Delhi Jal Board vs The Indian Hume Pipe Co. Ltd.
2005 Latest Caselaw 461 Del

JUDGMENT

T.S. Thakur, J.

1. Common questions of law arise for consideration in these cases which shall stand disposed of by this common order. The respondent Indian Hume Pipe Company Ltd. is engaged in the manufacture and sale of what is known as 'PSC Pipes' of different specifications. Five different contracts for the supply of the said pipes including rubber gaskets and M.S. Specials for water transmission mains were allotted to the respondent company by the Delhi Jal Board (hereafter referred to as 'the Board'). The estimated value of these supplies, as evident from the work orders issued pursuant to the said agreement, was different in each case. The agreements inter alia provided for adjudication of disputes between the parties by way of arbitration. Disputes having arise, the same were referred to a three member arbitral tribunal in terms of similar but separate orders all passed by this court on 23rd March, 2001 in Arb.A. Nos. 446/1999, 579/1999, 290/2000, 294/2000, 295/2000. The arbitrators have pursuant to the said references, made and published their awards, the validity whereof has been challenged by the Board before me in terms of Section 34 of the Arbitration and Conciliation Act, 1996.

2. Appearing for the Board, Messrs Tewari and Tripathi made a three-fold submission. It was firstly argued by them that the arbitrators had fallen in error in permitting the respondent Company to amend its statement of claims so as to add an additional claim to the same. The addition of a claim each in cases relevant to OPM No. 75/2004 and OPM No. 50/2004 was, according to the learned counsel, neither legally permissible under Section 23(3) of the Arbitration and Conciliation Act, 1996, nor otherwise tenable.

3. On behalf of the respondent, it was per contra argued by Mr. Agarwala that the additional claim made in OMP No. 75/2004 was confined only to refund of a sum of Rs.8,99,348/- which the Board had admittedly deducted and retained from the running bills of the Company. The fact that this amount was lying with the Board but was inadvertently left out of the statement of claim made by the Company, argued the learned counsel, was sufficient to show that there was no illegality in the addition of the said claim by way of an amendment which the arbitrators were in any case competent to grant. It was also contended that the only other addition that was made by the respondent Company was a claim for payment of interest for the pre-reference period amounting to Rs. 9,27,649.99 in the reference relevant to OMP No. 50/2004 Here again, the arbitrators had, while considering the claims, declined interest for the pre-reference period although the same should have been awarded in favor of the Company. There was, according to Mr. Agarwala, no illegality in allowing the amendment of the claims to the extent indicated above, especially when the Board had the fullest opportunity to contest the said additional claims also on their merits.

4. The orders of reference passed by this court in AAs No. 295/2000 and 294/2000 relevant to OMPs No. 50/2004 and 75/2004 did not limit the reference to any particular claim or claims. The orders passed in both the cases were wide enough and referred to the arbitrators "the disputes between the parties". It would, therefore, follow that any dispute which was relatable to the agreement in relation to which the reference was made could be raised by the parties and adjudicated upon by the arbitrators egardless whether or not the dispute or the claim in relation thereto had been enumerated or identified in the Arbitration Application before the court or in the statement of claim initially filed before the arbitrators. That apart, Section 23 of the Arbitration and Conciliation Act, 1996 deals with the filing of a statement of facts and claims before the arbitrators and the amendment or supplementing of the same during the course of the arbitral proceedings. Sub-section 3 to Section 23, in this regard specifically empowers the arbitral tribunal to permit either party to either amend or supplement the claim or defense unless it is in the opinion of the tribunal inappropriate to do so. The arbitral tribunal had, in instant case, allowed the addition of claims on account of refund of the amount deducted by the Board and for payment of interest which amendment could not, in the facts and circumstances, be said to be either improperly or inappropriately granted so as to call for interference with the impugned award on that basis.

