M/S. Surya Construction vs Steel Authority Of India Ltd
2017 Latest Caselaw 4243 Bom

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         IN THE HIGH COURT OF JUDICATURE AT BOMBAY
             ORDINARY ORIGINAL CIVIL JURISDICTION

               ARBITRATION PETITION NO. 46 OF 2017


M/s Surya Construction
(through its POA Shri Akhilesh J. Singh)                        ..Petitioner
              Vs.
Steel Authority of India Ltd
(through its Asst.General Manager)                              ..Respondent


Mr. Abhijeet Desai i/b Mr. A. M. Savgave, for the Petitioners
Mr.Hiren Kamod a/w Mr. Abhishek Adke, Mr. Siddharth Mathur
i/b Zunzarrao and Co, for the Respondent.


                                    CORAM :- B. P. COLABAWALLA , J.

DATE :- JULY 10, 2017.

ORAL JUDGMENT(PER B. P. COLABAWALLA,J.)

Admit. By consent of parties, taken up for hearing

and final disposal.

2 By this Arbitration Petition filed under Section 34 of

the Arbitration and Conciliation Act, 1996 (for short "the Act")

the Petitioner challenges the impugned Award dated 19th June,

2016 passed by the Arbitral Tribunal to the extent that the

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Arbitral Tribunal rejected the claim of the Petitioner as more

particularly set out in Exhibit A-1 to the Petition. The claims that

were rejected by the Arbitral Tribunal were under two heads. The

first head was for claim of less supply (calculated at 80% of

Estimated Quantity in 33 months) for an amount of Rs.

80,88,015/-. In the alternative, a claim was made for

reimbursement / recovery of unrecovered expenses / costs in the

amount of Rs.99,04,779/-. It is these two claims that were

rejected by the Arbitral Tribunal and hence the present Petition.

3 The brief facts are as under:-

The Petitioner is a Proprietary concern of one Shri

Akhilesh J. Singh. The Respondent is the Steel Authority of India

Limited and which according to the Petitioner is a Government of

India undertaking engaged in the production, distribution and

marketing of steel throughout the country. It manufactures

variety of Iron and Steel products.

4 In/about November, 2007, the Respondent floated a

tender dated 12th November, 2007 inviting offers from the public

for operating a Consignment Agency Yard at Silvassa, Dadra and

Nagar Haveli. According to the Petitioner, it was the sole Bidder

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and quoted a rate of Rs.1,000 per metric tons for its services

under the contract.

5 It is the case of the Petitioner that thereafter the

Respondent called the Petitioner for negotiations wherein the

Respondent informed the Petitioner that the estimated quantity of

supply of Steel was mentioned in the tender document. It is the

case of the Petitioner that the Respondent assured him that the

Respondent was expecting good business and will make all efforts

to ensure that the estimated quantity of Steel as mentioned in the

tender documents would be adhered to. After these negotiations,

the parties agreed that the rate at which the Petitioner would be

paid was Rs. 550 per metric ton inter alia for the purposes of

storage of the Steel that was to be supplied by the Respondent.

6 Accordingly, the Respondent issued a Letter of Intent

on 30th January, 2008 wherein, according to the Petitioner it was

mentioned that the estimated quantity of Steel to be supplied was

10,800 metric tons per year. Thereafter, the Respondent issued a

work order on 3rd November, 2008 and parties signed the

agreement on the same day. Pursuant to this agreement, the

Petitioner was appointed as a Consignment Agent for the period of

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2 ½ years i.e. up to 2nd May, 2011. It is the case of the Petitioner

that to honour its commitments under the contract, it made huge

investments of approximately Rs. 30,00,000/- up to 3rd

November, 2008 and also availed of a cash credit facility from

State Bank of Indore. Over and above this, the Petitioner also

incurred monthly expenses of Rs. 3,00,000/- to employ different

persons.

7 It is thereafter averred in the Petition that due to

supply of stock (of Steel) being much below the quantity that had

been estimated during the negotiations (10,800 metric tons per

year), the Petitioner repeatedly approached officers of the

Respondent regarding the same but got no response. Thereafter,

in the year 2010, the Petitioner submitted a comparative

statement to the Director (Commercial) of the Respondent

bringing these facts to his notice. Despite this, there was no

response, and therefore, the Petitioner vide its notice dated 19th

July, 2012 invoked Rules of Conciliation as per the contract. The

Petitioner forwarded a claim of Rs. 1,33,95,686/- before the

Conciliator. This conciliation failed and thereafter vide its letter

dated 2nd June, 2014, the Petitioner made a reference for

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resolution of the disputes by arbitration under SCOPE Rules.

