THE NEW INDIA ASSURANCE CO LTD v. COFFEE BOARD

CORAM: HON'BLE MR JUSTICE V SRISHANANDA ORAL JUDGMENT Heard Sri C.R. Ravishankar, learned counsel for the appellants, Sri Aravind V. Chavan, learned counsel for the respondent No.1 and Sri P.M. Nayak, learned counsel for the respondent No.2.

Defendant Nos.2 and 3 are the appellants, challenging the validity of the judgment and decree dated

26.04.2017, passed in O.S.No.6151/1998, on the file of XXXI Additional City Civil and Sessions Judge, Bengaluru City insofar as the liability of the defendant Nos.2 and 3 is concerned in the impugned judgment and decree to the extent of Rs.19,08,000/.

Facts in brief which are utmost necessary for disposal of the appeal are as under: Plaintiff laid claim a claim in a sum of Rs.36,05,503.88 from the first defendant with future interest at 17.25% from the date of suit till realization with a direction to the defendant - 3 - NC: 2024:KHC:34645 RFA No. 1427 of 2017 Nos.2 and 3 to pay sum of Rs.19,08,000/-, out of sum of Rs.36,05,503.88 claimed by the plaintiff from the defendant.

Further averments in the plaint reveal that plaintiff is a statutory body constituted under the Coffee Act, 1942 and plaintiff is engaged in the activities of collecting/pooling, processing, storing, selling and marketing the coffee.

It is further contended that the first defendant was appointed as an agent by the plaintiff to carry out certain activities like receiving the coffee from the growers for processing, curing, storing it as per the specifications prescribed by the plaintiff.

Plaintiff has further contended that on 31.12.1990 an agreement between themselves and the first defendant was entered into incorporating the terms and conditions which is termed as pool agency agreement.

Plaintiff also contended that as per the conditions of the said agreement, the agent has to furnish fidelity guarantee and the first defendant having agreed, furnished the fidelity guarantee in a sum of Rs.19,08,000/- and in this regard, deed - 4 - NC: 2024:KHC:34645 RFA No. 1427 of 2017 of guarantee was executed by second defendant in favour of the plaintiff on 20.02.1991.

Plaintiff further contended that as per the terms and conditions of the agreement, coffee growers started supplying the coffee seeds to the first defendant as per the instructions and the entire stock of coffee which was supplied is owned by them.

It is also the contention of the plaintiff that to check the stock of coffee supplied by the growers was available in the premises of the first defendant, conducted an inspection between 04.11.1991 to 11.11.1991. Another inspection was also conducted from 31.12.1991 till 08.01.1992.

During such inspections, the inspecting team has noted short storage of coffee to the extent of 172.104 tonnes. The value of the deficit stock was estimated at the rate of Rs.38,27,626.66 at Rs.13.44 per point. It is also contended that Central Excise Duty at the rate of Rs.50/- per 100 kg was worked at sum of Rs.86,052.00, purchase tax at 12.4% to the tune of Rs.4,74,625.71 and pool expenses at Rs.1.80 per kg was worked at sum of Rs.3,09,787.20 and thus plaintiff - 5 - NC: 2024:KHC:34645 RFA No. 1427 of 2017 contended that total value of the deficit stock to the tune of Rs.46,98,091.57 paisa.

It is further contended that a show cause notice was issued for the aforesaid deficit stock to the first defendant. First defendant by letter dated 17.01.1992 remitted a sum of Rs.9.44 lakhs towards the part payment of the deficit stock and requested that remaining amount would be paid on monthly instalment payment basis.

It is further contention of the plaintiff that first defendant requested to waive the penalty of 25% and in that regard, marketing committee was authorized by the plaintiff to decide on the letter issued by the first defendant. The matter was discussed at the meeting held on 02.03.1992 and some amount was given deduction and balance amount was not paid by the first defendant and also the second defendant and therefore, suit came to be filed.

In pursuance to the suit summons, first defendant filed a detailed written statement contending that the claim made by the plaintiff is baseless and sought for dismissal of the suit. - 6 - NC: 2024:KHC:34645 RFA No. 1427 of 2017

Second defendant contended that the nature of guarantee executed by the second defendant is in the nature of fidelity guarantee and therefore, terms of the policy of fidelity guarantee is to be strictly adhered. It is also contended that unless there is a specific binding that there is deficit stock, the fidelity guarantee could not been invoked.

