# RAJRATAN BABULAL AGARWAL v. SOLARTEX INDIA PVT. LTD.& ORS

- **Citation:** [2022] 7 S.C.R. 755
- **Court:** Supreme Court of India
- **Decided:** 2022-10-13
- **Case number:** Civil Appeal No. 2199 of 2021
- **Bench:** K. M. Joseph, Rishikesh Roy
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/rajratan-babulal-agarwal-v-solartex-india-pvt-ltd-ors-36341
- **Pages:** 37

## Headnote

Insolvency and Bankruptcy Code, 2016 - s.9 - Application
under - Corporate Insolvency Resolution process - 'Pre-existing
dispute' - Application filed by first respondent u/s.9 of IBC against
the second respondent - Case premised on there being a sale, and
a 'debt' owed by the second respondent under the sale - The third
respondent was the Interim Resolution Professional - Appellant is
an ex-director of the second respondent - NCLT rejected the version
of the appellant that there existed a pre-existing dispute and admitted
application filed by first respondent u/s.9 of IBC against the second
respondent - Order affirmed by NCLAT - Whether the appellant
raised a dispute which can be described as 'a pre-existing dispute'
as understood by Supreme Court in the decision in Mobilox
Innovations Private Limited v. Kirusa Software Private Limited case -
Held: In Mobilox case, the Supreme Court took the view that one of
the objects of the IBC in regard to operational debts is to ensure
that the amount of such debts which is usually smaller than the
financial debts does not enable the operational creditor to put the
corporate debtor into the insolvency resolution process prematurely
- It was further declared that it is for this reason that it is enough
that a dispute exists between the parties - The standard with reference
to which a case of a pre-existing dispute under the IBC must be
employed cannot be equated with even the principle of
preponderance of probability which guides a civil court at the stage
of finally decreeing a suit - Once this subtle distinction is not
overlooked, on facts, the NCLAT clearly erred in finding that there
was no dispute within the meaning of the IBC - The approach of
the NCLAT cannot be sustained - Application filed by the first
respondent against the second respondent under s.9 accordingly
rejected - Sale of Goods Act, 1930 - Doctrines/Principles - Principle
of preponderance of probability.
[2022] 7 S.C.R. 755
755
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SUPREME COURT REPORTS
[2022] 7 S.C.R.
Mobilox Innovations Private Limited v. Kirusa Software
Private Limited (2018) 1 SCC 353 : [2017] 10 SCR
1006 - relied on.
Balwant Singh and Others v. Anand Kumar Sharma and
Others (2003) 3 SCC 433 : [2003] 1 SCR 653;
Ahmadsahab Abdul Mulla (2) (dead) v. Bibijan and
Others (2009) 5 SCC 462 : [2009] 5 SCR 476 and
Mangilal Karwa v. Shantibai AIR 1956 Nag 221 -
referred to.
Case Law Reference
[2017] 10 SCR 1006
relied on
Para 2
[2003] 1 SCR 653
referred to
Para 21
[2009] 5 SCR 476
referred to
Para 57

## Text

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RAJRATAN BABULAL AGARWAL
v.
SOLARTEX INDIA PVT. LTD.& ORS.
(Civil Appeal No. 2199 of 2021)
OCTOBER 13, 2022
[K. M. JOSEPH AND RISHIKESH ROY, JJ.]
Insolvency and Bankruptcy Code, 2016 - s.9 - Application
under - Corporate Insolvency Resolution process - 'Pre-existing
dispute' - Application filed by first respondent u/s.9 of IBC against
the second respondent - Case premised on there being a sale, and
a 'debt' owed by the second respondent under the sale - The third
respondent was the Interim Resolution Professional - Appellant is
an ex-director of the second respondent - NCLT rejected the version
of the appellant that there existed a pre-existing dispute and admitted
application filed by first respondent u/s.9 of IBC against the second
respondent - Order affirmed by NCLAT - Whether the appellant
raised a dispute which can be described as 'a pre-existing dispute'
as understood by Supreme Court in the decision in Mobilox
Innovations Private Limited v. Kirusa Software Private Limited case -
Held: In Mobilox case, the Supreme Court took the view that one of
the objects of the IBC in regard to operational debts is to ensure
that the amount of such debts which is usually smaller than the
financial debts does not enable the operational creditor to put the
corporate debtor into the insolvency resolution process prematurely
- It was further declared that it is for this reason that it is enough
that a dispute exists between the parties - The standard with reference
to which a case of a pre-existing dispute under the IBC must be
employed cannot be equated with even the principle of
preponderance of probability which guides a civil court at the stage
of finally decreeing a suit - Once this subtle distinction is not
overlooked, on facts, the NCLAT clearly erred in finding that there
was no dispute within the meaning of the IBC - The approach of
the NCLAT cannot be sustained - Application filed by the first
respondent against the second respondent under s.9 accordingly
rejected - Sale of Goods Act, 1930 - Doctrines/Principles - Principle
of preponderance of probability.
