Bombay High Court
Surya Construction vs Steel Authority Of India Ltd on 9 April, 2025
Author: M. S. Karnik
Bench: M. S. Karnik
2025:BHC-OS:6329
15-Appeal-127-2024.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL NO. 127 OF 2024
IN
ARBITRATION PETITION NO. 46 OF 2017
M/S. Surya construction )
Digitally
signed by
MANGALTAI
MANGALTAI JAYWANT
JADHAV
(Through its POA Shri. Akhilesh J.
JAYWANT
JADHAV Date:
2025.04.15
19:16:54
+0530
Singh) )
Having office at Surya House, )
Plot Nos. CM- 23, 101, 102, 103,
194, N.H 18GIDC, Vapi- 396 195 )
Dist. Valsad, Gujarat ) ...Appellant/
Original Claimant
Versus
Steel Authority of India Ltd. )
Through its Asst. General Manager )
(M-WH) & Ware House Manager, )
Kalamboli Warehouse, )
Navi Mumbai, dist:Raigad ) .... Respondent
****
Mr. Abhijeet A. Desai a/w Ms. Mohini Rehpade a/w
Mr. Digvijay Kachare a/w Mr. Ajit M. Savagave, for the
Appellant.
Mr. Sarosh Bharucha a/w Mr. Anant Upadhyay a/w
Ms. Payal Upadhyay i/b ANP Chambers, for the
Respondent.
****
CORAM : ALOK ARADHE, CJ &
M. S. KARNIK, J.
DATE : 9th APRIL, 2025
JUDGMENT (PER M. S. KARNIK, J.) :
-
1. This appeal filed under Section 37 of Arbitration
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Conciliation Act, 1996 (for short "the Act") arises from
order dated 10th July, 2017 passed by the learned Single
Judge in an arbitration petition filed under Section 34 of
the 1996 Act.
2. The learned Judge by the impugned order did not
find any merit in the arbitration petition. The arbitration
petition was against the Award dated 19 th June, 2016
passed by the Arbitral Tribunal to the extent that the
Arbitral Tribunal rejected the claim of the appellant 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/-.
3. It is apposite to set out the facts in brief. The
appellant / original claimant is a proprietary firm engaged
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in the business of Civil Construction. The respondent,
steel authority of India Ltd., is a Government of India
undertaking engaged in the production, distribution and
marketing of steel throughout India.
4. On 12th November, 2007, the respondent published a
Notice for operating a Consignment Agency Yard at
Silvassa, Dadra and Nagar Haveli. The appellant was the
Sole Bidder, for bids by the respondent which were held in
September, 2007 and subsequently on 12th November
2007.
5. The respondent called the appellant for negotiation
to Mumbai where a meeting took place between the
representatives of both the parties. The officers of the
respondent informed the appellant that, the estimated
quantity had been mentioned in the tender document
since they were opening a yard for the first time at
Silvassa and expected fluctuation in the market. However
respondent assured the appellant that they are expecting
good business. It was on this assurance of respondent the
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appellant felt the need to have infrastructure sufficient to
handle the estimated quantity, considering 20%
fluctuation in the estimated quantity. The parties agreed
to the rate of Rs.550 per metric ton.
6. The respondent issued letter of intent on 30 th January
2001 with rate based on estimated quantity of 10,800
metric ton to be handover per year. Respondent issued
work order on 3rd November, 2008 and parties signed the
agreement on the same day and the appellant was
appointed as the Consignment Agent for a period of 2 and
half years.
7. The appellant made huge investment of
Rs.29,96,170/- up to 2nd May, 2008 (or 3rd November,
2008) and availed of cash credit facility from State bank
of Indore. The appellant also incurred monthly expenses
of Rs.3,00,145/- to employ staff. Due to supply of stock
being much below the quantity that had been assured
during the negotiation, the appellant repeatedly
approached the officers of the respondent regarding the
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same but did not receive any response.
8. According to the appellant, the supply of the
estimated quantity of 10,800 MTs/year was mandatory
precondition of establishment of the infrastructure
involving huge finance. The respondent is liable to
indemnify the appellant against any losses and bound to
reimburse costs incurred bona fide under the contract. It
is submitted that assuming 20% to be reasonable
variation in supply, the respondent ought to have routed
8,640 MTs/year and thus respondent is liable to pay a sum
quantified at Rs.80,88,015/- with interest.
9. The respondent had asked the appellant to arrange
infrastructure to handle 10,800 MTs/year while respondent
could deliver only 10,216 MTs i.e. 65% less quantity
during the entire contract period of 33 months. That the
appellant was only paid Rs.52,71,081/- as against the
expected amount (after considering 20% fluctuation) of
Rs.1,33,59,016/- for entire period of contract.
