Shellz India Private Limited v. Starco Metaplast Pvt Ltd

1. The present appeal has been filed by the Appellant challenging the Judgment dated 09.11.2023 passed by the Ld. District Judge (Commercial Court-04), Shahdara, Karkardooma Courts, Delhi in CS (Comm) No.178/23 rejecting the application filed by the Appellant herein under Order XXXVII Rule 3 (4) of CPC seeking unconditional leave to defend and also an application filed by the Appellant herein under Section 10 of CPC for stay of the suit.

2. Shorn of unnecessary details, the facts leading to the filing of the present appeal are that the Respondent No.1 herein had filed a suit, being CS (Comm) 178/2023, under Order XXXVII of CPC stating that the Appellant herein had placed orders with the Respondents for supply of various types of Poly Vinyl Chloride (PVC) films to which the Respondents have agreed as per dates, rates and terms and conditions agreed between the Plaintiff and the Respondents. Goods were supplied by the Respondents to the Appellant on a credit basis from time to time. The plaint discloses that the Respondents herein are running credit accounts in the Respondents’ accounts book. Paragraph No.5 of the plaint indicates a tabulated chart of the invoices raised by the Respondents showing the date of bills, invoice numbers, invoice amounts, date of payments received and the amounts received by the Respondents herein which reads as under:

Balance Due as on 30/06/2022: 4,54,27,325.00 (Net Amount) - 3,28,97,192.00 (Payment Received Amount) = Rs.1,25,30,133/-.”

3. It is stated that cheques given by the Appellant were not honoured and payment of a few of the cheques were stopped by the drawer. It is stated that Appellant has acknowledged the amount of Rs.1,25,30,133/- that is due and payable.

4. It is stated that an application for leave to defend was filed by the Appellant. In the leave to defend application, it has been stated that the Appellant was launching a confectionery item namely “Hugs Choco Spread” for which a specific quality of brown PVC Film with specifications 320 mm and 250 micron was required. The Respondents agreed to supply the same as per the specifications of the Appellant. It is stated that certain goods supplied by the Respondents were delivered on 05.12.2021. It is stated that when the Appellant commenced internal sampling/testing of its new product “Hugs Choco Spread”, it was found that the use of brown PVC Films in the packaging was causing a foul burnt smell, affecting the quality of the packaged products. The Appellant tested the quality of the brown PVC Films in a laboratory to ascertain the cause of foul burnt smell and the lab report indicated that there were quality issues. The Appellant vide an email dated 14.12.2021, apprised the Respondents about the quality issues and the Appellant also recommended the Respondents to reduce the temperature of their machine. It is stated that, thereafter, the Appellant started receiving market complaints from its various clients/buyers about a foul burnt smell emanating from the product. The Appellant, thereafter, filed a suit bearing No. CS (Comm.) No. 325/2022 to honour market claims and to get the assured credit note from the Respondents which was returned. The Appellant, thereafter, filed a suit bearing CS (Comm.) No. 69/2023 for recovery of Rs.61,24,747/- as damages etc. which is pending before the Ld. District Judge, North District, Rohini Courts, Delhi.

5. The Respondent No.1 also filed a suit being CS (Comm) 178/2023 seeking recovery of Rs.1,44,13,653/- along with interest in which the Impugned Order has been passed.

6. The Ld. Trial Court by the Impugned Judgment dated 09.11.2023 passed in CS (Comm) 178/2023 has held that the Appellant has used all the brown PVC Films supplied by the Respondents and none of the PVC Films supplied by the Respondents have been returned. Reliance has been placed by the Ld. Trial Court upon Section 42 of the Sale of Goods Act stating that since goods have been delivered, retained and sold, the buyer is deemed to have accepted the goods. The Ld. Trial Court, therefore, held that clause (4) of the terms and conditions stipulates that any rejection is acceptable within 15 days from the date of invoice and since the Appellant has failed to act in accordance with the terms and conditions, the Appellant is duty bound to pay the money for goods to the Respondents. The Ld. Trial Court also held that the suit filed by the Appellant for recovery of Rs.61,24,747/- as damages against the Respondents would be of no consequence since no document has been filed to demonstrate that there were claims against the Respondents. The Ld. Trial Court further held that the defence raised by the Appellant is absolutely frivolous and fictitious. For arriving at this conclusion, the Ld. Trial Court has placed reliance upon a Judgment passed by the Apex Court in Sudin Dilip Talaulikar vs. Polycap Wires Pvt. Ltd., (2019) 7 SCC 577. Resultantly, vide the Impugned judgment dated 09.11.2023, the Ld. Trial Court has decreed the suit against the Appellant and the Respondents have been held to be entitled for a recovery of Rs.1,25,30,133/- along with interest @ 9% per annum w.e.f. from the date of filing of the suit till the date of realization of the amount.