[2022] 7 S.C.R. 755
755
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SUPREME COURT REPORTS
[2022] 7 S.C.R.
Mobilox Innovations Private Limited v. Kirusa Software
Private Limited (2018) 1 SCC 353 : [2017] 10 SCR
1006 - relied on.
Balwant Singh and Others v. Anand Kumar Sharma and
Others (2003) 3 SCC 433 : [2003] 1 SCR 653;
Ahmadsahab Abdul Mulla (2) (dead) v. Bibijan and
Others (2009) 5 SCC 462 : [2009] 5 SCR 476 and
Mangilal Karwa v. Shantibai AIR 1956 Nag 221 -
referred to.
Case Law Reference
[2017] 10 SCR 1006
relied on
Para 2
[2003] 1 SCR 653
referred to
Para 21
[2009] 5 SCR 476
referred to
Para 57
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2199
of 2021.
From the Judgment and Order dated 27.05.2021 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
(Insolvency) No. 546 of 2020.
Kavin Gulati, Sr. Adv., Anish Agarwal, Tejas Agarwal, Avi Tandon,
Ms. Vanshika Gupta, Ms. Meghna Tandon, Mayur K., Advs. for the
Appellant.
Manoj Harit, Vikram Hegde, Shantanu Lakhotia, Ms. Deepanwita
Priyanka, Advs. for the Respondents.
The Judgment of the Court was delivered by
K. M. JOSEPH, J.
1. By the impugned order, the National Company Law Appellate
Tribunal (hereinafter referred to as 'NCLAT' for brevity) has dismissed
the appeal filed by the appellant challenging the order passed by the
National Company Law Tribunal (hereinafter referred to as 'NCLT' for
brevity) dated 28.05.2020. By the said order, the NCLT admitted an
application filed by the first respondent under Section 9 of the Insolvency
and Bankruptcy Code, 2016 (hereinafter referred to as 'IBC') against
the second respondent. The third respondent was appointed as the Interim
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Resolution Professional and a moratorium followed. The appellant is an
ex-director of the second respondent.
2. The question which falls for decision is whether the appellant
has raised a dispute which can be described as 'a pre-existing dispute'
as understood by this Court in the decision in Mobilox Innovations
Private Limited v. Kirusa Software Private Limited1. NCLT has
rejected the version of the appellant that there exists a pre-existing dispute
which stands affirmed by the NCLAT.
3. The facts necessary for resolution of the lis can be stated as
follows:
On 24.09.2016, there were two High Seas Sale Agreements. One
was between respondent No. 2 and one Rawalwasia Textile Industries
Private Limited. The other High Seas Sale agreement was between the
same seller and one company, the name of which is shortened as STDPL.
4. STDPL, according to the appellant, is a sister concern of the
second respondent. This arrangement, which was essentially made on
the representation of one Mr. Sameer Agrawal, was not honoured.
Mr. Sameer Agrawal offered to supply 500 Metric Tonnes of coal each
to the second respondent and its sister concern through the first
respondent. The purchase order in respect of STDPL was dated
11.10.2016. The purchase order in respect of second respondent is dated
27.10.2016. The purchase order contemplated Gross Calorific Value of
5400. The total moisture content was put as less than 40% +/- 2%. Out
of 500 Metric Tonnes, the second respondent was supplied 412 Metric
Tonnes. The supply began from 28.10.2016 and ended on 02.11.2016.
According to the appellant, the coal was to be used in boilers which
manufactures starch and allied products. The coal is placed over the
boilers in silos which are nearly 15 feet in height and hold upwards of
200 metric tonnes of coal at once. The appellant lays stress on certain
lab reports of tests, which were actually conducted allegedly at its own
labs indicating that the quality of coal did not conform to what was
promised and what was more, allegedly it led to the malfunctioning of
the boiler. On 30.10.2016, an e-mail was sent to the first respondent. It
reads as follows:
RAJRATAN BABULAL AGARWAL v. SOLARTEX INDIA PVT.
LTD.& ORS. [K. M. JOSEPH, J.]
1 (2018) 1 SCC 353
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SUPREME COURT REPORTS
[2022] 7 S.C.R.