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10. The appellant earned a profit of 15% on the total
amount paid to the appellant during the contract period
i.e. Rs.56,40,741/-. Consequently, the respondent is liable
to compensate the appellant an amount of Rs.99,04,779/-
for the cost together with interest @ 13% p.a. till
payment.
11. It is the case of the appellant that the rate of
Rs.550/MT was agreed to be the rate for the first year and
the same was subject to escalation thereafter. That, the
respondent finally resolved the escalation rate and paid
extra amount of Rs.1,29,666/- as the balance on 31 st
January, 2012. The appellant claims interest on the
delayed payment queue the escalation rate at 13%
interest p.a.
12. Appellant took the initiative by introducing various
clients to the respondent with a view to generate supply
and recoup losses. Despite this there was no increase in
supply by the respondents. Appellant states that, the
respondent also proceeded to deal directly with the
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clients introduced by the appellant and those clients
introduced by the appellant consumed at least 2000 MTs
of steel during relevant period. Hence respondent acted in
a manner detrimental to interest of the appellant.
13. The appellant sent a legal notice to the respondent
on 5th April, 2011 not to extend the said contract period
due to inability of the respondent to explore the market.
However, respondent pointed out that it had the right to
extend the contract and threatened to invoke the bank
guarantee and extended the contract for further period of
3 months. However, while extending the contract, the
respondent assured it would increase the quantity of
dispatch. However, again there was no improvement in
the supply to appellant and due to which the appellant
suffered loss of Rs.5,22,284/-.
14. During the end of extended period, the respondent
claimed that an amount of Rs.4,99,385/- was due and
payable by the appellant due to shortage in clearance
during the contract period but there was no shortage that
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had been reported by the respondent during the contract
period. Hence, the appellant is also claiming a sum of
Rs.4,99,385/- together with the interest @ 13% p.a. from
1st September, 2011 till the date of payment.
15. Appellant further states that through an RTI they got
to know that the respondent had directly dealt with the
third party / retailer and had supplied 5133.17 MT of
steel, thereby causing a loss of profit Rs.4,23,486/- i.e. at
the rate of 550/MT.
16. The contract between the parties had been
concluded on 1st August, 2011. The appellant issued a
notice through his advocate on 12 th December, 2011
claiming the amount of Rs.1,27,35,362.42. The
respondent disputed the amount claimed by the appellant
through their advocates vide letter dated 14 th February,
2012.
17. The dispute was referred to the arbitration. The
statement of claim was duly filed. The Sole Arbitrator
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made impugned award dated 19 th September, 2016
rejecting the claim. The arbitration petition filed under
Section 34 of the Act is dismissed. Hence, this Appeal.
18. Mr. Desai, learned counsel for the appellant
submitted that the learned Single Judge as well as the
arbitrator had committed manifest error in assigning a
very narrow interpretation to clause 3.5 and clause 5.12
of the agreement in question as the said clauses are
nothing but negative cognates drawn at the instance of
the respondent Authority having higher bargaining
powers. According to him, the said clauses are nothing
but defeating the entire nature and scope of the contract
in question and were completely misconceived. It is
submitted that clauses 3.5 and 2.12 are completely
against Public Policy and therefore voidable. Mr. Desai
was at pains to point out that on the representation made
by the respondent assuring minimum supply, the
appellant made huge investment. The appellant had to
face losses because the respondent failed to honour the
commitment of minimum supply of 10,800 metric tons of
15-Appeal-127-2024.doc
steel per year. It is submitted that the learned Single
Judge erred in holding that the agreement nowhere says
that the respondent is under obligation to supply
minimum quantity of 10,800 MT steel. It is further
submitted that the entire infrastructure was set up by the
appellant which was used by the respondent without
fulfilling its obligations. Learned counsel submitted that it
is the appellant who had referred some customers to the
respondent and even though the infrastructure set up was
used by the respondent, the benefit was not passed to
the appellant. He further submitted that the relevant
clauses of the contract are not properly interpreted which
has caused immense prejudice to the appellant. It is
further submitted that the award made and the order
passed by the learned Single Judge is contrary to the
evidence on record.
19. Mr. Desai, relied upon the decision of the Supreme
Court in MAHANAGAR TELEPHONE NIGAM LIMITED VS.
CANARA BANK AND OTHERS1 and THE UNION OF INDIA
1 (2020) 12 SCC 767
15-Appeal-127-2024.doc
VS. M/S. D. N. REVRI AND CO. AND OTHERS 2 in support of
his submissions.
