Supreme Court Allows Counterclaim Against Carrier Without Mandatory Notice: Essemm Logistics vs. Darcl Logistics (2023)

Date of the Judgment: May 01, 2023

Citation: 2023 INSC 400

Judges: V. RAMASUBRAMANIAN, J., PANKAJ MITHAL, J.

Can a logistics company file a counterclaim against a common carrier for loss of business and reputation without providing prior notice? The Supreme Court of India recently addressed this question, clarifying the scope of mandatory notice requirements under the Carriage by Road Act, 2007. The court held that a notice is not required for counterclaims against common carriers for losses beyond consignment damage.

This judgment was delivered by a two-judge bench comprising Justice V. Ramasubramanian and Justice Pankaj Mithal, with the opinion authored by Justice Pankaj Mithal.

Case Background

The case involves a dispute between ESSEMM Logistics (appellant) and DARCL Logistics Limited (respondent). DARCL Logistics, a common carrier, filed a suit against ESSEMM Logistics for recovery of ₹4,09,53,847, claiming non-payment of dues for 530 bills raised between November 14, 2011, and January 31, 2012. In response, ESSEMM Logistics filed a counterclaim of ₹13,04,00,000, citing losses due to business opportunity, reputation, and idling of resources.

Timeline:

Course of Proceedings

The Court of first instance rejected the counterclaim filed by ESSEMM Logistics, stating that it was filed without the mandatory notice required under Section 16 of the Carriage by Road Act, 2007. The High Court upheld this decision. ESSEMM Logistics then appealed to the Supreme Court, challenging the lower courts’ interpretation of Section 16 of the new Act.

Legal Framework

The case revolves around the interpretation of notice requirements for claims against common carriers. The older Carriers Act, 1865, under Section 10, required a notice within six months for suits regarding loss or injury to goods entrusted for carriage. The Carriage by Road Act, 2007, which replaced the Carriers Act, 1865, under Section 16, mandates a notice within 180 days from the date of booking for any loss or damage to the consignment.

Section 10 of the Carriers Act, 1865 stated:

“No suit shall be instituted against a common carrier for the loss of, or injury to, goods [including containers, pallets or similar articles of transport used to consolidate goods] entrusted to him for carriage, unless notice in writing of the loss or injury has been given to him before the institution of the suit and within six months of the time when the loss or injury first came to the knowledge of the plaintiff.”

Section 16 of the Carriage by Road Act, 2007 states:

“No suit or other legal proceeding shall be instituted against a common carrier for any loss of, or damage to, the consignment, unless notice in writing of the loss or damage to the consignment has been served on the common carrier before the institution of the suit or other legal proceeding and within one hundred and eighty days from the date of booking of the consignment by the consignor.”

The Supreme Court noted that while Section 10 of the Carriers Act, 1865, used the term “goods entrusted,” Section 16 of the Carriage by Road Act, 2007, uses the term “consignment.” Both provisions require prior notice for claims related to loss or damage of goods or consignment, respectively.

Arguments

Appellant’s (ESSEMM Logistics) Arguments:

• The appellant argued that Section 16 of the Carriage by Road Act, 2007, applies only to claims for loss or damage to the consignment.
• The appellant contended that their counterclaim was for loss of business opportunity, loss of reputation, and loss due to idling of resources, which are not related to loss or damage to the consignment.
• The appellant submitted that the provision should be interpreted literally and should not extend to other kinds of claims beyond loss or damage to the consignment.

Respondent’s (DARCL Logistics Limited) Arguments:

• The respondent argued that the counterclaim was barred due to the absence of a mandatory notice under Section 16 of the Carriage by Road Act, 2007.
• The respondent relied on the decisions of the lower courts, which had upheld the rejection of the counterclaim based on the lack of prior notice.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether a counterclaim against a common carrier for losses other than damage to the consignment requires a mandatory notice under Section 16 of the Carriage by Road Act, 2007.