"Dear sir,
With reference to 5400 gcv imp coal supply to (stdpl) dhule and
(Hdpl) jammer, following issues are to be shared.
For dhule plant: high moisture and powder percentage is to be
found, already discussed to you.
For jammer plant: recently supply include high level of powder
percentage and moisture too.
Kindly consider the issues and please make us assure about quality
of coal should not be down the level. Pics attached for your
reference."
Hdpl referred to in the communication is the second respondent.
5. The next correspondence to notice is e-mail dated 03.11.2016.
It is addressed to the first respondent by the second respondent. It reads
as follows:
"M/s. Sortex India Pvt. Ltd.
105, Raghuvir Textile Mall,
Aai Mata Chowk, Dumbhal
Parvat Patiya,
SURAT . 395010
Kind Attn: Mr. Samirji
Sub: Inferior/poor quality of Indonesian Coal.
Dear Sir,
We have placed an order for 500 MT Indonesian Coal to you vide
our P.O. No. HDPL/2016-17/586 dated 27.10.2016 for 5400 GCV
and Moisture condition is 38-40%. But, on receiving the coal we
found that GCV less than 4000 and size of coal is 0mm 50% and
maximum size is 5mm to 6 mm only and moisture is 48-50%. It
seems if we receive such type of coal we are facing the cleaning
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problem of boiler and due to that nozzle bent and boiler become
damaged. This will occur heavy production losses. Hence, please
stop delivery of the material/coal and advise us what to do this
loss. If any more losses occurred due to poor/inferior quality of
coal, we may debit the same amount in your account, which may
please be noted.
Thanking you,
Yours faithfully,
For Honest Derivativeds Pvt. Ltd.
Ravi Jajodia
Vice President (Operation)"
6. The first respondent responded to the communication dated
03.11.2016 by its email dated 04.11.2016. It reads as follows:
"Dear Sir,
It is not possible that the coal is off 4000 gcv, secondly from port
it is possible that moisture can go upto 42 percent but not above
that also because at port they are putting water on the coal as per
GPCB guidelines of pollution.
So please take a note regarding this. We have immediately stopped
the delivery, but please inform your transporter.
Regards,
Samir Agarwal
Rawalwasia Group
104, Raghuvir Textile Mall,
Bh. DR world, 1 mata chock
Poona Khumbhariya Road, Surat-India-395010
M - +91-9824102989, +91-9374538264
O - +91-261-2705000"
7. Pursuant to the same, further supply was stopped. The first
respondent, on 03.02.2018 issued the requisite notice under the IBC and
raised a claim for Rs.1573279 + 30 per cent interest totaling to
Rs. 21,57,700.38. The second respondent furnished a reply on 17.02.2018.
RAJRATAN BABULAL AGARWAL v. SOLARTEX INDIA PVT.
LTD.& ORS. [K. M. JOSEPH, J.]
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SUPREME COURT REPORTS
[2022] 7 S.C.R.
Under the reply, it demanded a total amount of Rs.4.44 crores consequent
on the coal not being of the quality promised. Respondent No. 2 also has
filed two civil suits, one against Rawalwasia Textile Industries Private
Limited and the other, against the first respondent claiming damages. It
is pointed out that court fee of Rs. 3 lakhs was deposited. After exchange
of the notices as mentioned in the IBC, an application under Section 9
was filed on 30.04.2018 by respondent No. 1 against respondent No. 2.
A reply was filed by respondent No. 2 pointing out that there was a preexisting dispute and seeking dismissal of the application under Section 9.
The judgment was reserved on 20.11.2019. The application came to be
admitted as already noted by the order passed on 28.05.2020. The
constitution of Committee was stayed by the NCLAT. With the filing of
the appeal against the order passed by the NCLAT an order of status
quo was passed.
8. We have heard Mr. Kavin Gulati, learned Senior Counsel
appearing on behalf of the appellant. We further heard Shri Manoj Harit,
learned Counsel appearing on behalf of respondent No. 1. We also have
heard Mr. Nakul Dewan, learned Senior Counsel appearing for the IRP.
9. Shri Kavin Gulati, learned Senior Counsel would draw our
attention to the following paragraph in the impugned order:
"19. With the above admission in the affidavit, it is apparent that
on 30.10.2016, STDPL, a sister concern of the Corporate Debtor
has sent an e-mail to Group Concern of the Operational Creditor
in regard to the Purchase Order dated 11.01.2016 whereas, the
present claim is in regard to the Purchase Order dated 27.10.2016.