20. Learned counsel for the respondent on the other
hand argued in support of the findings of the arbitral
tribunal and the learned Single Judge.
21. Before we proceed to consider the submissions of
learned counsel, it would be profitable to refer to decision
of this Court in URBAN INFRASTRUCTURE REAL ESTATE
FUND VS. NEELKANTH REALTY PRIVATE LIMITED AND
OTHERS3 as regards the scope of Section 34 and 37 of
1996 Act. The relevant observations read thus:-
"SCOPE OF SECTION 34 OF THE 1996 ACT
15. The scope and ambit of Section 34 is well
delineated by decisions of Supreme Court. In
SSANGYONG ENGINEERING & CONSTRUCTION CO.
LTD. VS. NATIONAL HIGHWAYS AUTHORITY OF INDIA
(NHAI) (SUPRA), while dealing with powers of the
Court deciding the application under Section 34 of the
1996 Act, the Supreme Court took note of the
amendments brought about to Section 34 of the Act
by Amendment Act 2015 and explained the ratio of
the decision of the Supreme Court in ONGC VS.
WESTERN GECO INTERNATIONAL LTD.4, and laid down
the following principles which are mentioned in para
2 (1976) SCC 147
4 (2014) 9 SCC 263
15-Appeal-127-2024.doc
34 to 41 of the judgment which are extracted for the
facility of reference:
"(i) The interference by the court with an award
on the ground that arbitrator has not adopted a
judicial approach would tantamount to
interference with merits of the award which
cannot be permitted, post amendment of Section
34 of the Act.
(ii) The ground for interference insofar as it
concerns 'interests of India' has been deleted,
therefore, it is no longer permissible to interfere
with the award on the said ground.
(iii) Similarly, the ground for interference in the
award on the basis that the same is in conflict
with justice and morality, has to be understood as
conflict with 'most basic notions of morality or
justice.
(iv) The expression 'public policy of India' is now
restricted to mean that a domestic award is
contrary to fundamental policy of Indian law and
the ground for interference that such an award is
against basic notions of justice or morality is done
away with.
(v) The exercise of re-appreciation of evidence,
which the appellate court can undertake is not
permitted on the ground of patent illegality in the
award.
(vi) Mere contravention of substantive law of India
by itself is no longer a ground available to set
aside an arbitral award.
(vii) The change made in Section 28(3) by the
Amendment Act follows that construction of terms
of a contract is primarily for an arbitrator to
decide unless the arbitrator construes the
contract in a manner that no fair minded or
15-Appeal-127-2024.doc
reasonable person would, in short that arbitrators'
view is not even a possible view to take. If the
arbitrator wanders outside the contract and deals
with the matter not allotted to him he commits an
error of jurisdiction and this ground of challenge is
covered under Section 34(2-A) of the Act.
(viii) A decision of the arbitral tribunal, which is
perverse is though no longer a ground of
challenge under public policy of India', would
certainly amount to a patent illegality appearing
on the face of the award.
(ix) Thus a finding recorded by an arbitrator which
is based on no evidence at all or an award which
invokes vital evidence in arriving at its decision
would be perverse and is liable to be set aside on
the ground of patent illegality."
(F) SCOPE OF SECTION 37 OF THE 1996 ACT:
16. An appeal is a continuation of an original
proceeding. It is equally well settled in law that in
absence of any statutory provision to the contrary,
the power of appellate Court is co-terminus with the
power of a subordinate court. [See : JUTE CORPN. OF
INDIA LTD. VS. CIT5]. Thus, an appellate Court
exercising the power under Section 37 of the 1996
Act would interfere only if a ground under Section 34
of the Act is made out. [See : STATE OF CHHATISGARH
AND ANOTHER VS. SAL UDYOG PRIVATE LIMITED6].
SCOPE AND AMBIT OF PHRASE 'PUBLIC POLICY OF
INDIA'
17. In ONGC LTD. VS. SAW PIPES7, the Supreme Court
dealt with the scope and ambit of expression 'public
policy of India'. It was held that if award is contrary to
'fundamental policy of Indian law', or interest of
justice or morality or patently illegal, the same would
be contrary to 'public policy of India'. A three Judge
Bench of Supreme Court in ONGC VS. WESTERN
GECO INTERNATIONAL LTD. (SUPRA) however, noted
5 1991 Supp 2 SCC 744
6 (2020) 21 SCC OnLine 1027
7 (2003) 5 SCC 705
15-Appeal-127-2024.doc
that the expression 'fundamental policy of Indian law'
was not elaborated upon in ONGC LTD. VS. SAW PIPES
(SUPRA). It was held that the expression 'fundamental
policy of Indian law' would include three distinct and
fundamental juristic principles which must be
understood as part and parcel of Indian law, which
are as under:
(i) In every determination, a Court or other
authority that affects rights of a citizen or leads
to any civil consequences the Court or authority
is bound to adopt a judicial approach. The duty
to adopt such an approach arises from the very
nature of power exercised by the court and
authority.
