Chattisgarh High Court
M/S Somani Electricals P Ltd. And ... vs Chhattisgarh State Power ... on 14 November, 2022
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NAFR
HIGH COURT OF CHHATTISGARH AT BILASPUR
ARBITRATION APPEAL NO. 42 OF 2014
1. M/s Somani Electricals (P) Ltd., Shed No.57, Sector-C, Urla Industrial
Area, Raipur (C.G.). Through- its Director, Mr. Vijay Somani, S/o B.P. Somani,
age 52 years, Police Station Urla, Raipur (C.G.)
2. M/s Fairdeal Transformers and Switchgear (P) Ltd., Village Kusmoda,
Industrial Area, Guna (M.P.). Through- its Director, Mr. Sudhir Tekriwal, S/o
Late Pralhadrai Tekriwal, age 48 years, Police Station Guna (M.P.)
3. M/s Shree Engineers, 7, Industrial Area, Korba (C.G.). Through- its
Director, Mr. S.L. Mathur, S/o J.L.B. Mathur, age 60 years, Police Station
Rampur Thana, Korba (C.G.)
4. M/s Arya Electricals, Plot No.740-F, Urla Industrial Area, Raipur (C.G.).
Through- its Director, Vivek Arora, S/o K.S. Arora, age 43 years, Urla Police
Station, Raipur (C.G.)
5. M/s Tecmag Transformers (India) (P) Ltd., Sondongri Marg, Hirapur,
Raipur (C.G.). Through- its Director, Tarun Agrawal, S/o Ram Pratap Agrawal,
age 51 years, Amanaka Police Station, Raipur (C.G.)
... Appellants
versus
1. Chhattisgarh State Power Distribution Company Limited, through- its
Managing Director, Dangania, Raipur (C.G.)
2. M/s United Electricals & Engineering (P) Ltd., N.H.-5, Bypass Ankuli,
Berhampur (Odisha)
... Respondents
For Appellants : Mr. V.R. Rao, Sr. Advocate.
Mr. Manoj Paranjpe, Advocate.
For Respondents No.1 : Mr. Prafull N. Bharat, Sr. Advocate.
Mr. Varun Sharma, Advocate.
Hon'ble Shri Justice P. Sam Koshy
C A V Judgment
Reserved on : 07.07.2022
Delivered on : 14.11.2022
1. Aggrieved by the Order dated 10.9.2014 passed by the District Judge,
Raipur in Arbitration Case No.99-A/2011, the present Appeal under Section
37(1) of the Arbitration and Conciliation Act, 1996 (for short, "the Act of 1996")
has been filed by the Appellants.
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2. Vide the impugned Order dated 10.9.2014, the learned District Judge
has in exercise of its powers under Section 34 of the Act of 1996 set-
aside/quashed the Award dated 13.6.2011 passed by the Arbitration Tribunal
consisting of three Arbitrators.
3. Brief facts relevant for the adjudication of the case are that the
Appellants in the instant Appeal are the private Companies registered under
the Companies Act, 2013. The Appellants are engaged in the manufacture,
supply and distribution of transformers. One of the major consumers of the
product of the Appellants is the Respondent No.1 i.e. Chhattisgarh State
Power Distribution Company Limited [as it then was "Chhattisgarh State
Electricity Board" and now a Company in itself formed under the Companies
Act, 2013 and known as the "Chhattisgarh State Power Distribution Company
Limited"].
4. The Appellants claim supplying transformers to Respondent No.1 since
long and have extensive experience and also have a good track record for the
quality and supply of their products to Respondent No.1 from time to time. The
dispute in the instant Appeal relates to the two tenders that were floated in
April, 2007 and March, 2008, respectively. Based upon the said two tenders,
the Appellants were found eligible for the supply of transformers. Accordingly,
the purchase orders were issued and the Appellants supplied the transformers.
5. Some time in May, 2009, a dispute arose between the Appellants and
Respondent No.1 with regard to the quality of the transformers supplied by the
Appellants and the defects therein. The Respondent No.1 finally imposed
penalty upon the Appellants. They also blacklisted the Appellants. Further,
apart from withholding of the bills raised by the Appellants towards the supply
of transformers, the security deposit was also withheld till the realization of the
penalty amount. They further also cancelled the balance of the supplies which
were to be made by the Appellants.
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6. The aforesaid punitive action against the Appellants was passed by the
Respondent No.1 on 15.4.2010. After the punitive action being initiated, the
Appellants in terms of the General Terms and Conditions of Contract, got a
dispute referred to the Arbitration Tribunal consisting of three senior-level
Engineers of Respondent No.1 company to resolve the dispute as per the
Arbitration law.
7. The learned Arbitration Tribunal passed an Award on 13.6.2011 reaching
to the conclusion that the Order dated 15.4.2010 for taking punitive action
against the Appellants and debarring them from further transactions was bad
in law, so also the decision to take penal action also being in contravention to
the Agreement and the General Terms and Conditions of Contract. The
operative part of the Award passed by the learned Arbitration Tribunal is being
reproduced herein under:-
"Award:-
This Tribunal concludes the arbitration by giving award as under:-
(1) The Order No. (B)(i) 02-03/CE(S&P/DIST TRANS/TS-
189 & 215/1933 Raipur, dtd. 15.04.10
Order No. (ii) 02-03/CE(S&P/DIST TRANS/TS-189 &
215/1935 Raipur, dtd. 15.04.10
Order No. (iii) 02-03/CE(S&P/DIST TRANS/TS-189 &
215/1938 Raipur, dtd. 15.04.10
Order No. (iv) 02-03/CE(S&P/DIST TRANS/TS-189 &
215/1934 Raipur, dtd. 15.04.10
Order No. (v) 02-03/CE(S&P/DIST TRANS/TS-189 &
215/1939 Raipur, dtd. 15.04.10
Order No. (vi) 02-03/CE(S&P/DIST TRANS/TS-189 &
215/1932 Raipur, dtd. 15.04.10
Order No. (vii) 02-03/CE(S&P/DIST TRANS/TS-189 &
215/1936 Raipur, dtd. 15.04.10
for taking punitive action to be withdrawn immediately in
terms of following:-
(a) Debarring to be withdrawn.
(b) Imposing penalty as per penal action to be
cancelled.
(c) Cancellation of pending orders to be
withdrawn.