It is also to be seen that there is no reference of this e-mail in the
reply to the statutory notice. In the said e-mail it is not mentioned
that it is in relation to the Purchase Order dated 27.10.2016. In
the subsequent e-mail dated 03.11.2016, there is no reference to
the earlier e-mail dated 30.10.2016. In such circumstances, we
are of the view that the e-mail dated 30.10.2016 is not related to
the transaction in question."
10. He would complain that NCLAT committed a clear mistake.
The error lies in proceeding on the basis that in the email dated 30.10.2016
sent by STDPL - sister concern of the corporate debtor, there is mention
only of purchase order dated 27.10.2016. It is pointed out with reference
to the email that the said email indeed contains reference to the supply
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of coal to HDPL-the second respondent-the corporate debtor in this
case. Still further he drew our attention to para 22. Para 22 reads as
follows:
"Upon a bare reading of e-mail dated 03.11.2016, it is clear that
the Corporate Debtor stated that the supplied coal is not as per
specification and due to that nozzle bent and boiler has become
damages which would led to heavy production losses. Hence, it
was requested that delivery of the coal be stopped. It is also
mentioned that if more losses occurred due to poor/inferior quality
of coal they may debit the same amount in the account of the
Operational Creditor. The Operation Creditor has sent a reply
through e-mail dated 04.11.2016 and immediately stopped the
delivery of coal. Thereafter, Corporate Debtor has neither issued
any debit note nor has returned the supplied coal but consumed
the same. It means that after receiving the e-mail dated 04.11.2016
the Corporate Debtor was satisfied and kept quiet for about 15
months. It is only when they received a statutory notice that they
filed a Civil Suit against the Operational Creditor."
11. It is on the basis of the said discussion that the NCLAT found
that there was no dispute in regard to the transaction in question and that
it was to avoid the liability that corporate debtor through its reply to the
notice tried to impress that there was a pre-existing dispute. He next
drew our attention to the purchase order.
12. He would point out therefrom that under the terms and
conditions with statutory details, Note 1 provided that a certificate of
analysis is required along with the material.
13. He drew our attention to Section 12 of the Sales of Goods
Act, 1930 (hereinafter referred to as 'Act'). He would contend that
under the said provision in a contract of sale of goods, a term may be a
condition or a warranty. He would proceed on the basis that this case
involves the appellant having elected to treat the condition relating to the
quality of the goods as a warranty. The goods in question are raw
materials. The goods were supplied in between 28.10.2016 to 03.11.2016.
14. He drew our attention to Section 41 of the Act and contended
that a buyer must have the right to examine the goods. He next drew our
attention to Section 42 of the Act.
RAJRATAN BABULAL AGARWAL v. SOLARTEX INDIA PVT.
LTD.& ORS. [K. M. JOSEPH, J.]
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SUPREME COURT REPORTS
[2022] 7 S.C.R.
15. Immediately upon discovery of the fact that the goods delivered
were not in conformity with the terms of the purchase order, the appellant
had registered its protest as it were on 30.10.2016. This was again taken
up on 03.11.2016 and the communication which is addressed by the first
respondent on 04.11.2016 also would fortify appellant's case that the
complaint of the appellant was not a spurious one. The first respondent
is found making an attempt at justifying the moisture content of coal not
being in terms of the purchase order. He would contend that Section 59
of the Act declares the remedies open to a buyer who has elected to
treat the breach of a condition as a warranty and the said provision
contemplates a suit for damages and what is more, even setting up the
extinction of the price.
16. He would point out that suits were filed within the period of
limitation even if it may be that the filing of the suits may strictly not be
a circumstance which is relevant in the scheme of the IBC. Nonetheless,
it goes a long way to establish the case of the appellant that there was
a dispute which was pre-existing and the institution of the suits following
which in fact, a huge amount of Rs. 3 lakhs was paid as court fees
would only point to the dispute not being a spurious adventure. He would
also point out with reference to what happened in the NCLT that contrary
to the mandate of Rule 150 of the NCLT Rules, 2016 which sets a time
limit of 30 days from final hearing to pronounce the order, that the said
rule being observed in its breach has resulted in patent mistakes creeping
into the order and non-advertence to the vital issues which were agitated
before the Tribunal.
17. Shri Manoj Harit, learned Counsel appearing on behalf of the
first respondent, on the other hand, would point out that the only materials
that existed prior to the date of the notice under the IBC even as per the
case of the appellant are the three emails. The emails are dated
30.10.2016, 03.11.2016 and 04.11.2016. He would contend that the
documents do not show that there is a dispute. Admittedly, there is no
suit or arbitration proceeding initiated as contemplated for the purpose
of Section 9 of the IBC. Here is a case where the second respondent
consumed the goods supplied even after the alleged deficiency continued
to exist. The alleged variations do not constitute a dispute. The conduct
of the second respondent would show that the claim of dispute is a
sham. It is contended that in the email dated 03.11.2016, it is stated that
in the event of any further damage, the same would be debited in the
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account of the first respondent. This circumstance is seized upon to
contend that no damage had occurred till 03.11.2016 which was
sufficiently serious to warrant a debit to the account of the first
respondent. Till 03.11.2016, the appellant continued to consume the coal.
