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High Court slams company for commercial fraud

The High Court’s Bench I yesterday ordered SKW Tashi Metals and Alloys Pvt Ltd to pay Nu 10.95 million (M) to its client, a company based in Mumbai, Minex Metallurgical Company Ltd (MMCL) within a month.

MMCL and SKW Tashi Metal and Alloys Private Ltd had done business between 2013 and 2015.

On September 9, 2015 the general manager of SKW Tashi Metal and Alloys Pvt Ltd met with the managing director of MMCL at the Radisson Hotel in New Delhi, India. The general manager, Klee Rainer agreed to supply 100 metric tonnes (MT) of Calcium Silicide within a month.

As asked by the SKW – Tashi Metal and Alloys Pvt Ltd, the client deposited Nu 10 million (M) on September 21, 2015. However, a conflict between the partners of the company, SKW Stahl Metallurgy Holding AG and SKW- Tashi Metal and Alloys Pvt Ltd hampered the production.

However, SKW- Tashi Metal and Alloys Pvt Ltd had closed since July 2015, more than two months before the meeting in New Delhi. The client (MMCL) learnt about the closure only a month later when it sent an official to enquire about the supply. The client’s repeated requests to refund the money were also ignored.

“The Court observed that Klee Rainer of SKW- Tashi Metals and Alloys Private Ltd with the knowledge that his company was closed, solicited dealing in trade and wilfully misrepresented the sale of goods with intent and prior knowledge that it cannot be supplied, violates an obligation to good faith,” the judgment stated.

The Commercial Sales of Goods Act 2001 provides that obligation to good faith section 6 states that every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement.  Section 9 (ix) defines good faith as honesty and faith and the observance of reasonable standards of fair dealing. In the case of a merchant, it also requires reasonable standards of fair dealing in the trade.

While there was no agreement drawn on this, the court also stated that under the Act, an agreement includes actions of buyers and seller and course of dealings, usages or course of performance, which constitute the elements of an agreement.

“Thus, in commercial transaction and sales of goods, there need not be a prior written agreement as even action in good faith by the parties and relied upon thereof shall irrevocably construe as agreement,” the judgment stated.

The court stated that based on the interpretations of sections 61.2, 61.3, and 62 of the Commercial Sale of Goods Act, the buyer is not only entitled to the cost of cover but also damages that is incidental or consequential due to seller’s breach.

It is observed that any sound business is based on good faith. Fair dealings are preconditioned and established good commercial practices. Any material facts relevant to the transaction and the disclosure of truth, varsity of conduct, and the capability of performance of an obligation promised is not only a moral and ethical duty but also a lawful requirement between the parties, the court stated.

“Hence, the court is ceased to adjudge that the seller SKW Tashi Metals Pvt Ltd through their top management agent by way of Klee Rainer in his absolute impunity has not only represented but suppressed crucial facts with non-disclosure of company’s closure long time before they entered into an agreement to supply goods,” the judgment stated. “That too knowingly that the goods cannot be supplied and taking an advance of Nu 1M is the height of commercial misrepresentation, fraud and condemnable act.”

As the SKW-Tashi Metals and Alloys Pvt Ltd failed to supply the materials, the MMCL purchased it from two other suppliers based in India and Hong Kong at a higher rate. The court also ordered the local company to pay the direct price difference, the price MMCL paid to the other two suppliers minus the Nu 105,000 a MT that MMCL fixed with it, borne by MMCL.

The court stated that the country and businesses or businessmen must continue to uphold the Bhutanese values of simplicity, integrity, and honesty.

“Market economy is based on the best business practices and reposing confidence, fair dealings and good business conduct are the standard norms that one must practice as Bhutanese economy and business dealings expand towards global trade and businesses,” the court ruled.

MMCL also claimed compensation for the direct expenses, loss incurred at sales, and company’s goodwill and credibility it suffered.  It also claimed interest of the advance paid to the company. However, the court was not convinced with the evidence on the compensation claimed, and ruled that the MMCL was not eligible for interest on the advance.

“The court also found no basis to calculate the other compensations,” the judgment stated.

Tshering Palden 

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