(d) To release payment of pending bills along with
18% interest per annum (calculated from the
date when it is due) in accordance with the
Government rules.
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(2) The claim for loss of business, defamation is not
considered as it is not in the purview of this Tribunal."
8. The aforesaid Award passed by the learned Arbitration Tribunal was put
to challenge by Respondent No.1 under Section 34 of the Act of 1996 before
the District Judge, Raipur where the matter was registered as Arbitration Case
No.99-A/2011. The learned District Judge finally vide the impugned Order
dated 10.9.2014 allowed the Application under Section 34 preferred by the
Respondent No.1 and set aside/quashed the Award passed by the Arbitration
Tribunal. This has led to the filing of the present Appeal under Section 37(1) of
the Act of 1996 by the Appellants.
9. Assailing the impugned Order passed by the learned District Judge,
learned Senior Counsel for Appellants contended that the District Judge has
exceeded his jurisdiction while deciding the Application under Section 34 of the
Act of 1996. That under Section 34 of the Act of 1996, there is a very limited
and restricted scope of interference available with the District Judge. On the
contrary, in the instant case, the learned District Judge has in excess of
jurisdiction and powers provided under Section 34, has gone threadbare into
the evidence and the finding arrived at by the learned Arbitration Tribunal.
10. According to learned Senior Counsel for Appellants, the learned District
Judge while hearing the application under Section 34 cannot substitute itself
as a first Appellate Authority hearing a First Appeal under Section 96 of the
Code of Civil Procedure, 1908. On the contrary, under Section 34 of the Act of
1996, the learned District Judge could have interfered with the Award passed
by the Arbitrators or the Arbitration Tribunal, as the case may be, only under
the grounds envisaged and specified under Section 34 of the Act of 1996. The
learned District Judge could not have under any circumstances proceeded and
re-appreciated the entire pleadings and evidence and reached to a different
conclusion.
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11. Further contention of the learned Senior Counsel for Appellants is that
the learned District Judge has given a wrong and erroneous finding as regards
the clauses envisaged under the General Terms and Conditions of Contract
vis-a-vis the Special Conditions of the agreement entered into between the
parties. That while setting aside the Award passed by the Arbitration Tribunal,
the learned District Judge has not given specific reasons and findings for
holding the finding of the Arbitration Tribunal to be based on erroneous
proposition of law or the view arrived at by the Arbitration Tribunal was not the
plausible view.
12. Learned Senior Counsel for Appellants further contended that the
District Judge has normally reached to the conclusion that the Award passed
by the Arbitration Tribunal was against the public policy, for the purpose of
interfering with the Award passed by the Arbitration Tribunal under Section 34
of the Act of 1996. That the District Judge has not properly appreciated the
terms and conditions of the Contract prevailing between the parties and the
procedural requirements for the purpose of penalizing the Appellants.
According to him, under the terms and conditions of the Contract governing
the field, in order to penalize the Contractor certain procedures have been laid
down in black and white and the Respondent No.1 has given a go by to the
said procedural requirements while passing the Order penalizing the
Appellants.
13. Learned Senior Counsel for Appellants also contended that the
impugned Order passed by the learned District Judge is also bad in law for the
reason that the District Judge has lost sight of the fact that all the transformers
supplied by the Appellants barring a few have been utilized by the Respondent
No.1. That having used or consumed a lot of transformers supplied by the
Appellants, the Respondent No.1 could not be permitted to turn around and
question the quality of the transformers supplied.
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14. Learned Senior Counsel for Appellants stressed hard on the ground that
the learned District Judge, while considering the Application under Section 34
of the Act of 1996 filed by Respondent No.1, has committed an error in not
properly appreciating the fact that after the General Terms and Conditions of
Contract, the parties to the Agreement have also entered upon Special
Conditions of Contract. That, it would be the said Special Conditions of
Contract which would be governing the field and the conditions stipulated in
the Special Conditions of Contract would have an overriding effect on the
General Terms and Conditions of Contract.
15. It was also the contention of the learned Senior Counsel for Appellants
that the learned District Judge has also failed to appreciate the fact that under
the Special Conditions of Contract also there is a provision dealing with
"Random Testing" and since the General Conditions of Contract and the
Special Conditions of Contract both have conditions dealing with the random
testing, it would be the clauses under the Special Conditions of Contract
dealing with the random testing that would override the General Terms and
Conditions of Contract.
16. Lastly, the learned Senior Counsel for Appellants contended that even if
on random testing certain transformers were found to be either defective or of
substandard quality, in terms of the Agreement entered into between the
parties, the Appellants were required to repair the transformers and/or replace
the same. According to learned Senior Counsel, this condition of the Contract
has been surpassed by the Respondent No.1 and they have straightaway
initiated punitive action against the Appellants. Therefore, this again is contrary
to the Agreement entered into between the parties. The learned District Judge
has erred in law and on facts while passing the impugned Order under Section
34 of the Act of 1996 and reversing the Award passed by the learned
Arbitration Tribunal. Thus, the Appeal under Section 37(1) of the Act of 1996 is
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liable to be set-aside and the Award passed by the learned Arbitration Tribunal
requires to be affirmed.
17. Opposing the present Appeal, learned Senior Counsel appearing for
Respondent No.1 Company has contended that the Order passed by the
learned District Judge under Section 34 of the Act of 1996 is a well reasoned
and justified Order and the same does not warrant any interference at all.
According to him, the fact that there were two conditions of Contract, i.e., "the
General Terms and Conditions" and "the Special Conditions", that does not
mean that the conditions under the General Terms and Conditions of Contract
would get redundant.
18. According to learned Senior Counsel for Respondent No.1, the Appeal is
also not sustainable for the reason that not all of the Appellant Companies who
had raised the arbitration dispute has filed appeal and that it is only a few of
the Companies who are aggrieved of the Order passed under Section 34 of
the Act of 1996. Therefore, if the Order under Section 34 is acceptable to a few
of the Companies, it has to be inferred and presumed that the Order passed
by the learned District Judge under Section 34 so far as those Companies are
concerned who have not filed Appeal, is acceptable to them.