In this regard, reference is placed on the words 'any more damage'. No
debit note was raised after 03.11.2016. This shows there was no further
damage.
18. Even after the email dated 03.11.2016, the appellant continued
to use the coal. The argument based on a period of 3 years being available
to file a suit close to Rs. 4 crores as against the amount of approximately
Rs.15 lakhs which is the subject matter of the application under Section
9 is sought to be brushed aside as indicative of the dispute not being a
genuine one. If the claim was genuine, it would have been reflected in
its book of accounts. The claim that the suit can be filed within the
period of limitation does not fit in with the scheme of Section 9 of the
IBC.
19. The purchase order contemplated payment within 7 days of
delivery. There is no denial of liability to pay before 12.11.2016 which is
the last day by which the account became payable. The analysis reports
relied on by the appellant are sought to be painted as concoctions. Rule
150 of the NCLT Rules, it is pointed out is only directory and not
mandatory.
20. Learned Counsel would contend that the emails relied upon
by the appellant must not be seen as anything more than an effort by the
buyer to wriggle out of its obligation to make payment for goods which
were received. He would further contend that the purchase order
contemplated production of the certificate of analysis. Therefore, when
the certificate of analysis was present, it is inconceivable how the appellant
without disputing the same could claim that the goods delivered fell short
of the standards agreed to between the parties. As regards the claim by
the appellant that the goods were consumed in large lots (the case of the
appellant is that the total quantity delivered was 412 metric tonnes out of
the total quantum agreed of 500 metric tonnes and that the manufacturing
process is such wherein at one go large quantity can be put into the
boiler) it is contended that it is not correct. He would further submit that
the boilers would contain specific material indicating the total amount of
raw materials which are put into it. In this regard, he would draw our
attention to the findings of this Court in Mobilox Innovations Private
RAJRATAN BABULAL AGARWAL v. SOLARTEX INDIA PVT.
LTD.& ORS. [K. M. JOSEPH, J.]
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SUPREME COURT REPORTS
[2022] 7 S.C.R.
Limited (supra) that a dispute which is raised must be supported with
evidence. He would contend that there is no evidence which can be
considered worthwhile so as to not treat the dispute as spurious.
21. The third respondent is the Interim Resolution Professional.
He is represented before us by Shri Nakul Dewan, learned Senior
Counsel. He would submit that he is making submissions on behalf of
the corporate debtor. After referring to the facts, he would contend that
the task cut out for the NCLT is not a mechanical one. While it is not
required to establish the existence of a credible dispute, it is duty bound
to ascertain whether there is a credible existence of a dispute. The
questions which would arise, according to him, are, whether the
consumption of the coal by the corporate debtor constituted acceptance
of the goods and obliged it to make payment. The argument is to be
based on a prima facie test. He would further pose the question as to
whether the emails dated 30.10.2016 and 03.11.2016 evidenced or any
other contemporaneous document evidenced deficiency in the quality of
coal supplied or the coal resulted in damage to the corporate debtor. He
also would draw our attention to Sections 41 and 42 of the Act. He
would point out that there is a purchase order which sets out a guarantee.
This constituted the reservation of the right to reject the material on the
ground. There is no evidence, it is pointed out, that the right to reject was
exercised when delivery was effected of 412 Metric Tonnes of the coal.
The corporate debtor has accepted and consumed the delivered coal.
As far as Rule 150 of the NCLT Rules is concerned, it is described as a
directory provision. The consequence of non-compliance is not set out.
The principle laid down by this Court in Balwant Singh and others v.
Anand Kumar Sharma and others2 is enlisted in support to contend
that the results urged by the appellant cannot follow. He would also
submit that the perusal of the accounts does not establish the case that a
loss ensued to the corporate debtor, in that, accounts do not show that
the coal in question was not used.
