Supreme Court allows counterclaim for loss of business opportunity despite lack of notice under Carriage by Road Act, 2007: ESSEMM Logistics vs. DARCL Logistics Limited (2023) INSC 4712 (1 May 2023)

Introduction

Date of the Judgment: 1 May 2023

Citation: (2023) INSC 4712

Judges: V. Ramasubramanian, J., Pankaj Mithal, J.

Can a logistics company claim damages for loss of business opportunity and reputation without giving prior notice to the common carrier, as required for claims related to damaged goods? The Supreme Court of India addressed this question in a recent case concerning a dispute between ESSEMM Logistics and DARCL Logistics Limited. The core issue was whether a counterclaim, which is essentially an independent suit, requires the same mandatory notice as a claim for loss or damage to goods under the Carriage by Road Act, 2007. The Supreme Court held that the notice requirement does not apply to claims beyond the loss or damage to the consignment. The judgment was delivered by a bench of Justices V. Ramasubramanian and Pankaj Mithal, with the majority opinion authored by Justice Pankaj Mithal.

Case Background

The case originated from a dispute between DARCL Logistics Limited (the plaintiff), a common carrier, and ESSEMM Logistics (the defendant), a logistics company. DARCL Logistics filed a suit against ESSEMM Logistics for the recovery of ₹4,09,53,847, claiming non-payment of dues for 530 bills raised between 14 November 2011 and 31 January 2012. In response, ESSEMM Logistics filed a written statement along with a counterclaim of ₹13,04,00,000, citing losses due to a shift in cargo transportation from Gangavaram Port to Paradeep Port. The counterclaim included ₹3,50,00,000 for loss of business opportunity, ₹7,50,00,000 for loss of reputation, and ₹2,04,00,000 for losses due to idling of men, machines, and overheads.

Timeline:

Course of Proceedings

The Court of first instance rejected the counterclaim filed by ESSEMM Logistics, stating that it was barred by Section 16 of the Carriage by Road Act, 2007, as no prior notice had been issued to DARCL Logistics. The High Court upheld this decision. ESSEMM Logistics then appealed to the Supreme Court, arguing that the notice requirement under Section 16 applies only to claims for loss or damage to the consignment, not to other types of losses like loss of business opportunity or reputation.

Legal Framework

The Supreme Court examined the relevant provisions of the Carriers Act, 1865 and the Carriage by Road Act, 2007. 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.”

This provision mandated a written notice within six months for claims related to loss or injury to goods. The Carriage by Road Act, 2007, which replaced the 1865 Act, contains a similar provision in Section 16:

“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.”

Section 16 of the Carriage by Road Act, 2007, requires a notice within 180 days from the date of booking of the consignment for any loss or damage to the consignment. The court noted that while Section 10 of the Carriers Act, 1865, referred to “goods,” Section 16 of the Carriage by Road Act, 2007, uses the term “consignment.” The court also highlighted that a counter-claim is considered an independent suit under Order VIII Rule 6-A(4) of the Civil Procedure Code, 1908.

Arguments

Appellant (ESSEMM Logistics) Arguments:

• The appellant argued that Section 16 of the Carriage by Road Act, 2007, applies specifically to claims for loss or damage to the consignment.
• The appellant contended that their counterclaim was not for loss or damage to the consignment but for other losses, such as loss of business opportunity, reputation, and overheads.
• The appellant submitted that the lower courts erred in not appreciating the clear distinction between claims for loss of consignment and other types of claims.

Respondent (DARCL Logistics Limited) Arguments:

• The respondent argued that the counterclaim was barred under Section 16 of the Carriage by Road Act, 2007, because no prior notice was given.
• The respondent relied on the literal interpretation of Section 16 of the Carriage by Road Act, 2007, to argue that the notice was mandatory before any legal proceeding, including a counterclaim, could be instituted against a common carrier.

The innovativeness of the argument of the appellant lies in distinguishing between the nature of claims, arguing that the notice requirement under Section 16 of the Carriage by Road Act, 2007, is limited to claims for loss or damage to the consignment, and does not extend to other types of losses such as loss of business opportunity or reputation. This distinction was crucial in the Supreme Court’s decision to allow the counterclaim.