8 In the arbitration, on 15th August, 2014, the

Petitioner filed his Statement of Claim seeking an amount of

Rs.2,68,57,051/- from the Respondent. To this Statement of

Claim, the Respondent filed its Written Statement. On the basis of

these pleading, the Petitioner led his evidence before the Arbitral

Tribunal. The Respondent chose not to lead any evidence. On the

basis of the pleadings before the Arbitral Tribunal, and the

evidence led, the Arbitral Tribunal after hearing the respective

parties, passed the impugned award dated 19th September, 2016.

The Arbitral Tribunal ruled that the Petitioner was entitled to Rs.

4,99,385/- and interest thereon at the rate of 8% per annum with

effect from 1st September, 2011 till the date of Award. This

amount was in relation to certain amount that the Respondent

had deducted on account of excess and shortage. The Arbitral

Tribunal also ruled that the Petitioner is entitled to interest at the

rate of 8% per annum on Rs. 56,079/- (balance amount under 1st

escalation not paid in time) with effect from 2nd November, 2010

and on Rs. 73,587/- (balance amount under 2nd escalation not

paid in time) with effect from 1st August, 2011 till the date of

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Award. Over and above this, the Arbitral Tribunal also awarded

costs of Rs.1,00,000/- in favour of the Petitioner. As far as the

claims for less supply is concerned, as well as for reimbursement /

recovery of unrecovered expenses, the Arbitral Tribunal did not

grant these claims inter alia on the basis of certain clauses in

tender document. The reasoning of the Arbitral Tribunal for

denying these aforesaid two claims can be found from paragraphs

62 to 69 of the impugned Award.

9 Being aggrieved by this part of the Award which

negates the claim of the Petitioner with reference to these two

claims, it is before me under Section 34 of the Act.

10 In this factual backdrop, Mr. Desai, the learned

counsel appearing on behalf of the Petitioner submitted that the

Award suffers from a patent illegality and is contrary to the public

policy of India. He submitted that the learned Arbitral Tribunal

has refused these two claims of the Petitioner solely on the basis of

Clauses 3.5 and 5.12 of the tender document. Mr.Desai submitted

that the Arbitral Tribunal has put a very narrow construction on

the interpretation of these clauses and has not taken into

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consideration the other terms of the contract, namely, Clauses 2.1,

2.2 (D) and 3 which deal with Schedule of Operations as well as

Clause 8 which deal with Declarations. He submitted that on

reading the contract as a whole, it was clear that it was a binding

obligation on the part of the Respondent to supply 10,800 metric

tons per year as agreed between the parties. This evidence has

not even been considered by the Arbitral Tribunal, was the

submission of Mr. Desai.

11 In addition to the aforesaid argument, Mr. Desai

submitted that Clauses 3.5 and 5.12 are in the nature of a negative

covenant. He submitted that the Respondent being a Government

of India undertaking was in dominant position as far as the

Petitioner was concerned. These clauses in the contract were

totally one sided and were forced upon the Petitioner, and

therefore, cannot be binding on the parties, especially to entitle

the Respondent to wriggle out of its obligation to supply at least

10,800 metric tons per year as mentioned in the tender document.

In support of these propositions, Mr. Desai relied upon a decision

of the Supreme Court in the case of Central Inland Water

Transport Corporation Limited and Another v/s Brojo

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Supreme Court Cases 156 and more particularly paragraphs

90 to 94 thereof. Placing reliance on this decision Mr Desai

submitted that the word "public policy" or "opposed to public

policy" though not defined in the Indian Contract Act, connote

some matter which concerns public good and public interest. It is

a concept which keeps changing, with the changing times. As new

concepts replace the old, transactions which were once considered

against public policy are now being upheld by the Courts and

similarly where there has been a well recognized head of public

policy, the Courts have not shirked from extending it to new

transactions in changed circumstances. He submitted that in the

facts of the present case the contract was in the prescribed and

standard form which embodied a set of rules as part of the

contract entered into with the Respondent who had a superior

bargaining power. Such a contract was unconscionable, unfair

and unreasonable and also injurious to the public interest, was

the submission of Mr. Desai. He submitted that such a contract

was not only voidable but in fact void. He submitted that looking

at Clauses 3.5. and 5.12, it was clear that the Respondent was in a

superior bargaining power qua the Petitioner, and therefore these

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clauses be termed as void and not binding on the Petitioner.