22. In response, Shri Kavin Gulati, learned Senior Counsel would
invite the Court to undertake a more exhaustive survey of the Act. He
drew our attention to Section 13 besides Section 63 and the substance of
his argument is as follows:
He would contend that the law provides that if the buyer treats
the contravention of a condition as a violation of a warranty, the rights
2 2003 (3) SCC 433
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declared in Section 59 come into play. The right includes a right to sue
not merely for damages but also to extinguish even the price of the
goods. He would submit that proceeding on the basis that the appellant
has accepted the goods, in view of Section 42 of the 1930 Act, it would
not be fatal to the appellant. He would contend that Section 13 (2) would
then apply in the facts. In other words, this is a case where, out of 500
Metric Tonnes, the Court can proceed on the basis that there was a
delivery of 412 Metric Tonnes of coal and the same was consumed by
the corporate debtor. The act of consumption may constitute acceptance
of the goods within the meaning of Section 42. But the mere acceptance
of the goods within the meaning of Section 41 would not deprive the
buyer of the right which follows treating a condition as a warranty and
seeking remedies as provided in Section 59 of the Act. Such remedies
include the relief of the extinction of the price of the goods. The suit filed
within the period of limitation cannot be brushed aside for the mere
reason that it was not filed immediately or rather that the suit was not
pending within the contemplation of Section 9 of the IBC. He would, in
fact, point out that the corporate debtor was having a turnover of about
Rs.314 crores in the previous year. He would ask the Court to bear in
mind how unreasonable it would be to still postulate that for an amount
of about Rs. 15 lakhs, a corporate body would risk its goodwill and very
existence, unless the dispute projected was one which was genuine. He
would further contend that all of these aspects must be considered in
light of the limited scrutiny of the question as to whether there is a dispute.
He would point out that a conspectus of the history of legislation as
unravelled by this Court in Mobilox Innovations Private Limited (supra),
would show the following:
Under Section 433 of the Companies Act, 1956, while a dispute
could be raised to resist an order of winding up, the Court had to consider
whether the dispute was a bona fide one. The legislature was perfectly
aware of the law in this regard. The law does not require the existence
of a bona fide dispute to defend an application under Section 9 of the
IBC. All that is required is that the dispute must not be got up and spurious.
In this regard, he drew our attention to the exposition of the law in
Mobilox Innovations Private Limited (supra).
ANALYSIS : THE ACT
23. We may notice the relevant provisions of the Act. Sections 4
deals with sale and agreement to sell:
RAJRATAN BABULAL AGARWAL v. SOLARTEX INDIA PVT.
LTD.& ORS. [K. M. JOSEPH, J.]
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"4. Sale and agreement to sell.- (1) A contract of sale of goods
is a contract whereby the seller transfers or agrees to transfer
the property in goods to the buyer for a price. There may be a
contract of sale between one part-owner and another.
xxx xxx xxx
(3) Where under a contract of sale the property in the goods is
transferred from the seller to the buyer, the contract is called a
sale, but where the transfer of the property in the goods is to take
place at a future time or subject to some condition thereafter to
be fulfilled, the contract is called an agreement to sell.
(4) An agreement to sell becomes a sale when the time elapses
or the conditions are fulfilled subject to which the property in the
goods is to be transferred."
Thus, till the property passes, there is no sale. Property has been
defined in Section 2(11) as the general property in goods, and not merely
a special property.
24. Section 12 deals with Condition and warranty.
"12. Condition and warranty. - (1) A stipulation in a contract
of sale with reference to goods which are the subject thereof
may be a condition or a warranty.
(2) A condition is a stipulation essential to the main purpose of
the contract, the breach of which gives rise to a right to treat
the contract as repudiated.
(3) A warranty is a stipulation collateral to the main purpose of
the contract, the breach of which gives rise to a claim for
damages but not to a right to reject the goods and treat the
contract as repudiated.
(4) Whether a stipulation in a contract of sale is a condition or
a warranty depends in each case on the construction of the
contract. A stipulation may be a condition, though called a
warranty in the contract."
25. Section 13 deals with when a condition is to be treated as a
warranty.
"13. When condition to be treated as warranty. - (1) Where
a contract of sale is subject to any condition to be fulfilled by
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the seller, the buyer may waive the condition or elect to treat
the breach of the condition as a breach of warranty and not as
a ground for treating the contract as repudiated.
(2) Where a contract of sale is not severable and the buyer
has accepted the goods or part thereof, 1 *** the breach of
any condition to be fulfilled by the seller can only be treated as
a breach of warranty and not as a ground for rejecting the
goods and treating the contract as repudiated, unless there is a
term of the contract, express or implied, to that effect.
(3) Nothing in this section shall affect the case of any condition
or warranty fulfilment of which is excused by law by reason
of impossibility or otherwise."