7. It is this Judgment dated 09.11.2023 which is under challenge in the present appeal.

8. Notice was issued in the appeal on 20.12.2023 and on that day, a Stay Order was passed in favour of the Appellant. On 04.03.2024, the said Stay Order was vacated by a Co-ordinate Bench of this Court, subject to the Appellant depositing the entire decretal amount with the Registry of this Court within a period of four weeks. On 28.03.2024, an application being CM APPL. 18911/2024 was filed by the Appellant to furnish a bank guarantee for an amount of Rs.1,36,57,845/- in lieu of depositing the entire decretal amount with the Registry of this Court. The said application was allowed by a Co-ordinate Bench of this Court vide Order dated 28.03.2024. Various applications have been filed for modification of the said Order and also for invocation of bank guarantee and, therefore, this Court, with the consent of both sides, has taken up the entire appeal itself for hearing.

9. Learned Counsel appearing for the Appellant submits that the thumb rule while considering an application for leave to defend is that the leave to defend should not ordinarily be granted unless it is shown that there is no defence at all and that no triable issue arises for consideration. He draws attention of this Court to the fact that a suit for recovery on the ground that spurious goods have been supplied by the Respondents has already been filed by the Appellant. He draws attention of this Court to a laboratory report/packaging material test report dated 13.12.2021 to state that the quality of the PVC films supplied by the Respondents was defective.

10. Learned Counsel for the Appellant also draws attention of this Court to the aforesaid table filed by the Respondents and more particularly the invoice dated 05.12.2021 bearing Invoice No. GST/1222 for a sum of Rs.7,46,934/-. He draws attention of this Court to an email dated 31.05.2022 sent by the Respondent No.1 to show that the material supplied on 05.12.2021 vide Invoice No. GST/1222 was found to be defective and an email to this effect was also sent to the Respondents. He states that the issue as to whether the goods supplied were defective or not, a defence which has been taken by the Appellant in the affidavit along with application for leave to defend does show that there is a triable issue regarding the quality of material. He states that the issue as to whether all the goods were defective etc. would be a subject matter of trial.

11. Per contra, learned Counsel appearing for the Respondents supports the Impugned Judgment stating that it is a well reasoned judgment. He states that the goods were supplied, received, used and not returned and, therefore, the Respondents are entitled to the amount regarding goods that have been supplied to the Appellant and, therefore, the defence raised by the Appellant regarding defective goods cannot be accepted. He places reliance upon Section 42 of the Sale of Goods Act in support of his contention.

12. The principles to be kept in mind for grant of leave to defend have been laid down by the Apex Court in B.L. Kashyap & Sons Ltd. v. JMS Steels & Power Corpn., (2022) 3 SCC 294 which reads as under: “33. It is at once clear that even though in IDBI Trusteeship [IDBI Trusteeship Services Ltd. v. Hubtown Ltd., (2017) 1 SCC 568: (2017) 1 SCC (Civ) 386], this Court has observed that the principles stated in para 8 of Mechelec Engineers case [Mechelec Engineers & Manufacturers v. Basic Equipment Corpn., (1976) 4 SCC 687] shall stand superseded in the wake of amendment of Rule 3 of Order 37 but, on the core theme, the principles remain the same that grant of leave to defend (with or without conditions) is the ordinary rule; and denial of leave to defend is an exception. Putting it in other words, generally, the prayer for leave to defend is to be denied in such cases where the defendant has practically no defence and is unable to give out even a semblance of triable issues before the court.

33.1. As noticed, if the defendant satisfies the Court that he has substantial defence i.e. a defence which is likely to succeed, he is entitled to unconditional leave to defend. In the second eventuality, where the defendant raises triable issues indicating a fair or bona fide or reasonable defence, albeit not a positively good defence, he would be ordinarily entitled to unconditional leave to defend. In the third eventuality, where the defendant raises triable issues, but it remains doubtful if the defendant is raising the same in good faith or about genuineness of the issues, the trial court is expected to balance the requirements of expeditious disposal of commercial causes on one hand and of not shutting out triable issues by unduly severe orders on the other. Therefore, the trial court may impose conditions both as to time or mode of trial as well as payment into the court or furnishing security. In the fourth eventuality, where the proposed defence appears to be plausible but improbable, heightened conditions may be imposed as to the time or mode of trial as also of payment into the court or furnishing security or both, which may extend to the entire principal sum together with just and requisite interest.