19. Learned Senior Counsel for Respondent No.1 has further contended
that one of the Companies i.e. M/s United Electricals & Engineering (P) Ltd.
has in-fact complied with the Order passed by Respondent No.1 Company at
the first instance with regard to the imposing of penalty and also so far as the
passing of the punitive order is concerned. According to learned Senior
Counsel, under Section 34 of the Act of 1996 there is ample power that has
been provided to the Court hearing the Application under Section 34 and if
those provisions are kept in mind while deciding the application by the learned
District Judge, there would be hardly any scope left for interference and the
impugned Order therefore does not warrant interference.
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20. According to learned Senior Counsel for Respondent No.1, if the
Arbitrators have given a wrong interpretation to the conditions of the Contract
and have reached to a wrong conclusion, under the said circumstances, it
would be a fit case where the learned District Judge can interfere with the
Award passed under Section 34 of the Act of 1996. That, since it is a case of
supply of transformers which are otherwise to be installed for providing
necessary electricity supply to the general public at large, it is the one which
involves public policy. Again, under Section 34 of the Act of 1996, in matters
affecting the public policy at large, the Court has jurisdiction under Section 34
to interfere with the Award. So also, according to learned Senior Counsel, if
the Award is contrary to the Contract in that event also the learned District
Judge has got powers to interfere with the Award in a proceeding under
Section 34 of the Act of 1996.
21. Further contention of the learned Senior Counsel for Respondent No.1
is that even otherwise the Award passed by the learned Arbitration Tribunal
was without affording a reasonable opportunity of hearing inasmuch as the
application for calling upon certain witnesses to be examined filed by
Respondent No.1 on 4.5.2011 was in-fact rejected by the learned Arbitration
Tribunal on 4.5.2011 itself and the Award was passed immediately thereafter
on 13.6.2011 and during which time the Respondent Company even could not
challenge the rejection of their Application dated 4.5.2011. Thus, there was a
denial of fair opportunity of hearing.
22. What is necessary at this juncture to take note of is as to, under what
circumstances can the Award passed by the learned Arbitration Tribunal be
interfered with under Section 34 of the Act of 1996.
23 For ready reference, Section 34 of the Act of 1996 is being reproduced
herein under:-
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"34. Application for setting aside arbitral awards -
(1) Recourse to a Court against an arbitral award may be made only
by an application for setting aside such award in accordance with sub-
section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if -
(a) the party making the application 1[establishes on the basis of
the record of the arbitral tribunal that]-
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law
to which the parties have subjected it or, failing any
indication thereon, under the law for the time being in
force; or
(iii) the party making the application was not given
proper notice of the appointment of an arbitrator or of the
arbitral proceedings or was otherwise unable to present his
case; or
(iv) the arbitral award deals with a dispute not
contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions on matters
beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted
to arbitration can be separated from those not so submitted,
only that part of the arbitral award which contains decisions
on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the
arbitral procedure was not in accordance with the agreement
of the parties, unless such agreement was in conflict with a
provision of this Part from which the parties cannot
derogate, or, failing such agreement, was not in accordance
with this Part; or
(b) the Court finds that -
(i) the subject-matter of the dispute is not capable of
settlement by arbitration under the law for the time being in
force, or
(ii) the arbitral award is in conflict with the public
policy of India.
[Explanation 1. - For the avoidance of any doubt, it is clarified that
an award is in conflict with the public policy of India, only if,-
(i) the making of the award was induced or affected by
fraud or corruption or was in violation of section 75 or
section 81; or
(ii) it is in contravention with the fundamental policy of
Indian law; or
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(iii) it is in conflict with the most basic notions of
morality or justice.]
[Explanation 2. - For the avoidance of doubt, the test as to whether
there is a contravention with the fundamental policy of Indian law
shall not entail a review on the merits of the dispute.]
[(2A) An arbitral award arising out of arbitrations other than
international commercial arbitrations, may also be set aside by the
Court, if the Court finds that the award is vitiated by patent
illegality appearing on the face of the award:
Provided that an award shall not be set aside merely on the
ground of an erroneous application of the law or by reappreciation
of evidence.]
(3) An application for setting aside may not be made after three months
have elapsed from the date on which the party making that application had
received the arbitral award or, if a request had been made under section 33,
from the date on which that request had been disposed of by the arbitral
tribunal:
Provided that if the Court is satisfied that the applicant was
prevented by sufficient cause from making the application within the said
period of three months it may entertain the application within a further
period of thirty days, but not thereafter.
(4) On receipt of an application under sub-section (1), the Court may,
where it is appropriate and it is so requested by a party, adjourn the
proceedings for a period of time determined by it in order to give the
arbitral tribunal an opportunity to resume the arbitral proceedings or to
take such other action as in the opinion of arbitral tribunal will eliminate
the grounds for setting aside the arbitral award.
(5) An application under this section shall be filed by a party only after
issuing a prior notice to the other party and such application shall be
accompanied by an affidavit by the applicant endorsing compliance with the
said requirement.
(6) An application under this section shall be disposed of expeditiously,
and in any event, within a period of one year from the date on which the
notice referred to in sub-section (5) is served upon the other party."
24. From the plain reading of the aforesaid provisions of Section 34 of the
Act of 1996, what is apparent is that the Court hearing the Application under
Section 34 shall not be sitting and hearing the Application under Section 34 as
a First Appellate Court nor is the proceeding under Section 34 an appellate
proceeding. It is a settled position of law that an Application under Section 34
challenging the Award passed by the Arbitrator/Arbitration Tribunal can be
entertained, interfered and can be set-aside only on the grounds as are
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narrated in the various clauses under sub-clauses (i) to (v) of Clause (a) of
sub-section (2) of Section 34 or the case under Section 34 of the Applicant is
one which is brought under the ambit of Clause (b) of sub-section (2) of
Section 34.
25. There is less proof of the Respondent Board having asked the
Appellants to rectify the defects or to replace the transformers. There is also
no proof of the transformers having not been installed and used. Nor was there
any material to show that all the transformers supplied were still lying in the
store which the Appellants to collect and get it repaired or replaced. In the
absence of such, it has to be presumed that the Respondents have practically
consumed all the transformers, if not the majority of them.
26. There are various Judgments where the Hon'ble Supreme Court as also
practically every High Court has consistently taken the view that an Award
passed by the Arbitration Tribunal should not be interfered with as a matter of
routine converting the proceeding under Section 34 as an appellate
proceeding. This, in other words, means that the power of the Court hearing
the Application under Section 34 is very restricted; rather, is confined within the
limits prescribed under sub-section (2) of Section 34. This, in other words, also
means that while hearing the Application under Section 34, the learned District
Judge would not threadbare re-appreciate the entire pleadings and evidence
and then reach to a different conclusion.