26. Section 14 provides for certain implied warranties and conditions
and it reads as follows:
14. Implied undertaking as to title, etc.-In a contract of sale,
unless the circumstances of the contract are such as to show a
different intention, there is-
(a) an implied condition on the part of the seller that, in the case of
a sale, he has a right to sell the goods and that, in the case of an
agreement to sell, he will have a right to sell the goods at the time
when the property is to pass;
(b) an implied warranty that the buyer shall have and enjoy quiet
possession of the goods;(c) an implied warranty that the goods
shall be free from any charge or encumbrance in favour of any
third party not declared or known to the buyer before or at the
time when the contract is made.
27. Section 15, inter alia, provides for an implied condition in a
sale of goods by description that the goods must conform with the
description.
28. Section 16 is also relied upon by the appellant and it reads as
follows: -
"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
RAJRATAN BABULAL AGARWAL v. SOLARTEX INDIA PVT.
LTD.& ORS. [K. M. JOSEPH, J.]
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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 sale
of a 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."
29. Section 17 provides for implied condition in the case of a sale
by sample. Thus, it can be seen that the Act declares or provides for
various implied conditions and warranties.
30. We may also notice Section 19, which deals with the aspect
of passing of property in a contract of sale of goods.
"19. Property passes when intended to pass. - (1) Where there
is a contract for the sale of specific or ascertained goods the
property in them is transferred to the buyer at such time as the
parties to the contract intend it to he transferred.
(2) For the purpose of ascertaining the intention of the parties
regard shall be had to the terms of the contract, the conduct of
the parties and the circumstances of the case.
(3) Unless a different intention appears, the rules contained in
sections 20 to 24 are rules for ascertaining the intention of the
parties as to the time at which the property in the goods is to pass
to the buyer."
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31. Chapter IV deals with performance of the contract. Under
Section 31, it is the duty of the seller to deliver the goods and of the
buyer to accept and to pay for them in accordance with the terms of the
contract of sale. Section 32 reads as follows: -
"32. Payment and delivery are concurrent conditions. - Unless
otherwise agreed, delivery of the goods and payment of the price
are concurrent conditions, that is to say, the seller shall be ready
and willing to give possession of the goods to the buyer in exchange
for the price, and the buyer shall be ready and willing to pay the
price in exchange for possession of the goods."
32. It is necessary to notice Section 41 and still further Section
42.
"41. Buyer's right of examining the goods. -
(1) Where goods are delivered to the buyer which he has not
previously examined, he is not deemed to have accepted them
unless and until he has had a reasonable opportunity of examining
them for the purpose of ascertaining whether they are in conformity
with the contract.
(2) Unless otherwise agreed, when the seller tender's delivery of
goods to the buyer, he is bound, on request, to afford the buyer a
reasonable opportunity of examining the goods for the purpose of
ascertaining whether they are in conformity with the contract."
"42. Acceptance. -The buyer is deemed to have accepted the
goods when he intimates to the seller that he has accepted them,
or when the goods have been delivered to him and he does any
act in relation to them which is inconsistent with the ownership of
the seller, or when, after the lapse of a reasonable time, he retains
the goods without intimating to the seller that he has rejected them."
33. It is apposite also to look into Section 43.
"43. Buyer not bound to return rejected goods. - Unless otherwise
agreed, where goods are delivered to the buyer and he refuses to
accept them, having the right so to do, he is not bound to return
them to the seller, but it is sufficient if he intimates to the seller
that he refuses to accept them."
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LTD.& ORS. [K. M. JOSEPH, J.]
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34. Chapter V deals with the rights of the unpaid seller against
the goods. Apart from exercising the right of lien thereunder, Section
54(2), inter alia, entitles the unpaid seller in the circumstances mentioned
therein to resell the goods. Chapter VI deals with suits for breach of the
contract. Section 55 reads as follows:
"55. Suit for price. - (1) Where under a contract of sale the
property in the goods has passed to the buyer and the buyer
wrongfully neglects or refuses to pay for the goods according to
the terms of the contract, the seller may sue him for the price of
the goods.
(2) Where under a contract of sale the price is payable on a day
certain irrespective of delivery and the buyer wrongfully neglects
or refuses to pay such price, the seller may sue him for the price
although the property in the goods has not passed and the goods
have not been appropriated to the contract."
35. It may also be necessary to notice Section 59, which reads as
follows: -
"59. Remedy for breach of warranty. - (1) Where there is a
breach of warranty by the seller, or where the buyer elects or is
compelled to treat any breach of a condition on the part of the
seller as a breach of warranty, the buyer is not by reason only of
such breach of warranty entitled to reject the goods; but he may-
(a) set up against the seller the breach of warranty in diminution
or extinction of the price; or (b) sue the seller for damages for
breach of warranty.