12 On the other hand, Mr. Hiren Kamod, the learned

counsel appearing on behalf of the Respondent submitted that the

impugned award suffers from no infirmity requiring interference

in my limited jurisdiction under Section 34 of the Act. He

submitted that the Award is a detailed and well reasoned award

which runs from pages 63 to 82 of the paper book. The Arbitral

Tribunal has given proper and cogent reasons for coming to the

conclusion that it has. He submitted that from paragraphs 62 to

69 are the findings of the Arbitral Tribunal in relation to two

claims that were rejected by the Arbitral Tribunal. He submitted

that the reasoning given by the Arbitrator is not only fully

justified but the view taken is certainly a possible and a plausible

view that does not require any interference. As far as the

argument regarding clauses being void is concerned, Mr. Kamod

submitted that this argument has been raised first time across the

bar and this is not even a ground taken in the Arbitration Petition.

In fact, from reading the Award, it appears that this argument was

never even made before the Arbitral Tribunal. In these

circumstances, Mr. Kamod submitted that I ought not to take any

cognizance of this argument.

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13                 In the alternative, Mr. Kamod submitted that in any

event this argument has no substance.                     The Respondent had

floated the tender inviting offers from the public at large. The

tender document clearly mention these clauses. If the Petitioner

found these clauses unfavourable to his business interests, he

ought not have made any bid. Once having made a bid and being

accepted as a successful tenderer, he now cannot question the

clauses in the tender document, on the basis of which it had made

the offer in the first place. He submitted that the concept of

superior bargaining power can never be applied to the contract of

the present nature because nobody held gun to the head of the

Petitioner to make his offer to the Respondent pursuant to the

tender document floated by it. For all these reasons, Mr Kamod

submitted that there was no merit in this Arbitration Petition and

same ought to be dismissed with costs.

14 I have heard the learned counsel for the parties at

length and have perused the papers and proceedings in the

Arbitration Petition. I have also carefully gone through the

impugned Award passed by the Arbitral Tribunal. It is the case of

Mr. Desai that it was a binding obligation on the Respondent to

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supply at least 10,800 metric tons per year to the Petitioner for

which the Petitioner was to be paid Rs. 550/- per metric ton. It

was the case of the Petitioner that admittedly this binding

obligation was not adhered to which has given rise to the claims as

more particularly set out in Exhibit A-1 to the Petition.

15 To understand this argument, one has to first examine

as to whether there was any binding obligation on the Respondent

to supply 10,800 metric tons per year as contended by the

Petitioner. If the answer to this issue is in the negative, then,

there is no question of saddling the Respondent with any loss

allegedly suffered by the Petitioner. The question of the Petitioner

being reimbursed for the alleged loss suffered by it would arise

only if there was a binding obligation on the Respondent to supply

at least 10,800 metric tons per year.

16 In this respect, it would be important to reproduce

clauses 3.5. and 5.12 of the tender document which read as

under:-

"3.5:- To enable the tenderer to assess the quantum of work, the estimated quantities expected to be delivered during the first year of operation is indicated below:

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                Steel: 10,800 MT
                Pig Iron:NIL

Note: The above quantities are only indicative for enabling the tenderer to asses the probable/expected quantum to be handled. The company doesn't guarantee any minimum quantity of handling during the entire period of contract.

5.12:No guarantee whatsoever is given as to any definite tonnage, which would be entrusted the Consignment Agent for transportation, handling and storage at any given period of time during the entire tenure of contract."

17 As can be seen from the aforesaid clauses, what is

clear is that to enable the tenderer to assess the quantum of work,

the estimated quantities expected to be delivered during the first

year of operation was 10,800 metric tons of Steel. It was made

amply clear that the above quantity was only indicative for

enabling the tenderer to asses the probable / expected quantum to

be handled. The Respondent did not guarantee any minimum

quantity of handling during the entire period of contract. This is

made further expressly clear in clause 5.12 which clearly states

that no guarantee whatsoever is given as to any definite tonnage,

which would be entrusted to the Consignment Agent (Petitioner)

for transportation, handling and storage at any given period of

time during the entire tenure of the contract. To my mind, these

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clauses are as clear as day light. They make it amply clear that

there was no obligation on the Respondent to supply a minimum

quantity of 10,800 metric tons per year, as contended by the

Petitioner. I find further support in this interpretation from

clause 5.2 of the tender documents (page 30 of the additional

compilation of documents tendered by the Petitioner) which

clearly stipulates that the Consignment Agent (Petitioner) may at

his discretion utilize the establishment for the purpose of dealing

with the materials of some other persons. In such a situation, the

Consignment Agent shall earmark the places for storage of the

materials of the Respondent, and shall take every step to avoid a

mix-up of the materials of the Respondent with those of others.