27. There are many Judgments which reiterate the principles that even if the
findings are erroneous but the Award is otherwise proper, it is not open for the
Court hearing the Application under Section 34 to re-appreciate the
reasonableness of the reasons in the arbitral Award. Even if another view was
possible for the Arbitration Tribunal and the view taken by the Arbitration
Tribunal also being a plausible view, the same would not call for an
interference invoking Section 34 of the Act of 1996.
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28. In view of the aforesaid settled legal position, what is necessary to be
taken note of is the Orders which were questioned by the Appellants by raising
the dispute by way of an arbitration. The Orders under challenge in respect of
one of the Appellants i.e. M/s Somani Electricals (P) Ltd. finds place at
"Annexure A-5" with the Paper Book of the instant Arbitration Appeal, which for
ready reference is reproduced herein below:-
"CHHATTISGARH STATE POWER DISTRIBUTION COMPANY LTD.
(A Successor Company of CSEB & Government of Chhattisgarh Undertaking)
OFFICE OF THE CHIEF ENGINEER (STORE & PURCHASE)
VIDYUT SEVA BHAWAN, 4TH FLOOR, DANGANIYA, RAIPUR
Tel: (0771)-2574970, 2574966, 2574980, Fax - 2574961
No.02-03/CE(S&P)/Dist.Trans./TS:189&125/1935 Raipur, Dt. 15/4/10
ORDER
Sub: Debarring and other punitive actions in matter of defaults made in supply
contracts against TS 189 and TS 215 for supply of distribution transformers.
Whereas, M/s Somani Electricals (P) Ltd., Shed No.57, Sector-C, Urla
Industrial Area, Raipur (hereinafter referred to as "Firm") were awarded following
purchase orders against Tender No.02-03/CE(S&P)/189 and 02-03/CE(S&P)/215 for
supply of 11/0.4 KV Distribution Transformers:
Tender Order No. Capacity Ordered Qty and Supplied Qty and Unsupplied Qty and
No. & Date Amount Amount amount
Qty Amount (Rs.) Qty Amount (Rs.) Qty Amount (Rs.)
(Nos) (Nos) (Nos)
189 1486 dtd. 200KVA 113 17020027.23 113 17020027.23 -
20.08.07
315KVA 60 13272204.50 50 13272204.50 -
1513 dtd. 63KVA 457 31841113.97 457 31841113.97 -
20.09.07
100KVA 396 35243089.20 396 35243089.20 -
1581 dtd. 63KVA 428 29820561.88 428 29820561.88 -
08.05.08
100KVA 264 23495392.80 264 23495392.80 -
215 1626 dtd. 63KVA 502 35697642.88 502 35697642.88 -
25.08.08
100KVA 175 15731955.75 175 15731955.75 -
315KVA 15 4237244.40 15 4237244.40 -
1677 dtd. 63KVA 56 3971040.64 56 3971040.64 -
06.10.08
100KVA 19 1708040.91 19 1708040.91 -
1741 dtd. 63KVA 314 22266192.16 - 314 22266192.16
11.06.09
2) As per technical specification of tenders and purchase orders referred to in
para-1 above, supplied DTRs should have following "No Load Losses":-
Capacity No Load Loss in Watt Tolerances allowed
63KVA 180 No positive tolerance
100KVA 260 No positive tolerance
200KVA 500 15% Individual Component
315KVA 580 15% Individual Component
3) No load Loss of a transformer has immense importance for a power
distribution company because transformer itself continuously consumes electrical
energy on account of No Load Loss till it remains connected to the electrical network
throughout its life span.
4) In view of such importance attached to the No Load Losses of DTRs,
Chhattisgarh State Electricity Board (predecessor of CSPDCL) has introduced a
Compulsory Random Sample Testing Clause No.11 - as a secondary check - in
tender No.02-03/CE(S&P)/189 and subsequent tenders in addition to testing done
during pre-despatch inspection at suppliers work.
5) Random Sample Testing, as per tender and other clause has been carried out
on the samples randomly selected from the supplies made by firm to Area Stores of
the Chhattisgarh State Power Distribution Company Limited (hereinafter referred to
as "CSPDCL") against purchase order mentioned above.
6) Based on input regarding manipulation in process of random selection of
samples, CSPDCL has constituted a Committee comprises of four experience
engineers to conduct surprise testing of DTRs supplied to the Company.
7) The Committee conducted testing of randomly selected DTRs available in our
Bhilai, Raipur and Bilaspur Area Stores from 07.02.09 to 13.02.09. Testing report
pointed out staggering results. No load losses were found higher than specified and
substantial no. of samples.
8) Therefore, in accordance with Clause 28.3 of Annexure-B of tender No.02-
03/CE(S&P)/189 and 02-03/CE(S&P)/215, a Notice has been served on the Firm
vide No.2308 dt.15/05/09 to depute their representative on 25, 26 and 27 th of May
2009 for joint inspection. During joint inspection on 27.05.09 in presence of Firm's
representative, high No Load Losses have been found in the samples of DTRs
confirming the findings of Committee. From these testing results, it has been
substantially come out that by manipulation in sample selection, Firm has been
getting acceptance of large number of poor quality DTRs (with higher No Load Loss)
under camouflage of few good quality DTRs.
9) Whereas, Firm has not acted as per the terms and conditions of the Contracts
and supplied inferior and substandard material than what is specified in the technical
specification of the Contracts. Firm's defaulting actions have put CSPDCL in heavy
financial losses. Therefore, a Show Cause Notice was served to Firm vide No.4214
Dt. 11.09.09 for debarring them from future business with the CSPDCL with other
punitive actions.
10) Firm has submitted reply vide letter dated 09.10.2009 against Show Cause
Notice. The reply has been examined and it is observed that it has raised several
irrelevant points and denied to accept any default mentioned therein. Specially, Firm
has failed to submit any satisfactory explanation for the supply of substantial number
of poor quality DTRs under camouflage of some good DTRs. Such poor quality DTRs
have been found during testing by the CSPDCL's Committee and, also, during Joint
Inspection.