Second defendant further contended that plaintiff by its letter dated 21.12.1994 requested them to pay its liability under the policy in a sum of Rs.19,08,000/- and the second defendant has replied the same contending that deducting the claims of interest amounting to Rs.12,45,678.55, they have offered and agreed to pay Rs.9,97,071.58 in full settlement of the claim.

Based on the rival contentions, learned Trial Judge raised the following issues: 1) Do plaintiff prove that during inspection held from

4.11.91 to 11.11.91 & 31.12.91 to 8.1.92 a shortage of coffee to the extent of 172.104 tones was found in the godown of the 1st defendant as detailed in para 6 of the plaint ? 2) Did the 1st defendant caused loss to the plaintiff to the tune of Rs.46,98,091.57 as alleged in the plaint ? - 7 - NC: 2024:KHC:34645 RFA No. 1427 of 2017 3) 4) 5) 6) 7) Is the 1st defendant liable to pay penalty of Rs.9,56,906.66 to the plaintiff ? Is the 1st defendant liable to pay interest? Are defendants 2 & 3 liable to pay Rs.19,08,000/- to the plaintiff as per the terms of performance guarantee policy issued by the 2nd defendant in favour of plaintiff ? Has this court has no jurisdiction to try the suit as alleged in para 2 of the written statement of 2nd defendant? Is the liability of D2 & 3 confined to actual loss caused to the plaintiff, but not to the interest as claimed by 2nd defendant ? 8) What decree or order ? ADDL. ISSUES 1) Whether the defendant No.1 proves that plaintiff has conducted an inspection in their godown from 28.11.91 to 5.12.91 and during the said inspection a shortage of 730 Kgs coffee was found ? 2) Whether the suit is bad for non-joinder of the necessary parties ? 3) Whether the suit is barred by limitation?”

In order to prove the case of the plaintiff, legal assistant of the plaintiff board got examined himself as P.W.1 - 8 - NC: 2024:KHC:34645 RFA No. 1427 of 2017 and placed on record nine documents which were exhibited and marked as Exs.P.1 to P.9, comprising of pool agency agreement, letter dated 20.01.1992 by the Superintendent of Central Excise Unsure to the plaintiff board, letter of adjustment of dues dated 21.03.1995, statement of Board’s claim, letter dated 17.01.1992 by the Coffee Marketing Officer to the New India Assurance Company Limited, letter dated

13.01.1995 by the Chief Coffee marketing Officer to the New India Assurance Company Limited, Indeminity Bond dated

06.11.1992, show cause notice dated 23.12.1991 and deed of guarantee.

As against the evidence placed on record by the plaintiff, chairman of the first defendant company got examined as D.W.1 and Assistant Manager of the second defendant got examined as D.W.2 and they relied on three documents which were exhibited and marked as Exs.D.1 to D.3, which are photo copy of the inspection report, reply given by the first defendant and authorization letter.

On conclusion of recording of the evidence, learned Trial Judge heard the parties in detail and noted that shortage of stock has been established by inspection report and the - 9 - NC: 2024:KHC:34645 RFA No. 1427 of 2017 letter written by first defendant and held that there was a shortage in value estimated by the plaintiff is just and correct and also taken note of the terms of the fidelity agreement and decreed the suit of the plaintiff.

Operative portion of the judgment of the Trial Court reads as under:

The suit is decreed with cost. The plaintiff is entitled to recover a sum of Rs.36,05,503.88 from the 1st defendant with future interest @ 6% p.a. on Rs.36,05,503.88 from the date of suit till its realization with a direction to the defendant Nos.2 and 3 to pay a sum of Rs.19,08,000/- out of Rs.36,05,503.88 claimed from the 1st defendant. Draw the decree accordingly.

Second defendant has challenged the said order by contending that the payment made by the first defendant to the plaintiff is to be given deduction out of the total sum of Rs.19,08,000/-. Therefore, terms of the fidelity has remained as partly complied by the first defendant by paying the amount to the plaintiff. It is also argued that the second defendant was - 10 - NC: 2024:KHC:34645 RFA No. 1427 of 2017 always ready and willing to pay the remaining amount of Rs.9,00,000/-, but the plaintiff did not accept the same and therefore decreeing the suit fastening the liability to the extent of Rs.19,08,000/- on second defendant is incorrect and sought for allowing the appeal to that extent.