5. There is another reason why the grievance of the Board against the amendment of the claims made by the Company cannot be said to be justified. The claims were allowed to be amended at the initial stage of the arbitration proceedings. It is common ground that the additional claims were allowed to be raised at the stage of filing of the replication/rejoinder. Resultantly, the Board had the fullest opportunity to contest the original claims as also the amendments to the same on their merits and on all such grounds otherwise available to it. The Board has not found fault with the procedure adopted by the arbitral tribunal in adjudicating upon the claims nor is it the case of the Board that it did not get a fair opportunity to present its case in the curse of the process of adjudication. That being so, no prejudice could be said to have arisen out of the making of the additional claims.

6. The third and an equally significant circumstance that needs to be kept in view is that the additional claims related to payment of the amount which the Board had admittedly retained by deduction out of the running bills of the Company and interest for the pre and post reference period. The fact that the Board had deducted the amount out of the bills of the Company has not been seriously disputed although according to the Board, the said deduction was with a view to recover from the Company the MODVAT benefit which the Company was getting and which, according to the Board, had to be passed on to it. What is noteworthy is that the deduction by the Board of the amount is a fact which was not denied. There was no legal impediment in allowing the claimant to make a claim in relation to any such amount admittedly lying with the Board. As regards the payment of interest on the amount claimed by the Company, the same has been declined for the pre-reference period in all the cases. Even in OMP No. 75/200, a sum of Rs.2,60,796/- claimed towards interest on the amount deducted by the Board has been declined. The net effect, therefore, is that out of the amounts which have been claimed by reason of the amendment allowed by the arbitrators, it is only the amount deducted out of the running bills that has been awarded apart from the interest for the post-reference period in OPM No. 50/2004 There is, in the totality of these circumstances, no room for interference with the award made by the arbitrators on the ground urged before me.

7. It was next argued by learned counsel for the Board that the Board's claim to recover the MODVAT from the respondent Company and to retain the amount deducted from the running bills on that account has been wrongly rejected by the arbitrators. It was argued that Clause 2.04 entitled the Board to claim the MODVAT benefit which the Company was drawing as the said benefit was tantamount to a corresponding reduction in the levy of excise on the finished products, the benefit whereof had to go to the Board under the terms of the contract.

8. On behalf of the respondent Company, it was, on the other hand, argued that the arbitrators have examined the issue regarding the entitlement of the Board to claim MODVAT benefit due to the Company and rightly come to the conclusion that the said benefit could not be claimed by the Board. It was urged that MODVAT benefit was available from the year 1986 while the contract for supply of the pipes was entered into many years later. The Company had, according to the learned counsel appearing on its behalf, taken into consideration the MODVAT benefit due on HT Wire used in the manufacture of the pipes while determining the cost inputs and evolving a competitive rate for offering the same to the Board. It was not, therefore, a case where a benefit which was not available at the time of the allotment of the contract had become due or available to the Company in terms of any reduction in any duty or levy the benefit whereof could be claimed by the Board. The award made by the arbitrators and the reasoning given by them was, according to the learned counsel, legally sound and unexceptionable.

9. The arbitrators have, while examining the claim made by the Board for recovery of the MODVAT benefit, noticed the submissions on either side and come to the conclusion that there was indeed no provision in the contract executed between the parties which could make it obligatory for the Company to pass on the MODVAT benefit to the Board. The arbitrators have taken that view relying upon the decision of the Bombay High Court in The Central Hindustan Italian Trading Company (Pvt.) Ltd. v. Pitty Brothers (Pvt.) Ltd. . The court had in that case held that Section 64A of the Sale of Goods Act, 1930 was applicable only when the incidence of imposition increase remission or abolition of duty was connected with and related to the goods regarding which the seller and the buyer had entered into a contract. The provisions of Section 64A are not, declared the court, applicable to intermediate goods used in the manufacture of finished goods. The Arbitral Tribunal held that since the MODVAT benefit was in respect of HT Wire which is used in the manufacture of contracted goods, the same did not relate to any increase or decrease in the rate of excise duty on the contracted goods. There is, in my opinion, no flaw in that line of reasoning. The MODVAT benefit was admittedly available even before the contract was finalised between the parties. The contract does not make any provision regarding passing on of the said benefit to the Board. Clause 2.04 relied upon by the Board reads as under :-

Statutory Variations Any statutory variation in the Sales Tax, Excise Duty and other Govt. levies on the finished products except m.s. plates shall be payable or recoverable as the case may be.