Accordingly, the matter has been considered by the competent authority of the
Company and it has been decided:-
a) that DTRs offered for inspection prior to 03.09.09 will be accepted subject to
100% testing. The quantity of which is as under:-
TS No. Order No. & Date Rating Qty. Status
239 1720 dt. 28.04.09 25 KVA 125 nos. (i) 50 nos. offered for stage inspection.
(ii) 75 nos. stage inspected.
215 1741 dt. 11.06.09 63 KVA 50 nos. Offer for stage inspection
b) that quantity received in Area Stores 32 Nos.100 KVA shall be accepted after
100% testing.
c) that following supply orders placed on the Firm against different tender
specifications are hereby partially cancelled for balance quantity still pending as
shown against each:-
Sl. No. TS No. Order No. & Date Rating Qty. Value
01. 239 1720 dt. 28.04.09 25 KVA 250 nos. 1,17,69,070.00
02. 215 1741 dt. 11.06.09 63 KVA 264 nos. 1,87,20,620.16
d) that a penalty of Rs.5,09,30,805.55 (Rs. Five Crores Nine Lakh Thirty
Thousand Eight Hundred Five and Paisa Fifty Five only) is hereby imposed on the
Firm on account of sustained financial loss due to excessive no load losses found in
the DTRs supplied by the Firm. Penalty shall be recoverable from the Firm. Payment
against pending bills shall be made only after adjusting penalty imposed. Available
securities shall also be released after recovery of penalty.
e) that Firm shall keep Bank Guarantees available with the CSPDCL alive by
extending their validity as Security Deposits for providing guarantee to supplied
DTRs. In case of failure of Firm to do so, available Bgs will be invoked.
f) that Firm M/s Somani Electricals (P) Ltd., Shed No.57, Sector-C, Urla
Industrial Area, Raipur has been debarred from future business with CSPDCL and
other successor companies of CSEB upto 16.06.2011.
11) Particulars of M/s Somani Electricals (P) Ltd, Raipur are given as under:
Sl.No. Particulars Details
1 Address Works -
M/s Somani Electricals (P) Ltd.,
Shed No.57, Sector-C,
Urla Industrial Area,
Raipur
Office -
M/s Somani Electricals (P) Ltd.,
Shed No.57, Sector-C,
Urla Industrial Area,
Raipur.
2 Phone Nos 0771-2324479
3 Fax 0771-2324478
4 Directors Shri Vijay Somani
SD/-
CHIEF ENGINEER (S&P)
CSPDCL: RAIPUR
Copy to:-
1. M/s Somani Electricals (P) Ltd., Shed No.57, Sector-C, Urla Industrial Area,
Raipur (Regd. A/D).
2. The Chief Engineer (O&M/Commercial/F&A/EHT-O&M/ Transmission/
ST/RE/ROC), CSPDCL, Raipur.
3. The Director (F&A), CSPDCL, Raipur.
4. The Regional Chief Engineer/Addl. Chief Engineer, CSPDCL, Raipur/
Bilaspur/Rajnandgaon/Jagdalpur/Ambikapur.
5. The Chief Engineer (O&M-Gen/PRG/S&P-Gen/Gen-Store/LD), CSPDCL,
Raipur/Bhilai/Korba."
29. "Annexure-B" to the General Terms and Conditions of Purchase starts
with an important note stating that "nothing contained in this Annexure
shall have effect in so far as it is inconsistent with any provision of
Annexure-I of the tender document". "Annexure-I" is the Special
Conditions/Instructions, which also starts with an important noting that "except
or otherwise provided in any subsequent modification/LoI/Order, the
provision of this Annexure shall have effect notwithstanding anything
inconsistent therewith contained in any other Schedule/Annexure/
Clause/Terms/Conditions of this tender document".
30. "Penalty" clause has been discussed in clause 13 of the General Terms
and Conditions of Contract. So also "Random Testing" has been specifically
been enumerated in clause 28. For ready reference, clause 13 dealing with
"Penalty" and clause 28 dealing with "Random Testing" under the General
Terms and Conditions of Contract both are reproduced herein under at the first
instance:-
"13. PENALTY
The time for and the date of delivery of the material stipulated in
the order shall be deemed to be the essence of the Contract in
case of delay in execution or non-execution of the order the
Board at its option shall recover from the supplier/contractor as
agreed towards liquidated damages a sum of 1/2% of the price
of any stores not delivered per week or part thereof subject to
maximum of 10%. For this purpose, the date of receipt of offer
of material in the office of GE(S&P) CSEB Raipur shall be
considered as the date of delivery, subject to the condition that
offer has been made 15 days in advance of terminal date of
scheduled delivery and material is delivered at store within 21
days of clearance. For early inspections, offer may be sent
telegraphically or by Fax Board will not be responsible for
delays for ordinary/registered post inspection offers. Please
note in case material is not recalled within 21 days from the
date of issue of despatch instructions even though only period
exists penalty shall be applicable on delay of despatch.
XXX XXX XXX
28. RANDOM TESTING
28.1 Inspection of material before despatch or waival of
inspection will not relieve the supplier from his
responsibility to supply the material strictly in accordance
with the specification. The Board shall have option to test
the samples selected at random from the supplies
effected and subject it to routine/type test.
28.2 In case, the samples fail to withstand the required
test, the entire lot will be liable to be rejected (i.e. unused
material so supplied) and the supplier will have to refund
the amount paid including all taxes and duties, as well as
the test charges thereof, after inspection. Such quantities
or rejected material as identified, shall be removed by the
supplier and replaced in full at his own cost. Board will
not be responsible for levy of taxes on such rejected
material and deduction shall be in totality.
28.3 In case of random checking of the supplies, if any
deviation is noticed, a notice shall be given to the
supplier, who shall arrange to depute his representative
within 15 days for joint inspection. If during joint
inspection, any deviation is observed and material
supplied is found not conforming to standards laid down
in the relevant IS, the Board reserves the right to impose
any appropriate penalty for full quantity of material
supplied against the order. The decision of the Board in
this respect shall be final and binding on the supplier."
31. At the same time, clauses 6.1, 6.4 & 6.5 of clause 6 of the Special
Conditions dealing with "Performance Guarantee", are also reproduced herein
below:-
"6. Performance Guarantee
6.1 If during the course of 24 (Twenty Four) months
subsequent to the date of receipt of consignment, any of the
goods found to be defective in materials or workmanship or
develops defects during service, they will have to be replaced
by the supplier, free of all charges. The suppliers will make all
necessary arrangements on these accounts.
