Holding

The Supreme Court dismissed the appeals, finding no reason to interfere with the Division Bench’s order permitting the respondent to encash the cheques upon furnishing a bank guarantee and directing the sale of the goods by a receiver.

Summary

Jai Balaji Industries Ltd. entered into a purchase agreement with a foreign seller for manganese ore and a subsequent High Seas Sale Agreement with PEC Ltd., a government company, which was to act as seller. After the cargo arrived, Jai Balaji tested a small portion, found it sub‑standard and rejected the entire consignment, also refusing to honour cheques given as security. The company filed a suit seeking return of advance payments and an injunction restraining PEC from encashing the cheques. The Calcutta High Court’s Division Bench allowed PEC to encash the cheques upon furnishing a bank guarantee of equal amount and directed that the goods be sold by a court‑appointed receiver with proceeds to Jai Balaji. The Supreme Court examined whether it should interfere with that interim order, noting that the main suit was still pending and the responsibility for quality and quantity rested on Jai Balaji under the contract. It held that there was no ground to disturb the Division Bench’s order and dismissed the appeals, leaving the interim reliefs intact.

Issues considered

The appropriateness of interfering with the Division Bench’s interim order allowing the respondent to encash cheques upon furnishing a bank guarantee.
Whether the Bill of Lading was endorsed in favour of the appellant and the consequent title to the goods.
Allocation of responsibility for quality and quantity of the cargo under the High Seas Sale Agreement.
The validity of the injunction restraining the respondent from encashing the security cheques.

Legislation cited

Code of Civil Procedure, 1908s. Order 40

Subjects

Import contractHigh Seas Sale AgreementBill of LadingQuality disputeInterim injunctionBank guaranteeReceiverSale of goodsCivil appeal

Judgment

[2009] 15 (ADDL.) S.C.R. 460

A JAi BALAJI INDUSTRIES LTD.
v. ·~ ,._ 4

PEC LTD. & ORS.
(Civil Appeal No. 7155-56 of 2009)
OCTOBER 27, 2009
B
[ALTAMAS KABIR AND CYRIAC .JOSEPH, JJ.]

Interim Order:

c Import - Indian company entering into a purchase
- ....
agreement with a foreign company - In terms of agreement
quality and quantity of goods were to be inspected by buyer
at Port of loading - Thereafter buyer entering into High Seas
Sale Agreement with Government Company, which was
described as "seller" - A deed of pledge executed pledging
D ....
entire consignment to seller - Buyer stated to have purchased
a part of the con.signment and since it did not meet the tests
relating to quality of goods, buyer rejected the entire
consignment and refused to take delivery thereof from "seller"
- Suit filed by buyer against seller claiming inter alia return
E of advance amount - Plaintiff also prayed for interim
injunction restraining the seller from encashing the security
- Single Judge of High Court granting interim order in favour
of buyer, but the Division Bench on appeal, granting liberty ~

to seller to encash the cheques on furnishing bank guarantee
F - HELD: It has to be kept in mind that the suit is still pending
before High Court and rights and liabilities of parties are yet
to be worked out in the suit - Whether the Bill of Lading has
been endorsed in favour of plaintiff by defendant is also a
matter to be decided in the suit - On a prima facie
'. G assessment of terms and conditions of the agreement
between the parties, the responsibility relating to quantity and
quality of the cargo was to be that of the plaintiff - Nothing
has come to notice of the Court whereby defendant was
'
H'' 460
JAi BALAJI INDUSTRIES LTD. v. PEC LTD. & ORS. 461

prevented from encashing the cheques stated to have be~n A i.
given by way of security - Order of Division Bench protects
the plaintiff as the defendant would furnish bank guarantee of
the like amount - Furthermore, goods in question are to be
sold by receiver appointed by Court and sale proceeds have
been directed to be handed over to plaintiff - It has also to B
be kept in mind that defendant has already paid for the goods
to the foreign company - Therefore, there is nor reason to
interfere with the order passed by the Appeal Court of the High
Court - Export-Import - High Seas Sale Agreement.