10. It is evident from a plain reading of the above that the same does not envisage or even remotely refer to the MODVAT benefit being passed on to the Board. There has been admittedly no remission or abolition of the duty in relation to the finished goods which the Company had agreed to supply to the Board. It was only in case such a remission or abolition had taken place that the question of passing on the benefit to the Board could have arisen. The MODVAT benefit, that was available to the manufacturers of pipes and which the Company would have taken into consideration while formulating its offer, could not be said to be a wind fall for the Company so as to make it obligatory for it to pass on the same to the Board. In the circumstances, therefore, I have no hesitation in rejecting the contention urged on behalf of the Board that the awards made by the arbitrators were bad simply because the claim for reimbursement of the MODVAT benefit made by the Board was turned down.

11. It was next argued by Messrs Tewari and Tripathi that the award made in terms of Section 31 of the provisions of the Arbitration and Conciliation Act, 1996 required to be supported by reasons having regard to the fact that clause 2.04 of the terms of the contract required such reasons to be recorded. The reasons given by the arbitrators were, according to the learned counsel, no reasons in the eye of law which, according to them, was a fatal defect sufficient to justify the setting aside of the award. Reliance in support was placed by the learned counsel upon a decision of the Supreme Court in Build India Construction System v. Union of India .

12. The terms and conditions governing the contracts did make a provision that required the arbitrators to give their reasons in case the amount of claim was more than Rs.10,000/-. Section 31(3) of the Act would, therefore, require the arbitrators to state the reasons upon which the award is based. That position was not and could not be disputed by counsel appearing for the respondent Company. What was, however, argued was that the arbitrators had given reasons for their conclusion and the awards that they have made. These reasons, according to the learned counsel, sufficiently complied with the requirements of Section 31(3) of the Act.

13. The arbitrators have recorded reasons in support of the conclusion drawn by them, a reading whereof does broadly show the process by which the arbitrators arrived at their conclusion. There is no gainsaid that recording or presentation of reasons would vary from individual to individual. There may be some who can be precise and articulate in their reasoning. There may be others whose reasoning and discussion may be comprehensive, involved and somewhat complex. No standard can, however, be prescribed for what would or would not satisfy the requirements of Section 31(3). Each case will have to be seen on its own facts. All that can be said is that so long as it is possible to discern from the award, the process by which the arbitrators have arrived at their conclusion, the requirement of recording reasons must be deemed to have been satisfied. The awards in the present cases sufficiently comply with the rquirement of the arbitrators recording reasons and, therefore, do not call for interference from this court.

14. The decision in Build India's case (supra) relied upon by Mr. Tripathi does not, in my opinion, have any application to the instant cases. That was a case where the court was examining whether an amendment which stipulated reasoned award could be made applicable to an award that had been made and published before the amendment came into force. Answering the question in the negative, the court held that the amendment could not affect the validity of the award. I am not dealing with a comparable situation in the present cases. Reliance upon the said decision is, therefore, wholly misplaced.

15. It was lastly argued that the arbitrators had, in the award made in OMPs No. 50/2004 and 144/2004, erroneoulsy attributed an admission to the petitioner Board. No such admission was, according to the learned counsel made before the arbitrators. It is argued that since the assumption was itself erroneous, the award made on that basis could not be sustained.