6.2 xxx xxx xxx
6.3 xxx xxx xxx
6.4 All materials reported failed within the specified
guarantee period may be replaced free of cost by the
supplier/manufacturer concerned.
6.5 In the event of the supplier's inability to adhere to the
aforesaid provisions, suitable penal action will be taken against
them, which may inter alia, include blacklisting of the firm for
future business with the Board for certain period.
32. So also, clause 8 dealing with "Penalty" and the procedures to be
adopted while taking penal action, is being reproduced as under:-
"8. Penalty
8.1 Penalty for defective supply/WGP failed
Transformers:
(i) If during the course of 24 months from the date of
receipt of consignment in Area Stores, any of the
transformer is found to be defective in material or
workmanship or develops defect during course of service,
the same will be repaired/replaced by the firm free of all
charges at the earliest but in any case within 6 months
from the date of intimation by the concerning field
officers/from the consignee or within 60 days from the
date of lifting from Area Stores whichever is earlier.
(ii) However, in case transformer is not lifted or lifted
but repair/replacement of transformer is delayed and
repaired transformer is returned to Area Stores beyond
prescribed periods as mentioned above, penalty @ 0.5%
of cost of new transformer per week subject to maximum
10% shall be levied and this penalty shall be deducted
from the pending bill/Security Deposit available with the
Board.
(iii) In case defective failed transformers lifted by the
firm are not repaired and not returned to Area Stores
beyond above prescribed period (including period
covered under penalty as above i.e. 20 weeks), an
amount equivalent to the cost of new transformer shall be
recoverable from the supplier apart from penalty stated
above.
(iv) If the transformer failed within guarantee period
has not been lifted by the firm and remained lying
unattended in Area Stores for want of repair for more
than above period, the Board may get the transformers
repaired from any other firm/department and the cost of
repair of the transformer will be recovered, apart from the
penalty of 10% of the cost of new transformer.
(v) The repaired unit shall have to be guaranteed for
24 months from the date of supply to the Area Stores,
which shall be counted a fresh from the date of its supply
to the Area Stores after repairs.
8.2 Penalty for delay in supply
In case of delay in execution or non-execution of
the order, the Board at its option shall either:-
a) Recover from the supplier as agreed liquidated
damage a sum of 0.5% of the price of any stores not
delivered for a week or part thereof up to maximum of
10%
OR
b) Purchase not delivered stores from elsewhere on
account and at the risk of the supplier.
OR
c) Cancel the contract for the quantity in full or in part
quantity, with liability recoverable from the supplier, as
assessed by the Board.
For this purpose, the date of receipt of offer for
stage inspection in the office of CE (S&P), CSEB, Raipur
shall be considered as the date of delivery; subject to the
condition that:
(i) Officer is made 15 days in advance of terminal date
of scheduled delivery.
(ii) Material for final/pre-despatch inspection is offered
for full quantity of inspected (stage inspection) material
within 15 days of issue of stage clearance from the office
of CE (S&P), CSEB, Raipur and
(iii) Materials are delivered to the consignee Area
Stores within 21 days of issue of despatch instruction
from the office of CE (S&P), CSEB, Raipur."
33. Similarly, the procedure for random testing also has been discussed in
clause 11 of "Annexure-I", which again for ready reference is being
reproduced below:-
"11. Random Testing
a) The consignment of Distribution Transformers received at
Area Stores shall be accepted only after successful testing of
randomly selected samples at Board's own laboratory or
reputed independent laboratory like CPRI, ERDA etc.
Transformers shall be tested as per tests selected from relevant
IS (latest amended)/this specification.
b) A sample of Distribution Transformers shall be selected
randomly from the lot supplied by a supplier against a DI
(despatch instructions) for each rating. Sampling plan can be
changed by the purchaser. Distribution Transformers received
in Area Stores against a particular Despatch Instruction (DI)
shall be treated as a lot of random testing purpose. The
samples will be selected by the purchaser's authorized
officer/committee of officers. The samples so selected shall be
sealed by seals/stickers by the committee members.
c) If any one sample fails in the testing, entire lot shall be
rejected, which will have to be replaced by the supplier at his
cost and an amount of Rs.1000/- per Distribution Transformers
shall be recovered as incidental charges. However, at this stage
re-sampling can be considered at request and cost of the
supplier. In such case, samples in double numbers (than
number of samples sent earlier) selected randomly will be sent
for testing and testing charges shall be recovered from the
supplier. If any of the samples fails again, entire lot will be
rejected at his cost and an amount of Rs.1000/- per distribution
transformer shall be recovered as incidental charges.
d) On repeated failure of samples, purchase order shall be
liable for cancellation."
34. The two disputing parties proposed the name of three Arbitrators of their
own choice and the two Arbitrators therein proposed the name of the Presiding
Arbitrator. All the three members of the Arbitration Tribunal were retired high-
ranking Officers of the Chhattisgarh State Electricity Board (as it then was).
The Arbitration Tribunal specifically dealt with each and every submissions put
forth on behalf of either side by way of pleadings and evidence. The Arbitration
Tribunal also considered the conditions of the Contract.
35. It would also be relevant to take note of the fact that the Arbitration
Tribunal in the course of passing of its Award dated 13.6.2011 has decided the
arbitration proceeding, issue by issue, individually taking up the matters of
each of the Appellants/Firms. That based upon the materials that were placed,
it found that the decision taken by the Chhattisgarh State Electricity Board was
firstly beyond contractual terms and secondly it was in contravention to the
procedures prescribed under the General Terms and Conditions of Contract so
also the Special Conditions/Instructions attached to the General Terms and
Conditions of Contract.
36. Now, coming to the Order dated 10.9.2014 passed by the learned
District Judge in the proceeding under Section 34 of the Act of 1996 where the
Award dated 13.6.2011 was under challenge at the behest of the Respondent
Company, it is found that the learned District Judge has in-fact substituted
himself as a fact-finding Authority and then has threadbare gone into the entire
pleadings and evidence and reached to a conclusion that the finding of the
Arbitration Tribunal was not sustainable and accordingly under Section 34 of
the Act of 1996 set-aside/quashed the Award passed by the Arbitration
Tribunal.