Per contra, counsel for the first defendant and the plaintiff support the impugned judgment. Insofar as the liability of the first defendant is concerned, the counsel for the first defendant submits that out of the decreetal amount, less Rs.19,08,000/- with interest at 6%, remaining amount has been paid by the first defendant with interest at 6% per annum and therefore, appeal needs to be dismissed.

Having heard the parties in detail, this Court perused the material on record meticulously.

On such perusal of the material on record, there is no dispute that the first defendant was appointed as a pooling agent under pool agency agreement marked at Ex.P.1.

Admittedly, during the inspection, there was a shortage of stock and the first defendant was unable to account for the stock as per the statement that was available in the - 11 - NC: 2024:KHC:34645 RFA No. 1427 of 2017 office of the first defendant vis-à-vis the stock that has been supplied by the growers.

The shortage of the stock was admitted by the first defendant. In fact the first defendant sought for concession of waive of penalty at the rate of 25% and also agreed to pay the amount in instalments. The matter was referred to the marketing committee. Marketing committee after due discussion, took decision and finally liability was arrived at in a sum of Rs.36,05,503.88 taking note of the payment already made by the first defendant. Thereafter, when the remaining amount was not paid, suit was filed by the plaintiff.

Even though, the first defendant has denied the plaint averments and other aspects of the matter in detail and second defendant having denied the liability to the extent of Rs.19,08,000/-, having regard to the payment made by the first defendant to the plaintiff, the fact remains that the defendant Nos.1 and 2 were required to clear the amount representing the shortage of the stock of coffee and other goods. - 12 - NC: 2024:KHC:34645 RFA No. 1427 of 2017

Further, part payment made by the first defendant has been taken note of by the marketing committee, when the first defendant has given a letter to waive the 15% penalty.

A detailed discussion has taken place before the marketing committee and hearing was conducted with regard to the letter written by the first defendant seeking for waive of penalty at the rate of 25% and thereafter the amount due from the first defendant was crystallized in a sum of Rs.36,05,503.88 paisa. It is that amount that was the subject matter of the suit and the payment made by the first defendant has been taken note of by the marketing committee itself.

Therefore, contentions urged on behalf of the appellant that the payment made by the first defendant should be given due deduction in the liability of the second defendant cannot be countenanced in law.

Hence, it is to be construed that the liability of the second defendant under the fidelity guarantee policy to the extent of Rs.19,08,000/- is fixed sum and if any amount due over and above Rs.19,08,000/-, the second defendant was not liable. - 13 - NC: 2024:KHC:34645 RFA No. 1427 of 2017

Further, the policy also contains a clause that the insurance company is not liable to pay the interest on the amount of liability fixed and freezed under the agreement in a sum of Rs.19,08,000/-.

Taking note of these aspects of the matter, learned Trial Judge was justified in decreeing the suit granting the interest at 6% p.a., payable by the first defendant.

However, if the second defendant had paid sum of Rs.19,08,000/- soon after the decree of the suit, there was no question of paying of any interest.

However, it is submitted that till today the plaintiff has not chosen to file a counter claim or cross objection insofar as the liability of the second defendant is concerned. If first defendant did not comply, the second defendant is liable to pay the interest at 6%.

Under such circumstances, this Court does not find any good grounds to interfere with the well reasoned order of the learned Trial Judge in the impugned judgment and decree.

Accordingly, the grounds urged in the appeal memorandum are hardly sufficient to admit the appeal for further consideration. - 14 - NC: 2024:KHC:34645 RFA No. 1427 of 2017 Hence, the following: (i) (ii) (iii) ORDER Admission is declined. Appeal is dismissed. Amount of Rs.6,97,072/- deposited before the City Civil Court is ordered to be withdrawn by the plaintiff/respondent No.1 under due identification. (iv) Balance sum is to be paid within four weeks from today. Sd/- (V SRISHANANDA) JUDGE MR List No.: 1 Sl No.: 35