Swarup Vegetable Products ... vs Union Of India And Ors.
1995 Latest Caselaw 589 Del

JUDGMENT

K. Ramamoorthy, J.

(1) The arbitrator in this case has passed a very short award and the award is as follows:-

"1.The claim of U.O.I, for Rs. 1,76,085.00 being actual loss suffered on account of risk purchase is allowed. The breach on the part of the Contractor is established due to failure to discharge initial obligation to deposit 10% of value of the stores as security deposit by virtue of Clauses 9 and 10 read with 18, and the contract also having been cancelled on 13.10.84 on account of said breach. The deviation, urged on account of non stipulation for allocation of imported oil in the risk purchase contract is held to be of no consequence, for the simple reason, that nothing has been brought on the record to indicate that the alleged variation had any effect on the rate at which the risk purchase was made. It may further be stated that in the original A/T Clause 5(c)(v) t page 22 in the pleadings of U.O.I, clearly notified that, in the case of default, the defaulted/rejected quantity of vanaspati shall be purchased at the risk and cost of the defaulting contractor "without any allocation of imported oil either to the defaulting contractor or to any other contractor who secures the risk purchase contract. (Emphasis supply). As such it was within the contemplation of the parties and the contractor can raise no grouse on this score.

2. In so far as the counter claim of the Contractor for the release of Rs. 1,76,085.00, is concerned same is rejected for the foregoing reasons. 3. In so far as the counter claim of damages of the Contractor, on account of profit loss to the extent of Rs. 1,91,850.00 is concerned same is also rejected as it was already held that the Contractor was guilty of breach."

(2) The Award was passed on 31st of October 1986. The objector M/s. Swarup Vegetable Products Industries Ltd. had stated in the objection petition that the respondent undertook to supply the imported oil for the supply of vanaspati and that was stopped by the Directorate of Vanaspati and, therefore, we could not perform its part of the obligation because of the embargo imposed by the Directorate, Vanaspati. In paragraphs 9,10,11 and 12, which are in the following terms, bring out the case of the objector:- "9. That, thereafter, the petitioners were informed by State Trading Corporation of India that the Directorate of Vanaspati vide their letter No. 19-VP/ (20)/82-APO-VOL-IV dated 14.9.1984, has informed that it has cancelled the entire quantity of imported oil against the defense allocation against the above said tender enquiry. As the allocation of the imported oil had been cancelled, it is submitted that as the basic condition of supply of imported oil could not be fulfillled by the respondents, no contract at all came into existence. This is inspite of letter dated 4.8.84 by Respondents to Stc for release of the imported oil against defense allocations. 10. That the respondents on account of their inability to supply the imported oil issued unilaterally a letter No. J-13031 /40/109/84-PUR-IV dated 15.9.1984, extending the period of supply of first lot to 30.9.1984, from the original date of 31.8.1984 knowing fully well that the Directorate of Vanaspati had informed State Trading .Corporation of India, about the cancellation of the allocation of imported oil against the defense supplies. 11. That the State Trading Corpn. vide their letter dated 14.9.84 cancelled the entire quantity of imported oil against the defense allocation for the above mentioned tender enquiry. As the allocation of the imported oil had been cancelled, the respondents were in no condition to fulfilll the basic precondition of the contract and no supplies could be made by the petitioner to the respondents. In fact the respondents themselves Realizing the difficulty due to the cancellation of the defense allocations by the Stc extended the first period for delivery of the supplies till 30.9.84 by letter dated 15.9.84. However, inspite of the this extension the respondents were not able to supply the imported oil. Due to this cancellation to defense allocation of imported oil, the petitioners also could not take delivery of 48 Mt of imported oil on the basis of the release order dated 22.8.84. 12. That due to the violation by the respondents to fulfilll the contractual obligations, the contract itself stood frustrated and as such there was no question of any damages or loss being suffered by the respondents. Under no circumstances, due to the cancellations of defense allocation of imported oil, the respondents could have fulfillled the essential condition of contract for supply of vanaspati i.e. the supply of imported oil. The petitioners also . explained this position to the respondents personally as well as by letter dt. 6.10.84. In this letter the petitioner also informed the respondents that the defense Ministry has also not carried out the hygienic inspection after 12.10.83 though they have been repeatedly asked, to do so. As per the terms and conditions of the supply of Vanaspati, until and unless the hygienic inspection was carried out the petitioner could not manufacture and supply vanaspati to the respondents. The petitioners also brought to the notice of the respondents that the supply orders has left many things doubtful and until such necessary clarifications were issued with regard to supply of imported oil, they shall not deposit the earnest money."