37. The Bombay High Court way back in the year 2003 in the case of
"Municipal Corporation of Greater Mumbai Vs. Presstress Products
(India)" [2003 (2) Arbitration Law Reporters 624 Bombay] had categorically
held that the new Act of 1996 was enacted with an explicit parliamentary goal
limiting judicial participation by which the scope of challenge to an award was
substantially reduced under Section 34 of the Act of 1996. The said Judgment
was authored by Hon'ble Justice D.Y. Chandrachud, as he then was. In
paragraphs 13, 14 & 15 it was held as under:-
"13. The Arbitration and Conciliation Act, 1996 was thus
enacted with an express parliamentary objective of curtailing
judicial intervention. Under the previous Act of 1940 an Arbitral
Award could be set aside under Section 30, (i) where the
Arbitrator had misconducted himself ; (ii) where the Award has
been made after the issuance of an order by the Court
suspending the arbitration or after arbitration proceedings have
become invalid ; and (iii) where the Award had been improperly
procured or was otherwise invalid. The position in law that
emerged under the Act of 1940 was that an Award could be set
aside on the ground of an error apparent on the face of the
Award. That would be so when the reasons given in the Award
or in a document incorporated with it were based upon a legal
proposition which is on its face erroneous. The grounds for
challenge which were available in the earlier Act have been
substantially curtailed and a challenge can now be preferred
only on one of those grounds available under Sections
12, 13, 16 and 34 of the Arbitration and Conciliation Act, 1996.
14. However, at the present stage, it would be material to
note that even under the earlier Act of 1940, it was trite law that
the reasonableness of the reasons given by the Arbitrator
cannot be challenged and that the Arbitrator is the sole. Judge
of the quality as well as of the quantity of evidence.
Consequently, it was held by the Supreme Court that it was not
for the Court to take upon itself the task of being a Judge of the
evidence before the Arbitrator, The Court was required to
approach the Award with a desire to support it, if that is
reasonably possible, rather than to destroy the Award by calling
it illegal, Bijendra Nath Srivastava v. Mayank Srivastava, AIR
1995 SC 2562=1994(2) Arb. LR 277 (SC).
In Arosan Enterprises Ltd. v. Union of India, the Supreme Court
reiterated this principle holding that the reappraisal of evidence
by the Court is unknown to a proceeding under Section 30 of
the Arbitration Act, 1910. A distinction has been drawn in cases
under the Act of 1940 between a situation where the Arbitrator
has acted within his jurisdiction and one where the Arbitrator
acts outside his jurisdiction. Where the Arbitrator has acted
within his jurisdiction and has construed the provisions of the
contract between the parties, a mere error of fact or law, cannot
be corrected by the interference of the reviewing Court. A want
of jurisdiction is thus distinguished from an error in exercise of
jurisdiction. An award is liable to be set aside when there is an
error of jurisdiction but not if the error is committed in exercise
of jurisdiction. H.P. State Electricity Board v. R.J. Shah &
Company,. The Arbitration Act of 1940 permitted a wider scope
for interference with Arbitral Awards than the Arbitration
and Conciliation Act, 1996. In fact, the avowed object of the
1996 Act is to reduce the extent of judicial intervention. What is
material for the present purposes is that even under the Act of
1940, the Supreme Court had in its decisions laid down norms
of restraint in the exercise of judicial review. The principle of
judicial restraint must apply a fortiori when the Court is faced
with a challenge to an Award under the Act of 1996. Besides the
stated object of Parliament of reducing judicial
intervention. Section 34 significantly reduces the extent of a
possible challenge to an Arbitral Award. Though the restriction
is somewhat rigorous, it seeks to achieve the object of making a
recourse to arbitration as a truly effective means of alternative
dispute resolution. The Court is duty bound to effectuate the
letter and the spirit of the legislation.
The Requirement of Recording Reasons :
15. The Arbitration and Conciliation Act, 1996 makes a
significant departure from the provisions of the Arbitration Act,
1940, insofar as the recording of reasons is concerned. Under
the earlier Act of 1940, the arbitrator was not required to record
reasons unless the agreement between the parties expressly
provided that he must record reasons or if the parties had
specifically required the Arbitrator to furnish reasons for the
Award. The new Act which came to be enacted in 1996, makes
it mandatory under Section 31(3) that reasons should be given
by the Arbitrator unless parties agree to the contrary. Section
31(3) provides that :
"31(3) The Arbitral Award shall state the reasons upon which it
is based, unless-
(a) the parties have agreed that no reasons are to be given, or
(b) the Award is an Arbitral Award on agreed terms
under Section 30."
The requirement that the Arbitrator must record reasons,
however, cannot form the basis of enlarging the jurisdiction of
the reviewing Court when confronted with a challenge to the
Arbitral Award under Section 34 of the 1996 Act. Though the
Arbitrator has a mandatory obligation to record reasons, the
reasons which he records cannot be scrutinised by the Court in
the manner of the Court in the exercise of its appellate
jurisdiction. The jurisdiction of the reviewing Court under the
Arbitration and Conciliation Act, 1996, is not appellate in nature
and since the Act is a comprehensive code relating to the law of
arbitration, the extent of judicial interference must be confined
to what is permitted by the Act. The Court would, therefore, not
interfere with the Award merely because it finds that the view
taken by the Arbitrator does not accord with the view of the
Court on the facts or the law. The Arbitrator is entitled to
construe the provisions of the contract and to arrive at a finding
of fact on the basis of the evidence that has been adduced by
the parties before him. In fact, even on a question of law, the
Division Bench in the Vijaya Bank case held that a mere error of
law is not necessary a breach of public policy. The interference
of the Court can only be warranted if a ground for interference
set out in the Act is demonstrably shown to exist. The
requirement that the Arbitrator record his reason is not a
warrant for enlarging the extent of the scrutiny by the Court in
Arbitral Awards beyond the strict limitations imposed by the Act
upon the jurisdiction of the Court in considering a challenge to
an Arbitral Award."
38. The Hon'ble Supreme Court in the case of "Associate Builders Vs.
Delhi Development Authority" [2015 (3) SCC 49] has observed that "under
Section 34, the Court should not set-aside the arbitral Award merely because
they do not agree with interpretation of the Agreement given by the Arbitrator.