Treatment of the Issue by the Court

Authorities

The Court considered the following legal provisions:

• Section 10 of the Carriers Act, 1865: This provision required a notice for suits related to loss or injury to goods entrusted to a common carrier.
• Section 16 of the Carriage by Road Act, 2007: This provision mandates a notice for suits or legal proceedings related to loss or damage to the consignment.

Judgment

How each authority was viewed by the Court:

• Section 10 of the Carriers Act, 1865: The Court acknowledged this provision as the predecessor to Section 16 of the Carriage by Road Act, 2007, noting its similar requirement for a notice but with different terminology (“goods entrusted” instead of “consignment”).
• Section 16 of the Carriage by Road Act, 2007: The Court interpreted this provision strictly, emphasizing that it applies specifically to claims for “loss or damage to the consignment” and does not extend to other types of claims such as loss of business opportunity or reputation.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by a literal interpretation of Section 16 of the Carriage by Road Act, 2007. The Court emphasized that the provision explicitly refers to “loss of, or damage to, the consignment.” The Court reasoned that the legislature’s choice of the specific term “consignment” indicates an intention to limit the scope of the notice requirement to claims directly related to the physical loss or damage of goods being transported by the common carrier. The Court’s reasoning was also guided by the principle that legal provisions should be interpreted in their plain and literal sense, unless such an interpretation leads to absurdity or injustice, which was not the case here.

The Court’s reasoning is based on a plain reading of Section 16 of the new Act, which states that notice is required only for claims related to loss or damage to the consignment. The Court emphasized that the counterclaim in question was not related to any loss or damage to the consignment but rather to loss of business opportunity, reputation, and idling of resources. The Court held that the lower courts erred in rejecting the counterclaim by not making a distinction between the various kinds of claims that may arise.

The Court quoted from the judgment: “A plain reading of Section 16 of the new Act reveals that it is applicable only in respect of institution of a suit or legal proceeding against a common carrier for any loss of, or damage to, the consignment. The use of the word “Consignment” in the said provision is very material.”

Another quote from the judgment: “It denotes that the suit and legal proceedings in connection with the loss or damage to the consignment alone are covered by it for which purpose, a notice is mandatory. The said provision has no application in reference to loss of any other kind or the suit or legal proceedings instituted for recovery of damages in respect of loss of different nature.”

The Court further stated: “The courts below have clearly lost sight of the above aspect of the matter and without making any distinction between the various kinds of claims otherwise arising other than claims for loss or damage to the consignment, illegally directed to reject the counter-claim.”

Key Takeaways

• A counterclaim against a common carrier for losses other than damage to the consignment does not require a mandatory notice under Section 16 of the Carriage by Road Act, 2007.
• The notice requirement under Section 16 is strictly limited to claims for loss or damage to the consignment.
• Parties can pursue claims for other types of losses, such as loss of business opportunity or reputation, without providing prior notice to the common carrier.
• This ruling clarifies the scope of Section 16 and provides more flexibility for parties seeking to recover losses from common carriers.

Directions

The Supreme Court directed the Court of first instance to proceed with the suit as well as the counterclaim in accordance with the law.

Development of Law

The Supreme Court’s judgment clarifies that Section 16 of the Carriage by Road Act, 2007, should be interpreted strictly and literally. The ratio decidendi of the case is that the notice requirement under Section 16 applies only to claims for loss or damage to the consignment. This ruling sets a precedent that counterclaims for other types of losses, such as loss of business opportunity or reputation, do not require prior notice to the common carrier. This interpretation provides more flexibility for parties seeking to recover losses from common carriers.

Conclusion

The Supreme Court allowed the appeal, setting aside the orders of the lower courts. The Court held that a counterclaim against a common carrier for losses other than loss or damage to the consignment does not require a mandatory notice under Section 16 of the Carriage by Road Act, 2007. This decision clarifies the scope of the notice requirement and provides relief to parties who have suffered losses beyond just the physical damage to goods being transported.