(2) The fact that a buyer has set up a breach of warranty in
diminution or extinction of the price does not prevent him from
suing for the same breach of warranty if he has suffered further
damage."
36. An analysis of the provisions of the Act would reveal the
following in a contract of sale of goods. A stipulation in regard to goods
can be a condition or a warranty. A condition is put on a higher pedestal
than a warranty. A condition is treated as essential to the main purpose
of the contract. The breach of a condition gives rise to the right with the
party to treat the contract as repudiated. In the case of the breach of a
warranty which is a stipulation in a contract collateral to the main purpose
of the contract, the party (buyer) cannot reject the goods. He cannot
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repudiate the contract. Under Section 12(3), on the breach of the warranty,
the buyer can sue for damages. As to whether a stipulation is a warranty
or a condition is a matter to be decided on the facts of each case. The
nomenclature 'warranty' cannot conclude the question as to whether in
fact it is a 'condition'. Even though the breach of a condition entitles the
buyer to repudiate the contract it is open to the buyer to treat the breach
of the condition as a breach of warranty. [See Section 13 (1)]. Section
13 (2) then provides that the breach of any condition by the seller can be
treated as only a breach of warranty and not a ground for repudiating
the contract or rejecting the goods. This is in situations where the contract
is not severable. Still further, for Section 13(2) to apply, the buyer must
have accepted all or even part of the goods. This however is again made
subject to an express or implied contract providing otherwise. Section
13(2) of the Act suffered an amendment by the Amending Act 33 of
1963. By the said amendment, the words "or where the contract is for
specific goods the property in which has passed to the buyer" came to
be omitted. Going by the objects and reasons of the Amending Act, it is
found that the said words gave rise to some difficulty. It is, inter alia,
stated in the objects and reasons that under Section 20 of the Act, property
in specific goods in a deliverable state passes to the buyer when the
contract is made. When there is a contract for sale of specific goods by
sample, Section 17(2) of the Act provides for an implied condition that
the bulk should correspond to the sample in quality. It is further indicated
in the objects and reasons that when in such a case property is delivered
subsequently which does not correspond with the sample, Section 13(2)
obliged the buyer to treat the implied condition under Section 17(2) as a
warranty, thus, robbing the buyer of the right to reject the goods and
entitling him to claim damages only. The Law Commission also made a
recommendation that in the case of sale of specific goods by sample it
should be taken out of Section 13(2). Thus, the omission in Section 13(2)
by the Amending Act 33 of 1963 confines the compelled treatment of a
breach of a condition as a breach of a warranty to only cases where the
contract is not severable and the buyer has accepted the goods or part
thereof. No doubt, all of this is subject to a contract either expressly or
impliedly otherwise.
37. Section 14 (a) of the Act provides for an implied condition, in
the absence of circumstances indicating a different intention that the
seller has a right to sell the goods. This is in a sale. In the case of the
agreement to sell as would be the case of future goods, Section 14 (a)
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LTD.& ORS. [K. M. JOSEPH, J.]
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also provides that there is an implied condition that the seller 'will have'
the right to sell the goods when the property is to pass. Section 14 (b)
declares the existence of an implied warranty that the buyer will have
and enjoy the right of quiet possession of the goods. Section 14 (c) provides
for an implied warranty that the goods shall be free from any charge or
encumbrance in favour of a third party not declared or known to the
buyer before or at the time of the contract.
38. Section 15 creates an implied condition in the case of a sale
by description interalia that the goods must correspond with the
description. We may notice the following statements relating to 'Sale of
Specific Goods by Description' and 'Conditions as to Quality' in The
Sale of Goods Act by Pollock and Mulla [11th Edition]:
"Sale of Specific Goods by Description
It will be observed that the section applies where there is a
"contract for the sale of goods by description", that is to say where
the goods are described by the contract. This usually applies to a
contract for the sale of unascertained or future goods, but it may
apply to the sale of specific goods also, if the buyer contracts in
reliance on that description. This may well occur in a case where
the buyer has never seen the goods and may also occur where he
has seen them, but in the latter case it is more difficult for the
buyer to show that the sale was a sale by description, for usually
the contract for the sale of a specific article is a contract for the
article as it is and any description of it at the most amounts to a
warranty, for the breach of which the buyer can only recover
damages. Occasionally, where goods are sold over the counter to
a customer who asks for the goods by their name, the sale may
be a sale by description, but in general a customer who buys goods
in a shop across the counter is not buying by description. It would
appear that the only sales not by description are sales of specific
goods as such.