Instead, the Courts have to show that the Tribunal's decision was based on no
evidence or irrelevant evidence. The interference with an arbitral Award is
permissible only when the findings of the Arbitrator are arbitrary, capricious or
perverse or when conscience of the Court is shocked or when illegality is not
trivial but goes to the root of the matter. Once it is found that the Arbitrator's
approach is not arbitrary or capricious, then he is the last word on facts. A
possible view by the arbitrator on facts has necessarily to pass muster as the
arbitrator is the ultimate master of the quantity and quality of evidence to be
relied upon when he delivers his arbitral award. Patent illegality must go to the
root of the matter and if the illegality is of trivial nature it cannot be held that
Award is against the public policy."
39. Similarly, in "MMTC Limited Vs. Vedanta Limited" [2019 (4) SCC 163]
the Hon'ble Supreme Court has held that "the Court does not sit in appeal
over the arbitral Award and may interfere on merits on the limited ground
provided under Section 34(2)(b)(ii), i.e. if the Award is against the public policy
of India. It is only if one of these conditions set out in Section 34(2)(b(ii) is met
that the Court may interfere with an arbitral Award under the said provision but
such interference does not entail a review on the merits of the dispute and is
limited to situations where the findings of the Arbitrator are arbitrary, capricious
or perverse or when the conscience of the Court is shocked or when the
illegality is not trivial but goes to the root of the matter. An arbitral Award may
not be interfered with if the view taken by the Arbitrator is a possible view
based on facts. Interference under Section 37 cannot travel beyond the
restrictions laid down under Section 34. Under Section 37, the Court cannot
undertake an independent assessment of the merits of the Award and must
only ascertain that the exercise of power by the Court under Section 34 has
not exceeded the scope of the provision."
40. Likewise, the Hon'ble Supreme Court in the matter of "Parsa Kente
Collieries Ltd. Vs. Rajasthan Rajya Vidyut Utpadan Nigam Ltd." [2019 (7)
SCC 236] has held that "an Arbitral Tribunal must decide in accordance with
the terms of the Contract, but if an Arbitrator construes a term of the Contract
in a reasonable manner, it will not mean that the Award can be set aside on
this ground. That the construction of the terms of a Contract is primarily for an
Arbitrator to decide unless the Arbitrator construes the Contract in such a way
that it could be said to be something that no fair minded or reasonable person
could do. Further that when a Court is applying the "public policy" test to an
arbitration award, it does not act as a Court of Appeal and consequently errors
of fact cannot be corrected. If the arbitral award is contrary to the evidence on
record, it can be set aside by the Court under Section 34."
41. Recently, a three-Judge Bench of the Hon'ble Supreme Court in the
case of "NTPC Ltd. Vs. Deconar Services Pvt. Ltd." [2021 SCC Onlines
498] has held that "in order to succeed in a challenge against an arbitral
award, the party challenging the award must show that the arbitrator's award
suffered from perversity; or an error of law; or that the arbitrator has otherwise
misconducted himself. Merely showing that there is another reasonable
interpretation or possible view on the basis of material on record is insufficient
to allow by the interference by the Court."
42. Now, coming to the provisions of Section 34 of the Act of 1996, there are
several grounds specifically enumerated under which a Court can set-aside an
arbitral Award. These conditions have already been reproduced above in the
preceding paragraphs. Going one by one on the grounds envisaged in clause
(i) to (v) of Section 34(2)(a) under which the District Judge in an Application
under Section 34 can interfere with an Award are:-
Firstly, if the parties to the arbitration agreement suffer from any
incapacity. For example, if one of the parties being a minor or a person with a
psychogenic disorder etc., etc. In the said situation, on account of incapacity of
the party, the Court hearing the Application under Section 34 can set-aside the
same.
Secondly, the agreement between the parties not being valid. For
example, the conditions to the arbitration agreement must be one which are
enforceable. In case where the contract itself is illegal, the arbitration
agreement would be a void one and an arbitral Award under the circumstances
would not be a valid one.
Similarly, if the parties to the arbitration dispute were not provided
sufficient notice of the appointment of the Arbitrators, it would be a valid
ground for the District Judge to interfere with the Award under Section 34 of
the Act of 1996.
Likewise, if the arbitral Award deals with the issues which were not
addressed by the arbitration agreement or the Award touching the areas
outside the scope of arbitration agreement. Under that circumstances also,
Section 34 provides the scope for the District Judge to interfere with the
arbitral Award.
Another ground which is permissible is, if the composition of the Arbitral
Tribunal was not in accordance with the agreement of the parties. From
perusal of the pleadings and the evidence led by the parties, it would clearly
reflect that none of these grounds as are envisaged in Section 34(2)(a) was a
ground raised by the Respondents seeking for setting aside of the arbitral
Award.
43. Now coming to the grounds envisaged in clause 34(2)(b)(i), what is also
to be seen is that the Court hearing the application under Section 34 has to
reach to a specific conclusion that the dispute was of a nature which could not
be otherwise settled by arbitration or under the arbitration law. This again was
not the case of the Respondents before the learned District Judge. Further,
clause 34(2)(b)(ii) is again a ground empowering the learned District Judge in
interfering with the arbitral Award in case the dispute is in conflict with the
public policy of India.
44. The dispute between the parties is in respect of the quality of the
transformers supplied by the Appellants to the Respondent Electricity Board . It
was a clear individual lis from a sale and purchase of transformers between
the two parties. That under no circumstances or by any stretch of imagination
can it be said to be touching the public policy of India. Further, it is also not the
case of the Respondent Electricity Board at the time of contesting the
proceeding under Section 34 of the Act of 1996 showing the exact public policy
of India which has been contravened by the Appellants calling for the
invocation of clause 34(2)(b)(ii). The public policy of India refers to something
that concerns public at large and the benefits in the interest of the general
public as a whole.
45. Thus, for all the aforesaid facts and circumstances of the case, this
Court is of the opinion that the learned District Judge was not justified while
interfering with the well reasoned and a speaking arbitral Award. Moreover, the
inference made by the learned District Judge was beyond the permissible
grounds envisaged under Section 34 of the Act of 1996.
46. As a consequence, the Order dated 10.9.2014 passed by the District
Judge, Raipur in Arbitration Case No.99-A/2011 deserves to be and is
accordingly set-aside/quashed. The Arbitration Appeal stands allowed.
Sd/-
(P. Sam Koshy)
Judge
/sharad/