Issues Framed by the Supreme Court

The Supreme Court considered the following issue:

1. Whether the counterclaim filed by the appellant was liable to be rejected under Order VII Rule 11 of the Civil Procedure Code, 1908 for want of a mandatory notice under Section 16 of the Carriage by Road Act, 2007.

Treatment of the Issue by the Court

Authorities

The Supreme Court did not rely on any previous judgments or books in this case.

Judgment

How each authority was viewed by the Court?

• Section 10 of the Carriers Act, 1865: The Court used this provision to understand the historical context of notice requirements for claims against common carriers. It highlighted that the provision only applied to loss or injury to goods.
• Section 16 of the Carriage by Road Act, 2007: The Court interpreted this provision strictly, stating that it applies only to claims for loss or damage to the consignment. The use of the word “consignment” was key to this interpretation.
• Order VIII Rule 6-A(4) of the Civil Procedure Code, 1908: The Court emphasized that a counterclaim is considered an independent suit, which is relevant when determining the applicability of Section 16 of the Carriage by Road Act, 2007.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily driven by a strict 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.” This specific wording indicated that the notice requirement was intended to apply only to claims related to physical damage or loss of goods being transported, and not to broader claims such as loss of business opportunity or reputation. The Court also noted that a counterclaim is considered an independent suit, and therefore, the notice requirement for a suit is not applicable to a counterclaim for damages of a different nature.

Logical Reasoning:

The Court considered the argument that Section 16 of the Carriage by Road Act, 2007, should be interpreted broadly to include all types of claims against a common carrier. However, it rejected this interpretation, stating that the specific wording of the provision limits its scope to claims for loss or damage to the consignment. The Court also considered the fact that a counterclaim is an independent suit, which further supported its decision to allow the counterclaim without the mandatory notice.

The Supreme Court concluded that the lower courts had erred in rejecting the counterclaim. It stated:

“A reading of the counter-claim clearly reveals that the damages claimed are in respect of loss set up by the appellant-first defendant in connection with the loss of business opportunity, loss of reputation and loss on account of idling of men, machine and overheads. It had not instituted any suit or legal proceedings such as counter-claim for any loss or damage to any consignment.”

The Court further noted:

“The provision of Section 16 of the new Act does not come into play vis-à-vis the condition of giving a notice in respect of claims for damages for the loss of reputation, business opportunity etc. as such claims are not in connection with the damage or loss to the consignment.”

The Court also emphasized:

“no notice under Section 16 of the new Act was necessary for instituting any suit or legal proceedings much less counter-claim against the common carrier for recovering the loss other than the loss of or damage to the consignment”

There was no minority opinion in this case.

Key Takeaways

• The notice requirement under Section 16 of the Carriage by Road Act, 2007, applies only to claims for loss of or damage to the consignment.
• Claims for other types of losses, such as loss of business opportunity, reputation, and overheads, do not require a mandatory notice under this provision.
• A counterclaim is considered an independent suit, and the notice requirements for a suit do not automatically apply to a counterclaim for damages of a different nature.
• Logistics companies can pursue claims for losses beyond the physical damage to goods without being barred by the notice provision under Section 16 of the Carriage by Road Act, 2007.

Directions

The Supreme Court set aside the judgments of the lower courts and directed the Court of first instance to proceed with the suit and the counterclaim in accordance with the law.

Development of Law

The ratio decidendi of this case is that Section 16 of the Carriage by Road Act, 2007, is to be interpreted strictly and applies only to claims for loss or damage to the consignment. This clarifies that claims for other types of losses, such as loss of business opportunity or reputation, do not require a mandatory notice under this provision. This interpretation provides a clear distinction between claims related to physical damage to goods and other types of claims, which can have significant implications for logistics companies and common carriers.

Conclusion

The Supreme Court’s decision in ESSEMM Logistics vs. DARCL Logistics Limited clarifies that the notice requirement under Section 16 of the Carriage by Road Act, 2007, is limited to claims for loss or damage to the consignment. This ruling allows logistics companies to pursue counterclaims for other types of losses, such as loss of business opportunity or reputation, without being barred by the mandatory notice provision. The judgment provides much-needed clarity on the scope of Section 16 and its application to various types of claims against common carriers.