question of limitation RFA No.316 of 2011 :- 7 :- was considered by the trial court. The suit was held to be within time. In the schedule to the plaint, the plaintiff has set out the details regarding the unsold articles available with the plaintiff. Reference is made therein, to the bill number and date. As is evident from the schedule, the articles were supplied in various consignments, shown as Sl.Nos. 1 to 36 in the schedule, during the period from 30.04.05 till 8.03.06. The suit is filed on 06.03.2009. Under Article 55 of the Limitation Act, for compensation for the breach of any contract whether express or implied, the suit is to be instituted within three years from the date on which breach occurs. Therefore, the first question to be considered is, the date of breach. 11. The learned counsel for the plaintiff would contend that, the cause of action arises only when the defect is detected by the purchaser. According to the learned counsel, in the instant case, the defect was noticed in February, 2007 and Ext.A4 intimation dated 02.02.2007 was given by the plaintiff to the defendants. The cause of action RFA No.316 of 2011 :- 8 :- arises only from the said date, submits the counsel. I am unable to subscribe to the said submission. When defective goods are delivered, there is violation of the implied condition. Therefore, there is breach of contract on the very date of delivery. From the date of delivery, the plaintiff or purchasers under the plaintiff, could have detected the defect in the articles. The mere fact that the defect was detected years later, will not postpone the accrual of the cause of action. However, in a given case where a warranty period or expiry date is stipulated, the buyer would be entitled to the benefit of the said period for which the seller assures the quality and performance. In such cases it could be held that time runs only from the date of detection of the breach, of course, within the said period. But in cases where no such period is provided, time begins to run from the date of delivery of the goods. It should be borne in mind that even in such cases the buyer gets a period of three years from the date of delivery, within which he is to detect the defect RFA No.316 of 2011 :- 9 :- and institute the suit. The period can only be held to be reasonable. If any other interpretation is accepted, the consequence would be preposterous. In the instant case, there is no warranty period or expiry period is stipulated. Therefore time runs from the date of delivery of the goods. The finding of the trial court that the cause of action for the suit has arisen only on the issuance of Ext.A4 communication by the plaintiff to the defendant on 02.02.07 is liable to be interfered with and I do so. I hold that limitation begins to run from the date of delivery of each consignment. 12. Going by the schedule to the plaint, the goods were delivered in 36 consignments. Except for consignments 34 to 36 which is on 08.03.06, all the other 33 consignments are more than three years prior to the date of institution of the suit viz. 06.03.09 and therefore the claim in respect thereof are barred by limitation. 13. Coming to the claims for consignments 34 to 36, as per the plaint schedule, they were delivered as per bill dated 08.03.06. The learned Senior RFA No.316 of 2011 :- 10 :- Counsel pointed out that the bills or invoices have not been produced. In Ext.A4 letter issued by the plaintiff to the defendants it has been stated that the plaintiff stopped its business in February, 2006. The factum of stoppage of business has been reiterated by the plaintiff in Ext.A8 communication dated 13.12.07 issued to the defendant. The same stand is affirmed by PW1 in cross-examination. To substantiate that goods were delivered even after February, 2006 the bills or invoices or any other documents are not produced. The mere statement of PW1 that the schedule given in the plaint cannot be determinative of the dates of delivery, especially in view of Exts.A4 and A8 letters. Therefore, it can only be concluded that the supply of goods by the defendants to the plaintiff were prior to February, 2006 and the suit filed beyond three years therefrom is barred by limitation. 14. Even assuming that the consignments referred to as Serial Nos.34 to 36 dated 08.03.06 were in fact delivered on that date and the cause of action in respect of the said consignments has RFA No.316 of 2011 :- 11 :- arisen only on the said date, the Advocate Commissioner deputed in the suit has noticed that some of the materials are of good quality while some are defective. The articles have not been identified with reference to the respective consignments and the corresponding bills or invoices. In the absence of such identification, it cannot be held whether the materials supplied under consignments 34 to 36 are defective or not. Therefore, at any rate, the plaintiff is not entitled to claim any amounts from the defendants towards the value of the goods. 15. Coming to the contention regarding defective quality of the materials, Ext.A4 letter by the plaintiff to the defendants is of significance. Therein, it is stated that, at the time of closing down of the plaintiff's business, he had stock worth `10 lakhs out of which stock for `3.5 lakhs were damaged and that it had already been taken by the defendants. It is stated therein that the remaining stock is lying with the RFA No.316 of 2011 :- 12 :- plaintiff. In Ext.A4, there was no case that the entire stock with the plaintiff was damaged or that the remaining stock is defective. True that the Advocate Commissioner has reported that certain materials are defective. However, it is to be noticed that Ext.C1 Commissioner's Report is dated 22.04.2010, whereas the supply of goods was during the period 2005-06. It is crucial and pertinent to note that, though the plaintiff claims that the goods were defective and were returned by the dealers, not even a single letter/communication in the said regard is produced before the Court. If there was any such complaint by any dealer, definitely it would have been produced by the plaintiff. The non-production should entail in drawing an adverse inference against the plaintiff. To conclude, it can only be held that there is no material to find that the writing materials supplied by the defendants were defective and were not of merchantable quality. 16. On the above discussions and findings, the judgment and decree of the trial court cannot be RFA No.316 of 2011 :- 13 :- sustained and are liable to be interfered with. In the result, this appeal is allowed. The decree and judgment of the trial court are set aside and the suit will stand dismissed. No costs. **Sd/SATHISH NINAN JUDGE** kns/- //True Copy// P.S. to Judge