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. C
7155-7156 of 2009.

From the Judgment & Order dated 1.9.2009 of the High
Court at Calcutta in APOT No. 235 of 2009 in GA No. 1682 of
2009 and APOT No. 249 of 2009 in GA No. 1764 of 2009. D

Abhrant Mitra, Rajshree Kajaria, Gaurav Kejriwal for the
Appellant.

Sanjeev Narula Subramonium Prasad for the
Respondents. E

The following Order of the Court was delivered

ORDER

1. Permission is granted to file the special leave petitions. F

2. Leave granted.

3. We have heard learned counsel for the parties at the
very initial stage for issuance of notice since the Respondent G
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
H
462 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
.
A 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
B
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
c 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
D 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
E Hindi in "Sanmarg", either by way of public auction
or by private party subject to confirmation by the
Court. The cost charges and expenses of sale will ..
I

be borne by the appellants at the first instance. I-
Further, ad hoc remuneration of 500 GMs should )II
...
F 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
.,,
I

G 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.
H
JAi BALAJI INDUSTRIES LTD. v. PEC LTD. & ORS. 463

Plaint to be served forthwith, if not already served, A
• • 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 B
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 C
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 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, D
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 E
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
"I
favour of the appellant. A Deed of Pledge was also executed
whereby the entire consignment was pledged to the F
Respondent No.1-Company.

6. The vessel carrying the consignment of Manganese Ore
arrived at Paradeep Port and the goods were discharged on
or about 8th October, 2008, and, thereafter, transferred to a G
warehouse. It appears that the goods were dispatched to the
1
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
H
464 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.

A 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
8
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.

C 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/-
D 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
E 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
F 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;
G
(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,
H Calcutta Main Branch;
JAi BALAJI INDUSTRIES LTD. v. PEG LTD. & ORS. 465

(c) Direction upon the respondent no.1 to cancel and A
-. j
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 B
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;
c
(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 D
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 E
Side;

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

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

(h) Such further orders be made and/or directions be
given as this Hon'ble Court may deem fit and
proper."
G
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
H
466 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
';

A 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.
B
10. After hearing the parties at length on 12th June, 2009,
the learned Single Judge rejected the prayer made on behalf
f
of the respondent-Company to vacate the interim order, and,
instead, passed the following order: .• ""
c "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
D 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.
E ,•
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
F 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
G 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 herefnabove, whereby
the order of the learned Single Judge was set aside and .
..
\-
~

replaced by the said order.

-
H
JAi BALAJI INDUSTRIES LTD. v. PEC LTD. & ORS. 467

-j )
12. As mentioned hereinbefore, these appeals are directed A
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 B
was to endorse the Bill of Lading in favour of the appellant, but

.. 'I
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
c
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 consignment, the Respondent No.1 was not
entitled to encash the cheques, which had been made over to D
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- · E
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
F
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 G
;, goods continued to be in the control and possession of the
Respondent No.1 till 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
H
[/

;;;;(
468 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.

A appellant in its own godown and that the Bill of Lading had also
( 1'"
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
B
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
c 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 the order of the
High Court impugned in these appeals.

D 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
E 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 StJb-
standard quality and had deteriorated further since it was
discharged at Paradeep Port. As has been pointed out by the
..
F 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 presentation on the
dates indicatep. Furthermore, a further undertaking was given
G
not to intimate the bankers to stop the payment of-the cheques
delivered to the Respondent No.1 and also not to close the . I ,
account without the permission of the Respondent No.1.

19. On a prima facie assessment of the terms and
H
JAi BALAJI INDUSTRIES LTD. v. PEC LTD. & ORS. 469

conditions of the Agreement entered into between the appellant A
'""' > 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 8
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.

20. In our view, it would not be proper for us to delve into
c
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
D
• 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 E
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 F
High Court in APOT No.235 of 2009 and APOT No.249 of
2009. The appeals are, 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
G
in the suit uninfluenced by any of the said observations.

22. There will be no order as to costs.

RP. Appeals dismissed.