This clause also clearly shows that the Petitioner, as the

Consignment Agent of the Respondent, could utilize its premises

for storage of materials or third parties, in addition to that of the

Respondent. Mr. Kamod, and in my opinion correctly, placed

reliance on these clauses to show that the entire argument of the

Petitioner that he was in a weaker position or had a lesser

bargaining power with the Respondent is completely misplaced. It

is not as if the Petitioner was bound to the Respondent and had to

store only the material supplied by the Respondent. He was free

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to store material of other persons over and above what was going

to be supplied by the Respondent. He was also free to negotiate a

rate with those other persons, if the Petitioner so chose. This

being position, I find considerable force in the argument of Mr.

Kamod that not only there was no binding obligation on the

Respondent to supply 10,800 metric tons of Steel per year but the

contract itself indicates that there was no unequal bargaining

power between the Petitioner and the Respondent. Having come

to this conclusion by looking at the contract as a whole, I find that

this issue has been correctly and adequately dealt with by the

Arbitrator from paragraphs 62 to 69 of the impugned Award. Not

only do I find that the reasoning and findings are fully justified,

but the view taken by the Arbitral Tribunal is certainly a plausible

and a possible view which does not require any interference in my

limited jurisdiction under Section 34 of the Act. I find that even

the Clauses relied upon by Mr. Desai, namely Clauses 2.1, 2.2(D)

and 3 do not in any way indicate that there was any binding

obligation on the Respondent to supply a quantity of 10,800

metric tons per year. Clause 2.1 talks about the infrastructural

requirements that the tenderer has to offer in order to participate

in the said tender. Clause 2.2 (D) also talks about other

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infrastructure facilities that the tenderer has to provide such as

UPS of sufficient capacity, dust free A.C. environment and

dedicated Copper earth along with required cabling inside the

computer room. Clause 3 also deals with Schedule of Operations.

Nothing in these Clauses even remotely indicates that there was

any binding obligation on the Respondent to supply a minimum

quantity of 10,800 metric tons per year, as sought to be contended

on behalf of the Petitioner.

18 Having said this, it now leaves me only to deal with the

decision of the Supreme Court in the case of Central Inland Water

Transport Corporation Limited(supra) that was cited by Mr.

Desai. On carefully going through this judgment, I find that this

decision is wholly inapplicable to the facts of the present case. In

the facts before the Supreme Court, originally the Writ Petitions

were filed in the Calcutta High Court under Article 226 of the

Constitution of India challenging the termination of the services of

certain employees as also the validity of Rule 9(i) of the Central

Inland Water Transport Corporation Limited(Service, Discipline

and Appeal) Rules of 1979. In both these Writ Petitions, Rule NISI

was issued and an exparte ad-interim order staying the operation

of the notice of termination was passed by the learned Single

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Judge of the Calcutta High Court. In the Letters Patent Appeal,

the Division Bench ordered in both the Appeals that the said Writ

Petitions be transferred to it and heard by it along with the said

Appeals. The said Appeals and Writ Petitions were thereafter

heard together and by a common judgment delivered on 9 th

August, 1985, the Division Bench held that the Corporation was a

State within the meaning of Article 12 of the Constitution and that

the said Rule 9(i) was ultra vires Article 14 of the Constitution.

Consequently the Division Bench struck down the said Rule 9(i) as

being void and also quashed the impugned order of termination. It

is against the said judgment and order of the Calcutta High Court

that the Appeals were filed before the Supreme Court. It is in this

context that one has to read paragraphs 90 to 94 on which

reliance was placed by Mr. Desai. There is no dispute with the

propositions laid down in the aforesaid decision of the Supreme

Court. However, I find that the same are wholly inapplicable to

the facts of the present case. In the facts of the present case, as

indicated above, no one held a gun to the head of the Petitioner for

participating in the tender floated by the Respondent. On reading

the clauses of the tender document, if the Petitioner was of the

view that it was not a worth while business risk, he ought not to

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have participated in the tender at all. Having done so, he cannot

now today be heard to complain that certain clauses of the

contract, being unfavourable to him, ought to be struck down on

the ground that he did not have equal bargaining power with the

Respondent. He entered into the contract with the Respondent

with his eyes open, and therefore, is bound by the terms in the

tender document. This was not the case before the Supreme Court

at all. The case before the Supreme Court was with reference to

certain employees and was with reference to the Central Inland

Water Transport Corporation Limited (Service, Discipline and

Appeal) Rules of 1979.

19 For all the aforesaid reasons, I find no merit in this

Arbitration Petition. It is accordingly dismissed. However, in the

facts and circumstances of the case, there shall be no order as to

costs.

                                        ( B. P. COLABAWALLA, J.)




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