(3) The Union of India filed the reply. In paragraph Iii at page 5 of the reply, the Union of India had set out its case as under:- "III) The averments made in para Iii of the grounds of objection are wrong and are specifically denied. It is submitted that the imported oil as per the agreement was allotted to the objector but they never lifted the same. It is further, submitted that the imported oil was allotted to the objector vide Directorate of Vanaspati letter dt. 4.8.84 and thereafter the imported oil was released by the S.T.C. vide letter dt. 22.8.84 but the objector did not lift the same and also did not approach the respondent for extension. It is, further stated here that no to speak of lifting the stock of allotted imported oil they did not even deposit the security deposit which was due by 8.8.84 but the respondent mainly with a view of execution of contract extended the period of furnishing the security up to 24.8.84 and thereafter up to 10.9.84 and finally up to 30.3.1985, but the objector neither deposited the security deposit nor lifted the 1st Installment of imported oil and hence committed breach of contract. All the relevant correspondence are available in the arbitration file presently before the Hon'ble Court and the respondent would explain the true interpretation of the said letters at the appropriate time. It is submitted that from the pleadings and documents filed before the Arbitrator and thereafter clarified during the course of arguments that at no stage the Objector was refused to supply imported oil but they never lifted the same and thereafter the 1st Installment was cancelled as the allotment of the second Installment of the imported oil was subject of lifting of 1st Installment and thereafter tendering of the stocks and in default the allotted imported oil is cancelled and the further imported oil for the manufacturing of further quantity is allotted and in this way the said allotment was cancelled. The respondent had vide letter dt. 1.8.84 requested the Directorate of vanaspati to release the imported oil @ 50 Mt each for August, September and October, 1984. The Directorate of Vanaspati had vide letter dt. 4.8.84 allocated 48 Mt imported oil for August, 1984 against defense allocation in favor of the Objector. The Stc released 48 Mt imported oil with direction to the objector to deposit the price and collect the imported oil. The Objector acting in a fraudulent manner, did not even seek extension of time for furnishing Sd and for delivery period. The respondent with a view to give a further chance to the . Objector granted time up to 24.8.84, 10.9.84 and finally up to 30.9.84 for furnishing the security deposit failing which the A/T was liable to be cancelled at the risk and cost of the Objector. The delivery period for the first lot due by 31.8.84 was also unilaterally extended up to 30.9.84 vide claimant's letter dt. 15.9.84. The Objector was also asked to confirm acceptance of the terms of extension within 10 days failing which the contract was liable to be cancelled without any further notice. The Objector never confirmed acceptance of the terms of extension nor expressed any willingness to furnish Sd and to tender the stores and committed breach of contract. The contract was, therefore, cancelled at the risk and cost of the Objector. The risk purchase contract @ Rs. 13,865.00 per Mt was concluded and the risk purchase contract materialised fully resulting in a risk purchase loss of Rs. 1,76,085.00 to the respondent. It is further submitted that due to breach of contract the respondent suffered actual risk purchased loss which was proved before the Arbitrator and the Arbitrator has rightly awarded the said amount in favor of the respondent."

(4) The learned Counsel for the Objector contended that in view of the stoppage of the supply of vanaspati by the Directorate of Vanaspati and the basic condition of the contract being supply of imported oil for the manufacturing of vanaspati by the Union of India, the contract has become frustrated and the objector was absolved from performing its obligation. He relied upon the judgment of this Court, reported in Punj Sons Pvt. Ltd. v. Union of India and Others, Air 1986 Delhi 158 The learned Single Judge of this Court followed the dictum laid down by the Division Bench of the Madras High Court in Sannidhi Gundayya v. Illori Subbaya and Another, Air 1927 Madras 89. The facts of that case are entirely different and with great respect to the learned Judge on the facts of that case, the learned Judge had come to the correct conclusion that the contract became frustrated.

(5) The learned Counsel relied upon the decision reported in Indu Engineering and Textile Ltd. v. Delhi Development Authority, 1989 (2) Arbitration Law Reports by Justice C.L. Chaudhary for the proposition that if the Arbitrator ignores material evidence in the case, whether the award is non speaking or speaking one, it is liable to be set aside. I am not able to appreciate how this case would help the Objector on the facts and circumstances of this case. The learned Counsel for the Objector also contended that documents filed by the Union of India after the parties had concluded their case and that was an act of misconduct on the part of the Arbitrator.

(6) I am of the view that the Arbitrator did not take into consideration any documents except the fact that the Objector committed breach of the contract in not giving the security deposit as required and, therefore, the above objection has absolutely no force. The Arbitrator is perfectly justified in having come to the conclusion which he has arrived at. I do not find any reason to interfere with the award passed by the Arbitrator. The objections are rejected. The award is made rule of the Court. There shall be a decree in terms of the award. No costs.