(ii) The Court or a quasi-judicial authority, while
determining the rights and obligation of the
parties must follow principles of natural justice.
(iii) A decision which is perverse or so irrational
that no reasonable person would have arrived at
the same will not be sustained in a court of law.
It was further held that the expression
'fundamental policy of law' cannot be put in the
straight jacket of a definition.
18. The Parliament, after the aforesaid decision of the
Supreme Court, amended Section 34 of the 1996 Act
by Amendment Act of 2015 w.e.f. 23 rd October 2015
and incorporated the clarification to ensure that the
phrase 'fundamental policy of Indian law' is narrowly
construed so as not to entail a review on merits of a
dispute."
22. Keeping these principles in mind, we have examined
the impugned order of the learned Single Judge as well as
the award of the Arbitral Tribunal in light of the
submissions made by learned counsel.
15-Appeal-127-2024.doc
23. Clauses 3.5 and 5.12 of the tender document on
which much emphasis is placed by learned counsel for the
appellant reads thus:
"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:
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."
24. The main contention which we have to deal with is
whether there is any binding obligation on the respondent
to supply 10,800 MT of steel per year as is the case of the
appellant. The bare reading of clause 3.5 makes it amply
clear that the quantity of 10,800 MT of steel is only
indicative for enabling the tenderer to asses the
probable / expected quantum to be handled. The
respondent did not guarantee any minimum quantity of
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handing during the entire period of contract. Moreover,
clause 5.12 clearly states that no guarantee whatsoever
is given as to any definite tonnage, which would be
entrusted to the Consignment Agent for transportation,
handling and storage at any given period of time during
the entire tenure of the contract.
25. We find that the appellant knowing fully well the
terms and conditions of the tender proceeded to set up
the infrastructure. We cannot find any term in the tender
document compelling us to form an opinion that there
was any binding obligation on the respondent to supply
minimum quantity of 10,800 MT of steel per year.
26. Having gone through the impugned order, we are
satisfied that there is no reason for us to take a view
different from the one taken by the learned Single Judge
and the Arbitral Tribunal having regard to the scope of
this Appeal under Section 37 of the Act. The argument of
learned counsel for the appellant that the appellant had a
lessor bargaining power as he was in a weaker position
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while entering into the contract is without merit. The
terms of the agreement clearly stipulated that the
appellant was free to store materials of any other person
over and above the supply from the respondent. There
was no embargo on the rates, which the appellant was to
quote to the third parties. The scope of the appeal under
Section 37 of the Act of 1996 challenging the decision of
the learned Single Judge is well settled. We are satisfied
with the order of the learned Single Judge and the award
of Arbitral Tribunal as the same are well considered based
on the materials on record.
27. In the decision relied upon by Mr. Desai in
MAHANAGAR TELEPHONE NIGAM LIMITED VS. CANARA
BANK AND OTHERS (SUPRA), we fail to comprehend as to
how any of the principles laid down by Their Lordships is
breached in the facts of the present case so to find favour
with the arguments advanced by learned counsel for the
appellant.
28. The next decision relied upon by Mr. Desai is in THE
UNION OF INDIA VS. M/S. D. N. REVRI AND CO. AND
15-Appeal-127-2024.doc
OTHERS (Supra). Their Lordships in paragraph No. 7
observed 'that it must be remembered that a contract is a
commercial document between the parties and it must be
interpreted in such a manner as to give efficacy to the
contract rather than to invalidate it. It would not be right
while interpreting a contract, entered into between two
lay parties, to apply strict rules of construction which are
ordinarily applicable to a conveyance and other formal
documents. The meaning of such a contract must be
gathered by adopting a common sense approach and it
must not be allowed to be thwarted by a narrow, pedantic
and legalistic interpretation.'
29. In the present case, the appellant cannot be
said to be a lay person as rightly observed by
the learned Single Judge. In fact on a reading
of the entire contract as a whole, the finding by the
learned Single Judge as well as the Arbitral Tribunal that
the same does not support the appellant's case is
correct. There is absolutely no scope for interference
with the findings of the learned Single Judge and the
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Arbitral Tribunal.
30. The Appeal is dismissed. No costs.
(M. S. KARNIK, J.) (CHIEF JUSTICE)