16. There is nothing in the objections filed by the Board to support the contention urged at the Bar. Whether or not a concession was made before the arbitrators that a sum of Rs.13,14,005.75 was payable to the Company is a pure and simple question of fact. The arbitrators have clearly recorded that the Board had admitted its liability to that extent before them. If that statement of fact was erroneous, the least that was expected from the Board was to repudiate and challenge any such statement in the objections filed by it. There is, however, not even a murmur in the objections leave alone any serious challenge or evidence to support the same. If the admission was attributed to the counsel, he could step into the witness box to deny having made the same. Similarly, if the admission was attributed to any officer of the Board, he could deny the same. The Board has done nothing of that sort. It is, therefore, difficult to see how it can spring a surprise on the Company by denying that no such concession or admission was made before the arbitrators. The arbitration proceedings are quasi-judicial in nature, if not purely judicial in character. Record of the events that have taken place in the course of such proceedings must, in the absence of any challenge or evidence to the contrary, be presumed to be true and faithful. I, therefore, have no hesitation in rejecting the contention that the concession made in the awards impugned in OMPs No. 50/2004, 144/2004 was never made before the arbitrators.

17. It was, then, contended by Mr. Tripathi that the amount of security deducted from the running bills could not have been released in favor of the seller Company till such time the plant was commissioned and till what is described as 'defect liability period' had expired. The arbitrators have noticed a similar argument and rejected the same, in my opinion, rightly so. The arbitrators were justified in taking the view that the amount payable to the supplier could not be indefinitely withheld by the Board on the ground that the plant had not been commissioned, especially when it was not the responsibility of the supplier of pipes to commission the entire plant. In the course of the hearing before me, I asked Mr. Tripathi whether the plant had been commissioned even at present ? He was unable to give any definite answer to that question. Mr. Rajni Kant, a Junior Engineer who assisted Mr. Tripathi was also unable to say whether the plant has or has not been commissioned and if so, since when the same has been commissioned. The Executive Engineer who is said to have been deputed to assist the counsel for the Board at the hearing of the matter was not available - a sad commentary on the commitment of the officers concerned towards the duties assigned to them. From what has transpired in the court in the course of the hearing, it was evident that the learned counsel for the Board did not have proper assistance from the engineering staff concerned who alone could help him in technical matters and matters that were factual in nature. The impersonal approach which the officers adopt in such cases on account of lack of any accountability, at any level, is what more often than not spells disaster for the public sector undertakings whom they represent. Byond that, it is neither necessary nor proper for me to say anything.

18. Mr. Nayyar, counsel appearing for the Board in OMP Nos. 254/2002 and 255/2002, apart from adopting the submissions made by messrs Tewari and Tripathi, urged that the award made by the arbitrators in the said two cases was against the public policy of India. Relying upon the judgment of the Supreme Court in Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd. , he argued that award of interest @ 18% per annum was excessive and was by itself sufficient to provide a ground for setting aide the award. There is, in my opinion, no merit in that contention. The provisions of Section 31 of the Act make it more than evident that a sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest @ 18% per annum from the date of the award to the date of payment. Section 31(7)(a) and (b) of the Arbitration and Conciliation Act, 1996 may at this stage be extracted:

(7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole of any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.

(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per centum per annum from the date of the award to the date of payment.

19. It is evident from the above that in so far as the interest for the period between the date of the award till the date of payment is concerned, the same shall, unless the award says to the contrary, be @ 18% per annum. Interest for the period prior to the award can, however, be granted at such rate as the arbitrators consider it reasonable either on the whole amount or any part of the amount awarded therein. The arbitrators have, in that background, committed no mistake in directing that the amount awarded by them would carry interest @ 18% per annum in OMPs No. 254/2002 and 255/2002 and @ 12% per annum in OMPs No. 50/2004, 75/2004 and 144/2004 from the date of the award to the date of payment. The question of the awards being against public policy on that ground, therefore, does not arise.

20. In the result, OMPs Nos. 254/2002, 255/2002, 50/2004, 75/2004 and 144/2004 filed by the Board under Section 34 of Arbitration and Conciliation Act, 1996 are dismissed. The respondent Company has filed Execution Petitions Nos. 19/2004, 41/2004 and 53/2004 for payment of the awarded amount to it. Two months time is granted to the Board to make the payment failing which coercive steps for recovery of the said amount may be taken in the pending Execution Petitions.